Teagasc report analyses farm subsidy reform

Teagasc has released an analysis of possible EU farm subsidy changes, when the Irish version of CAP reform is implemented.

The CAP reform proposals left scope for national governments, and this technical report from Teagasc is mainly about what would happen to the incomes of different farming groups, and what would happen to agricultural output, if particular implementation options are followed by the Government.

The key options analysed were whether a minimum higher payment should be paid on the first 32 hectares, and if a coupled support scheme for suckler cows and sheep should be introduced. There are also some recommendations on technical issues, such as definition of permanent grassland.

In general, greater numbers of farmers gain, if a coupled support scheme is introduced. However, for most farms, the income changes (gains and losses) are less than 10%.

Of those experiencing income changes greater than 10%, the effect tends to be negative.

As for farm output, about 25% is now generated by farms that would lose 10% of their income or more, in a modest coupling scheme.

This suggests that those farms that gain from the coupling of direct payments to production tend to account for a smaller proportion of output than those that lose.

As expected, cattle rearing and sheep farms benefit from coupling, and would get higher incomes.

On average, cattle rearing farm income increases by €750, at the highest possible levels of coupling — but the average Irish farm income decreases by €1,000 on tillage farms, by €750 on dairy farms, and by €200 on cattle finishing farms.

However, an income gain of €750 represents a larger proportion of income on cattle rearing farms than on dairy farms.

While coupled payments increase the profitability of suckler cow production, the effect is marginal.

On cattle rearing farms that are currently loss making, getting the coupled payment is often insufficient to make them profitable.

Dr Thia Hennessy, Teagasc, one of the authors of the report, warned that coupled payments are not a ‘free lunch’.

“Coupling can only be funded by reducing the monies available to fund other CAP supports and in many cases this means that the net benefit of coupling to the farmer is far less than the face value of the payment”, she said.

The effect of a minimum higher payment on the first 32 hectares of all Irish farms was also analysed. This would allocate 30% of total funds to the first 32 hectares.

Coming out of the overall budget, it would reduce the funds available for and the level of the basic single farm payment per hectare available to all.

For example, a payment on the first 32 hectares of €119 would have the effect of reducing the general payment from €180 to €103.

A basic payment of €180 per hectare in a normal situation is assumed. If a higher payment of €119 is made on the first 32 hectares, then the general payment per hectare is reduced to €103.

With such a scheme, over 50% of farms would experience an income increase relative to their current position — and up to one-third of farm-ers would see their income increase by more than 10%.

However, those farms that gain the most tend to account for a relatively small proportion of Irish farm output.

The one-third of farms that would experience more than 10% of an increase in their income account for 11% of national output, while those losing 10% of their income or more account for almost 40% of total farm output.

The negative impact of this scenario on farm output is even more pronounced in certain sectors.

Less than 1% of tillage farms would experience an income increase of 10% or more in the redistribution scenario, while 38% of tillage farms would see their income falling by 10% or more. Furthermore, 61% of crop output is generated on farms losing 10% of their income or more.

“There is a risk that agricultural output could decline if the redistribution of income support is applied to the maximum extent, as the farmers who would lose out account for the bulk of agricultural output in Ireland”, said Dr Kevin Hanrahan, Teagasc economist, one of the main authors of the report.

The report does not analyse the impact of any changes in the proportion of total funds allocated to “Pillar One” or “Pillar Two“.

The report can be seen at REPORT on the Teagasc website.


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