Contact: Mr Con Lucey, Chief Economist
NOTE: The text beneath comprises 3 papers:-
Interim Submission from IFA
INTRODUCTION
Following the conclusion of the CAP Reform II negotiations and the agreement on the EU budget for 2000-2006, the greater part of the broad policy agenda and budgetary parameters for Irish agriculture are now in place for the next seven years. However, a number of other relevant issues remain to be negotiated, both within the EU and externally. At EU level the detailed funding and operation of measures on agricultural structures and rural development remain to be finalised. The Irish Government position will be contained in Ireland's National Development Plan 2000-2006, due to be published around mid-year, and submitted to Brussels. At the wider international level, the main issues are the WTO trade negotiations and Eastern Enlargement.
This is an appropriate time to review the future direction of Irish agriculture and IFA welcomes the decision by the Joint Committee on Agriculture, Food and the Marine to prepare a report on this topic.
This submission summarises IFA's position on the main issues. It focuses firstly on the external issues of WTO and Enlargement, taking particular account of the "European model of Agriculture". It then addresses some of the main structural issues, with particular reference to the EU-backed measures which will be included in Ireland's National Development Plan 2000-06, currently under preparation; in the context of lower EU funding than heretofore, there are clear implications in terms of higher national exchequer co-financing. Finally, the need for a much greater Marketing initiative to get our agri-food exports to the EU mainland markets, and the need to review Animal Health policy in the light of the current disappointing performance in bovine disease eradication.
THE EUROPEAN MODEL OF AGRICULTURE:
It is important at the outset to position Irish and EU agriculture (a) in the context of the next WTO round, and (b) in the context of the budget agreed for the CAP for 2000 - 06. In order to understand the broad political strategy of the EU Commission and the 15 member states on agriculture it is necessary to make reference to the "European Model of Agriculture" which was articulated by the Commission in Agenda 2000 and subsequently supported by the EU Heads of Government.
The Commission's statement in Agenda 2000 on the "European model of agriculture" explicitly states that agriculture in Europe is "different" from agriculture in the major competitor countries of the world. The following two extracts illustrate this:
"This (the European Model) is not the same model as pursued by our major competitors elsewhere. There are any differences between ours and theirs. Seeking to be competitive should not be confused with blindly following the dictates of a market that is far from perfect. The European model is designed to safeguard the earnings of farmers, above all keeping them stable, using the machinery of the market organisations and compensatory payments".
"The fundamental difference between the European model and that of our major competitors lies in the multifunctional nature of Europe's agriculture and the part it plays in the economy and the environment, in society and in preserving the landscape, whence the need to maintain farming throughout Europe and to safeguard farmers' incomes".
The Commission's strategy in spelling out the European model of agriculture is to make the case in defence of the CAP to both European society and the rest of the world in the context of the next WTO round. The case is that the EU wishes to continue to implement an agricultural policy which will be designed to meet Europe's needs, rather than a purely mechanical interpretation of the "free-trade" objectives of GATT/WTO.
In the context of the WTO, the main objective of the EU is to safeguard the CAP direct payments in the longer-term. Also, it is apparent that the Commission does not envisage full decoupling of the direct payments, i.e. they would continue to be paid on livestock (dairy cows, suckler cows, etc.) rather than base area. A degree of import protection in the longer-term can be part of the formula as well; the above Commission statement refers to "the machinery of the market organisations" as well as direct payments.
As regards EU society, the European model is a type of "social contract" between European farmers and the rest of the European society, whereby farmers supply both food products and certain services, notably rural development and environmental services, according to a prescription determined by the political system and the requirements of consumers. This prescription includes, for example, the non-use of artificial growth promoters, food safety, quality and traceability standards, animal welfare standards, strict environmental standards and positive environmental enhancement (e.g. REPS, SAC's). In return, EU farmers would continue to benefit from a combination of market regulation and direct payments, in the framework of a CAP budget transfer of 42.5 bn. euro (£33.5 bn.) annually for the period 2000 - 06.
GATT/WTO:
The last GATT round of trade liberalisation (the Uruguay round) was the eighth such round, but it was the first to comprehensively extend the rules and disciplines of GATT to the agricultural sector. It will be recalled that in that GATT round negotiated in December 1993 (and running to June 2001) the EU agreed to:
CAP Reform 1 had earlier been agreed (in June 1992), and the crucial issue for EU agriculture at that time was that the EU did not concede in GATT any further cuts in support and protection for agriculture in excess of what was already decided by the EU in CAP reform.
Also as part of the last GATT agreement, the EU and all other signatories to the agreement are committed to continue the process of further reducing protection and support for agriculture, and to open negotiations on the next round in 1999/2000, within the framework of the WTO (the successor to GATT).
The next WTO negotiations will be launched in Seattle in November this year. IFA's policy is that the EU member states and the Commission must adopt a clear position on Agriculture. The CAP has been reformed which will allow the EU to make a reasonable offer in the WTO but the following two principles must be defended. First, there must be no further cuts in excess of what was agreed in Berlin. Second, the direct payments system to farmers must be fully protected in the longer term (the current GATT agreement means that the CAP direct payments are exempt from challenge only to 2003), so that the "European model of agriculture" can survive and prosper. This is the only future for our family farms, our rural economy and society, and for our natural environment.
Having made these general points on EU strategy in the WTO negotiations, nonetheless IFA is very concerned about Ireland's vulnerability to future dismantling of CAP market support mechanisms in one particular area, i.e. EU export refunds. (It should be noted that the US also operates export subsidies through its Export Enhancement Programme). Ireland's current high dependence on non-EU markets for beef and dairy exports is viable only for as long as EU export refunds at high levels are available. We need to be conscious in Ireland of the following two factors:
(i) Export refunds are likely to be under strong pressure in the next
trade round.
(ii) As other member states become increasingly able to
export high-value products without refunds in the future, particularly in
the context of the reductions in support prices under CAP reform II, the
political support for refunds within the EU is likely to diminish.
Thus a major strategic objective of Ireland's agri-food industry must be to increase access to the EU market and reduce dependence on low-priced, volatile and vulnerable non-EU markets.
ENLARGEMENT:
The second major strategic issue is Enlargement of the EU to include initially five countries of Central and Eastern Europe, with the possibility of at least five others to follow later. IFA continues to be sceptical of the Commission's policy of "Enlargement on the cheap" as regards agriculture. While provision has been made in the Berlin budget agreement for Structural funding for the accession countries, realistic budget provision has not been made to meet the cost of Enlargement to the CAP. The Commission seeks to justify this by saying that the CAP Direct Payments system will not apply to farmers in the applicant countries.
IFA's view is that there is no point in deluding farmers in Eastern Europe. They are not voting to join the EU just to stay at their present low income levels. We must anticipate that their Governments will demand a better deal in the forthcoming accession negotiations. Accession will cost the EU budget extra money which was not provided for in Berlin. Enlargement will bring trade benefits to the existing EU economies as well as security benefits. But unless additional budget resources are provided to meet the cost of enlargement as regards agriculture, the cost will ultimately be borne by Irish and other existing EU farmers.
FAILURE TO ADDRESS SHEEP SECTOR IN AGENDA 2000:
No Commission proposals were made on the sheepmeat sector in Agenda 2000, and no decisions taken. Clearly lower beef prices are likely to depress sheepmeat prices. In addition, the Extensification premium provisions are likely to result in a reduction in sheep numbers on mixed cattle and sheep farms.
The CAP for sheepmeat is likely to be subject to review in the context of the WTO negotiations, in particular the "deficiency payment" structure of the ewe premium. A key issue for Ireland must be to ensure that a new fixed ewe premium would compensate for lower market prices as a consequence of CAP reform II.
STRUCTURE AND SCALE OF IRISH FARMS:
Moving on to national policy issues, it is clear that future strategy on Irish agriculture and the related food industry must take into account the existing structure and scale in the sector and the outlook for the future. Based on Teagasc data it is estimated that Ireland's 145,000 farms are broken down roughly as follows:
IFA considers that a "viable" income can be defined as an income which provides a standard of living broadly in line with the norm in society. If this is not available in a particular economic sector, young people in particular tend to move out of that sector.
Each of the four groups outlined above has a different requirement from Government and EU policy, ranging from the need to increase scale of production at reasonable cost, the need to improve competitiveness through lower costs and higher quality, access to jobs in the locality, access to training, access to Farm Assist, or support for retirement. (IFA wishes to acknowledge that the new Farm Assist scheme is of great importance to a substantial number of low-income farm families in the above "under pressure" category and expresses appreciation to the Oireachtas members who supported the introduction of the scheme).
IFA notes that considerable work has already taken place as regards the likely structure and scale of Irish farms in the foreseeable future, notably in the context of the Science and Technology Foresight Report looking ahead to 2015, being prepared by the Irish Council for Science, Technology and Innovation. The section of the report on Agriculture and the Food Industry has been prepared by an expert group chaired by Dr. Liam Downey of Teagasc.
The following summarises the assessment in the Downey "Foresight" report of the future structure and scale of farming and the food industry:
"It is envisaged that the agri-food sector in 2015 will comprise:
If this scenario is to prevail even to a less extreme extent, a number of policy implications arise:
EU SUPPORTED MEASURES ON AGRICULTURAL STRUCTURES AND RURAL DEVELOPMENT:
This submission wishes to focus in particular on the National Development Plan 2000 - 06 currently being prepared by Government for submission to Brussels, because the following four policy areas which will be covered by the Plan are of major importance in the context of the future of agriculture and rural development:
(i) General funding issues as regards the next National Development
Plan.
(ii) Funding and operation of four CAP "Accompanying
Measures".
(iii) Funding and operation of the agricultural
structural measures funded from the Structural funds.
(iv) Issues
arising from Regionalisation, and the need for Balanced Regional
Development.
(I) GENERAL FUNDING ISSUES AS REGARDS THE NEXT NATIONAL DEVELOPMENT PLAN:
In the context of the limited level of Structural and Cohesion funding to Ireland for 2000 - 2006 as agreed at the Berlin Summit of £2.95bn. over the next seven years, in contrast with the major investment needs of the economy, it is clear that the funding of the public investment programme will revert to be predominantly a national exchequer responsibility. On the positive side, the recent rapid economic growth and the associated buoyancy in tax revenue means that the capacity of the exchequer to fund public investment has greatly improved. However, there is little or no scope to fund the public investment through exchequer borrowing because euro membership requires balanced budgets in normal economic circumstances. Thus, to enhance the pace of investment, IFA recommends that maximum use should be made of private sector funding of public investment, e.g. toll roads, tunnels and bridges, and other forms of public-private partnerships.
(II) FUNDING AND OPERATION OF THE CAP ACCOMPANYING MEASURES (FUNDED FROM THE CAP BUDGET):
The summit decision is that an annual average budget of 4,335 m. euro (£3,414m) will be available in the EU for these four measures in total: the measures are the Disadvantaged Areas scheme, REPS, Early Retirement and Forestry. The shareout for each member state remains to be negotiated, i.e. a "national envelope" for Ireland and the other 14 member states. Thus the first issue is to make the best case to maximise Ireland's shareout. As the Government has indicated at the Berlin summit that Ireland's allocation for the Disadvantaged Areas scheme will be about 500m.euro for the period, (£394m. or an average of £56.25m./year), IFA considers that greater clarity can be brought to the analysis by separating this measure from the other three measures.
THE DISADVANTAGED AREAS SCHEME:
The Government has announced that Ireland's allocation for the Disadvantaged areas scheme will be 500m. euro (£394m.) for 2000 - 06. This is an annual average of £56.25m. of EU funding (before inflation). As the current cost of the scheme is £110m. - £115m. it is clear that to retain the current total expenditure level then the EU expenditure must be matched 50 : 50 by the national exchequer.
It must be recalled that the fundamental purpose of this EU measure introduced in 1975 was to assist in maintaining the farming population in mountain and other less-favoured areas, particularly by supplementing their incomes, including a recognition of the higher costs and production limitations in these areas. This continues to be the basic role of the scheme in Agenda 2000 and, in addition, the environmental role of the scheme is being strengthened.
Clearly two issues must now be addressed:
(i) the limit on the EU element of the co-financing as outlined above,
and
(ii) the change from a livestock headage basis to an area payment
basis which has been agreed in Agenda 2000 to apply from next year. This
change (if other things are equal) is likely to penalise low-income
drystock (cattle and sheep) farmers who have little or no off-farm income.
IFA considers that the two issues must be tackled as a package. The issue
of principle for IFA is that Disadvantaged areas payments make up a
significant component of farm income on cattle and sheep farms (20% -
27%), and of total income where these farms have little or no off-farm
income. Currently payments levels to all farms are limited to £4,000
per year, and any reduction in the current payment levels or ceiling to
these low-income farms would be regressive.
IFA's position is that the change to an area basis would be intolerable for low income farmers if the total budget for the scheme were to be less than the current level of £110 - £115m. per year. The Government must maintain the current budget by higher exchequer expenditure of up to 50% and in that context IFA will be prepared to negotiate changes to the scheme if necessary, with the objective of protecting as far as possible the level of payments to those farmers whose incomes are most dependent on these payments. Also, IFA proposes that three regional tiers (rather than the current two) would make the payments somewhat more equitable, and would particularly assist hill sheep producers.
ACCOMPANYING MEASURES : REPS, EARLY RETIREMENT AND FORESTRY:
The uptake of these schemes has grown rapidly in Ireland, particularly REPS and Early Retirement. In 1999 the total expenditure on the three measures is about £305 m. and IFA estimates that the current trend will require a total expenditure of about £350 m. in 2000. Based on some reduction in average EU co-financing rates for the next 7 years, the approximate breakdown of the £350m. would be about £238m. EU and £112m. national exchequer. The £238m. would equate to about 12% of the EU budget for these measures, but of course headroom must be allowed to take account of two factors:
(i) The rapid increase in the uptake in Ireland for REPS whereas in
other countries such as Austria and Finland national environmental schemes
were already well-established in advance of the introduction of the EU
Agri-environmental scheme. Also the Retirement scheme was not considered
necessary in 6 member states, whereas in Ireland the age structure of
farmers is particularly unfavourable and the Retirement scheme is a
valuable aid to restructuring.
(ii) In the case of these schemes, a
contract is involved, i.e. up to 10 years for Retirement, 20 years for
Forestry, and for REPS the contract is for 5 years, but there is farmer
expectation that the contracts can be renewed. Thus reasonable scope must
be allowed for new entrants over the next seven years, in addition to the
stream of expenditure that is already committed.
Taking the above two factors into account, IFA estimates that the average annual level of funding needed for the three measures would need to be about 25% above the 2000 level, i.e.:
| Total: | £440m/year |
| (£300m. EU) (68%) | |
| (£140m. National) (32%) |
This would require that Ireland receive about 15% (15.28%) of the EU budget for these three measures, for the 2000 - 2006 period.
As regards the implementation of the three measures, IFA proposes the following principles:
FUNDING AND OPERATION OF THE AGRICULTURE AND RURAL DEVELOPMENT MEASURES FUNDED FROM THE STRUCTURAL FUNDS:
IFA's Submission on the next round of EU Structural funds (August 1998) includes costings of the proposals under this heading, and states that a budget of £65m. per year of public expenditure (EU + exchequer) is required for 2000-2006.
IFA's strategy in the event of any funding restriction as a consequence of the Berlin summit decisions is that highest priority should be given to the measures which benefit farmers most directly, i.e.
REGIONALISATION AND BALANCED RURAL DEVELOPMENT:
a. As regards both the CAP Accompanying Measures and the Structural
funds measures for agriculture and rural development, IFA requires that
these are national schemes rather than two regional schemes for the two
regions. In other words, grant levels and payments levels should be the
same in both the Objective 1 and Objective 1 in transition regions.
Clearly this will require a higher rate of exchequer co-financing in the
Objective 1 in transition region.
b. Rural development in the future
will be influenced primarily by Government policy on the location of new
industrial and service jobs which are supported by the IDA and Enterprise
Ireland. Clearly foreign investors have a preference for large urban
centres, and these in turn have a positive influence on the local area
within a 20 - 30 mile radius.
An important implication of Ireland's regionalisation decision is that the current high level of state-aid for job creation (IDA and Enterprise Ireland grants) can continue in the Objective 1 region, i.e. grants of up to 40% plus 15% for SME's (in practice most qualify for the SME top-up as the definition is less than 250 jobs). However, in the "Objective 1 in transition" region the grant rate will be up to 20%, plus 10% for SME's. (However, in the "transition" region the actual rates have to be negotiated with the Commission and could be lower). Thus Regionalisation is likely to result in new distortions between regions of the country, particularly at the expense of those regions which are geographically remote but in the "transition" region.
It must also be taken into account that EU funding for the "Community Initiatives" (including LEADER and INTERREG) will fall substantially from about £400m. in the current programme to a total of £118m. for 2000-06.
Thus IFA proposes that the following corrective measures are necessary to prevent rural decline and promote balanced regional development:
ANIMAL HEALTH:
The national bovine disease eradication schemes are not operating satisfactorily from the perspective of farmers or from the national economic perspective.
The restructuring of the disease eradication scheme in 1996 meant that Irish farmers took on board the cost of annual testing for TB and Brucellosis while the Department of Agriculture gave specific commitments regarding the management of the diseases.
The cost of the disease eradication scheme to the exchequer is substantial and well documented. The cost to farmers is also very substantial . The direct cost to farmers in terms of the remaining levy and testing fees is about £28m. annually; the indirect costs and consequential losses to farmers are very difficult to quantify but could be as much again.
IFA is gravely concerned at the dramatic increase in TB and Brucellosis throughout the country. IFA is proposing that the Department of Agriculture take the following measures:
MARKETING OF AGRI-FOOD PRODUCTS WITH PARTICULAR REFERENCE TO THE BEEF SECTOR:
While an improved marketing strategy is necessary across the agri-food industry, the most urgent problems are in the beef industry, following the repercussions of BSE including the reintroduction of national labelling within the EU market, the collapse of the Russian market, and the likely future pressure on export refunds referred to earlier.
The objective must be to position the beef industry to compete in the post-Agenda 2000 environment and to close the gap between the prices paid for Irish cattle and those paid elsewhere in the EU. This will involve the development of a market-led industry based on high quality primary production and increased penetration of high-value EU retail markets.
MARKET ACCESS:
For a sector which must export 9 out of 10 animals produced, market access is essential for the Irish beef and livestock industry. Our carcase beef market access is a major problem in the context of renationalisation of markets in the UK and France. In addition major access problems remain on beef exports to Iran and Russia. On live cattle exports to non-EU countries Ireland continues to be locked out of both Egypt and Libya and as regards live cattle exports to Europe, the absence of sufficient RO/RO ferry capacity continues to be a problem.
An all-out Government effort must be made at both European and International level to overcome the market access problems faced by the sector including legislative changes at European level if necessary.
The aim must be to increase the level of exports to the EU from 185,000 tonnes in 1997 to 280,000 tonnes by 2002, with the assistance of a targeted promotion campaign by Bord Bia.
CODE OF PRACTICE BY PROCESSORS:
Returns from markets must be maximised by means of a disciplined and co-ordinated approach to sales which will be underpinned by a Code of Practice to which all processors should subscribe. This should include:
PRICE TRANSPARENCY:
A central element in the beef industry in the future must be the operation of a price transparency mechanism. Under this mechanism, An Bord Bia would monitor returns from both the EU and international markets and assess the degree to which producers are receiving a fair return.
Payment to producers must be based on a graded pricing structure; this is necessary in order to ensure that producers are adequately rewarded for producing better quality cattle and that the processing and marketing strategies for EU markets in particular can be based on an adequate supply of suitable material.
The Department of Agriculture and Food and the industry must progress the introduction of a mechanically based carcase grading system in each plant as soon as possible. This should facilitate the movement towards a payment system for cattle on an objective basis including meat yield.
QUALITY/ANIMAL BREEDING:
There should be full support to the ICBF in its efforts to bring into effect a national breeding policy for the Irish beef industry. Greater attention must be given to breeding policy both in the suckler and dairy herds in order to produce breeds which are more suitable for the EU market. Teagasc must play an important role in this area, in particular through its advisory services.
SAFETY AND TRACEABILITY:
Future production must be based on the highest standards of food safety and quality and will be underwritten by the National Beef Assurance Scheme (NBAS). This scheme which is operated by the Department of Agriculture and Food involves: the provision of an effective animal idenfication and tracing system; the development of common high standards of production and processing; enforement of these standards through a process of registration, inspection and approval.
This strategy is seen as a prerequisite to the penetration of EU markets. The standards must apply to everyone involved in the sector - farmers, processors, marts, feed compounders and traders.
MODERNISATION OF THE PROCESSING SECTOR:
For the beef processing sector a major industry investment and development programme is necessary involving modernisation / rationalisation of the processing sector. This will require significant capital expenditure through both private investment and state aid and priority must be given to the sector under the allocation of Structural Funds from the year 2000.