Farmers should be helped to get more income from the market place

Alan Matthews: Cap reform deal includes exciting measures to encourage innovation

There has been considerable media coverage of the agreement reached by the Council of Agriculture Ministers in Brussels this week and its possible implications for the payments received by Irish farmers under the Common Agricultural Policy (Cap).

Minister for Agriculture Simon Coveney and his officials deserve credit for their success in brokering this agreement. It opens the way for tripartite negotiations with the Eu ropean Parliament and the commission to settle the future rules for the Cap by June according to the Irish presidency schedule.

The intense lobbying by the different farm organisations in the weeks leading up to the meeting shed rare light on one of the more puzzling features of Irish agriculture: the contrast between Ireland 's hugely successful food companies based on a consistent record of innovation, and the primary production sector which produces less today than it did 20 years ago and which remains mired in disputes about Cap subsidies.

The focus of the lobbying on the way the council decisions might affect the distribution of Cap payments between farmers is not surprising. Irish agriculture produced an operating surplus (farm income) of €2.1 billion last year, of which €1.3 billion was due to the single farm payment. Payments under disadvantaged area, forestry, agri-environment and other schemes bring transfers to €1.7 billion.


With the single farm payment alone accounting on average for more than 60 per cent of farm income last year, how that money is divided up is hugely important to individual farmers.

Until now, the payments have been distributed according to the “historic model” which relates the payment per farm to the amount that farm received in the reference years 2000-2002. At that time, under a series of partial Cap reforms, market price support was partly replaced by coupled payments.

Farmers were compensated for reduced market price support (through lower intervention prices) by direct payments that were linked to what a farmer produced; in the case of arable farmers, the payments were linked to the number of hectares planted, and in the case of livestock farmers, they were coupled to the number of animals. The larger the farm, or the more intensively stocked the farm, the higher the payment received.

Decoupled payments
A major reform of the Cap in 2005 altered these payments from coupled to decoupled payments. With certain qualifications, this means that each farmer now receives the Cap payment they received on average in 2000-2002, regardless of their level of production or whether they produce at all. The sole requirement is compliance with standard food safety, animal health and environmental legislation and the maintenance of land in good agricultural and environmental condition.

The result is a very uneven and largely arbitrary distribution of payment levels per hectare linked to this outdated reference. Almost 13,000 farms have the good fortune to receive more than €500 per hectare, but more than 27,000 farms get less than €200 per hectare.

The European Commission 's proposal at the start of the Cap negotiations was to move to a flat-rate payment per hectare on all farms by 2019, but allowing countries to designate regions which might have different flat-rate payments. Coveney favours an approximation model which would proportionately narrow the differences across farms but still leave significant disparities by the end of the process.

Fianna Fáil has come out in favour of the flat-rate payment but with a higher payment on the first hectares, thus skewing payments in favour of small farms.

The Irish Farmers’ Association has consistently opposed both flattening and regionalisation and any proposal for a minimum payment per hectare and would prefer to continue with the current model if that were an option.

The fundamental problems in choosing between these alternatives are that there are different views as to the purpose of direct payments, and that it is impossible to achieve any of these objectives by giving farmers a lump-sum payment if it is linked to land.

The IFA claims the payments should reward production. But production-linked subsidies are trade-distorting and are rightly regulated by World Trade Organisation and EU rules. Irish farmers who depend on export markets for their milk and beef would be the first to be hurt if each country went back to production-linked payments. At a time when food prices are rising and there are concerns about the world’s ability to meet future food demand it is hard to argue that farmers need subsidies to produce more food.

Income support
Fianna Fáil sees the payments as primarily about income support, and hence supports higher payments on the first hectares and the capping of payments on larger farms. There are many farmers on low incomes, but ownership of small areas of land does not necessarily mean that the owner is deserving of income support. Many part-time farms are owned by households with adequate off-farm incomes. Giving greater support to small farms (as distinct from low-income farm households) risks worsening the already dismal rate of structural change in farming.

Two alternatives
These criticisms of direct payment models do not imply that there is no role for public support for agriculture. There are two alternatives to generalised subsidy payments linked to land. The first is targeted payments linked to specific and measurable outcomes. Examples of such payments exist in the Pillar 2 of the Cap, concerned with rural development programmes; they include paying farmers to provide additional environmental services, or paying farmers to continue farming in areas where there is risk of land abandonment.

The second alternative is to focus on helping farmers to generate a greater income from the marketplace through innovation, cost reductions and greater productivity. Unfortunately, agricultural research, extension and training have been cut back in line with the general cutbacks in government expenditure. Just a small diversion of Pillar 1 (ie single farm payment) subsidies to these activities would provide longer-term benefits of a multiple of this amount to farmers.

The agriculture council decision would allow member states to shift some money from general payments in Pillar 1 to targeted payments in Pillar 2 (without requiring national co-financing, though this remains to be decided). Pillar 2 also contains some exciting new measures to encourage innovation.

Making use of this option would be a small way in which this country could salvage something of long-term benefit from the current round of Cap negotiations. It will be another seven years before the opportunity comes round again.

Alan Matthews is professor emeritus of European agricultural policy at Trinity College Dublin