AGENDA 2000 will hold farm incomes
at present levels

Assuming annual inflation of 1.5 per cent, real national farm income in 2007 would be around 15 per cent less than in 1998 but because of the projected fall in farming numbers per capita income will show a small increase

By Des Maguire

The Berlin AGENDA 2000 agreement on the reform of the CAP will reverse an expected decline in farm incomes, according to a new analysis by Teagasc economists published this week.

However direct payments to farmers (the cheque in the post) will increase from 56 per cent of farm income in 1998 to 71 per cent by 2007 as a result of the agreement.

The analyis shows that the new agreement which comes into effect from January lst next year will mean that overall national farm income in 2007 will be similar in nominal terms to that in 1998.

This is in contrast to the 20 per cent drop in income which would have resulted from the original EU proposals. If current policies remained unchanged, farm incomes in 2007 would be ten per cent less than the 1998 level.

Assuming annual inflation of 1.5 per cent, real national farm income in 2007 would be around 15 per cent less than in 1998.

However when the continuing expected decline in farmer numbers is taken into account, average real income per farmer is set to show a small increase, the economists predict.

The analysis was carried out by economists, Kieran McQuinn, Trevor Donnellan and Julian Binfield who are attached to the FAPRI-Ireland partnership, the policy analysis unit formed by Teagasc and Irish universities in conjunction with the University of Missouri.

It shows that the new reforms will lead to a drop of almost ten per cent in the value of agricultural output by 2007. However this will be more than compensated for by an increase of over 40 per cent in direct payments to farmers. Expenditure by farmers on inputs will remain static.

Milk:

The Teagasc economists say the reforms will have little impact on the dairy sector. There will be no change in policy until 2005 after which EU support prices will be reduced by 15 per cent. This, says the economists, will lead to a reduction of 11 per cent in Irish milk prices and by 2007 the Irish milk price at 3.7 percent butterfat, including VAT, will be 94p per gallon compared with 104p per gallon last year.

But the direct payments package will provide close to full compensation for the price fall. This together with the 2.9 per cent increase in national milk quota will mean that dairying revenue in 2007 is set to remain close to the 1998 level.

Because of a greater reliance on intervention products, the decline in milk prices in Ireland will be greater than the EU average.

The analysis predicts that as milk yields increase due to the adoption of new technology by dairy farmers, dairy cow numbers will continue to decline. By 2007, there will be 150,000 less dairy cows than today, a drop of 14 per cent.

Beef:

The analysis shows that beef farmers will be better off under the new reforms due to an increase of around £300 million in direct payments.

Irish beef output will fall due to the drop in dairy cow numbers and also some decline in suckler cow numbers.

However the ending of the calf processing scheme, early marketing and over 30 months schemes will result in a substantial increase in EU beef production. This together with the 20 per cent cut in EU support prices will put pressure on beef prices.

According to the Teagasc economists the actual beef price in 2007 will depend on how the EU behaves regarding intervention and subsidised exports. Assuming that the EU stabilises prices at 17 per cent below 1998 then the average price for Irish beef in 2007 will be 13 per cent below last year's level.

The economists say that the combined effect of reduced output and lower prices will lead to a drop of 26 per cent in beef output value by 2007.

Cereals:

While intervention prices for grain will fall by 15 per cent the price drop to Irish growers will be around seven per cent. Output from the cereals sector will decline in value by six per cent.

Also, the economists predict that compulsory set-side which is set at 10 per cent from 2000 will be abolished by 2007 as the EU will be commercially exploiting wheat onto the world market.

The economists say that with world prices for cereals recovering from present depressed levels and the EURO remaining weak relative to the dollar, the reduction in cereal support prices under the Berlin agreement makes it possible for the EU to export milling wheat without the use of export subsidies.

Therefore, world wheat prices not intervention prices place an effective floor under EU market prices.

Sheep:

The economists predict that the drop in beef prices will result in a decline in the demand for lamb but they stress that the projected impact of the Berlin agreement on the sheep sector is small. The most important changes to the sector may come about as a result of the impact of the new stocking density calculations and extensification payment regimes.

Last year 300,000 sheep were removed from the hills. As environmental pressures become more severe the level of destocking of hill sheep is likely to increase further. While there may be some small reduction in lowland sheep numbers, any drop in lamb prices will be largely offset by an increase in the EU ewe premium.

Overall the analysis concludes that output will decline by more than 20 per cent by 2007 due largely to destocking of hill sheep.

Pigs:

AGENDA 2000 will have only a modest affect on the pig sector. The sector is set to experience a period of rationalisation after which time a recovery will take place and this will gradually bring the sector back towards existing levels of output.

In the short-term Irish pig output is projected to decline about 10 per cent on the 1998 level with output running at about 3.4 million head out to 2003.