Since the publication of the Government’s Climate Action Plan last July, there has been intense focus on measured emission levels of greenhouse gases (GHG) from Irish agriculture.

These emissions are measured on a production basis and most agricultural output from Ireland is exported.

If emissions were based on consumption, as is the case for oil, coal and gas, there would be a much lower figure for Irish agriculture and less pressure for herd reductions and other cost-increasing measures.

Central to the reforms of the Common Agricultural Policy (CAP) was the abolition of milk quotas from April 2015.

The consequence has been an increase in the dairy herd in Ireland and a reduction almost everywhere else in the European Union. The figures are shown in the table for the final quota-constrained year of 2014 and for 2019.

The dairy herd in the EU27 fell 4.1% in the five years and would have fallen 5.5% had there been no growth in Ireland. The Irish share in EU dairy herd numbers rose from 5.3% to 6.9% and the share in milk output also rose substantially.

The intention in removing the milk quota system was explicit. It was to move the European milk market into alignment with market forces and away from intervention on either price or quantity.

Milk quotas entered into force in 1984 and from the 1990s onwards, direct payments were introduced

During the 1970s and 1980s, the system of guaranteeing prices well above world market levels had led to persistent surpluses, with the European Commission obliged to buy large volumes of butter and skimmed milk powder.

Milk quotas entered into force in 1984 and from the 1990s onwards, direct payments were introduced and eventually decoupled from production as guaranteed prices were lowered. Quotas were finally abolished in 2015, having lasted for 31 years.

Implications

The implication of the figures for dairy herd numbers is that the quota system was holding back production in Ireland.

Since the intention of the reform was to remove the quantity constraint and rely instead on market forces to re-allocate activity, the new allocation must be assumed to reflect superior economic efficiencies in those countries where herd numbers and milk output have increased fastest.

By a large margin, the country disfavoured most by the quota system must have been Ireland.

Activity in the sector across Europe has been re-allocated in response to relative efficiencies and the increase in the Irish dairy herd is not some accident or perverse outcome. It is precisely what the abolition of quotas was designed to achieve.

Policies pursued to achieve emission reductions in Irish agriculture could have an unintended effect if they constrain efficient dairy producers through, for example, herd size or output limitations.

The consequence would be the diversion of production back to the countries which lost share to Ireland in the years since quota abolition in 2015.

The reason is that some of these countries have smaller agriculture sectors and hence a greater portion of their total emissions are covered by the Europe-wide Emission Trading System (ETS), which targets total European emissions.

In Ireland, 71% of total emissions are outside the ETS, versus around 55% across Europe as a whole. These emissions are subject to national targets, a system which hurts more the larger the non-ETS component.

There is also evidence from the European Commission’s Joint Research Centre that the Irish dairy production system is also economical in terms of carbon efficiency as measured by emissions per unit of output.

Any such efficiencies are not captured in the absence of a carbon tax imposed at the consumer end.

It would be most unfortunate if a haphazard re-allocation of production in the sector had the effect, with no overall gain in emission reduction at European level, of reversing the improvements in economic efficiency brought about by the elimination of milk quotas.