Losers from decoupling not all winning in current CAP reform

In this week’s paper, we looked at how a suckler farmer’s basic payment has evolved over the last two decades.

The case we examined, Paddy Murphy, had high-value entitlements that eroded over time to half their original value.

This is the experience of many suckler farmers who raised the progeny of their herd and claimed all the support payments available in the coupled payment era.

Combined, the suckler cow payment, the special beef premium for nine- and 22-month-old steers, the extensification payment available on those cattle that had qualified for those aforementioned payments, and the slaughter premium on cattle sold to the factory delivered many high entitlement values back in 2005 of €554.

You can read Paddy’s story here

Contrasting narrative

But not all farmers had the same story as Paddy Murphy.

The average entitlement value was only €272 back in 2005, half Paddy’s payment. And a lot of lower entitlement holders were suckler farmers, just like Paddy.

Their experience of the decoupled payment decades is very different, and their view of this and the Ciolos reforms of the Fischler payments is likely to be very different.

They may view the Ciolos reforms as having belatedly righted a wrong.

Meet Johnny O’Leary. Like Paddy, he is a suckler farmer. Like Paddy, he is farming 52ha, and has 50 suckler cows. Like Paddy, he is a very good farmer, raising good stock efficiently, working hard, depending on farming for his full-time income.

But there’s one big difference. Despite being only three miles up the road from Paddy Murphy, Johnny O’Leary has much poorer land. He has longer winters, and often has to house stock in the summer months if there is significant rainfall.

As a result, Johnny sells his young stock as weanlings in their first autumn. He has top-quality stock, and always gets good prices.

As we join Johnny in 2002, those good prices for his bull weanlings are only increased by the fact that they have “clean ears” – he hasn’t claimed the nine-month special beef premium on them.

The Fischler reforms, first mooted that July, have barely touched Johnny’s thinking. But their impact will affect him for the rest of his farming life.

Because Johnny didn’t only claim the suckler cow premium, his payments differ drastically from Paddy’s. When entitlements are announced in 2005, he receives 52 entitlements with a value of €302 each.

This gives him a payment of €16,180. He would be looking enviously down the road at Paddy, calving the same number of cows on the same number of acres, but with a direct payment worth nearly twice his.

Over the following decade, the cumulative loss Johnny suffers in direct payments due to his lower-value entitlements grows to enormous proportions. Compared to Paddy, he receives over €12,800 less every year.

That’s €128,000 by 2014, the price of a decent field or slatted shed. It’s a massive disadvantage to be placed at.

Johnny is less likely to have bought a loading shovel for the yard, or to have upgraded the tractor. He simply could never match Paddy’s spending power.

Present day

So how did Johnny fare under the Ciolos reforms? And how will he fare under the current proposals? Not as well as you might have thought. Johnny might have small payments relative to Paddy, but his entitlements were still above the national average. And so, under the Ciolos reforms, he didn’t gain a penny.

In fact, his payments were cut, if only by a total of €100, through the convergence that took place from 2015-2019.

Any grievance Johnny would have felt after the Fischler reforms would not have been assuaged by what Ciolos did.

The full flattening of payments Ciolos originally proposed would have been even worse for Johnny, taking an extra €1,500 from him by 2019.

And so we finally come to the current reforms.

Will Johnny finally see his payment rise? Unfortunately, no. Johnny’s payment will fall to €14,024 in 2023, and by 2026 will have slipped a little further to €13,868. He’s worse off; the current redistribution does nothing for him.

This is in part because Johnny is farming 52ha, more than the national average. Under the current proposals, he will lose 5% of his entitlement value to fund CRISS, and will only get paid on the first 30ha from that fund. CRISS alone takes €766 from him, and pays back €660.

Then the eco-schemes fund requires 25% of his current payment – a cool €3,833. If he qualifies for the eco-scheme payment as currently being modelled by the Department of Agriculture, he will receive €3,328, a further €500 loss to his annual payment. It all adds up.

Could it have been different?

It’s often only with hindsight that we can see what could have been done differently and better.

Looking back 20 years, many are questioning the decision to invade Afghanistan in the wake of 9-11 as the last international troops leave and the Taliban gains more control of the country than it ever previously had.

In terms of the payments received through the decoupling era, the cases of Paddy and Johnny, fictitious though they are, strongly suggest the original decisions made around decoupling of payments created winners and losers.

The difference in payment between a farmer who “subbed out” his cattle, that is claiming all available premia on them, and one who sold their stock with the premiums still attached seems too big when you consider how similar their farm systems are.

They are not identical – Johnny is carrying his heifers for an extra year, and keeping the bullocks for an extra 18 months to finish them. That requires extra meal, silage, shed space, and labour and management costs.

However, the punishment for Paddy not doing so seems excessive. So what could have been done differently?

Well, perhaps one option would to have been to split the payments between the farm that reared the animal and the farm that claimed premia on the animal.

For instance, split the nine-month payment evenly between Johnny O’Leary, who calved and reared and sold the animal, and the farmer who bought the bull weanling and claimed the nine-month special beef premium payment on him (having castrated him).

The extensification payment linked to that nine-month premium could be similarly halved between the two farms.

As for the 22-month payment, perhaps it could have been split one-third/two-thirds, or perhaps one-quarter/three-quarters, with the farm the animal is being finished on getting the higher proportion of the payment.

The linked extensification payment could again be split in a similar proportion. The slaughter premium I am proposing should remain with the farmer who finished the animal.

This would have transformed the payment Johnny O’Leary received. Instead of a total payment in 2004 of €16,180 he would have received €20,667.

His entitlements would have been worth €397, almost €100/ha more than they actually were.

And the thing about this model is that Paddy Murphy, our other case study, wouldn’t lose a penny.

As the farmer who both reared the animals and drew the subs on them, he would have received both shares of each payment. So this model would have only had an upside for suckler farmers.

So who would have lost out had this been the Fischler reform? Beef farmers who had no suckler cows but drew down the premia.

These men would say they were paying for the subs around the ring and deserved the payments they got through decoupling. And they certainly had endured some tough years in the previous decade, with BSE wreaking havoc with our export markets and factory prices.

They argued that cutting their payments to improve the payments of others would lead to a fall in ringside prices. And perhaps they would. We will never know, as that was the road not taken.

What we do know is that if Paddy Murphy decided in 2006 to start to sell his young stock as yearlings, and effectively adopted an identical model as Johnny O’Leary, he would have still had a €13,000 advantage for the next decade.

Despite the massive cuts imposed on Paddy’s payment under the Ciolos reforms and current proposals, he will still be over €2,500 better off in 2026. The gap may have narrowed, but 20 years on, it won’t have closed.

Of course, the examples I am presenting are the extremes. There are plenty of other scenarios.

Some farmers would have claimed the nine-month premium and sold the animal as a yearling or forward store.

If calved in the autumn, the animal would be out of retention to be sold off grass following their first summer.

Spring-calved weanlings had to be carried through the first winter to have the payment drawn down.

In some cases, the farmer who bought a weanling unpunched would have drawn the first premium and sold the animal as a forward store with the second premium still available on it.

Many animals would have been castrated with the single bull premium claimed.

Lots of farmers would buy and finish animals that had been “double-punched” (had both premia claimed) and only claimed the slaughter premium.

Lessons for today

And is there anything we can learn from all this in terms of the current reform? Perhaps the most important thing is to look at farms, real or imagined, that are in many ways comparable.

If one or two differences in the farm system result in an enormous gap in payments, perhaps that is a warning sign that the reform needs another look.

What we can see from the examples here is that while the farmer who most benefited from decoupling has seen his payment cut at every turn since, the farmer most disadvantaged by the Fischler reforms – in terms of the level of farm activity on the farm during the reference years versus the level of payment – hasn’t benefited at all.

In fact, he has also lost out.

Which begs the question – who is actually benefiting from these reforms?