Farmers and markets will have the biggest impact on how the CAP reforms change EU agriculture over the next five years.
Over the last four weeks, I have looked at what decisions the other 27 EU member states have taken in relation to CAP reform.
The flexibility introduced to get a deal over the line is clear in the options that each country has taken in their own national interest. The implications these decisions will have for Ireland are definitely not clear cut and will slowly unfold over the next five years. The reason is the intricate web of trade not just between the 28 member states but also with the rest of the world.
Vital market
One thing we know is that the EU trade is vital to Ireland, with 74% of our exports going to Europe. Looking at the balance of trade in beef and dairy, got by subtracting imports into Ireland from exports out for each country, you can clearly see where the most important markets currently are.
According to Bord Bia and CSO figures, Ireland exported around €2bn of beef and €2bn of dairy products to the member states. We imported €113m of beef and €648m of dairy, mainly from the UK. It points to the fact that the decisions made across the UK will have the biggest implications for us in the short term. Scotland made its decision to stay in the Union last week. It greatly reduced market uncertainty, some of which could have brought opportunities. Scotland certainly has been the most active of the four home countries in focusing payments on the active farmer and the most productive land. It is using coupling to support the suckler herd – had numbers been allowed to fall, a void would have been created in premium markets.
Flexibility
There is huge flexibility built into the CAP reforms, especially in the options each country can take. The main points of the series are:
Winners and losers – There were some big winners in eastern Europe, such as newcomers Croatia as well as Latvia, Bulgaria, Lithuania and Romania. Farmers there will see a major boost to their income and you could expect increased interest in farming and a lift in production as a result. With a falling overall budget, the money came from countries such as Belgium and Netherlands. While farmers will surely miss the funding, they will push up production to compensate.
Flattening – The march towards flat-rate payments within countries accelerates. Most aim to be flat by 2019, with other countries reducing the range in entitlements per hectare by using the Irish convergence model. However, we are seeing huge differences within some countries, with England, Wales and Scotland all targeting payments on more productive land. It means upland gets just €10 to €35/ha.
Shifting between pillars – Fewer than 10 countries shifted money between pillars and in most cases it was small amount or to rebalance lopsided pillars.
Not protecting smaller farmers – Every country had the option to pay a higher payment on initial hectares, but very few did. France and Germany were the only older states and some eastern European countries like Poland and Romania did as well.
Coupling comeback – The ability to couple could have the biggest impact on trade between member states. France in particular has continued with high payments for suckler cows to help maintain numbers. Given that they are the main source of stock for Italian feedlots, the move will mean less space for Irish and other states’ weanlings. Eastern European countries like Poland are using coupling to the maximum (15%) to ensure more beef and sheep will be produced. However, looking at the recent Copa-Cogeca report, only 9% of the Pillar I budget will be coupled, with beef and dairy the main beneficiaries.Milk quota gone – The removal of milk quota is also part of this reform. The graphic shows that while Ireland has the biggest percentage plans to expand, it will not produce the biggest extra volume. Looking at a global market, EU expansion might pale into comparison when the potential of the US and South America is unleashed. The link between the price of grain and price of milk will have to be closely watched.Sugar beet quota to go – Many EU countries producing sugar beet are using coupling of up to €400/ha to maintain production in anticipation of quotas going. The Irish industry will not have this incentive if it is to get going after quotas end in 2017.
Reduced market mechanism – Many of the price safety nets have been dismantled across consecutive CAP budgets. This continued in the current CAP reform. A new crisis reserve established from direct payments of €413m was shown to be inadequate in the first test – the Russian food ban. The ban has put these types of market mechanisms back in the spotlight. The benefit of being part of the EU will really been shown in how the union reacts through different market mechanisms.
This current CAP reform set about changing the EU’s agricultural landscape. Some argued that it undermined productive agriculture at a time when food security was returning to the agenda. Its key changes were to make farmers do more for the environment (greening) to get the same (or less) money, encouraging young farmers and also moving further away from historical payments toward a flat rate in member states.
Irish farmers might give out about greening, but farmers across Europe will find it more onerous and costly. The impact greening will have on production is hard to quantify. The use of rotations will certainly reduce the impact and increase protein crops, an area in which the EU is deficient. Young farmers and a move away from historic payments will be easier to measure. However, the biggest unknowns are what way the markets for the different commodities will move and how farmers will react. Previous reforms had moved this link closer.
Not one of the 800 million farmers across Europe will make a difference on their own through the decisions they make within their farm gate. The difference will come from the collective impact of all those decisions. In some way that is even harder to predict than the markets.
When decoupling was introduced in Ireland, experts logically predicted falls in order of 16% to the suckler herd. The fall did not come. Even this year in Ireland an anticipated collapse turned out to be later calving. In some ways the flexibility given to member states to introduce coupling and higher payments for smaller farmers will make the impact even harder to predict and farmers in some countries will be slower to respond to market signals than others.
Farmers and markets will have the biggest impact on how the CAP reforms change EU agriculture over the next five years.
Over the last four weeks, I have looked at what decisions the other 27 EU member states have taken in relation to CAP reform.
The flexibility introduced to get a deal over the line is clear in the options that each country has taken in their own national interest. The implications these decisions will have for Ireland are definitely not clear cut and will slowly unfold over the next five years. The reason is the intricate web of trade not just between the 28 member states but also with the rest of the world.
Vital market
One thing we know is that the EU trade is vital to Ireland, with 74% of our exports going to Europe. Looking at the balance of trade in beef and dairy, got by subtracting imports into Ireland from exports out for each country, you can clearly see where the most important markets currently are.
According to Bord Bia and CSO figures, Ireland exported around €2bn of beef and €2bn of dairy products to the member states. We imported €113m of beef and €648m of dairy, mainly from the UK. It points to the fact that the decisions made across the UK will have the biggest implications for us in the short term. Scotland made its decision to stay in the Union last week. It greatly reduced market uncertainty, some of which could have brought opportunities. Scotland certainly has been the most active of the four home countries in focusing payments on the active farmer and the most productive land. It is using coupling to support the suckler herd – had numbers been allowed to fall, a void would have been created in premium markets.
Flexibility
There is huge flexibility built into the CAP reforms, especially in the options each country can take. The main points of the series are:
Winners and losers – There were some big winners in eastern Europe, such as newcomers Croatia as well as Latvia, Bulgaria, Lithuania and Romania. Farmers there will see a major boost to their income and you could expect increased interest in farming and a lift in production as a result. With a falling overall budget, the money came from countries such as Belgium and Netherlands. While farmers will surely miss the funding, they will push up production to compensate.
Flattening – The march towards flat-rate payments within countries accelerates. Most aim to be flat by 2019, with other countries reducing the range in entitlements per hectare by using the Irish convergence model. However, we are seeing huge differences within some countries, with England, Wales and Scotland all targeting payments on more productive land. It means upland gets just €10 to €35/ha.
Shifting between pillars – Fewer than 10 countries shifted money between pillars and in most cases it was small amount or to rebalance lopsided pillars.
Not protecting smaller farmers – Every country had the option to pay a higher payment on initial hectares, but very few did. France and Germany were the only older states and some eastern European countries like Poland and Romania did as well.
Coupling comeback – The ability to couple could have the biggest impact on trade between member states. France in particular has continued with high payments for suckler cows to help maintain numbers. Given that they are the main source of stock for Italian feedlots, the move will mean less space for Irish and other states’ weanlings. Eastern European countries like Poland are using coupling to the maximum (15%) to ensure more beef and sheep will be produced. However, looking at the recent Copa-Cogeca report, only 9% of the Pillar I budget will be coupled, with beef and dairy the main beneficiaries.Milk quota gone – The removal of milk quota is also part of this reform. The graphic shows that while Ireland has the biggest percentage plans to expand, it will not produce the biggest extra volume. Looking at a global market, EU expansion might pale into comparison when the potential of the US and South America is unleashed. The link between the price of grain and price of milk will have to be closely watched.Sugar beet quota to go – Many EU countries producing sugar beet are using coupling of up to €400/ha to maintain production in anticipation of quotas going. The Irish industry will not have this incentive if it is to get going after quotas end in 2017.
Reduced market mechanism – Many of the price safety nets have been dismantled across consecutive CAP budgets. This continued in the current CAP reform. A new crisis reserve established from direct payments of €413m was shown to be inadequate in the first test – the Russian food ban. The ban has put these types of market mechanisms back in the spotlight. The benefit of being part of the EU will really been shown in how the union reacts through different market mechanisms.
This current CAP reform set about changing the EU’s agricultural landscape. Some argued that it undermined productive agriculture at a time when food security was returning to the agenda. Its key changes were to make farmers do more for the environment (greening) to get the same (or less) money, encouraging young farmers and also moving further away from historical payments toward a flat rate in member states.
Irish farmers might give out about greening, but farmers across Europe will find it more onerous and costly. The impact greening will have on production is hard to quantify. The use of rotations will certainly reduce the impact and increase protein crops, an area in which the EU is deficient. Young farmers and a move away from historic payments will be easier to measure. However, the biggest unknowns are what way the markets for the different commodities will move and how farmers will react. Previous reforms had moved this link closer.
Not one of the 800 million farmers across Europe will make a difference on their own through the decisions they make within their farm gate. The difference will come from the collective impact of all those decisions. In some way that is even harder to predict than the markets.
When decoupling was introduced in Ireland, experts logically predicted falls in order of 16% to the suckler herd. The fall did not come. Even this year in Ireland an anticipated collapse turned out to be later calving. In some ways the flexibility given to member states to introduce coupling and higher payments for smaller farmers will make the impact even harder to predict and farmers in some countries will be slower to respond to market signals than others.
SHARING OPTIONS