1

An Analysis of the Effects of Decoupling Direct Payments from Production in the

Beef, Sheep, and Cereal Sectors

FAPRI-Ireland Partnership

Department of Agriculture and Food

January 21st 2003

2

Introduction

The FAPRI-Ireland Partnership

– FAPRI-Ireland a research consortium involving Teagasc and

Universities

– FAPRI-Missouri Food and Agricultural Policy Research Institute

– Main Aim To provide timely and relevant analysis of policies and

markets

3

Background

Report analyses decoupling – not the full MTR

Team Effort

Co-operation of DAF staff appreciated

Presentation outline

– Sector level results of decoupling analysis

– Net greenhouse gas emissions under decoupling

– Economy wide effects of decoupling

4

Decoupling Analysis: Assumptions

Decoupling– Assumed to be complete decoupling

– Payments not linked to land

– Paid to farmers on basis of historical payments

Analysis assumes NO– Wealth and/or insurance effects from decoupling

– Cross-compliance criteria (e.g. stocking density)

– Change in external trade regime (WTO limits)

5

Decoupling Analysis

Analysis conducted with the co-operation

of colleagues at FAPRI-Missouri

Results differ from those presented to the

Commission because of assumptions:

– about Commission behaviour

– about the extent of decoupling

6

Decoupling Analysis Impact

Aggregate model impacts

– Largest on EU and Irish beef and sheep sectors

– Modest for cereals sector

– Milk sector largely unaffected

Input expenditure declines

Direct payments held at Baseline levels

Agricultural sector income increases

7

Decoupling Analysis: EU Beef

Cow numbers decline:

– Ireland and UK large

– Italy and Germany small

In Ireland suckler cow

herd of 740,000 by 2010

Suckler Cows

60%

70%

80%

90%

100%

110%

2001 2004 2007 2010

EU-15 FR IE UK

8

Decoupling: EU Beef Sector

EU Cattle Prices

90%

95%

100%

105%

110%

2002 2004 2006 2008 2010

EU-15 FR IE

Initial in cow slaughter

in cattle prices

Subsequent fall in beef

supply due to cow

numbers

Market prices

By 2010 EU adult cattle

price 6%

9

Decoupling: Irish Beef Sector

Suckler cow herd 30%

Beef Production 12%

Beef exports decline

– but 95% to EU by 2010

Cattle price 8%80%

85%

90%

95%

100%

105%

110%

115%

2001 2003 2005 2007 2009

Production Exports

Price

10

Decoupling: Irish Sheep Sector

-20%

-15%

-10%

-5%

0%

5%

10%

15%

2001 2003 2005 2007 2009

Ewes Production Exports

EU ewe flocks decline

– EU 7%

– Irish 12%

Irish lamb production 12%

Price after initial decline

– By 2010 20%

11

Decoupling: Irish Lamb Prices

-20%

-10%

0%

10%

20%

30%

2001 2004 2007 2010

Lamb prices more

volatile than beef prices

Initial fall in 2004 -

sharp recovery follows

EU a net importer of

lamb

Assumptions: TRQ and

Export Refunds

12

Decoupling: Cereals

Supply response to decoupling is small

Overall volumes produced decline

– EU Wheat Production 1%

– Irish Barley Production 4%

Value of Irish cereal output 4%

13

Decoupling: Irish Agricultural Income

-15%

-10%

-5%

0%

5%

10%

15%

2001 2003 2005 2007 2009

Income Inputs Output

Relative to 2010 baseline

Output value 3%

Input expenditure 12%

Subsidies largely unchanged

Agricultural Income 11%

14

Income: Baseline versus Decoupling

Overall, with Decoupling:

Volume of Production

Output prices

Value of output

Subsidies unchanged

Irish Ag. Sector Income

2,000

2,200

2,400

2,600

2,800

1999 2002 2005 2008T

ho

us

an

d m

illi

on

€u

ro

Baseline Decoupling

15

Decoupling: Effect on Greenhouse Gases

Lower animal numbers leads

to lower emissions

Little change in sequestration

Net emissions decline on

Baseline by 13%

Target for agriculture under

NCCS achieved

13

14

15

16

17

18

19

2000 2002 2004 2006 2008 2010M

t C

O2

eq

uiv

.

Baseline Extensification Decoupling

16

Decoupling: wider economy effectsDecoupling: wider economy effects

Road map of the economy Tracks links between sectors Traces knock-on effects of decoupling e.g.

cattle output ag. input use (fertiliser, feed, fuel, vets services) beef output beef processing sector input use in farm income (expenditure effect for whole

economy)

17

Decoupling: GNP Impact

% change

Agriculture 7.2

Food Processing - 3.7

Farm and Food processing 3.6

Other Sectors 0.1

Total GNP impact 0.8

18

Decoupling: Employment Impact

% change

Food Processing - 4.6

Farm and Food processing - 5.1

Other Sectors 0.1

19

For further information on our work go towww.tnet.teagasc.ie/fapri