INTRODUCTION

The James Hutton Institute

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2nd LSIRD Conference on Livestock production in the European LFAs, Bray, Ireland. Dec '98

Livestock Agriculture and Rural Development in Ireland: Challenges for Policy

Department of Agribusiness, Extension and Rural Development, University College Dublin

With over 40,000 farmers blocking the capital city, Dublin in October 1998 protesting over the collapse of incomes from cattle farming and the failures of both EU and National policies to provide reasonable incomes for cattle farmers, a socio-economic analysis of the livestock sector in Ireland and the policies which shape it are relevant and important in the Irish context. Agriculture is the single largest industry in the Irish economy with 11 percent of the workforce directly employed in it. Irish agriculture also differs significantly from most of its EU partners in terms of its dependency on livestock. The average area of land devoted to crops in the EU on average is 40 percent while in Ireland it is 10 percent. Over half of Irish farmers are mainly cattle farmers and thus changes in prices in this sector have significant impact on rural areas.

Farmers are not a homogenous group and great variations exist across different regions of the country and across different enterprises. Dairy farming for example is 5 times more profitable than cattle farming and farming incomes in the East of the country are double those of the West. Within cattle farming there is also considerable variation, however, the most striking feature of the sector has been the predominance of extremely low incomes over a prolonged period. These low incomes prevail in spite of Ireland being a significant net benefactor from the EU.

Industrial development policy in Ireland from the 1960's to the 1980's focused mainly on developing industry and services in cities and centres with considerably large populations. This has created a significant pull in terms of population from rural areas; removing particularly the younger and more educated. It has also left a gap in that many rural areas have little industry and are heavily dependent on agriculture. The decline in the attractiveness of farming as a career for young people is currently evidenced by a shortage of labour in the sector and an increasing succession problem as farmers' sons and daughters have little inclination to return to a sector that's portrayed as having a very poor future.

Ireland has been to the forefront in Europe in pursuing rural development initiatives. It had the first European Pilot Programme on Rural Development; it is one of the countries that have most successfully implemented the LEADER programme. Most of Ireland is also covered by area partnerships, which have recently began to focus specifically on farming. Community activity and planning has become well organised and partnerships are being developed between community groups and statutory agencies. However, filling a 20 year void in terms or rural enterprise creation takes time, time, which is rapidly running out for a large segment of Irelands livestock farmers. To date little progress has been made within the farming sector and the increased enterprise/industrial activity has had little impact on an increasingly marginalised number of farmers. From a policy point of view, as is the case at European level, there are tensions between what is regarded as agricultural policy on the one hand and rural development policy on the other. What is clear though is that the restructuring of the agricultural sector will continue and the challenges for rural development are to create employment opportunities in rural areas that can compete with urban areas. If this is not achieved the consequences for rural areas are bleak, while urban areas will strive to cope with the social and economic problems of rapid urbanisation.

The purpose of this paper is to examine changes that are occurring in rural areas in Ireland, to examine the causes of such changes and their implications for the long-term survival of the Irish rural countryside. In addition it will examine the impact of European policies in shaping both the agricultural and broader rural sector. Changes and trends in farm household incomes will form a key component of this analysis. The paper also examines the influence of rural development initiatives, particularly their impact on the "at risk" sector in farming as well as detailing the current development philosophy as it pertains to future developments.

Within the European Community Ireland is one of the most rural and agrarian based societies. Excluding the Dublin area over 60 percent of the population live in rural areas. Almost 11 percent of the workforce are employed in agriculture and primary agriculture contributes 7 percent of GDP (1995). The agri-food sector overall accounts for 14 percent of employment, 14 percent of output and 18 percent of total exports (DAFF 1997). Irish farming is comprised almost completely of family owned and run farms with over 90 percent of farms being family owned. There is very little leasing of land and only a small portion of land enters the land market each year. Irish farms are on average small with 60 percent of farms being less than 20 hectares in size. There is quite a small land market in Ireland, a strong attachment to land and significant late transfer from one generation to the next. It is however, worth noting that while the relative position of agriculture within the Irish economy has declined significantly over the past thirty years, its centrality to the general well being of rural Ireland remains strong.

Irish agriculture today is shaped to a large degree by policies of the European Union. The problems caused by the CAP are now well articulated and it is suffice here to summarise its main effects in the Irish context. While the CAP was successful in expanding output and increasing farm incomes for some farmers, the manner in which it was achieved and the market distortion, which resulted, could not continue. In addition the sustainability of high input agriculture from both a competitive and environmental perspective is now being seriously questioned.

Plans for the creation of a common agricultural market were set out in the founding treaty of the European Economic Community (EEC) in 1957. Originally the aims of the Common Agricultural Policy (CAP) were to:

However, while these policies achieved food security and did increase the earnings of some of the farmers of the EEC, it was found that they also resulted in serious overproduction and increasing strain on the budget of the CAP. As a result, the 1992 CAP reform package moved away from market and price support payments towards a system of direct payments. These direct payments or so-called 'cheque in the post system' are defined as non-market payments made to farmers whether production related or not (Sheehy, 1994). There are three main categories of direct payments:

Despite these reforms there is still ongoing criticism of the CAP. The Buckwell Report (1997) identifies the biggest critics of the CAP as those representing national finance ministries, and those representing the interests of consumers, the environment and rural development. In addition there is also considerable dissatisfaction amongst farmers whose main concerns were identified as:

This nervousness, intensified by a collapse in cattle prices in the later half of 1998, resulted in over 40,000 farmers protesting in Dublin. In most Member states it is commonplace to find, outside farming interests, a ritual condemnation of the wastefulness of the CAP, its mal-distribution of benefits which accrue disproportionately to the wealthiest producers, and its alleged encouragement of over-intensive farming (Buckwell et al., 1997). This was backed up further by a report published by the European Court of Auditors in November of this year which stated that 40% of the EU's £12.5 billion annual subsidies to arable crops goes to only 4% of producers and 70% of subsidies to 10% of farmers. However, such images do little to present the struggle for viability that exists within a large segment of Irish farming and the serious low income problem that exists within the sector

The Santer Package or Agenda 2000 outlines proposals for the EU for the period 2000 to 2006. These proposals cover four broad areas of change, namely: CAP Reform; Structural Fund Reform; Enlargement of the EU to the East; and the future financing of the EU Budget. It is envisaged that the reform of the CAP should facilitate EU agriculture to become more competitive on world markets, more consumer-friendly, and by giving a new priority to rural development, more environmentally sensitive (European Commission, 1997). It is also intended that this reform should facilitate the enlargement of the EU and to comply with the next round of WTO negotiations.

The proposals are only at the preliminary discussion phase at the moment and could as yet be significantly modified (Dunne, 1997). The main proposals put forward at the moment are:

The above developments imply that farm income would be heavily dependent on EU budget sources and would thus become extremely exposed to EU and WTO changes (including renationalisation of CAP). The proposals would significantly reduce the market reward for the production of quality food.

The current volume constraints will reduce EU world market share and act as a disincentive to the younger generation of farmers who want to develop their farm.

The European Commission (1998) on the other hand, estimated that the current reform proposals would lead to an increase in the income of individual farmers by 34% in real terms by the year 2006 over the average income figure for 1992-1996. However, it must be emphasised that this increase on income was directly dependent on a projected annual decline in the number of people working in farming of almost 4%. This would have serious implications for Irish Rural Society.

Since the introduction f the first pilot programme for rural development in 1986, Ireland has expanded its efforts and a number of different initiatives are now in place.

LEADER is the EU Initiative for Rural Development. The name stands for "Liaison Entre Actions de Development de l'Economie Rurale" or "Links between Actions for the Development of the Rural Economy. The European Commission established LEADER in March 1991 as a response to the changing nature of agriculture in Europe and the resulting decline in employment in agricultural activity, depopulation and growing isolation in rural areas.

In May 1995, 34 Local and 2 Sectoral Action Groups were selected to implement the LEADER II programme in Ireland. The Operating Rules, which govern the types of eligible projects, differ quite substantially from those of LEADER 1.

Area Development Management (ADM) is the intermediary company established by the Irish Government in agreement with the European Commission to support local social and economic development in Ireland. Partnerships were initially established in 1992 to manage a Global Grant for Local Development under the Community Support Framework 1989-1993. During this period 12 Partnerships and 29 Community Groups were funded.

Under the 1994-1999 Community Support Framework (CSF) ADM was given responsibility for the management of Sub-Programme 2 of the Programme for Local Urban and Rural Development. Under this sub Programme, entitled Integrated Development of Designated Disadvantaged and Other Areas, ADM is responsible for managing about £105 million of EU and State funding. The funding is distributed between 38 local Partnership Companies and 33 Community Groups on the basis of strategic local development plans. Fifteen Voluntary Organisations have also been allocated funding to enable them to make a significant contribution to achieving the Programme's objectives. Partnership plans include actions in the areas of:

In 1993 the Government established 35 County Enterprise Boards throughout the country in response to an identified need for a local source of assistance for the start-up and expansion of small businesses. Each Board consists of 14 members drawn from elected members of the local authority, the social partners, state agencies and community business representatives. Much of the rationale for County Enterprise Boards arises from the findings of the Task Force for Small Business which identified limited financial resources and limited management resources as the two key challenges facing small businesses.

County Enterprise Boards are currently funded under the EU Operational Programme for Local Urban and Rural Development, 1994-1999. The local enterprise element of the Programme is implemented through local Boards and is the responsibility of the Department of Enterprise and Employment.

The objectives of the Sub-Programme are met through support for the following four measures:

Community Development Associations have been established in most parts of the country and these are involved in both the social and economic development of their areas. Significant links/partnerships are developing between these associations and the statutory agencies and a micro enterprise culture is beginning to emerge in rural areas. However, for the past 20 years governments have pursued centralised policies regarding industrial development. Creating a rural industrial base will take time and becomes more difficult when the younger and more educated people have already left the area. Thus in many parts of Ireland farming remains as the central activity and its demise has very significant consequences for the viability of these areas.

A critiscism of these efforts to date is the limited impact they have had on the farm sector or where they have had impact, it is with those who already are well resourced. In order to counteract this ADM have recently established a service to deal directly with the low income farming sector.

Irish farming has changed over the past twenty years, largely in response to forces outside of the farm unit. The responses by Irish farm households have resulted in a reduction in the overall number of dairy, drystock and tillage farms while the average scale of operation and level of production efficiency on many of these farms has increased. In 1980 there were 223,000 farms, this figure has decreased to 159,000 in 1993 (Teagasc 1996). The current annual exodus from farming runs at 3,000 per year. In assessing the future viability of Irish farming it is essential to examine current income levels in the sector, and in particular those who have extremely low incomes.

There is much debate in Ireland as to the correct unit for analysing the welfare of farm households. On the one hand it can be argued that people in a household pool incomes and spend on behalf of the household, while on the other, particularly in terms of the employee sector it is individual income. Farm household are on average larger than other households (3.63 versus 3.28; CSO 1997) in the state and therefore when household incomes are used it could be argued that they are disadvantaged relative to other households. The main sources of information available on income in farm households are:

The Household Budget Survey classifies income under three sources; income arising from farming activities (Farm Income); income earned by a member of the household through an off farm job, income from investments or pensions and income earned from property investments (Other Earned Income); and income from State pensions, social welfare and children's allowances (Transfer Payments). The contribution of the different sources of income to farm households in 1994 can be seen in Table 1.

Farm income accounted for 53 percent of the total income of farm households in 1994, Other earned income 35 percent and transfer payments 12 percent.

Chart 1 (Appendix 1) outlines the real income sources of farm households from 1973 to 1994. In spite of the much publicised pressures on income in farm households real household income was 18 percent higher in 1994 than it was in 1987 and 40 percent higher than in 1980. Chart 1 also shows that the biggest factor in increasing incomes from 1987 to 1994 was the contribution of other earned income, increasing by 45 percent from 1987. However, much of this income is earned by the wealthier farm households (Chart 2). Transfer payments (social payments) on the other hand decreased over the period. Income from farming has increased significantly from 1980 to 1994. However as will be shown later farming income continued to increase up to 1996. However, in 1994 income from farming was only marginally higher than it was in 1973. The percentage contribution of farm income to gross household income is also in decline. In 1973 it was 75 percent of household income, while in 1994 it was 53 percent.

Farmers depending on their resources can respond differently to the opportunities available. Charts 3 to 6 show that there are considerable variations across farm type, farm size and within each farming system. Not only are FFI's on cattle and sheep systems substantially lower than for dairy systems but they are also subject to greater year-to-year variability. Thus, an average family farm income for all systems masks the full effects of farm income volatility. Over 32 percent of all farmers have on average farm incomes of less than £4,000, while approximately 30 percent have average incomes of approximately £28,000.

There is also considerable variation within system and this is shown for dairying, and cattle farmers.

Even though dairying is on average the most profitable enterprise, over 33 percent of farmers have farming incomes of less than £8,000, while approximately 17 percent (in 1994) had farm incomes in excess of £40,000 per annum.

Cattle farming is by far the most common enterprise on Irish farms with around 55 percent of farmers being mainly cattle farmers. The graphs show the extremely low incomes of this sector. They also show that, for over half the sector, the problem is a long term one.

Quantifying low Incomes

The above analysis shows that there is a wide variation in income levels on farms in Ireland. Indeed the problem of low incomes in agriculture in Ireland has been highlighted by a number of recent studies (Moss et al. 1991; Phelan and Markey 1996; Commins 1996). Phelan et al. (1998) examined in detail the low-income problem in the farming sector. In their analysis they used three comparable measures. The first is the risk of poverty (1997 Combat Poverty Agency); the second is the minimal entitlements to social welfare, and the third is, given that farming is a productive sector, a minimum wage that should be paid in the sector.

The risk of poverty in farm households has remained consistently high. In 1994 20% of farm households were at risk compared with 15% for other self-employed and 3% for employees. This figure represents approximately 29,000 farm households. (Risk= the proportion of households of that type in poverty)

In 1994 the level of qualification for social welfare was £61 for adult; £36.60 for additional adult; and 13.20 per child. Using Household Budget Survey information on income deciles for farm households and the information on household composition, there were 14,000 farm households that had household income levels at or below unemployment assistance. It should be noted that farm households are significantly larger than other households in the state (3.63, farm; 3.31 rural non-farm; 3.21 urban).

Using data from the Teagasc National Farm Survey for 1997, there were 70,000 farmers earning less than the statutory minimum wage for agricultural employees as set by the Labour Court. Of these 60% are married, 74% of households are deemed demographically viable and average household size is 3.42. In 60% of those households the farmer has no off-farm job i.e. 42,000 households. In 53% of households neither the operator or spouse has an off-farm job (37,000 households).

Cattle Farming

The ability of farming, as shown above, to generate income varies considerably across different systems and regions of the country. For example in 1997 farmers involved in mainly dairying had farm incomes 3.5 times greater than cattle farmers. Family Farm Incomes in Kildare, Meath and Wicklow were 2.3 times greater than the average in Louth, Leitrim, Sligo, Cavan, Donegal and Monaghan. Again using Teagasc National Farm Survey figures (1997), there are just over 47,000 farmers who are involved in cattle rearing and other cattle systems, who are earning at or below the statutory minimum wage for agricultural workers. Over 75% are considered demographically viable. For 27,000 (58%) of this group the farmer has no off-farm job. In fact there are 17,500 of the 27,000 that are earning less than half of the statutory minimum agricultural wage. (Note: 51% (24,000) of these 47,000 households have no off farm job for either the operator or spouse).

Direct Payments

The comparisons this far have made no effort to examine the considerable public moneys that go towards supporting agriculture and which in the Irish analysis are considered as part of farm income. Direct payments (subsidies from EU) are of critical importance in supporting farm incomes in Ireland. Direct payments now account for over 75 percent of farm income on cattle farms and over 90 percent on sheep farms. There is also considerable debate as to the recipients of direct payments. Table 2 using data from the National Farm Survey, 1995 outlines the recipients of direct payments classified by farm size.

One of the main reasons for the reform of the CAP was that the supports were going to too few people. The above Table shows that the scene has not changed significantly with the introduction of direct payments. The top 15 percent of farmers in terms of farm size are obtaining 36 percent of the moneys paid in direct payments. This prevails against a background of extremely low incomes for a large percentage of farmers and a dramatic exodus of people from rural areas.

Policy and supports to agriculture, both economic and technical have enabled the more progressive farming sector to significantly develop their enterprises over the last two decades. However, there is a large sector within farming who have not been able to develop and their future will now depend on the their ability to obtain alternative income outside farming and the extent to which income supports can be targeted at this sector. The transparency in supports will increase pressures for these supports to be directed at the less well off.

Society must decide on a vision of what is competitive agriculture and of what type of future it wants for rural areas. Clearly very few people would want to see the American or Newzealand model of large scale industrialised farming, where there has been a gradual concentration of resources in the hands of fewer and fewer people, take hold here in Ireland. On the other hand the new rural development initiatives have to date had little impact. The drystock sector is particularly at risk. Almost all income now comes from direct payments, and even with these supports the income levels for the majority of farmers are quite poor. Frawley (1998) points out that it is the viable or commercial sector that would be the most affected by an emphasis on free trade and competitiveness, assuming that the resource poor farmers are adequately catered for by the social and environmental objectives of agricultural policy. Phelan (1997) remarks that in Ireland's case there is still plenty of room to increase efficiency but in doing so one must be careful that future competitiveness is not undermined and that the unique rural fabric of Ireland is maintained for future generations.

Buckwell et al. 1997. Towards a Common Agricultural and Rural Policy for Europe, Report of Expert Group, DGVI, European Commission.

Combat Poverty, 1997. National Anti Poverty Strategy, Combat poverty, Dublin.

Commins, P. (1996). Agricultural Production and the Future of Small Scale Farming in Poverty in Rural Ireland Eds. Curtin, C., Hasse, T. and H. Tovey.

Commins, P. (1997), Rural Areas in the Next Century: Prospects and Policy Issues, in Proceedings of the Agri-Food Economics Conference 1997.

DAFF (Department of Agriculture, Food and Forestry), (1997). 1996 Annual Review and Outlook for Agriculture, the Food Industry and Forestry. Department of Agriculture Kildare Street, Dublin 2.

Dunne, W. (1997), Agenda 2000: The Santer Proposals An Economic Appraisal, in Proceedings of the Agri-Food Economics Conference 1997.

European Commission (1998), CAP Reform Proposals Impact Analysis, European Commission, DGVI, Brussels.

Moss, J., Phelan J., Markey A., McHenry H., and Caskie D.P. (1991). Study of Farm Incomes in Northern Ireland and the Republic of Ireland, Co-operation North, Third Study Series, Report No.1, 1991, 143 pp.

Phelan, J F., Markey, A., and O'Connell J. 1998. Farm Incomes Quantifying the Extent of Low Incomes. Report prepared for Irish Farmers association, December, 1998.

Phelan J.F., and A. Markey, (1996). Farm Household Income Trends in Ireland, in Crisis on the Family Farm Ethics or Economics, S.P. Carruthers and F.A. Miller (eds.), Centre for Agricultural Strategy (CAS), University of Reading, Uk, 1996. pp 151-156.

Phelan, J. F., 1997. Trends in Irish Agriculture : Implications for Extension, Paper Presented to the 13th European Seminar on Extension Education, Dublin Sept. 1997.

Sheehy, S. J. (1994), The Future of Direct Payments for Farmers, in Proceedings of the Agricultural Economic Society, AES, Dublin.

Source	Real Income (IRL £'s)	%
Farm Income	191.12	53
Other Earned Income	124.51	35
Transfer Payments	11.68	12
Total	357.35	100

Size (UAA)	% Farmers	% Direct Payments
< 30 Ha	41	17
30 - 50 Ha	44	47
> 50 Ha	15	36