CAP REFORM 2014-2020 POTENTIAL IMPACT ON AGRICULTURAL OUTPUT FROM INTRODUCTION OF MINIMUM PAYMENTS

1. 6th March 2013 CAP REFORM 2014-2020POTENTIAL IMPACT ON AGRICULTURAL OUTPUT FROM INTRODUCTION OF MINIMUM PAYMENTS

2. Threat from CAP reform 2014-2020 developments • Latest negotiations on CAP – implications for Ireland’s SFP distribution • Potential introduction of a minimum per hectare payment – Commission have indicated they want a €196/ha minimum • In Ireland, this may lead to redistribution of €145m from farmers with above average payments to bring all farmers up to €196/ha minimum • In addition, SFP available for general distribution among farmers will be €110m less than is currently available • Leading to a potential drop in SFP for farmers with payments above €250/ha of 27% - there are 60,000 farmers in this cohort • 17,000 farmers with payments between €200-€250/ha could also face some losses due to reduction in overall budget and redistribution due to Young Farmer etc. (-9%)

3. Potential impact on Farm Incomes • For the 60,000 farmers with payments above €250/ha, a 27% reduction in the SFP would have the following impact on income*: • Cattle – 25% • Tillage – 20% • Dairy – 10% • Sheep – 25% • Those on higher payments have ‘significantly higher stocking rates, roughly double the rates of those on low payments’ (DAFM, Joint Oireachtas Committee on Agriculture, 21/02/2013) (* based on SFP as a % of average farm income 2009-2011, Teagasc National Farm Survey)

4. Farmers’ decisions in light of SFP cut* • What would a 30% cut in SFP mean? • Farm inputs would be cut back • Extensification of farm enterprise • Reduction in farm output • Capital equipment would not be replaced • Short-term land rental (conacre) would be unaffordable • Selling of stock to meet bank repayments • Reduced capacity to purchase stock • No compensating output increase would make up difference (* UCD case-studies undertaken on behalf of IFA, 2011)

5. Implications for the Cattle Sector • Prior to introduction of Suckler Cow Premium, the suckler cow herd stood at 420,000 • Suckler cow herd today - 1.1 million • In 2010 the 15% drop in income from 2008-2009 had led to a fall in suckler cow numbers of almost 100,000, and a fall in farmgate output value for the sector of almost €200m • Under SFP scenario, cattle farmers with above average payments will lose 25% of their income/purchasing power • Negatively impacting on the price that can be paid for progeny of Suckler Cow Herd - Viability of maintaining suckler cow herd in question • Leading to a potential reduction in Suckler Cow Herd of hundreds of thousands • FH2020 targets of increasing the value of output of the beef sector by 40%, or €600m will be lost

6. Implications for the Dairy sector • FH 2020 targets of 50% expansion cast into serious doubt: • Cost of investment in processing, €400m capital requirement and €500m working capital • €1.5b on-farm investment requirement • Expansion is dependent on farm profitability, including SFP, repayment capacity and land availability • Potential of 9,500 jobs created, €1.3b additional export revenue at risk to Irish economy

7. Implications for the Tillage Sector • Major volatility in sector with huge fluctuations in income due to price and cost volatility and weather issues – 2007, from €40,000 to €15,000 in 2009 and back to €36,000 in 2010 • Current reform proposals creating land availability and cost issues – rocketing land rental prices and/or landowners taking back land to establish own entitlements • Importance of SFP to maintain production - area planted fell by 15%, or 50,000 hectares between 2008 and 2010 • With 40% of arable area rented – lead to significant stacking of entitlements on owned land area, therefore average losses will be far in excess of 27% average • A permanent reduction in income due to fall in SFP will impact heavily on production decisions and overall viability of enterprises

8. Overall - Devastating impact on expansion plans • Farmers most negatively affected are those with greatest levels of current productivity and plans for expansion • Capacity to repay existing borrowings, make new investments severely diminished • Ability of farmer to withstand volatility – price/cost fluctuations, impact of weather disturbances • Introduction of minimum payment will firmly capitalise SFP value into land rental prices – reducing viability, land availability and curtailing expansion plans • FH 2020 targets to increase farm output by €1.5b and exports to €12b cast aside

9. Overall - Devastating impact on expansion plans • Farmers most negatively affected are those with greatest levels of current productivity and plans for expansion • Capacity to repay existing borrowings, make new investments severely diminished • Ability of farmer to withstand volatility – price/cost fluctuations, impact of weather disturbances • Introduction of minimum payment will firmly capitalise SFP value into land rental prices – reducing viability, land availability and curtailing expansion plans • FH 2020 targets to increase farm output by €1.5b and exports to €12b cast aside