FAPRI-Ireland Partnership Department of Agriculture and Food January 21 st 2003

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

8. Decoupling: EU Beef Sector • 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%

10. Decoupling: Irish Sheep Sector • EU ewe flocks decline • EU 7% • Irish  12% • Irish lamb production 12% • Price  after initial decline • By 2010  20%

11. Decoupling: Irish Lamb Prices • 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 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 

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

16. Decoupling: 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 to www.tnet.teagasc.ie/fapri