Farm Ireland
Independent.ie

Sunday 4 December 2016

Opinion: Low-interest loan in Budget a sign of things to come to tackle volatility

Published 19/10/2016 | 13:00

Minister Michael Creed at the Budget 2017 briefing at the Department of Agriculture. Picture: Arthur Carron
Minister Michael Creed at the Budget 2017 briefing at the Department of Agriculture. Picture: Arthur Carron

While most farm organisations were reasonably satisfied with the Budget, the ICMSA will feel that their concerns were ignored.

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They wanted the €11m in EU crisis funding to be ring-fenced for the dairy sector. They also wanted it to be a straight-forward payment, with no caveats, terms or conditions.

The case for keeping all the money for the dairy sector was a weak one. Dairy incomes may be down 30pc this year, but they are still multiples of the equivalents in grain, beef or sheep.

Now that milk prices are recovering, the case for keeping it for dairy only is weaker still.

The argument that crisis funding from Europe should not be tied into schemes that require farmers to borrow money is a more interesting one.

Proponents of the scheme will argue that this was designed for farmers with unpaid bills in the form of expensive merchant credit. In these cases, a scheme that provides money to farmers at a fraction of the rate (3pc vs 12pc) is a godsend.

But you could argue that this scheme will just entice more farmers to make themselves further indebted.

Like it or not, the scheme may well be a harbinger of a distinct change in direction for how the CAP is spent in the future.

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In an era when farmers are more and more exposed to the roller-coaster of global market prices, volatility is the big baddie.

Forward selling of grain and milk is now commonplace on Irish farms that have tried to address the volatility issue.

Group purchasing of inputs also helps at the other end. Moving away from annual conacre to more long-term leasing, income averaging, and the latest opt-out year are all steps successive governments have taken to help farmers smooth things out on the taxation side.

But we may not be that far of the point where EU policy makers start looking to the US for the next step in helping farmers deal with oscillating incomes.

They use federal-supported insurance schemes to cover farmers for losses if disaster strikes in the form of market collapse or adverse weather.

To the outsider, these schemes can appear complex. For example, farmers that plant more marginal cropland get a lower payout or pay a higher premium that matches the higher risk for the insurer. But the clear logic of the schemes really struck me as I travelled through the American Midwest in North and South Dakota during the grain harvest this year.

These were areas at the centre of the dust-bowl that ravaged such a large area of the continent in the first half of the 1900s. Today, they are farmed almost as intensively as the classic crop-growing areas of the corn belt states of Illinois and Iowa. Some years the crops are wiped out due to a lack of rain during crucial periods, but in those years, farmers are able to cover themselves with insurance payouts.

The size of the potential liability means that the only organisation prepared to take on the payout risk is a State body. But crucially, this form of support for US agriculture has been almost cost neutral for the last decade.

Would this model be a better use of EU CAP funds than the piecemeal crisis hand-outs that are called for every time markets collapse?

Indo Farming