Farm Ireland
Independent.ie

Wednesday 18 October 2017

Balancing the SFP argument

With the Commission pushing for a flat payment post-2013, we look at who will be the winners and losers from this move

Liam Dunne and  Ultan Shanahan Teagasc Rural Economy Research Centre

Ireland implemented the Single Farm Payment (SFP) system in 2005, which was based on the value of historical payments accumulated by each individual farmer. In contrast, several other EU member states, including the UK, opted for a regional-type payment based on each hectare, and this is also compatible with the payment system in the then new accession member states.

The EU's CAP Health Check agreement rejected a proposal to change to a flat, area-based payment system. However, in advance of the post-2013 negotiations, there is likely to be renewed pressure to cater for full decoupling of the SFP by completely removing, or at least a weakening of, its historical linkage with compensation for commodity price reductions.

A study of Irish farms was undertaken to estimate the magnitude of the revenue transfers arising, and, probably more significantly, to establish the scale of the impact on Family Farm Incomes (FFI) for:

(i) Different farming systems;

(ii) Different farm sizes;

(iii) Full versus part-time farms;

(iv) Regional implications.

This study was based on the random sample of more than 1,100 Irish farms in the Teagasc National Farm Survey (NFS).

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The 2006 NFS results were used as these were not distorted by the previously coupled, commodity-based direct payments, and because they also pre-dated the farm income distortions arising from the unexpected price surge for milk and cereals that occurred in 2007 and the subsequent declines in 2008 and last year.

Gains and losses

A complete shift to a flat, area-based payment would result in no overall SFP or income gain, but there would be substantial transfers of SFP and income between individual farms and farm enterprises.

The following summary figures relate to group averages, but, for the individual farm, the monetary gains and losses and related income transfers could be substantially higher, reflecting the current value of their SFP entitlements.

Research shows that, on average, €64m of the existing SFP would be redistributed between farms and farming systems.

The main farming systems to benefit would be:



  • Cattle-rearing systems (mainly producing suckler weanlings) with a gain of €36m and a consequential increase in FFI of 16pc;
  • Mainly sheep farms, a gain of €28m, equal to an FFI increase of 11pc.


The main losers would be farms in:



  • Other cattle systems (mainly fattening), with a loss of €37m, equal to an FFI reduction of 10pc;
  • Tillage farms with a loss of €13m, equal to an FFI reduction of 6pc;
  • Dairy farms with another enterprise indicating a loss of €9m, equal to an FFI reduction of 4pc;
  • Specialist dairy farms with a loss of €5m, equal to a reduction in FFI of just 1pc.


Full and part-time farms

When farms were segregated into full and part-time farms, the latter requiring less than 0.75 standard labour units, the results showed that there would be a transfer of €52m from full to part-time units, equivalent to FFI losses of 4pc and gains of 9pc respectively.

The main losers would be:



  • Full-time farms in the 'other' cattle systems -- accounting for half of the total losses or €27m. This is equivalent to almost 18pc of their FFI;
  • The remaining full-time farming systems would lose about 7pc of FFI, the exceptions being those in mainly sheep and specialised dairying;
  • Part-time farmers in the 'other' cattle and mainly tillage systems would experience revenue losses of €10m and €3m respectively, each equivalent to an FFI decline of 5pc.


The main beneficiaries would be:



  • Part-time farmers in the cattle-rearing system, who would see their entitlements rise by €40m -- an increase of almost 25pc of FFI;
  • Part-time farms in the mainly sheep system would gain €17m -- an increase of 13pc in FFI;
  • The only full-time farming system to benefit would be those in mainly sheep. This category of farmers would gain €10m, almost 9pc of FFI;
  • The relatively small number of part-time dairy farms would benefit from an FFI increase of 21pc, but this apparently large increase is on a modest income for farms involved in dairying.


Farm size impacts

The main losers would be:



  • Farms in the 50-100ha size category, with a loss of €50m equal to about 8pc of FFI;
  • The more-than-100ha and the 30-50ha sizes would each lose about €11m, equivalent to 5pc and 2pc of their respective FFI;
  • The smallest farm size category (less than 10ha) would also lose €7m -- an 18pc reduction in FFI -- and these are in the cattle 'other' system, which is the main farming system to lose in the entire SFP restructuring;
  • Only one size group in the mainly sheep (50-100ha) would experience a loss estimated at €5m, or 13pc of FFI;
  • All size groups in the mainly tillage system would experience an FFI reduction of 8pc or more, but the losses would be most severe in the 50-100ha group where the €13m loss is equivalent to an FFI reduction of 28pc;
  • Farms of more than 50ha in the dairying and 'other' system would experience an FFI reduction of 7-10pc, while the larger specialist dairy farms would only experience a reduction of about 2pc.


The main winners would be:



  • Hill farms, which get €54m more, an FFI boost of 36pc;
  • The only size category in the cattle 'other' farming system to gain would also be hill farms -- €2m or a 9pc FFI increase;
  • Most farming systems in the 10-30ha size group would benefit with an FFI boost of 4-8pc, but the FFI gains for those in the cattle-rearing system would be well in excess of this;
  • For dairying, most of those with less than 50ha would have an FFI gain of 4-10pc.


Regional impact

A considerable regional redistribution of revenue and income would arise. The main areas to benefit would be the border counties, western counties, mid-west region and the Cork/Kerry region. The remaining areas would encounter revenue and income losses. The average regional gains and losses vary within a range of 3-10pc of the regional FFI.

Summary

A shift to a flat, regional area-based SFP would result in significant inter-farm, inter-enterprise and regional shifts in farm revenues and incomes.

The main beneficiaries would be hill farms and farms involved in cattle-rearing and mainly-sheep systems. Most of the recipients would be part-time farmers. The main loser would be farms in the cattle 'other' system and these would be predominantly full-time farms. The mainly tillage farms, especially those in the 50-100ha category, would also experience losses.

Most of the above contributors and recipients would have a high FFI dependency on the SFP scheme -- consequently they would be significantly affected by the payment transfers. The larger farms in dairying would lose, while the smaller ones would gain, but the income impact would be relatively small as a result of the high market based incomes which are still supported by production quotas.

The regional impact would be a transfer of income from mainly inland counties to border and coastal counties.

Conclusion

These findings show that the scale of the monetary and income transfers arising from a shift to a full flat, area-based SFP have large implications for individual farms operating within different farming systems, farm sizes, employment circumstances. Consequently, a complete shift to a flat payment is unlikely to receive adequate support to be implemented.

If the original objective of weakening or removing the historical linkage of the SFP is to be achieved in the future, a more acceptable method of decoupling needs to be developed.

Irish Independent

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