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Analysis: Brexit and other factors will put pressure on CAP direct payments



The importance of direct payments in supporting the farm sector was underlined yet again in the release of the Teagasc National Farm Survey income figures last week.

Across all farm systems direct payments comprised 75pc of farm income in 2016 and made up more than 100pc of income on cattle and sheep farms, meaning that the price typically received for beef and sheep meat is below the cost of production.

There is sometimes a view that the more lucrative dairy farm sector is not in receipt of direct payments. This is not the case. With a falling milk price, down 9pc on the previous year, direct payments were particularly important to dairy farmers in 2016 making up almost 40pc of income last year. The reliance on direct payments is also regionally concentrated. The Teagasc figures showed that payments comprised over 120pc of farm income on average in the Border region.

The importance of the subsidies from Brussels to the farm sector is clear.

Direct payments support income, help to sustain farm businesses that would not be viable otherwise, act as a buffer to volatile commodity prices, assist farmers with investment and repayment of debt. Where linked to agri-environmental schemes, these payments also support environmental protection. Beyond the farm gate direct payments also pay dividend. The multiplier effect of agriculture in rural areas is well understood. The indirect support of direct payments to the farm input sector, the food processing sector and the wider rural economy, in terms of the spending power of farm households, has also been documented.

Of course the direct payment system is not without its flaws.

Recent data showing the top 10 recipients of direct payments in Ireland received more than €200,0000 per annum is not good publicity.

But what is the future of direct payments? Can payments be maintained in the next reform of the Common Agricultural Policy (CAP)? Will Brexit impact on the future of the CAP? These were all questions put to Commissioner Hogan at the EU Citizen's Dialogue in Kilkenny on the day after the release of the farm income results.


There are a number of pressures coming on the CAP that are likely to impact on the future of direct payments. First budgetary, with the UK being a major net contributor to the EU it is estimated that their exit from the Union will lead to a gap in the budget of up to €10.3bn and this could lead to a reduction in the budget for the CAP of up to 5pc, assuming that the UK no longer contribute to the budget and the shortfall is not made up by other Member States.

Every Commissioner for Agriculture must negotiate the share of the EU's budget to be allocated to agriculture through the multi-annual financial framework process.

Commissioner Hogan was clear that his wish is to at least maintain the status quo, in terms of the share of the budget allocated to agriculture, that will still mean an effective decrease in the funding available for direct payments.

Across Europe there is a growing narrative about "taking the control back from Brussels". This was a key theme of the Brexit camp before the referendum and also emerged in France and the Netherlands before the recent elections.

This may mean that it is time for the CAP to become less Common and more devolved, to give more decision-making around agricultural policy to Member State governments.

Hogan was clear that we must be cognisant of the views around Europe and take every opportunity to remind citizens of the virtues of CAP.

Finally, when asked about the long-term future of the direct payment scheme, Hogan was clear that the CAP had evolved to provide people with other vital public goods beyond food - the policy also promotes clean water and air, a well-managed countryside with good living conditions, high animal welfare standards and the maintenance of our biodiversity for future generations. Justifying the future budget of the CAP will involve the promotion of all of these aspects of farming, he said.

The future of the direct payments it seems will be linked to the provision of a wide range of public goods rather than just food production.

The last CAP reform introduced the concept of greening into the first pillar. Greening, it appears was unsuccessful from all perspectives. Environmentalists felt it only paid lip service to their concerns, while tillage farmers criticised its complexity. Indeed the three crop rule, which was part of Greening, featured as a major anti-EU argument by farmers in the UK before the Brexit referendum.

The importance of direct payments to Irish agriculture is clear.

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Their continued sustainability will depend on the Commissioner's ability to persuade tax-payers, consumers and other public servants about the value for money delivered, while balancing the concerns of environmentalists and the needs of farmers.

Thia Hennessy is professor and head of food business and development at University College Cork

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