Future Challenges for Food Production in Europe The Challenges in food production likely to be met by the farming community
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1 Future Challenges for Food Production in Europe The Challenges in food production likely to be met by the farming community Introduction I am happy to have the opportunity today to address this seminar and to share with you some thoughts on the challenges ahead for Irish agriculture and the potential for further growth. Over 300,000 individuals are employed in farming, the agri-food sector and related service sectors. Farming underpins economic activity across all parts of the country, and has a particularly important role to play in the economic recovery outside of the main urban areas. Agri-food exports have grown by almost 50% in the last five years, and in 2014, with further growth of 8%, will exceed 10.5b. Underpinning the agri-food sector is the primary agriculture sector. This remains a low-income sector, with average farm income in 2013 of 25,000. The objective of IFA is to provide focused leadership to deliver improved income and living standards for all farm families. The Association promotes the ongoing development and competitiveness of Irish agriculture and the food industry. The role IFA plays for farmers is very varied, ranging from representing all farmers on international policy issues such as the reform of the Common Agricultural Policy, to assisting individual farmers and farm families to deal with challenges that they are facing, unique to themselves. Outlook for farming We undertake this role in an ever changing market and policy environment. Across all farming sectors, there is an increasing exposure to volatile world market prices for their products and input costs, putting pressure on the viability of the family farm enterprise. The exposure to the world market provides an opportunity also, as our high-quality, grass based products compete with the rest of the world in highvalue export markets. Challenges in the beef sector 2014 has been a particularly difficult year for beef producers, as evidenced by the anger and frustration expressed by farmers at the countrywide beef protests of recent weeks. Since August there has been a strengthening of prices in Ireland s main export market the UK, as evidenced by the increased price paid
2 to UK producers. There has also been an increase in the price consumers are paying for beef products, both in Ireland and the UK. However, this has not been passed back to farmers, who are supplying a high quality premium product. The future of beef production in Ireland is far from certain unless there is a viable price returned to the primary producer. In 2013, the average income for cattle farmers ranged from 9,500 for suckler farmers to 15,500 for beef finishers. This is clearly an unsustainable and unviable return for farmer s labour and investment. Support for Ireland s beef farmers and maintenance of the suckler cow herd must remain a priority, at all levels of the agri-food industry and at Government level. There must be a rebalancing of the bargaining power within the supply chain and greater transparency on margins and prices if farmers are to continue to produce and believe in the future of beef production. Over the past number of decades, Ireland has transformed our beef offering. The beef sector accounts for exports of over 2bn annually, providing employment to over 100,000 people in every county in Ireland. We have the potential to further develop this high-value sustainably produced product, which meets the highest environmental and animal welfare standards. In the Beef Forum, in which IFA has pushed hard to deliver real outcomes, there has been progress made on some issues. Much more is required in order to deliver sustainable returns to farmers, including: Re-instatement of the Quality Payment System and beef price grid as originally agreed with farmers. Increasing the level of contracts and premium payments from the factories to assist winter finishers, bull beef finishers and other higher risk production systems; Strong reassurance to be provided to farmers through an independent Department of Agriculture inspector in each meat plan to oversee that farmers receive the proper carcase trim, weights and mechanical classification; Increased higher targeted direct payments through GLAS, DAS and CAP pillar II supports (Beef Genomics, Beef Data Programme, BTAP, TAMS and other areas); Legislate for the introduction of Producer Organisations which will provide for farmers to collectively negotiate prices with processors and also facilitate other activities such as marketing, promotion and technical development;
3 Provide full market price transparency in the supply chain with reporting of wholesale prices as well as producer and retail prices by the DAFM and Bord Bia. For all farming enterprises, the need for regulation of the retail sector at Irish and EU level, with a rebalancing of power in the food supply chain and greater transparency on prices and margins across the supply chain, remains critical. Milk quota abolition The abolition of the milk quota provides, for the first time in a generation, dairy farmers with the opportunity to increase production and scale. Our grass-based production system has the potential to increase output by 50% over the coming decade, contributing to economic growth through increased employment and export earnings. Significant investment is being undertaken by the industry to process this increased volume, and in research and development of new products for export markets. However, with the opportunity that the abolition of quota provides, comes a number of challenges. Income volatility will remain a feature, and measures are required from all stakeholders to address this. At farm level, expansion must be undertaken on a prudent basis, providing capacity for the farm enterprise to withstand some level of volatility in prices, input costs and weather events. The banking sector must support dairy enterprises through provision of flexible loan products that allow for adjustments to repayments when required. Across all farm enterprises, access to credit at a competitive rate must be provided. At industry level, the further development of fixed price options for suppliers must be pursued, and Government has a role in developing additional measures to tackle income volatility through the taxation system, and through strategic investment in the dairy industry. The expansion of the dairy herd will result in an increase in dairy beef production. I believe we will see diversification within some beef enterprises whereby there will be movement towards supporting other production systems, through rearing of dairy herd replacements. There is a critical need for all stakeholders to engage to manage the dairy expansion, its impact on land use and the changes that will affect the beef industry. Support for the suckler beef herd must remain a priority; however there must also be a coherent plan to adapt to the changes in the supply of beef that will arise due to the expansion of the dairy herd.
4 CAP reform The reform of the Common Agricultural Policy over the past two decades, with the removal of price support structures and the decoupling of payments from production, has increased farmer exposure to world market prices. As a result, product price and input cost volatility have increased significantly, adding to the volatility already inherent in farming due to weather events. The changed support environment has brought into much sharper focus the impact that input costs have on margins. Since 2005, total farm expenditure on inputs has increased by over 50%, from 3.7b to 5.7b, representing over 70% of the farmgate value of output produced. With a reduction in Direct Payments through the most recent CAP reform, there must be a renewed focus for all stakeholders in farming on maximizing producer prices and minimizing input costs. Crucial to the implementation of CAP reform is an effective Charter of Rights, with no delay to payments and where farmers are given every opportunity to meet cross compliance rules. The inspection regime must be proportionate and fairly implemented. The impact of the most recent CAP reform on production is as yet uncertain. I remain very concerned at the effect on farmers of a reduction in payments, particularly those operating in the low income cattle sectors. These sectors rely almost exclusively on the Single Farm Payment for their farm income, and the income losses that will be experienced at individual farm level will not simply be replaced by increased market returns or increased efficiencies. Farmers may take the decision to reduce production and adopt a more extensive, lower input, production system. For the tillage sector, adherence to the greening measures in Pillar I will significantly increase compliance costs and potentially undermine competitiveness. It is simply wrong that productions decisions are being forced on farmers for the achievement of unspecific environmental benefits, rather than based on market signals. It is quite likely that the outcome of the greening requirements will be a reduction in land devoted to tillage crops, which is against the interests of Ireland s overall agriculture sector, given that we have a deficit in terms of cereal production. There must be an immediate simplification of the greening process both at administrative and at farm level. This must be prioritised by the new EU Agriculture Commissioner, Phil Hogan. In the mid-term review of the CAP, it is critical that the production impact and wider economic impact of the reforms, at sectoral level are taken into account. The policy direction of the CAP must be open to change if production loss is a serious outcome of the reform.
5 Farmer s compliance with agri-environment measures is an increasingly important element of the CAP, particularly under the Rural Development programme, and farmers, have responded positively over the last 20 years to changing requirements. However, it is critical that a balance is struck which allows farmers to provide environmental benefits and public goods, but which also allows them to generate a viable income from their farming enterprise. In striking this balance, progress has been made in the recent review of the Nitrates Directive, providing for increased phosphorous allowances and other measures. This will allow farmers to improve the efficiency of their grass growth. As Ireland looks to maximise its potential to expand output, this must be a first step in the sustainable development of the sector. Sustainable production is not solely about the environment, it is also about farmers making a viable return. Climate change The future development of Ireland s sustainable model of food production must be to the forefront as decisions are reached on climate change and general environmental policy in the coming years. It is critical that the recent progress that has been made to recognise the multifunctional role of agriculture is built on. For Irish agriculture to achieve its growth potential there must be a tangible reward from the market place for Irish farmers producing to the highest environmental and animal welfare standards. The potential of the sector to increase output, jobs and exports through sustainable expansion must not be curtailed by the pursuit of climate change targets which only contribute to increased emissions in less efficient third-country production systems. Trade deals Finally, the outcome of EU trade deals will impact significantly on the Irish agriculture sector. The ongoing negotiations on the Transatlantic Trade and Investment Partnership (TTIP) provide both risks and opportunities. While the US is Ireland s largest individual trading partner, it is important to note that the US is not a large trade partner for Ireland s agri-food sector. In 2013, Irish food and drink exports to the US were 465m, or about 5% of our total food and drink exports of almost 10b. Of this figure, almost 350m was the export of beverages meaning that food exports from Ireland to the US were worth 116m only, or just over 1% of Ireland s total food exports.
6 While the TTIP offers opportunities for Ireland overall, IFA is clear that the interests of European and Irish agriculture must not be sacrificed by EU negotiators in pursuit of an overall trade deal. Farmers are already facing significant adjustments arising from the recent CAP reform. A TTIP agreement which would result in significant market disruption shortly after the conclusion of this deal could put many farm enterprises and sectors under significant pressure. For the Irish agriculture sector, there are significant threats posed by the potential opening up of the EU import market to large volumes of US beef products, in particular, with threats posed to the pigmeat and poultry sectors also. For the dairy sector, there are potential opportunities resulting from increased exports to the US. IFA is clear that, as a fundamental principle, EU negotiators must insist on equivalence of standards all US imports must meet the same animal health, welfare, traceability and environmental standards as is required of EU producers. A significant increase of US beef imports to the EU will have a very negative impact on beef prices in the EU market, given the limited capacity of the mature EU market to absorb additional exports. Ireland s one million suckler cow herd is under huge threat from any trade deal that would involve a large increase in EU beef imports. With 90% export dependency, the Irish beef sector and Irish economy will be severely affected by any major increase in EU import volumes, resulting in a reduction in farm viability, output, employment and exports. For the beef sector, there must be: Designation of beef as a sensitive product, with access granted under TRQ 1 s on a fair basis. This must mean access based on natural fall of beef cuts. Existing tariff lines were developed in a carcass beef era and need to be adjusted now to reflect the changing export market, based on beef cuts. Retention of low tariffs on all imports, including imports qualifying for a TRQ with negotiations undertaken based on a maximum TRQ ceiling on imports arising from all trade deals (e.g. TRQ for beef from EU-Canada trade deal to be factored into any discussions on TRQ within TTIP). 1 Tariff Rate Quotas
7 For dairy, it is important that the securing of recognition of Geographical Indicators (PGIs) by EU negotiators is not at the expense of other market access opportunities, as PGIs are of little or no value to the Irish dairy sector. In the pigmeat and poultry sectors, similar to beef, there must be TRQ allocation on a sub-category basis for each individual product line. A recent study for the European Parliament 2 has estimated that agri-food products would only account for a minor part of the TTIP s potential trade impacts, with 8% of new exports from the EU to the US due to the TTIP projected to belong to the agri-food sector. Despite this increased trade, the report estimated that the overall value of EU agriculture would fall by 0.5%. These figures cannot be ignored in the negotiations. Conclusion There are many reasons to be positive for the future of food production in Ireland. However, we must work to firstly identify and then tackle the challenges, whether in the market place or due to policy decisions, that will undermine the potential of the primary agriculture sector. It is in all of our interests, both economically and socially, that Ireland has a viable and growing farming sector, underpinning a world class agri-food industry. Thank you 2 Risks and Opportunities for the EU Agri-Food Sector in a possible EU-US trade agreement, European Parliament, Directorate-General For Internal Policies, July 2014
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