The switch in emphasis from market support systems in the 1992 CAP reform toward direct payments resulted in a dramatic increase in financial support terms, from £336.7 million in 1991 to £915.3 million in 1999 (current prices). The impact of this change in Irish agricultural policy was to increase substantially the dependency of farmers, with the exception of dairy farmers, on the ‘cheque in the post’ for a farm income. It is the impact of these changes on the distribution of farm income which is of concern in this study. In line with these policy changes the proportion of average family farm income derived from the market (as opposed to direct payments) decreased from 73.3 per cent in 1993 to 37.1 per cent in 1997. At the same time the corresponding proportions for direct payments increased from 26.7 per cent to 62.9 per cent. Analysis of the distribution of family farm income by deciles (based on FFI) and for all farms indicates a more equitable distribution of income between 1993 and 1997. This improvement in equity is attributed to the effects of direct payments on farm incomes. Analysis decomposing the individual effects of selected measures show that (i) the suckler cow premia, and (ii) the headage payments (Livestock headage payments in the Disadvantaged Areas) were the most effective measures in favouring income distribution equity. Cross compliance schemes (REPS and extensification) and the special beef premia had a more moderate effect in terms of equity while the arable aid payments contributed least to farm income equity. The market-derived income component had a high negative effect on equity of farm income distribution. The inclusion of a high proportion of dairy farmers among those with high farm incomes is a likely factor in this respect.

The work reported in this document commenced in 1997 under the auspices of the FAPRI-Ireland Partnership. It documents the development of aggregate commodity level models for the beef and sheep sectors, and their subsequent simulation under different policy and macroeconomic environments. Companion reports document the development of similar models for other commodities, and of farm level models.

The aim of this project was to project the potential impact of post-2000 economic and policy changes on Irish rural areas. It was intended originally to use a model-building approach in collaboration with the University of Missouri but this did not prove feasible. Instead, a possible scenario of future change for the rural economy was developed under four headings: • number of farms and the size of the farm labour force • agricultural structures • employment and enterprise • population and settlement. The scenario is based on assessment of current trends, on key assumptions about the future, and on the likely directions of relevant policies.

The research conducted under the projects 4821 and 4823 represents a continuation of project 4345, which has developed economic models of the Irish crops sector, agricultural inputs and incomes. These models are integrated within the FAPRI-Ireland model of the agricultural sector which is a joint undertaking between the Food and Agricultural Policy Research Institute (FAPRI)1 and Teagasc. The crops model links to other Irish commodity models and an Irish inputs model to generate an income figure for Irish agriculture which is then projected forward on a 10 year basis. In this research, the models were used to produce projections for the Irish crop sector, inputs and incomes for the period 2000-2010. These projections were generated under three policy scenarios. First, the models were run assuming that agricultural policy would remain unchanged throughout the projection period. Subsequently, these “baseline” projections were compared with projections generated assuming alternative policy scenarios. In 2001, the baseline was compared with the policy scenario of reduced or eliminated export subsidies. This scenario was designed to reflect possible changes in trade policy resulting from the World Trade Organisation (WTO) Millennium Round negotiations. In 2002, the baseline projections (now modified to include the policy changes that occurred in 2001) were compared with projections under a policy scenario which included further extensification of livestock production. This scenario was designed as a second guess to the policy reform proposals under the Mid-Term review (MTR) of the EU Common Agricultural Policy (CAP), which became available in July 20022. The general objective is to generate projections for the Irish: 1. crop sector 2. agricultural inputs 3. agricultural incomes. The projections are generated under the existing policy framework as well as under alternative policy scenarios. Subsequently, the quantitative effect of each scenario is then gauged. The crops, inputs and incomes models are components of the FAPRI-Ireland modelling system developed to generate projections and conduct policy analysis for the Irish agricultural sector. The modelling framework consists of a system of econometrically estimated equations and linkages between agricultural variables across commodity sectors. Through the collaboration with FAPRI, models are also linked with their EU and world agricultural models. Therefore, in generating projections the following is ensured: • the projections of agricultural outputs in Ireland are generated taking formal account of international market developments, and • the most relevant policy levers associated with the CAP are fully incorporated within the projections. In 2001, the projections for Irish crops, inputs and incomes were generated under two policy scenarios. First, it was assumed that there would be no change in agricultural policy over the projection period. Second, the analysis included the effect of both a reduction in export refund limits and an elimination of export refunds. Under the 2001 baseline, Irish grain prices are projected to decrease in nominal terms over the period 2000-2010. The value of wheat output is projected to increase, while the value of barley output is set to decrease. The demand for inputs is projected to decline reflecting the reduced intensity of agricultural production. In aggregate terms it is projected that there would be little change in overall agricultural income. An export subsidy reduction would lead to a decline in grain prices relative to the baseline. This reduction would be more pronounced if export refunds were eliminated. While, agricultural income is not largely affected by the reduction in export subsidies, the elimination of refunds, leads to the reduction of 20 percent in income relative to the baseline projections. In 2002, projections, covering the period 2001-2010, were generated for a revised baseline and a policy scenario which included further extensification of livestock production. In general, the revised baseline projections are not significantly different from the baseline 2001. The extensification of livestock production is projected to lead to a reduction in inputs consumed, including feed, energy and fertiliser application. Under this scenario the Irish agricultural income in 2010 increases relative to the baseline projection, primarily due to the increase in the extensification payments.

This study examines the effect of changes in agricultural policy and other important economic factors on the outlook for milk and pig production in Ireland in future years. The analysis is conducted at an aggregate commodity level for the dairy and pig sectors. Companion reports provides similar detail on other agriculture sectors (including beef, sheep and cereals) and for the outlook at farm level. The analysis summarised here took place in 2001 and 2002. The potential effect of a change in international trade policy under the World Trade Organisation (WTO) agreement is examined. Specifically, the analysis assumed two different possibilities for the reduction and the elimination of export subsidies. Subsequently, the impact of a change in the EU’s extensification regime is examined. A series of interlinked economic models capable of projecting key price and output variables were built for the main Irish agricultural commodities, including the dairy and pig sectors, and these in turn were linked with models for the EU and the World. It was thus possible to estimate the implications for the Irish dairy sector of supply, demand and policy changes at a world and EU level. The Baseline analysis showed that under a continuation of current policy that by 2010, the Irish milk price is projected to decline to just over 25 euro per 100 kg. It was found that relative to the Baseline outcome for 2010: • a reduction in EU export subsidies in the dairy sector equivalent in scale to those introduced in the Uruguay Round Agreement would lead to a reduction in the Irish milk price of seven per cent by 2010 • an elimination of EU export subsidies in the dairy sector would lead to a reduction in the Irish milk price of 20 per cent by 2010 The Baseline analysis showed that, under a continuation of current policy, by 2010 the Irish pig sector value was projected to decrease by four per cent relative to its 2000 level. It was found that relative to the Baseline outcome for 2010: • a reduction in EU export subsidies in the agriculture sector equivalent in scale to those introduced in the Uruguay Round Agreement would lead to a reduction in Irish pig sector output value of less than two per cent • an elimination of EU export subsidies in the agriculture sector would lead to a reduction in Irish pig sector output value of eight per cent The implications of a reform of the extensification regime were not substantial. It was found that they fell for the most part on the beef and sheep sectors. The effect on milk and pig production was negligible.

This report documents work completed on the inputs and income component of the FAPRI-Ireland model, which has been operational for policy analysis since December 1998. The report will present the results of three major different policies analysed over this period. The model itself is decomposed into two primary constituents – the first is a model of aggregate Irish input consumption by agricultural producers and secondly the overall aggregate income figure for Irish agriculture. Output models have been constructed for dairy, livestock products and crops. The aim of the income model is to replicate line for line the Central Statistics Office (CSO) Agricultural Output, Input and Income table for a “baseline” result and for different policy scenarios.

The radical reform of the Common Agricultural Policy (CAP) in the early 1990’s impacted directly and indirectly on most of the farm enterprises in Ireland. The direct focus of the reform was largely confined to the cereal and beef enterprises. The reforms consisted of: • A phased reduction in the institutional support prices for cereals and beef of the order of 30 per cent • A phased switch to a direct payment system of farm income support to compensate for the product price reductions. Most farms in Ireland have a cattle enterprise, either alone or in combination with other land using enterprises. Therefore, the reforms of the CAP affected almost all the farms in the country either directly or indirectly. For cattle farmers, the potential consequencee of these changes could be far reaching in terms of their magnitude and their permeation into the details of the husbandry practices of the production system(s) themselves. These changes clearly impact on the economic efficiency of beef systems without necessarily affecting technical efficiency of the systems. The economic optimum cattle production systems would thus be achieved by using the best mix of feed resource costs, carcass values and direct payments. The purpose of the study was to: • determine the economic impact on the cattle enterprise of the switch to: • lower EU prices for beef • lower EU prices for cereals and as a consequence a lower price for concentrate feeds • the direct payment system of income support • identify the economic optimum cattle production system(s) that would arise from these changes • quantify the sensitivity of the economic optimum system to key policy, economic and technical production variables.

This report compares the 11 western counties (Connacht, Ulster, and counties Longford, Clare and Kerry) with the 15 other counties, in aggregate, as regards the effectiveness of various policies and programme measures in reaching their target populations.

This study examines the effect of changes in agricultural policy and other important economic factors on the outlook for milk production in Ireland in future years. The analysis is conducted at an aggregate milk and dairy commodity level. A companion report provides similar detail on related farm level work. Following an initial period of development, the analysis summarised here took place over a period of three years. The potential effect of the European Commission’s proposed changes to the Common Agricultural Policy (CAP) under Agenda 2000 are examined, as is the eventual Agenda 2000 Agreement produced in Berlin in March of 1999. The implications for the dairy sector of differing future euro/dollar exchange rate paths are also analysed. A series of interlinked economic models capable of projecting key price and output variables were built for the main Irish agricultural commodities, including the dairy sector, and these in turn were linked with models for the EU and the World. It was thus possible to estimate the implications for the Irish dairy sector of supply, demand and policy changes at a world and EU level. It was found that the reform of the CAP in the dairy sector would lead to a reduction in the Irish milk price of 11 per cent relative to the outcome if the reforms were not introduced. However, increases in quota and the availability of compensation following from the Berlin Agreement should offset much of this decline. The effect of the future exchange rate between the euro and the US dollar was of significant importance. Other things being equal, a weaker euro made EU dairy exports more competitive outside of the EU, resulted in less pressure on the CAP budget and ultimately would produce more favourable milk prices than would be the case under a stronger euro. The analysis shows that a difference of 20 per cent in the euro/dollar exchange rate would result in a 7 per cent difference in milk price.

This study examines the effect of changes in agricultural policy and other important economic factors on the outlook for beef and sheep production in Ireland in future years. The analysis is conducted at an aggregate commodity level for the two sectors. Companion reports provide similar detail on other agriculture sectors (including dairy, pig and cereals) and for related farm level work, see Donnellan (2002), McQuinn and Behan (2002), and Behan and McQuinn (2002). The analysis summarised here took place in 2001 and 2002. The objective of the research reported here was the development and use of econometric models of the beef and sheep sectors, in conjunction with other related commodity models, to produce ten-year projections for the beef and sheep sectors under different policy scenarios. The scenarios analysed related to the second BSE crisis, the reduction and the elimination of export refunds under the auspices of a new WTO agreement, and changes in the regulations relating to the payment of extensification direct payments under the Beef Common Market Organisation (CMO). A series of interlinked economic models capable of projecting key price and output variables were built for the main Irish agricultural commodities, including the beef and sheep sectors, and these in turn were linked with models for the EU and the World. It was thus possible to estimate the implications for the Irish beef and sheep sectors of supply, demand and policy changes at a world and EU level.