Teagasc Publishes Analysis on Impact of EU Agricultural Reform

13 May, 2003

Irish agricultural income would suffer a drop of almost 10% over the next decade if current EU policies were maintained, according to analysis published by Teagasc.

The analysis, carried out by Teagasc economists attached to the FAPRI Ireland economic analysis unit also shows that the full implementation of the EU CAP reform combined with some changes in world trade policies under the World Trade Organisation (WTO) talks would result in agricultural income in 2012 being similar to that in 2002.

Teagasc economists, Trevor Donnellan and Kevin Hanrahan, told the Teagasc Outlook 2003 conference in Dublin that no change in current policies would result in a decline in prices for the major dairy products, butter, skim milk powder and cheese, leading to a drop of around 15% in milk prices compared with prices received over the last three years. Beef prices would only show a slight fall over the same period.

The impact would be a decline of 8% in the value of output. Farm input costs would increase by 3%, resulting in a drop of 9% in the net income generated in the agricultural sector.

The economists compared the no policy change to the full implementation of the current EU proposals on reforming the Common Agricultural Policy combined with implementation of the EU proposals to the WTO on changes in world food trade. These involve the EU cutting its export subsidies by 45% and reducing tariffs on imports to the EU by 36%.

Compared with no change to current policy, the impact of the EU proposals would be a bigger decline in prices for the major dairy products, leading to Irish milk prices declining by over 10% on the levels that would apply if current policies were pursued.

Beef cow numbers in Ireland would decline by 16% and beef output would fall by 6%. Beef prices would fall initially but, by 2012, would be 8% higher than if current policies continued. There would be a major re-orientation of beef exports, with 95% of exports going to EU markets.

"The combined CAP reform and WTO changes would lead to a decline of 2% in the overall value of agricultural output by 2012 compared with a continuation of current policy. Under these circumstances, expenditure on inputs by farmers would fall by 7%."

"By 2012, overall agricultural income would remain at the 2000/2002 average. Due to the 'decoupled' subsidies and the drop in beef production, the proportion of farm income coming from subsidies would rise from 65% in 2002 to 75% in 2012.", the economists predict.

Professor Bob Young of the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri told the conference that world supplies should keep up with demand leading to a general "sideways" movement for global agricultural prices.

"Global meat production is expected to rise by 18% over the next decade while poultry production is likely to grow by 22%. Milk production will grow, especially in the US, Russia and Brazil while production in China would rise by 60%. Argentinian cheese exports, which are currently low, could rise fourfold, " said Bob Young.

The full conference proceedings are available to download here