Ireland seeks CAP flexibility

Ireland pushes for CAP flexibility

Flexibility for member states to design their own Common Agricultural Policy (CAP) strategic plans remains a key request of Ireland’s Minister for Agriculture, Food and the Marine, Charlie McConalogue TD, after a provisional deal was agreed in late June 2021.

European Commissioner Frans Timmermans announced a provisional agreement had been reached by national governments, the European Parliament and the European Commission, following three years of tense negotiations.

The deal will still require formal approval by member state agriculture ministers and the European Parliament but has been largely welcomed following a failure to reach agreement in mid-June.

Failure to conclude future CAP policy had centred on resistance to the levels to which the EU is trying to align farming and its Green Deal, including a curb on the level of subsidies available.

Agriculture Minister Charlie McConalogue had met with fellow agriculture ministers in mid-June as part of an informal meeting organised by Portugal’s head of the EU Agriculture Council, Maria do Céu Antunes, in what he described as a critical stage of the CAP negotiations.

The informal meeting came in the days prior to a ‘super trialogue’ meeting, between the European Parliament and the Council of the European Union, mediated by the European Commission, designed to reach a final agreement.

According to the Department, the Minister “again stressed the need for the reform outcome to provide the maximum possible flexibility for member states to design their CAP strategic plans”.

In late May, ambitions to conclude the rules of a future CAP over the next seven years were not realised as some member states continued to push for a lowering of the amount of the €387 billion funding which is to be allocated for green ecoschemes and to limit the move to ensure subsidies are shared out more evenly among farmers.

McConalogue had urged the Portuguese presidency to ensure the principle of flexibility underpins its engagements with other institutions.

The current CAP was designed to be in place until 2020 and a transitional regulation is currently in place for 20212022, largely extending most of the CAP rules that were in place during the 201420 period. CAP strategic plans are due to be implemented from 1 January 2023.

The EU's CAP will spend €387 billion, around a third of the EU's 2021-2027 budget and it is estimated that more than €10 billion in subsidies to Irish farmers will be impacted by the future shape of the CAP.

The future CAP is made up of three regulations in the form of strategic plans, horizontal governance, and the organisation of the common market for agricultural products. The main sticking points appeared to be in the region of strategic plans, specifically in relation to convergence.

Convergence concerns are split into two distinct areas of internal and external convergence. While a need for convergence across member states has largely been accepted, some member states, including Ireland, retain an opposition to the levels of internal convergence, designed to flatten CAP payments for those farmers in receipt of payments beyond the national average

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The CAP is conceived as a common policy, with the objectives of providing affordable food for EU citizens and a fair standard of living for farmers. Food production levels grow beyond demand and measures are introduced to tailor production to market needs.

In a shift from market to producer support, price support is scaled down and replaced with direct payments to farmers. A new CAP reform cuts the link between subsidies and production. Farmers now receive an income support.

CAP reform is aimed at strengthening competitiveness, promoting sustainable farming and innovation, to support jobs and growth in rural areas and to move financial assistance towards the productive use of land. Transition regulation extends most of the 2014-20 CAP rules.

Once the new legal framework has been agreed, CAP strategic plans are due to be implemented in all EU countries from 1 January 2023.

and redistribute payments to those who sit below the national average.

There are concerns that about the portion of direct payments to farmers that are set to be ring-fenced for eco-schemes. The new deal appears to set out a 25 per cent principle of direct payments having to be diverted to eco-schemes, reducing basic payments by an equivalent amount.

The move will cause significant fluctuation in farm incomes, especially in Ireland, where direct payments often make up 100 per cent of income in some sectors. Representative groups have claimed that the deal could affect the viability of thousands of farmers in Ireland if flexibilities are not secured.

The European Commission has highlighted its understanding that 80 per cent of CAP payments going to only 20 per cent of beneficiaries is unsustainable and that the current CAP scheme is beneficial to major landowners and agriindustry firms, to the disadvantage of smaller family farms.

To date, Ireland has not followed the likes of Germany, the Netherlands and Austria in applying complete internal convergence and has instead opted for partial distribution, ensuring each farmer’s per-hectare payment is up to at least 60 per cent of the national average. The draft agreement obliges each EU country to redistribute a minimum 10 per cent of payments to smaller farmers.

In May, Minister McConalogue told a summit of EU agriculture ministers that he believed the targeting of supports were “over-prescriptive” and called for flexibility in line with national circumstances. Ireland, along with a host of other member states, retains the view that a 75 per cent convergence target should be sought, rather than a 100 per cent approach being sought by the EU and have advocated that only 20 per cent of Pillar 1 funding be ring-fenced for echo-schemes.

McConalogue’s view is not shared across Ireland. MEP Luke Ming Flanagan has claimed that opposition to full convergence is being driven by higherthan-average payments. Flanagan claims that over 72,000 farmers in Ireland would gain from full convergence, compared to 49,000 who would be forced to adapt.

Once the deal is ratified, each country must submit a strategy plan for spending its share of the CAP to the European Commission.

The island economy

Research commissioned to inform a forthcoming shared island report by the Department of the Taoiseach has highlighted a range of opportunities in growing the island economy for both jurisdictions.

An existing island economy must be sustained through enhanced cross-border economic connections and co-operation for the benefit of both jurisdictions, the report by the National Economic and Social Council (NESC) concluded.

The Island Economy report details the evolution of the two economies on the island of Ireland, highlighting the similarities, differences and connections between them.

The research is part of NESC’s ongoing programme of research on the shared island initiative, being undertaken at the request of the Department of the Taoiseach, with the aim of producing a comprehensive report on the shared island in 2021.

The report finds that despite many differences in the two economies on the island of Ireland, there is clear evidence of an existing island economy and scope for expansion, which would bring benefits to both jurisdictions.

Strong economic growth in the Republic of Ireland underpins the variations in economic performance north and south of the island. In the early 1990s national income per head in Ireland was around 90 per cent of Northern Ireland’s GDP per head, but economic growth since then has led to it to now being substantially higher.

The Republic of Ireland’s economy has undergone two periods of rapid growth from the late 80s, highlighted by a rise in GNI per head from 62 per cent of the EU average in 1987 to 111 per cent in 2007. The financial crash of 2008 saw a sharp decline in GNI per head but by 2019 this had risen again to 109 per cent of the EU average.

By comparison, Northern Ireland’s

economy has not experienced the same levels of growth, with GDP per head in 2018 around 82 per cent of the EU average. Despite both jurisdictions having similar shares of their population in employment, measures of income or output per head are considerably higher in the Republic of Ireland compared to Northern Ireland.

A greater stability in the Northern Ireland economy is highlighted by the impact of the financial crash on both economies. The Republic of Ireland’s annual average rate of unemployment (15 per cent) was double that of the highest rate in Northern Ireland (7.5 per cent). Pre-pandemic, Northern Ireland’s unemployment rate of 2.7 per cent in 2019 was favourable compared to a 5 per cent rate in the Republic.

However, NESC’s research points to a notable higher level of productivity in the

GDP and GDP per Person for Ireland, Northern Ireland and UK, 1998 to 2018

6

4 GDP GDP per head

2

0

-2

-4

-6 19982006 20062012

For Ireland modified GNI* is used 20122018 19982018 19982006 20062012

Ireland NI UK

20122018 19982018

Source: NESC

Republic, explaining the higher aggregate income per head. “Higher productivity in Ireland arises primarily from higher productivity in individual sectors rather than differences in the structure of employment,” the research authors explain.

That higher productivity is reflected in higher wages in the Republic of Ireland. The research estimates that, with the higher cost of living in the Republic of Ireland factored in, annual gross earnings in the Republic are 20 per cent higher than in Northern Ireland.

A further difference in the two economies lies in relation to trade and specifically, their export bases. The research highlights that “Ireland has developed high-value sectors in goods and services that export on a very large scale to European and global markets”, a factor which has allowed the Republic’s economy to achieve strong growth in income and living standards. In comparison, Northern Ireland economy “is less export-oriented and has a higher share of goods rather than services in total exports” compared to the Republic. Northern Ireland’s external sales are substantially concentrated in Britain (€11.9 billion) and the Republic (€4.7 billion).

Links

Trade between the two economies is increasing as a result of Brexit. In 2018, Intertrade Ireland valued trade between the two economies at €7.4 billion. CSO figures for the first quarter of 2021 show a 44 per cent increase in exports from Northern Ireland to the Republic. The NESC reports evaluates that trade “represents the most substantial economic connection” on the island and adds that cross-border trade is of particular significance for smaller companies and as a steppingstone to larger markets.

Other economic links exampled include levels of cross-border travel to work and study, “successful and sustained crossborder cooperation” in the energy sector and agricultural output for the agri-food sector.

“The agri-food sector plays an important role on the island of Ireland. In both jurisdictions, dairy, and cattle account for the highest share of agricultural output. Agriculture north and south faces common environmental challenges and the same economic problem of volatile farm incomes. Given the similarities, common challenges and linkages in the agri-food sector, there would seem to be considerable scope for enhanced cooperation in the years ahead,” the report states.

As well as those evident existing links, the NESC research includes research by Intertrade Ireland which identifies three economically significant sectors of pharmaceuticals, medical devices and software as having considerable potential benefits from enhanced coordination in relation to research, innovation, education, and training. “Other research on the Dublin-Belfast Economic Corridor identified many possibilities for beneficial cooperation, including the areas of skills development, research and infrastructure,” it adds.

Climate

However, probably the most notable opportunity for further development of the island economy is the common need to address the challenges of greenhouse gas reduction and biodiversity restoration, with the report’s authors assessing that “movement towards a sustainable pattern of economic development is required in both parts of the island”.

“Despite differences in the economies on the island, the expansion of cross-border trade and the increased interconnections of business on the island mean that to some extent an island economy has been developed. This needs to be sustained through enhanced co-operation, to the mutual benefit of both parts of the island.”

Interestingly, the report concludes that while Brexit poses unique challenges for the island, opportunities will be presented for some sectors.

“For Northern Ireland, there is also an overall opportunity in that it is the only region that, in relation to goods, enjoys no trade barriers to either the EU single market or the rest of the UK internal market. This should be used to reinvigorate investments in Northern Ireland,” it concludes.