Modelling the Effect of Policy Reform on Structural Change in Irish Farming

End of project reportThe Mid Term Review (MTR) of the Common Agricultural Policy (CAP) has allowed for the decoupling of all direct payments from production from 2005 onwards; until then, most direct payments were coupled to production, requiring farmers to produce specific products in order to claim support. After decoupling, farmers will receive a payment regardless of production as long as their farm land is maintained in accordance with good agricultural practices. Direct payments to farmers have been an integral part of the CAP since the 1992 Mac Sharry reforms. Throughout the 1990s, market prices for farm produce have declined generally in line with policy while costs of production have continued to increase. Meanwhile, direct payments increased in value, increasing farmers’ reliance on this source of income. Furthermore, farmers adapted farming practices to maximise their receipt of direct payments, leading to the culture of ‘farming the subsidy’. By 1997, on cattle and tillage farms in Ireland 100 per cent of family farm income was derived from direct payments, meaning that on average the market-based revenue was insufficient to cover total costs

Modeling Succession on Irish Dairy Farms

This paper examines intergenerational succession on Irish dairy farms. The factors that influence the decision to enter dairying farming are examined using a binary choice logit model. Reasons that are frequently published in the popular farming press as being an obstacle to intergenerational succession are analysed and the significance of their effect is quantified. Results show that the level of education of the heir is the most significant factor in the succession decision. Heir's with third level education are 30% less likely to enter dairy farming than their second level only educated counterparts. The sizes of milk quota and income that are associated with high probabilities of succession are identified.Dairy Farming, Structural Change, Succession, Logit Model, Farm Management,

GENEDEC

End of Project reportGENEDEC was a European project funded under the 6th Framework. It was co-ordinated by INRA Grignon with ten European partners and a time frame of 42 months. The purpose of the project was to conduct a quantitative and qualitative assessment of the socio-economic and environmental impacts of the decoupling of direct payments on agricultural production, markets and land use in the EU. It was envisaged that the pan-EU nature of the project would facilitate an international comparison of the effects of decoupling and would provide policy makers with sufficient information to identify the key winners and losers from decoupling throughout the EU. The project aimed to provide insights into the workability of decoupling and its impacts, and to analyse alternative policy options to improve the agricultural support system. Specifically, through the use of farm level models, this project estimated the effects of existing and proposed decoupled support schemes on production, land use and land prices and the implications for farm incomes and the future structural development of farms. The project was divided into 9 Work Packages depending on objectives and time frame of the project. The main role of RERC Teagasc was in Work Package 2 which aimed to develop farm level mathematical models and used the models developed to determine the impact of decoupling on Irish farms. The work in RERC started in November 2004 and ended in May 2006. A brief description of the models developed and results generated by RERC is provided here.GENEDEC was a European project funded under the 6th Framework

The Estimation of Policy Impacts on Farms.

End of Project ReportThe purpose of this project is to examine the impact of the Berlin agreement on EU agricultural policy reform at farm level and to estimate how farmers are likely to respond to new policy changes. Eight Representative farms in the cattle and dairy sectors are developed in order to analyse the different sectors of the farming community. Linear programming models are constructed to estimate how these farmers are likely to respond to the changing policy. Estimates of farm income are also produced. The impact of Agenda 2000 on these representative farms was analysed. The key findings showed that all farms will be subjected to a price-cost squeeze over the next ten years. By responding to policy changes farmers will be able to maintain farm net margins and in some cases increase them modestly. The key to success for dairy farmers is expansion of milk quota. Purchasing of currently leased quota and additional quota, where possible, allows larger dairy farms to maintain profits. However, smaller dairy farms, 20,000 gallons of quota or less, are pushed and pulled out of farming. Rising production costs, static milk prices and unaffordable quota push them out, while attractive sale prices for quota and potentially high off farm incomes pull them out of dairy farming. In relation to cattle farming, results show that the key to success is the maximisation of direct payments. Small and part-time farms will find extensification schemes increasingly more profitable over the coming years. While larger farms can expand operations following the changes in premia limits set out in Agenda 2000. Off farm employment will continue to be a major issue for cattle farmers to consider. It is projected however, that margins can be maintained at a sufficiently high level on large cattle farms to keep them in business

Analysing the Impact of Decoupling at a Regional Level in Ireland: A Farm Level Dynamic Linear Programming Approach

This paper describes a methodology to assess the impact of the decoupling of payments on Irish farms at a regional level. The methodology is based on a farm level dynamic linear programming model which optimises regional gross margin under a set of constraints. Regionally representative farms are selected using cluster analysis. The model maximises aggregate gross margins from all the farm types in a region allowing land and milk quota to transfer between farms within the region. The model is estimated for a baseline scenario, assuming no policy change, and under a decoupled scenario where farm payments are fully decoupled from production. An example of an impact study at the Border region in Ireland is presented in this paper to demonstrate the methodology.Decoupling, Linear Programming, Cluster analysis, Agricultural policy, Regional level, Agricultural and Food Policy,

The effect of decoupling on farming in Ireland: A regional analysis

peer-reviewedData from the Irish National Farm Survey and Census of Agriculture were used to analyse the regional implications of the decoupling of direct payments for farmers in Ireland. A mathematical programming model was used to estimate the regional effects of decoupling while a micro-simulation model was exploited to map the geographic distribution of decoupled payments. The results show that under the historical decoupling scheme, milk quota will shift from less efficient to larger more efficient farms in all regions. Beef cattle numbers are projected to decrease on all farms, with the exception of the Mideast and Southeast regions where numbers are projected to increase. The regional effect of decoupling on sheep farming was marginal with all regions projected to benefit from the policy change. The analysis also shows, using a static micro-simulation model that a shift to a flat rate national calculation of the decoupled payment would result in a significant movement of revenues from the southern regions to the northwestern regions of the country. In particular, large beef and dairy farmers in the southern regions would lose out while small dairy and sheep farmers in the western and northern regions would be most likely to gain

Modelling the Impact of Decoupling on Structural Change in Farming: Integrating Econometric Estimation and Optimisation

Implementation of the Mid Term Review of the Common Agricultural Policy on farming in Europe is expected, and intended, to initiate structural changes in European agriculture. This impact of the agricultural policy reform will be triggered at the farm level with both up- and down-stream effects for agriculture in Europe. Modelling such a phenomenon is challenging. An integrated modelling approach, involving farm level optimisation models and exogenously estimated econometric models of farmer behaviour, is developed for Ireland; this framework is a general one and is applicable elsewhere. Entry and exit from farming, postulated as the main consequences of the policy reform, are estimated exogenously to determine their role in the allocation of farm labour. The results for Ireland show that farm numbers will decline more rapidly under decoupling relative to a baseline situation. Further, decoupling is likely to favour beef farming but, an increasing number of beef farmers will have to rely on outside income to sustain that system of farming. Dairy farmers will face a price cost squeeze and structural change in this sector will be accelerated.Common Agricultural Policy, Decoupling, Farm Level Modelling, Linear Programming, Succession, Labour Allocation, Agricultural and Food Policy, C6, Q12, Q15, Q58,

Study on the Functioning of Land Markets in the EU Member states under the Influence of Measures applied under the Common Agricultural Policy

End of project reportStudy on the Functioning of Land Markets in the EU Member states under the Influence of Measures applied under the Common Agricultural Polic

Seasonality and Costs of Production on Irish dairy farms from 1994-2008

working paperPrevious research has highlighted the economic advantages of spring calving in countries such as Ireland that have a long spring/summer grazing season. However, the widespread adoption of such a production system leads to a highly seasonal milk supply and a range of problems that are associated with seasonality. The objective of this paper is to use historical data to quantify the economic benefits of a spring calving system. Data from over 400 dairy farms in Ireland over a period of 15 years is examined. Fixed, random and between effects panel models are estimated to test the significance of calving season on production costs. The results show the effect of calving season is significant at lowering production costs. These models returned results suggesting that high compact early Spring herds have significantly lower costs than over seasons. However the fixed effect model demonstrates little difference between production costs in different seasons suggesting individual effects such as the ability of the farmer may play a role in reduction of costs. Herds that are calved over a shorter period tend to have lower production costs

The role of non-pecuniary benefits in the labour allocation decision of farmers.

working paperPrevious research has primarily focused on the impact of economic variables in explaining the off farm labour allocation decisions of principal farm operators. This study finds attitudes regarding the non-pecuniary benefits associated with the farming lifestyle also significantly affect behaviour by acting as a strong disincentive to farmers towards working off farm. This may suggest that even if economic returns are greater in the offfarm labour market, farmers may not supply additional labour off farm. We also employed separate models of off-farm labour market participation and off-farm labour supply and found certain variables such as a farm operator’s age and the level of diversification undergone by the farm business affect off farm labour market participation and hours supplied differently