Socio-Economic sustainability: High Labour input, limited returns? Alan Matthews Trinity College Dublin Presentation to the BurrenLIFE Conference “Farming for Conservation – Supporting the Future” Feb 24-27, 2008 Ennistymon, Co Clare

Key messages The limited commercial viability of marginal but high nature value farming systems Limitations of current support schemes for vulnerable farming systems New directions – developing markets for environmental services

Context for the argument Marginal farming areas also tend to be areas of high nature value and varied biodiversity Marginal farming areas are under pressure, threatening land abandonment and loss of environmental benefits How to secure these environmental benefits at the extensive margin?

Commercial viability of cattle farms in Objective 1 Region, 2006 Source: NFS 2006

Commercial viability of cattle farms in Objective 1 Region, 2006 Source: NFS 2006

Outlook for market returns Favourable global food market outlook, especially for starch/oil crops linked to energy market… … has unintended consequence of raising costs of providing environmental services from management of land Grass-based livestock production will benefit in relative terms.... but very vulnerable to reduction in EU protection levels following WTO Doha Round On balance, farm system viability will not be achieved on basis of market returns alone

Commercial viability of cattle farms in Objective 1 Region, 2006 Single Farm Payment Source: NFS 2006

Future for Single Farm Payment Guaranteed through … though possible modulation, budget discipline reductions Future much less certain in light of ongoing EU budget review –Growing competition for EU budget resources –Lack of clarity over objectives (compensation, income support, payment for meeting standards?) –Mandatory move to uniform flat-rate payment after 2013? –National co-financing of SFP after 2013?

Commercial viability of cattle farms in Objective 1 Region, 2006 REPS payments Source: NFS 2006

Future for REPS payments REPS has evolved from scheme mainly paying farmers not to damage environment through intensification to one with greater emphasis on encouraging positive management practices to promote biodiversity Introduction of SMRs and GAEC has raised the bar for what is required of REPS participants Voluntary scheme – not all farmers enrol –Average 2006 payment to REPS 3 farmers €6,274 vs €2,480 per Objective 1 farm –17% increase in payments in REPS 4 – average payment per REPS4 farmer increases to €7,220

Future for REPS payments REPS payments designed to cover income foregone, additional costs of commitments given, plus incentive element NATURA 2000 payments designed to compensate for restrictions on ‘normal’ farming activity, although conservation of high nature value areas can be supported NPWS Farm Plan Scheme compensates losses for changed farm practices but can also fund management measures to benefit nature in target areas Agri-environment schemes not well suited to maintaining farm production which is inherently unprofitable

Commercial viability of cattle farms in Objective 1 Region, 2006 Source: NFS 2006 Disadvantaged Area Payments

Future for LFA compensatory payments Successful scheme with high uptake – 73% of land area and 77% of farms Specifically designed to ensure continued use of agricultural land in areas with natural handicaps – payments represent a straight income transfer Currently under review at EU level following criticisms of its lack of targeting Debate is mainly about ‘mapping’ (i.e. geographical targeting) but future payments could also be linked to management practices

Scheme payments, 2006 SFP€1,160m REPS€329m DACAS€258m Total€1,747m

Paying for environmental services from farming The ‘public goods’ rationale for government support –But lack of market means government must estimate both level of demand and the price to offer farmers for supply How to assess demand? –Public opinion vs expert opinion –How extensive are the environmental services the public wants to buy?

Lessons from schemes to date Much higher participation rates among less-intensive farmers where minimum changes to management practices are required Schemes still strongly input-oriented and prescriptive rather than performance-linked (but monitoring environmental outputs has many problems) Payments link to ‘income foregone’ assumes there is a viable farm business to carry out the agri-environmental work While ‘income foregone’ could imply covering losses of non-remunerative farming activity, there is no longer an upper bound on the payment required

Paying for environmental services from farming Deciding how much to pay to ensure scheme is attractive without overpaying is a major problem given the variation in farm costs –Asymmetry in information available to the government and to the landholder about costs of providing environmental services –Fixed payment schemes plus voluntary participation implies that only farmers who can undertake changes at less than average cost will enrol (adverse selection) Admit farmers on a competitive basis –Tendering schemes have been trialled in a number of countries Environmental cooperatives –Benefits where groups can plan at the level of landscapes rather than individual farms

Alternative approaches to funding environmental services Potential for market valorisation of environmental services –Use of geographical indications, conservation covenants Local funding of environmental services

Conclusions With CAP reform, now more concern about the maintenance of environmental services from farming at the extensive margin Significant transfers being made to Irish agriculture, but are they properly targeted? Are they sustainable in their present form? Much work remains to be done on the design of agri-environment contracts