Exclusive: €3bn blow to the economy and thousands of jobs on the line

It is almost three years since the Irish Farmers Journal commissioned KPMG to undertake an economic impact assessment on what a range of emissions reductions would mean for Irish farmers, the agri-food industry and the rural economy.

Since the assessment was published in October 2021, the Government has legislated for a 25% reduction in emissions from the agricultural sector, a new CAP came into effect last year and Ireland’s reduced nitrates derogation runs out at the end of next year.

In view of these developments, the Irish Farmers Journal commissioned KPMG with assistance from Michael Wallace, Professor of Agriculture and Food Economics in UCD, to revisit its 2021 report. It has been updated to consider the impact of delivering a 25% reduction in emissions, the effect of the new CAP and the absence of a nitrates derogation.

KPMG has used data from Teagasc, the Environmental Protection Agency, plus secondary research and has applied KPMG modelling on what the combined effect of the changes would be.

As with the previous report, KPMG has assessed what the impact of these developments will be, both on farm and in the supply chain supported by farmers in the rural economy, plus beyond the farm gate in the agri-food processing sector.

The data available isn’t related to individual farm businesses and therefore reflects the average impact across the country, which means that there will be farms that are more impacted by the changes and others less affected.

With this limitation in mind, the Irish Farmers Journal spoke to a number of farmers relaying their experiences alongside the publication of the report.

The report found that the impact of the changes across Irish farms could be a loss of up to €1.4bn with a further potential €1.6bn loss beyond the farm gate in the processing sector.

In addition to these financial losses, it found that job losses across the value chain could range from 22,000 to 29,000.

Core reason

The core reason for a potential €3bn impact is a projected loss of production, which could be as high as 15% in the beef sector, 12% in dairy and 4% across all other livestock categories.

It also estimates a 4% fall in tillage, the lowest-emitting sector of Irish agriculture.

Dairy farming is particularly exposed if it has to comply with a maximum 170kg N/ha limit and the report estimates that up to 55% of dairy farms, which is 9,500 farms, will be negatively impacted with an 8% loss of production.

Specialised beef finishing farms will also be impacted and while these may number less than 200, they account for a quarter of all cattle entering the meat factories.

CAP

On the CAP, which came into effect last year, the report finds a significant redistribution of payments in favour of Connacht and Ulster, where there was a 7% increase, but payments in Leinster are down 6% and Munster is down 3% in 2023 compared with the previous CAP payments in 2022.

The report also highlights individual counties where the movement is significantly higher than the provincial average.

Legislation requires that Irish agriculture achieves a 25% reduction in greenhouse gas (GHG) emissions by 2030 from the 2018 baseline. In its update to the Marginal Abatement Cost Curve (MACC) last year, Teagasc outlined three scenarios and two pathways on how this could be delivered.

The Irish Farmers Journal asked KPMG to consider scenario one and pathway one. Scenario one is considered the most likely by Teagasc to be achieved between now and 2030 and pathway one assumes adoption rates similar to the previous MACC.

Potential

It has the potential to deliver a reduction of 2,819 ktCO2e, or 13% of the total 25% reduction in emissions required, as shown to the right.

Several of the measures in the process also have the potential to save the farm business money.

This scenario predicts dairy cow numbers to increase by 8% between 2022 and 2030, while suckler cow numbers fall by 29% in the same period.

The updated MACC considered three scenarios in total. The second scenario assumes a lower growth in dairy cow numbers and a higher reduction in suckler cows than in scenario one.

Pathway two differs from pathway one in that it assumes complete adoption of all the measures that can technically reduce emissions instead of continuing at the present rate of adoption.

Teagasc also considered a third scenario whereby dairy cows increased at an even faster rate and suckler cow numbers fell at a lower rate than in the previous scenarios – if this were to happen, emissions would increase.

Universal adoption

The Teagasc MACC demonstrated that the 25% reduction target for emissions could be achieved if there was a universal adoption of the measures shown, combined with a 29% reduction in suckler cows and an 8% increase in dairy cows from 2022 levels, leaving a national herd of 6.785m cattle in 2030, compared with 7.132 head in 2022.

This report opted for scenario one, pathway one because it was considered the most likely to occur up to 2030.

It was widely recognised that the move to flattening of payments with 85% convergence of the entitlement unit value would mean a reduction in payments for more intensive farms with a higher stocking rate on lower acreage and a corresponding increase for more extensive farms.

Typically, this meant that payments would move from farms with more fertile higher productive land, usually in the south and east to farms with more marginal lands in the north and west.

A new Complementary Redistribution Income Support for Sustainability (CRISS) scheme redistributes 10% of direct payments from larger farms to small and medium farms, with payments maximised at 30ha.

While the target of the eco scheme, which distributes 25% of funds, is to reward farmers for delivering an environmental benefit, it has also been another mechanism of redistributing funds.

A further feature of the new CAP is the focus on organic farming

Farms with high-value entitlements are net contributors to the funds and farms with low-value entitlements are net beneficiaries with a high percentage of farms witnessing no real change.

Additionally, capping of Basic Income Support for Sustainability (BISS) payments at €66,000 has a small impact in contributing to a geographical redistribution of CAP payments.

Organic

A further feature of the new CAP is the focus on organic farming.

Ireland has a target to get 10% of utilisable agricultural land into organic farming and the report finds that, in 2024, 225,000ha – or 5% of the land – is being farmed organically.

This is encouraged by €55m in payments to organic farmers with beef farms the largest category, making up 55% of the total followed by sheep on 39% and the remainder in tillage and other enterprises.

Organic farming results in between 10% and 25% less output from beef and sheep farms and up to 50% less on tillage farms.

In 2023, the annual direct CAP payments to farmers increased by 7% from €246m in 2022 to €264m in Connacht, while the increase for the three Ulster counties was 7%, up from €120m in 2022 to €128m in 2023.

This is based on analysis of over 93% of payments being completed and forecasting of the final 7%.

This increase in payments came from a reduction in supports to Leinster and Munster farms. In Leinster, the annual direct CAP payments to farmers fell by 6% from €373m in 2022 to €351m in 2023.

Individual counties

On an individual county basis, Donegal was the winner in Ulster with payments up 10% in 2023 compared with the previous year, while in Connacht, Mayo was the winner with an 11% increase, followed by Roscommon with a 10% increase.

The biggest loser in Leinster was Carlow where payments fell by 19% in 2023 compared with the previous year, while payments in Wexford were down 12%.

In Munster, total average payments received were down 3% to €428m. Tipperary was the biggest loser, down by 9%, while Waterford fell by 6%.

It should also be highlighted that the total payments to different counties hide the impact of internal convergence. For example, while Donegal benefitted overall in terms of receiving higher funds, there was a significant number of farmers receiving reduced payments as a result of the CAP Strategic Plan.

Denis Large, Co Tipperary

Denis Large farms 225 acres of owned land with a further 90 acres leased with his wife, Anne, outside Urlingford, Co Tipperary.

The farm business is split between carrying up to 150 suckler cows in a calf-to-beef system and 120 acres dedicated to tillage, growing spring barley and some fodder beet.

All the calves are taken through to beef in a 16-month young bull finishing system with an average target carcase weight of around 400kg.

Heifers are finished between 20 and 22 months and have a target carcase weight of 330kg.

Currently, the farm is carrying 125 suckler cows and 121 cattle were sold from the last cycle averaging 383kg per head (at an average of €5.42/kg).

This farm business is one of the losers in the new CAP.

Looking back at CAP payments received a decade ago, the same farm business received over €40,000 less in direct CAP and eco-scheme payments for last year.

Specific schemes such as BDGP, ACRES SCEP, and so on, are excluded. Large explained that his business model means that sales revenue covers the farm costs without dipping into the CAP payment. However, the CAP changes mean that he now receives just over half of what he did previously.

When asked by the Irish Farmers Journal about what he would do in these new circumstances, Large said that he doesn’t foresee the price he gets for beef increasing the 50c or 60c/kg he would need to make up for the lost payments but, for now, he isn’t going to make any major changes. In the longer term, “everything is on the table”, he said.

More tillage is an option and being in the heart of prime dairy country, he said: “If I was 30 years younger, switching to dairy would get serious consideration.”

The effect of 85% convergence on BISS payments and the introduction of the eco scheme and the Complementary Redistributive Income Support for Sustainability (CRISS) has three distinct impacts on sheep farmers, as outlined below.

1 A high percentage of sheep farmers who have entitlements with an average unit value and are farming in the region of 25ha to 30ha will see no real change to the level of payment received over the course of the CAP Strategic Plan 2023-2027.

2 A significant cohort of sheep farmers with an intensive sheep enterprise or mixed farming systems with higher-value entitlements will see their payments reduce, however. For example, if we take a farmer with 39ha of top-quality lands with 150 ewes run alongside 22 suckler cows and followers, and with an average entitlement value of €370 in 2022 (including greening), such a farmer will lose through all three metrics. The reduction in payment reduces by approximately €12,000 over the five years.

3 In contrast, take the example of a hill sheep farmer on 80ha of marginal lands, farming 200 ewes and possessing 80 entitlements worth €170 in 2022. Such a farmer will benefit through BISS and the eco scheme and largely balance out with CRISS, with the overall change of receiving upwards of €18,000 more over the next five years.

This farmer would also benefit further, for example, if it suited their farming system to convert to organic farming.

The headline-grabbing figure from the KPMG report is that up to 9,500 dairy farms could be hit and the dairy herd reduced by 8%, if Ireland doesn’t retain the 220kg N/ha derogation after 2025.

After that, without a derogation, the limit falls to 170kg N/ha and while the previous reduction from 250kg N/ha has already impacted several farmers, it is the further reduction that will extend the impact much more.

While nitrates is an issue for over half of all dairy farmers, it also affects larger beef finishers.

Analysis by Adam Woods on the 2022 national cattle kill showed that 400,000 head, or a quarter of the total kill, was supplied by 160 finishers and these are likely to be put under pressure without the derogation.

While it isn’t specifically an issue in tillage farming, it is the sector most likely to be squeezed if dairy farmers under nitrates pressure are looking for extra land.

Without individual farm data, the KPMG report uses approximate averages from models based on Central Statistics Office (CSO) data.

The impact of a 170kg N/ha limit is greater in southern, eastern and midlands counties than it is in the west and northwestern counties.

East, midlands and south

A typical dairy farm in this region has 140 livestock units (LU), which equates to 95 dairy cows and produces between 165kg and 205kg of organic nitrogen per hectare.

An average beef farm will have 36LU and produce 80kg to 100kg of organic nitrogen per hectare, while the typical sheep farm has 21 LU or 200 ewes with lambs and produces between 60kg and 80kg of organic nitrogen per hectare.

North and west

It is a similar trend in the north and west, with dairy farms again the most intensively stocked.

There, the typical dairy farm has 100 LU or 70 dairy cows and is producing between 155kg and 195kg N/ha.

These farmers would have to reduce their herd by much more than the 8% average

Suckler and beef farms have typically 20 LU producing between 50kg and 70kg N/ha, while sheep farms average 14 LU and produce between 30kg and 50kg N/ha.

Again, it must be emphasised that these are average figures and don’t reflect that there will be individual farmers who have a much higher output of organic nitrogen.

These farmers would have to reduce their herd by much more than the 8% average referred to in the report for the dairy sector and this will have a seriously negative impact on these farm businesses.

The majority of specialist tillage farms are losing out in the new CAP through convergence, despite the fact tillage farms have the lowest carbon footprint of the main farming sectors at just 1.3t CO2e/ha.

The tillage area is declining as incomes decline and land is also leaving the sector, as pressure comes from dairy farmers taking land to reduce stocking rate due to the nitrates derogation changes.

1 On convergence, a farmer with 61ha with entitlements of €317/ha in 2022 meeting eco-scheme requirements, loses over €2,000 in each year of the CAP, climbing to €2,820 in 2026 and 2027.

In total, this farmer will lose €12,571 over the five years of the CAP.

2 A farmer with 29ha and entitlements which were worth €345/ha in 2022, meeting eco-scheme requirements, will lose €5,290.47 from 2023 to 2027.

3 Another example is a farmer with 250ha who has 125ha with entitlements at €350 and 100ha with entitlements at €250.

This farmer will be paid the eco-scheme payment on the 25ha without entitlements but, by 2026 and 2027, this farmer will have a €10,493 payment less than that of 2022.

These farmers, producing large amounts of grain and straw, must meet strict requirements to qualify for this money.

They need to grow certain acreages of crops, carry out rotations, have at least 7% space for nature on their farms and follow many more rules.

An example of a dairy farmer who will be impacted above the average referred to in the report is Raymond Goggin. Raymond is milking 123 cows near Templemartin in Co Cork. He operates a high-performing farm growing in excess of 12t DM/ha of grass per year.

Last year, the herd delivered 497kg MS/cow to Dairygold Co-op

He milks 123 cows on a milking platform of 32 hectares with an additional nine hectares across the road and a further 16 hectares about a kilometre or so down the road.

Both outside blocks are used for silage and youngstock. Last year, the herd delivered 497kg MS/cow to Dairygold Co-op and the herd is in the middle band for nitrogen excretion rates.

The watercourses on the farm flow into the Sall river, which is considered to be in good ecological status. This river flows into the Brenny river which has high ecological status.

If the derogation is lost, then Raymond would have to reduce cow numbers by 30 dairy cows or a 24% cut. According to an analysis carried out by Dr Laurence Shalloo in Teagasc, this scenario would see the Goggin farm taking a 23% drop in milk volume and milk solids. This would result in an increase in production costs per unit of milk solids or per litre of milk by 13%.

Including Raymond’s own labour, the loss of the derogation would lead to a reduction in net profit by a staggering 45% according to the Teagasc analysis.