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

2. 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

3. 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?

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

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

6. 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

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

8. Future for Single Farm Payment • Guaranteed through 2013... … 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?

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

10. 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

11. 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

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

13. 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

14. Scheme payments, 2006

15. 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?

16. 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

17. 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

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

19. 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