Mairead McGuinness Fine Gael MEP

Address delivered by Mairead McGuinness MEP to the Annual Conference of the Society of Chartered Surveyors.

October 21, 2011

Ladies and Gentlemen, thank you for the invitation to address a number of key issues relating to agriculture policy, land prices, food security and global agri-markets.

Land is an emotive issue – so is food.

Following years of disinterest in agriculture and food, food security is now high on the political agenda of the G20 and the EU.

Volatility in agriculture commodity prices in recent years gave rise to riots and political instability in many countries.

Swings in prices are extremely detrimental to low income consumers and also to producers – making planning difficult, if not impossible.

Many parts of the globe suffer from severe food shortages. The recently released
Global Hunger Index for 2011 revealed that 26 countries have levels of hunger that are alarming or extremely alarming.

We know from the TV screens that hunger and starvation are a fact of life in too many countries, especially in sub-Saharan Africa.

Last Wednesday there was a hearing in the European Parliament on the topic of land grabbing on the Continent of Africa.

Land grabbing is where countries buy up land in other parts of the globe as part of their food security policy. We know that China is actively involved in this practice in parts of the African continent.

While China may be involved in real land grabbing, the EU does it in a less obvious way.

The EU’s land grab is significant. We use a land bank equivalent to the size of Germany to produce part of our food needs here in the EU. Currently that virtual land bank is equivalent to over 30 million hectares, according to Research by Professor Harald von Witzke, Humboldt University of Berlin

The import of these “virtual” hectares is required to produce our soya and oilseeds needs mainly for animal feed.

The figures for 2008 of virtual land imports is 35 million hectares- In 2010 when EU agriculture production was high, our virtual land imports reduced to 26 million ha, which shows that if we increase production in the EU, we rely less on using land outside our borders for our food production. If we produce less internally, we need to import more and thereby use more land externally.

Last Wednesday in Brussels, the EU Farm Commissioner Dacian Cioloş released his proposals for reform of the CAP.

The reforms have been met with a very mixed and generally negative reaction.
Farmers are concerned about the implications of changes to the single farm payment regime and about proposals to link 30pc of payments to very specific environmental measures. There is much debate about the implications of the proposal to redistribute payments between member states and between farmers within member states.

Much of the discussion and debate in Ireland is focusing on the reform of the single farm payment regime. Irish farmers receive €1.5 billion in direct payment under the CAP.

These transfers are an important part of farm income and are important in ensuring agriculture production and territorial balance in Ireland.

Teagasc income figures show very clearly that many farms generate very low incomes. The average family farm income fell by 57pc between 1999 and 2009. Over that period, the average family farm income at its highest was just under €17,000. Averages do hide the highs and lows of farm incomes, but the figures compiled by Teagasc are accurate.

Over time off-farm income has contributed an increasing share of total farm household income. A situation which will be affected by rising unemployment and lack of off-farm work – in 1987, off farm income accounted for 29pc of total household income, rising to over 50per in 2005.

The distribution of family farm income, again compiled by Teagasc, shows that in 2010, around 28pc of farmers earned an income from farming of over €20,000 – the remaining 70pc earned less that €20,000.

Among full-time farmers, the statistics show that in 2010 around 42pc of full time farmers earned over €40,000 – in 2009 a very bad year for farming less than 20pc of farmers earned over €40,000.

Given the relatively low level of farm incomes, it is understandable that all efforts will be made to secure the €1.5 billion from the EU budget via the CAP.

This is why the discussions on the size of the EU budget post 2013 is particularly important. While the indications are that the current budget for agriculture policy (CAP) will be maintained at current levels post 2014, it is not yet a done deal.

In addition the proposals for the EU budget post 2014 does make a direct link between more “greening” of the CAP in return for funding of the CAP.

Opposition to the 30pc link between payments and environmental compliance must bear this is mind.

Ireland should, all going well, hold onto our share of the CAP budget.

There is virtually no political support either in the European Parliament or in the Farm Council for retention of the historic payment system in place here in Ireland into the future.

LAND LINK

The EU Commission wants to see a flat rate payment per hectare introduced either at member state level or at regional level by 2019.

The first step in the reform process is to abolish the current entitlement system by December 31st, 2013 and replace it with a new one on January 1, 2014.

The proposal to move to a per hectare payment and to nominate 2014 as a base year for establishing payment entitlements has already had an impact on the land market – in particular the rental market.

There are reports of farmers who want to reclaim rented land in order to obtain or maximise payments under the new regime in 2014. In the run up to this date it is also likely that farmers will want to try and increase the area of land they farm, again in order to increase their payments.

Land leases may be broken as a result. A mini-land war is inevitable.

However, I have warned several times that it is dangerous to gamble on the future on the basis of proposals.

There is a requirement in the proposals that in order to qualify for payment under the new scheme, a farmer would need to have activated at least one payment entitlement in the current year 2011. If this remains in the final agreement it would preclude those who rent out all of their land from claiming entitlements in 2014.

While it is understandable that farmers want to try and second guess the outcome of the reform discussions which have only just begun, it is also important that the claiming of direct payments does not become the sole focus of farm business or indeed national planning.

One of the additional proposals is that all land will be taken into account under the new single payment regime and that by 2019 all land will have a linked payment.

While the pressure is on to try and reach agreement by January 1, 2014 it is by no means certain that this timeline will be met, which could give rise to a situation whereby the current regime would be rolled over, delaying the reforms until after a new Parliamentary election and possibly a new Commission is in place.

This would require a rolling over of the budget into 2014 and possibly 2015.

LAND MARKET

Land is a fascinating topic of conversation. I am indebted to Teagasc researcher David Meridith for some of the details of the land market, demographic changes and the likely implications for land mobility and farming in Ireland.

Only half of a percent (0.5pc) of the total agricultural land area comes on the market every year. It is such a small proportion that there is no “real” land market.

In statistical terms it would take 250 years for all of the land in Ireland to change hands at least once!

Even at the height of the property boom when land sold for extraordinarily high prices – very few farmers took the bait and sold their land. Indeed some who did and invested their millions elsewhere lost all in the bank collapse and property collapse.

The logic would follow that if the amount of land being sold did not increase dramatically in the heady days of the property boom, it is highly unlikely that the pattern of the land sales will change now that we are in a very different era, with land prices in 2010, averaging around €8,776/hectare, according to the Knight Frank Ireland.

That survey showed that land prices dropped by over 9pc nationally, but in some parts of the country it increased by almost 20pc. In 2009, average land prices plummeted by 43pc.

The survey centred on only 400 properties.

DEMOGRAPHIC CHANGES

However, demographic changes will have an impact on the land market.

The Teagasc Rural Economy division has produced an interesting map showing the vitality ratio in Irish farming.

This measures the number of farmers aged under 39 years for each farmer aged 60 and over.

In the west and north, parts of the midlands and North West of the country, there are fewer farmers aged under 39 years than those aged over 60. The map is quite dramatic. Only in sporadic parts of the east, south east and south is there more farmers under 39 than over 60.

It is inevitable therefore that in the next 5 to 10 years there will be significant changes in land ownership.

What is less clear is who will inherit and what they will do with the land?

Will they farm, rent or sell it?

The decision will probably be based as much on emotional considerations as economic ones.

It would be interesting to know the answers to these questions.

In the last 20 years, average farm size increased by 24pc. In the next 20 years will the demographics result in further consolidation? What about the implications for fragmentation of land?

The aspirations for Irish agriculture and the food sector will need restructuring at farm level if they are to be achieved.

For active farmers access to rented land is important, with a million ha of land rented each year.

This week the Irish Creamery Milk Suppliers Association (ICMSA) called for a study to be conducted into the implications for the land market of the proposed move to a flat rate per hectare support system as envisaged in the CAP reforms.

I believe such a study would be useful. It would also be helpful to have a study which gave policy makers more information on attitudes to land ownership, implications of demographic change on ownership and use of land in order to try and manage much needed restructuring.

Land is more than a means of production – much more.

For farmers it is a means of production, but it is also a store of value both economic and emotional and cultural.

It is a status symbol of sorts.

People who get rich in business usually buy land, even if farming it makes a relatively poor return for their investment.

The price paid for land bears some but no direct link between the income a hectare can produce.

Investment by farmers in land is a long-term issue.

However for those full-time farmers who are the backbone of our productive sector, they will need access to more land in order to allow them grow their businesses.

There will be on-going restructuring of farms but the pattern of restructuring will be shaped by land availability whether for sale or lease.

NAMA

There has been much discussion about the NAMA land bank – all based on speculation and not fact.

While we are told that land accounts for 18pc of the assets owned by NAMA, it will not disclose the actual number of acres it has on its books.

In fact we know very little about how NAMA plans to dispose of its land bank and whether it might be possible that some of the developers whose land is in NAMA might end up buying the land back from NAMA at much reduced prices – a degree of transparency is needed here.

The thousands of acres of land in NAMA ownership should at some point come onto the market, but will they? When and how is all open to speculation.

One thing is certain, it will be not be sold at the prices for which it was purchased and will revert to agriculture use. It is in all probability already under the plough or cow.

GLOBAL COMMODITY MARKETS

Globally there is a steady rise in agriculture commodity prices. The FAO predicts that prices will continue to rise, but fluctuations in commodity prices will also be a feature for the future.

FAO estimates point to a need to double the output from the land in terms of food, fuel and fibre by 2050.

Land is a scare resource globally. Agriculture productivity is declining, yet the demands are to produce more from fewer resources and to do it in an environmentally friendly way.

Farm input costs are on the increase and despite higher commodity prices farm incomes are being squeezed.