When is a direct payment not a coupled payment? When it is an animal welfare payment. No, this is not a riddle found in my Christmas party cracker, but a response to the news that the Irish Government has just been given the go-ahead to introduce an animal welfare payment for Ireland’s 65,000 suckler cow herds. The Animal Recording, Welfare and Breeding Scheme, to give the payment its full title, will commence on 1st January 2008 and run for five years up to 31st December 2012. In return for complying with seven basic requirements, including calf registration, de-budding, castration where appropriate, a minimum calving age, appropriate weaning procedures including the introduction of meal feeding, animal events recording and taking part in a training and education course, suckler producers will qualify for an annual grant of €80 per cow, up to a maximum of 100 cows per herd (more specific details can be found here).
The ostensible purpose of the scheme is to encourage best practice in terms of animal welfare for suckler herds and to improve the quality of the beef produced in Ireland. Introducing the scheme, Minister for Agriculture, Fisheries and Food Mary Coughlan said:
“It is about two things; high standards of animal welfare and improved breeding. The emphasis is on doing the basic things correctly”. It concentrates on the key events of calving, disbudding, castration and weaning. Farmers who participate in the scheme will be expected to follow best practice at all these stages. They will also be expected to send back information on the key Animal Events. The training courses will concentrate on herd welfare, veterinary and breeding issues. The Minister said that “the ultimate aim must be to produce a weanling that is healthier and of a higher quality standard which will better suit consumer needs and award the farmer producer with premium prices.”
The scheme has been introduced under Article 40 of the Council Rural Development Regulation 1698/2005 which provides that animal welfare payments shall be granted to farmers who make animal welfare commitments on a voluntary basis which go beyond the relevant mandatory standards associated with Single Farm Payment cross compliance conditions as well as other relevant mandatory standards established by national legislation. The payments are intended to cover the additional costs and income foregone resulting from the commitment made, together with any transactions costs.
Although the scheme is nationally-funded scheme, it is considered a state aid and thus requires approval from the EU Commission. The scheme encountered significant opposition in Brussels with the EU Commission arguing that most of its elements are covered by the Good Farming Practice cross-compliance requirements attached to the Single Farm Payment. However, the Commission finally gave its approval earlier this month allowing the scheme to be announced on 14 December last.
According to Teagasc, the Irish Agricultural and Rural Development Authority which runs the agricultural extension service, there is expected to be a very high uptake of the scheme as the requirements can be easily met and suckler beef production needs the support available from the scheme.
The Irish Government has set aside €235 million for the scheme over five years, which given the level of grant aid per cow implies that it expects around 600,000 cows of the approximately 1 million suckler cows to be eligible each year. With an average suckler cow herd size of around 17 cows, assuming all animals qualified would mean an average payment around €1,360 per farm. As the average income on specialist suckler cow farms in 2006 (including the Single Farm Payment) amounted to €8,291, this is a significant addition to family farm income (although as on 64% of these farms either the farmer or his spouse had an off-farm income, the contribution to total household income will be much less).
Under Article 40 animal welfare payments can only cover additional costs and income foregone resulting from the commitment made, apart from a (presumably small) amount for transactions costs. In the Irish case, the costs are largely the time commitment of the farmer, so the payment is more or less a direct transfer to the farmer’s income. Hence the answer to the Christmas cracker riddle, in that an animal welfare payment becomes an effective way of supporting a particular type of farm production (one wonders why the welfare of suckler cows is considered more important than the welfare of dairy cows, for example).
I am not sure if this is the first application of Article 40 in the EU, but I would venture that it is the most extensive national use of animal welfare payments to date, and thus sets an important precedent (we should acknowledge that compliance with mandatory animal welfare standards is also one of the cross-compliance criteria determining eligibility for the Single Farm Payment). The whole principle of compensating farmers for higher animal welfare standards is a controversial one in the WTO. Although the Community made a submission to the WTO on this topic in June 2000, the issue remains unresolved. The main argument made by the EU was that it is legitimate that compensation for additional costs of this kind should be exempted from subsidy-reduction commitments whenever it can be clearly shown that these extra costs stem directly from the higher standards in question and thus have no, or at most minimal, trade-distorting effects.
The Irish payment will provide a significant injection of funds into the beef sector, although the €80 per head payment is still well below the value of the Suckler Cow Premium which was 100% subsumed into the Single Farm Payment in Ireland in 2005 (in 2004, the value of this Premium was €224.15 per cow within the stocking density limit and producer’s quota). Not surprisingly, the idea is catching and the Agriculture Spokesperson for Fine Gael, the main Irish opposition party, Michael Creed, was quick to call for a similar scheme of ewe grants modeled on the suckler welfare scheme with the specific objective of reviving the struggling sheep breeding industry.