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Analysis/Comment Last Updated: Oct 19, 2010 - 6:01:35 AM


Analysis: Doha Trade Round - Irish Farmers and Sacred Cows
By Michael Hennigan, Founder and Editor of Finfacts
Jul 26, 2008 - 4:01:40 PM

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Pádraig Walshe, IFA President, with Sabine Behre Agritechnica from Germany at the National Ploughing Championships in Tullamore, Co. Offaly, September 2007

Doha Trade Round: This week, we had the bizarre spectacle of the multimillionaire Irish farmers' leader on centre stage as he repeatedly called for the scuttling of the trade talks in Geneva, while Ireland's politicians kept a low profile and the principal Irish business lobby group IBEC, issued three statements to keep its diverse interests tuned up. As for the national interests of a trading nation with foreign firms responsible for more than 90% of its exports, they have simply been second fiddle to a sectional interest that has had politicians disproportionately doing its bidding since the foundation of the Irish State.

Pádraig Walshe, President of the Irish Farmers' Association (IFA),  gets the majority of his farming income from European Union taxpayers but in a country where farm land is the most expensive in Europe, his 177 acre farm near Durrow, County Laois, has grown in value at double-digit rates over the past decade.

This week, State agency Teagasc reported that on the commercial, full time farms, net incomes in 2007 averaging €43,900 compared to €34,500 in 2006 – an increase of 27%. There are 36,400 farmers in this group, and they are the key performers in Irish agriculture. Incomes for these commercial farmers ranged from €66,000 per farm on tillage farms, to €53,800 on specialist dairy farms and €17,700 on suckler farms. Direct payments from the European Union were less important on full-time farms, contributing 23% of gross output and 62% of farm income.

With politicians on the run and IBEC's Food and Drink Industry Ireland Director Paul Kelly warning the Government to maintain "its stated position that current EU proposals on agriculture have gone too far," without making any reference to the potential improved market access for processed food exporters,the IFAhad the field to themselves with newspaper advertisements warning of 50,000 farmers being put out of business, 50,000 job losses in food processing and ancillary services, and a €4 billion annual loss to the Irish economy.

In Saturday's Irish Times, Alan Matthews, Professor of European Agricultural Policy at Trinity College, Dublin, writes that "IFA figures bear no relationship to any likely reality. Not only is it frightening its own members, its campaign is highly damaging to Ireland's economic future."

He says that the impact on the food industry would be broadly neutral in employment terms, while the much more important industrial and particularly service sectors, stand to gain.

Matthews says that the IFA predicts a WTO deal would put 50,000 farmers out of business. He says that there are 132,700 farm holdings in the country, although only 109,100 persons identified themselves as farmers in 2006.

"Is it credible that between one-third and one-half of all farmers would disappear with a WTO deal?" he asks.

"Examining the sources of farmers' income suggests this is highly unlikely, even if the IFA's apocalyptic warnings about a WTO deal had any credibility. Farmers now depend on the decoupled single farm payment for 50% of their income.

A further 25 per cent comes from payments for agri-environment services and other public goods (Reps, forestry, less favoured area payments).

In addition, around 42% of farmers have an off-farm job and 82% of farms have off-farm income from either the farmer or spouse. Thus the income obtained from farming - the element affected by a WTO outcome - only accounts for about 8%, on average, of farm household income," Prof. Matthews adds.

A few factoids that you're unlikely to hear from Pádraig Walshe:

  • Irish farm land is the most expensive in Europe at about €60,000 a hectare

  • Average Income Tax paid per farmer in 2007 was €1,895

  • Farmers have become landlords across Europe on the back of the billions made from development land

  • Farmers take from the Transport 21 roadbuilding budget of €18.5bn is €4.2bn - 23%, compared with 10% in Denmark

  • Irish farmers have been the biggest foreign purchasers of English land in recent years

  • From the introduction of the third level grant support scheme in the late 1960's, farmers children who drove their own cars to college, were likely to be also beneficiaries of the grant scheme

  • 25% of total Irish revenue was raised directly by taxes on land in the 19th century; For most of the period since 1973, Ireland has been the top per capita beneficiary of European public funds via the EU's Common Agricultural Policy.

  • In the early years of the State, public monies were used for vote buying in rural areas through land distribution and more than ten times the social housing investment of urban areas.

  • The world is at the dawn of a boom in agriculture with growing demand in Emerging Economies for the type of agricultural products that Ireland produces. Australia is already gearing up for the growth in beef and dairy demand in 12 Asian countries, which account for 50% of the world's population. The IFA is fighting tooth and nail for its old style protections and priviliges as if it's oblivious to the many opportunities in new markets. It's obsessed with Brazilian beef but where in Europe would an Irish branded steak house be found?

Irish Farmers and Income Tax

Irish farmers paid €173 million in income tax last year or 1.3 per cent of the total income tax take in 2007, an average of €1,895 per farmer compared with €4,943 for PAYE workers and €12,927 for the self-employed.

The figure, which includes yields from special investigations carried out by the Revenue Commissioners, compares to 79.3% from the PAYE sector.

The figures, contained in the Department of Agriculture and Food's Annual Report, also showed that the tax take from other self-employed people last year was 19.4%.

It said that there were approximately 101,200 farmers on record with the Revenue Commissioners, including almost 13,600 who were assessed periodically.

IFA President Pádraig  Walshe presents a letter to the German Chancellor Angela Merkel, outlining the devastation EU Trade Commissioner Mandelson's proposed WTO deal would have on Irish Agriculture at the European Forum in Dublin Castle, on Monday, April 14,2008.
However, there was no figure available to show how much tax for last year was paid by farmers who were working off the land, as many now do.

In 2004, farmers who had other employment in the PAYE sector paid €232 million in earned income; in 2005 the figure rose to €319 million.

In 1974, the Fine Gael-Labour Coalition Government (Labour had real influence across government in those times unlike the experience of the pigeon-holed PDs and Green Party, in modern times) announced plans to introduce 3 new capital taxes and farmers were brought into the income tax net for the first time.

At a football game in Croke Park between Dublin and Kerry, a Dublin supporter held up a placard on Hill 16 with the slogan- ‘Come on the Taxpayers.’

In 1978 PAYE had accounted for 87% of all tax and in the 1979 Budget, the Fianna Fáil Government introduced a 2% levy on the value of farm produce. It was vigoursly resisted by the Irish Farmers’ Association and the Government caved in and withdrew the measure.

In March 1979, in the aftermath of the surrender to the farmers, an estimated 200,000 workers marched through the centre of Dublin in protest against a tax system where penal rates were levied on average earnings while wealthy people and farmers paid little or no tax.

Rezoning and Roadbuilding Bonanza

Given the huge jump in value that a land rezoning decision can have, it's not surprising that the system is corrupt. However, after almost 11 years of the Planning Tribunal, the system is a sacred cow that hasn't been touched.

The day of the brown envelope has passed but not much else has changed.

RTÉ’s Prime Time programme last November disclosed statistics about the involvement of elected representatives in the land development and property business.

A total of 22% of councillors deal in or develop land through their day jobs as estate agents, landowners and builders. In Mayo, that figure rose as high as 45%, in Offaly it was 44% and in eight other counties it was 33% or more.

Prime Time found that in Clare, declarations of interest show that 97% of elected members have no beneficial interest even in their family home. In ten counties, two-thirds or more of the councillors have not declared an interest in the family home.

In Scandinavian countries, if a councillor intervened behind the scenes to influence a planning or rezoning decision it would be considered corruption - a criminal offence - but in Ireland, it’s the norm.

In 2002, Rural Affairs Minister Eamon O’Cuiv noted in justifying one-off housing, that farmers had become “used to selling sites.”

Given the billion of euros that are transferred from property purchasers, including first time home buyers, to farmers via the rezoning system that makes land artificially scarce in a country that is 4% urbanised, it's striking that there is no officially published data on the development land business.

The Central Statistics Office publishes data on agricultural land sales but ignores values suggesting that the land is not for agricultural use.

It suits the dominant political party Fianna Fáil, which is largely funded by the construction industry and the IFA, to keep detailed information about the development land bonanza, out of public view. Besides, why antagonise the typical quiescent private sector worker without a pension?

In recent years, the National Roads Authority has provided a glimpse of the huge sums involved in this area.

The amount the State has been forced to pay out for land compensation was described as "disturbing" by the head of the National Roads Authority.

It accounts for 23% of the cost of roads projects in Ireland, but just 12% in England, 10% in Denmark, 9.4% in Greece and 1% in Iceland. A further 2% of the €18.5bn provided in the Government's Transport 21 for road building over the next decade will go to archaeologists.

Marian Harkin (l), member of the European Parliament, joins demonstrators at the Irish Farmers' Association Dublin protest in April 2008, against the World Trade Organization (WTO) trade talks. Harkin calls herself an "independent" but is in good company in following the crowd. It would indeed be a rarity for an Irish politician to lead rather than play the role of jellyfish, never mind show some independence.  

Economist Jerome Casey, who is editor of the Building Industry Bulletin in a report in 2003, said that site costs accounted for 42.5% of the cost of a house nationwide. Casey said that typically in the mid 1990s, Durkan Brothers sold apartments off O'Connell Street for £35,000 to £40,000 (€44,440 to €50,790) for which the site cost was £5,000. Currently, both the Irish Council for Social Housing and private house builders are reporting city house site costs at up to 50% of the house price. Outside the cities, site costs can represent up to 40% of the house price. For the country as a whole, site costs may now constitute 42.5% of the house price, an increase of almost 30 percentage points on the pre-boom position. In Dublin that increases to 50%. Overall the Irish figures are grossly out of line with the rest of the developed world.

In the US land accounts for 20% of the total cost of a house. In Denmark the figure is similar while in Portugal the land factor drops to 15%.

It is similar for the rest of Europe. Casey estimated that the 30% differential between land prices for houses in Ireland accounted for about €6.6 billion of the total new and second hand housing market, estimated to be worth €22 billion in 2002.

By applying the 30% margin on the cost of land, Casey said the amount of surplus profit for the key landowners was estimated at €300 million. In his report Casey said the major issue was that just 25 individuals or companies controlled more than half of the housing development land in the Fingal area. That includes Balbriggan, Lusk, Donabate and other well- known areas targeted for development on Dublin’s expanding north side.

Dr. Thia Hennessy, Rural Economy Research Centre, Teagasc wrote ina 2006 paperthat investments in land and property have outperformed almost any other investment on offer in this State over the last ten years. An economically rational farm heir then may feel that capital investment in land is a good investment, especially in an era with low interest rates and lending institutions that are more than happy to lend against such collateral.

Dr Hennessy wrote that the statistics on land sales show that typically less than 1% of farmland is exchanged through the market each year. Furthermore, the price at which agricultural land is traded seems to be increasingly unrelated to the incomes earned by farmers. The average price for a hectare of agricultural land sold on the open market in 2004 was approximately €16,000, almost 33 times the average income per hectare earned in the same year. The statistics show that investment in farmland produces a return of less than 3% per year, not much better than leaving the money in a bank account.

In the period 1990 to 2002 CSO data shows that approximately 130,000 hectares of farmland was transferred out of agriculture and into property development and/or road construction. It is likely that a significant number of farmers received an attractive price for this land either through compulsory purchase orders or voluntary sales. While there is no empirical data available to examine this, the anecdotal data suggests that many of these farmers used the proceeds of these sales to reinvest in agriculture and expand the farm. It is possible then that the buoyancy of the development land market, i.e. the prices received by farmers, is also fuelling the market for farmland that has no development potential.

Given the pliable planning system, "the development hope" premium can usually be imputed, without too much difficulty.

Irish Land "Reform"

The political power of the farmers is not a recent development.

When Fianna Fáil won power in the early 1930's, it began an extensive programme of land acquisition and confiscation from its political enemies, via the Land Commission.

Terence Dooley in Land for the People; The land Question in Independent Ireland, 2004, UCD Dublin, wrote:"In October 1933, the new Fianna Fáil government introduced its own extensive and complicated act, which provided the catalyst for record acquisition division statistics 1934-5 and 1935-6 and was very much as Patrick Hogan contended, a 'political act' that pandered to the small farmer and labouring classes in an attempt to secure votes. After the terms of the act became known, there was a rather dramatic growth in the number of Fianna Fail cumainn from 1,265 in 1932 to 1,679 in 1933. This growth was partly the result of more organized and sustained efforts by Fianna Fáil organizers in the rural constituencies but it also owed much to the stimulus provided by the 1933 Act and the widely held belief that one would have to be a member of a cumann in order to benefit from division."

There wasn't even a Mugabe-style pretence of restricting the patronage to "landless peasants" or labourers as they would have been known as in Ireland.

Existing farmers in Galway and Mayo who were Fianna Fáil supporters, were given prime land and subsidised housing in West Dublin, Kildare and Meath.

Emer Ó Siochrú writes in her 2004 paper,Land Value Tax : Unfinished business: "It is astonishing to see just how much of the early State's revenue - 5.4% in the early 1930s- was used to placate land hunger in rural areas to the relative neglect of pressing urban problems. This rural focus extended to providing subsidised housing for farm migrants from the West to the more fertile midlands and the rural labourer. Rural areas got more than ten times the social housing investment of urban areas. Local authority housing tenants moreover, were given the right to buy their house from the outset - a right only offered to urban flat tenants this year of 2004."

Conclusion

Farmers are not the only protected group in Irish society. At the other end of the power and wealth spectrum, is the typical non-unionized private sector worker without a pension and a grip on the public megaphone. Many small business owners in these challenging times, are also facing uncertainty and failure can mean that years of work vaporizes through circumstances beyond their control. In contrast, PádraigWalshe, with his 177 acre farm and 120 plus cow herd, will never face the risk of losing his business. The European Union cheque will be in the post even if he has no cows. Beef baron Larry Goodman for example, gets more than €10,000 in cash from the EU taxpayer each week of the year and it's payable to him even if he just watches the grass grow on his 1,600 acre estate.

Just consider the dominance of representatives of vested interests on RTÉ's flagship radio news programme Morning Ireland.Collective power is what counts in Ireland. The late Chinese communist leader MaoTse-Tung famously said that political power grows out of the barrel of a gun. In Ireland, collective sectional power and wealth are key to political clout and the farmers are past masters in getting Irish politicians to dance to their tune.

Finally, I should declare an interest. I was born on a small farm in West Cork.

Finfacts Blog: Irish Property Obsession, British Landlordism and Myths

 

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