Category Archives: Subsidies

1/8/20: Ireland: Agricultural Subsidies and Production

CSO published final data for 2019 'value added' in agriculture. As always, a fun read from the perspective of which constituency in a 'market economy' loves Big State. You've guessed, it Agri business. And no, I can't claim it is farmers, for they get the minority stake in the largesses that are European Common Agricultural Policy subsidies.

Here is a chart:

In 2019, Irish agricultural sector gross output at producer prices was EUR 7,960.9 million. Based on estimated GNI*, this means that the entire sector gross output (not net) amounted to just around 3.73% of the domestic economy in Ireland, just around the average for the decade of the 2000-2009 (3.95%) and below the average for 2010-2018 (4.60%).  In annual terms, gross output was down 3.1 percent y/y and was the lowest since the end of 2016. Subsidies net of taxes paid amounted to EUR 1,837.1 million in 2019, the highest level since 2008 and up 2.63 percent y/y. 

Overall, subsidies in 2019 amounted to 64 percent of the entire Gross Value Added in the sector, and 96 percent of the Net Value Added. CSO reports data for 'entrepreneurial income' in agriculture, which, really, is income accruing to owners of the production units. These include farmers, but also large corporates and coops. Subsidies amounted to 69 percent of the total Entrepreneurial Income in 2019.

Subsidies fell in importance when it comes to the Net Value Added in the sector year on year from 103% in 2018 to 96% in 2019, but remained the same in terms of their importance to the 'Entrepreneurial Income' in the sector.

By decade: subsidies amounted to 39% of the 'Entrepreneurial Income' in the sector in the 1990s on average, rising to 99% in the decade of 2000s, primarily due to a massive jump over 2005-2009, before falling back to 78% for the decade through 2019. Excluding net subsidies, 'Entrepreneurial Income' in agriculture averaged EUR 1,127.6 million per annum in the 1990s, and excluding the Great Recession period, EUR 259.8 million in the 2000s. Again, excluding the period of the Great Recession, the same annual average was EUR 666.12 million in 2010-2019, with 2019 annual figure of EUR 829.6 million. 

To say there is little growth in economic activity in Irish agricultural sector, in terms of sector value added is to make an understatement. Comparing 1995-1999 average to 2017-2019 average, Irish GNI* is now 3.1 times higher than it was in the 1990s. Meanwhile, agricultural output at basic prices rose by just 46 percent, Agricultural sector Gross Value Added is up only 1 percent, Net Value Added is down 15 percent, Entrepreneurial Income is up 45.7 percent, while subsidies (net of taxes) are up 73 percent.

17/6/19: Lose-Lose-and-Lose-Some-More Trade War: Trumpism in Action

Recently, I have posted on the latest Fed research covering the impact of the President Trump's trade war with China, showing that the tariffs collected by the U.S. Federal Government are not being paid for by the Chinese producers, but are fully covered out of the American consumers' and firms' pockets.

Here is an interesting note via CFR on the balance of tariffs and farms subsidies dolled out as a compensation for the Trump trade wars:

via @CFR_org

The point is that tariff revenues are a tax on American economy (households and firms), and these tax revenues collected by the U.S. Federal Government are not enough to cover compensation to the U.S. farmers for their losses due to China's retaliatory tariffs. Agrifood commodities are a buyers market: soybeans are sourced globally, traded globally and their prices are set globally. When China imposes tariffs on imports of soybeans from the U.S., the Chinese consumers do not pay the tax on their purchases of these, instead they substitute by purchasing readily available soybeans from other parts of the world. On this, see: Brazilian farmers win, American farmer lose. Uncle Sam subsidises U.S. farmers to compensate, using tax revenues it collected from the American consumers of Chinese goods.

But farming lobby is strong in the U.S. Thus, total quantity of compensation awarded to the farmers in now in excess of total tax revenues collected from the American consumers. It's a lose-lose-and-lose-some-more proposition of economics of trade.