What will climate targets mean for farm income and rural Ireland?

When the Food Vision 2030 strategy was being finalised and the climate bill was being signed into Irish law in July, the Irish Farmers Journal commissioned KPMG to produce an economic impact assessment on what achieving a 50% cut in Irish emissions could mean for Irish farmers and the wider rural community.

The approach agreed with KPMG was to assess the economic implications of a series of measures that could be required from Irish farmers to deliver different levels of emissions reductions in Irish agriculture. We decided on four scenarios:

Scenarios 1 and 2 were chosen and developed on what existing research suggests may be achievable with adoption and delivery of best farming practice.

Scenario 2 pushes the boundaries on this to include wider adoption of new technology and procedures.

Most extreme

Scenario 4 was chosen as the most extreme possible demand on agriculture, close to the national target of 51% reduction in emissions. Scenario 3 covers what is required to deliver emission reductions between 21% and 30%.

This will require a cut in cattle numbers, as well as all the mitigation measures described in Scenarios 1 & 2. The KPMG report focuses on the cattle sector as this is the main source of emissions from agriculture and the sector in which Teagasc have best information.

In Scenario 1 (S1), the KPMG report identifies that a 13% reduction in emissions from Irish agriculture can be achieved by things that farmers can do in running their own farms and do not involve any reduction in cattle numbers. These are calculated by applying the measures identified in the Teagasc Marginal Abatement Cost Curve (MACC).

This is basically a series of measures and mitigations all farmers can do on their farms to reduce their emissions. MACC is an estimation of the level of uptake there might be on farms for these. Some measures in MACC reduce emissions more than others. For example, there is potential to achieve 0.430 MtCO2e, over one-fifth of the 13% reduction, by improving the dairy breeding index, while using sexed semen makes a marginal contribution of 0.024 MtCO2e.

Other livestock measures that contribute to the 13% of emissions reductions are improved animal health, low-emission slurry spreading, extended grazing, increased liveweight gain for beef cattle, anaerobic digestion of slurry and grass, reduction of crude protein in pig diets, additions to feed diets and slurry and improved beef maternal traits.

For land management the biggest reduction in emissions is achieved by switching to protected urea fertiliser, which would deliver 0.521t reduction in emissions or over a quarter of the 13% total emissions in S1. Other land-based improvements include draining wet mineral soils, efficient use of nitrogen and inclusion of clover in pasture swards.

These measures are in the main applicable to livestock farming, with beef and dairy combined delivering half the reductions and land management delivering 46%. The remaining 4% apply to sheep, pigs and poultry.

The attraction of S1 is that the 13% reduction can be achieved without cost to farmers. In fact, when the cost of delivering these measures is counted against the economic benefit, incomes improve by €5,100 for the average dairy farm and €200 for the average beef farm. Farmers therefore could accept a 13% reduction in emissions target, and in the process improve the profitability of their business.

Scenario 2 builds on all the measures featured in Scenario 1 by either more widespread adoption of these measures or new measures altogether but no requirement for a reduction in cattle numbers. The new measures are based on ongoing research at Teagasc, plus work that has been undertaken by the Scottish Rural College.

Many of these are based on greater uptake of measures in Scenario 1. For example, wider adoption of low-emission slurry spreading would contribute to reducing emissions, as would reduction of crude protein in beef diets in addition to pig diets.

New measures added in Scenario 2 include 3NOP, a methane additive being developed for cows which would mitigate 0.453 MtCO2 or 2.7% of the progression from 13% reduction in overall emissions to 18% reduction in Scenario 2.

Covering slurry stores would make a small contribution to emissions reduction.

Measures with livestock represent 55% of the emissions reductions that can be achieved in Scenario 2, with the remaining 45% coming from land management.

Here in addition to the switch to protected urea in Scenario 1, further nitrogen efficiencies, nitrification inhibitors, use of compound fertiliser, reduced Nitrous Oxide (N2O) from organic soils and multispecies swards are all identified as measures that build up to an overall 18% reduction of emissions from agriculture.

From an economic perspective, there isn’t as good a cost benefit with Scenario 2 as with Scenario 1.

Dairy farms would still be better off by on average €2,100 than if they did nothing but the additional costs for the measures necessary to move from 13% reduction to an 18% reduction would cost beef farms on average €300.

Moving into Scenario 3 which is the same as the cuts the Government is proposing, it will be necessary to reduce cattle numbers to achieve even the lower target in the range.

Meeting the lower 21% target will require achieving all the measures in Scenarios 1 and 2, which will achieve an 18% reduction. To push this to 21% in the absence of finding a new methane reducing technology for cattle will require a herd cut of 6% in beef, 5% in dairy and 3% in pigs, poultry and sheep.

The consequences of what may appear a relatively small reduction in cattle numbers is still dramatic. A 5% cut would reduce income by €9,900 on the average dairy farm and when reduced input costs are accounted for, average profit would fall by €4,300 or 7%. Fixed costs such as investment in parlours would remain the same.

On beef farms, a 6% cut in the herd would mean a drop in income of €1,400 and when a €200 reduction of input costs is factored in, profitability will fall by €1,200 on the average beef-producing farm, a 13% decrease.

When this average is applied across all farms with cattle, sheep, poultry and pigs, it would mean a reduction in income of €295m to beef farmers, €228m to dairy farmers and €76m across sheep, pigs and poultry. This would mean achieving a 21% cut to emissions would cost Irish farmers in these sectors €621m.

Reduction in stock numbers will also have a knock-on effect on the processing sector, which the KPMG report estimates would cost €479m and 10,000 jobs, making the overall cost to the sector €1.1bn.

By Scenario 3 of the KPMG report, mitigation measures identified and costed in the Teasgac Marginal Abatement Cost Curve and also other known mitigation measures such as feed additives have been exhausted, delivering 2.952 MTCO2e in emissions reductions.

Achieving further emissions cuts by 2030, in the absence of additional research or technology, now requires cuts to livestock numbers. Achieving a 30% reduction in emissions compared to 2018 levels requires a reduction in livestock numbers of 22% for beef, 18% for dairy and 5% for pigs, poultry and sheep.

Reducing dairy stock by 18% results in a reduction in income of €17,500 (25%) on the average dairy farm by 2030. Farm revenue or sales on the average dairy farm falls by €35,500 (16%). However, this is offset by a reduction in costs of €15,900, mainly for feed and fertiliser. Most fixed costs stay the same, which reduces overall farm efficiency.

The average beef farmer would see a €2,800 (31%) reduction in farm income. Farm revenue would fall by €5,200 (14%) which is again offset by a reduction in costs of €2,800, mainly for feed and fertiliser. Again, fixed costs remain the same.

The decline in farm income would result in an overall loss of €2.12bn (14%) in economic output at farm level by 2030. The combined reduction from farming and processing and the wider supply chain would be €3.9bn (20%).

In addition, there is a knock-on effect on employment. Reducing livestock numbers in this scenario would result in 40,000 job losses in the agri food sector including 15,400 at farm level and 24,000 in the wider supply chain.

Scenario 4 seeks to reach a 50% reduction in emissions compared to 2018 levels by 2030. Eighteen per cent (2.95 MtCO2e) of these reductions come from the measures in Scenario 2.

However, further reductions in livestock numbers are now required, over and above those in Scenario 3. Achieving a 50% reduction in emissions requires livestock reductions of 45% for dairy, 47% for beef and 6% for pigs, poultry and sheep by 2030. The analysis assumes that suckler beef will account for a greater share of the beef reduction than dairy beef.

Reducing dairy stock by 45% together with mitigation measures results in a reduction in farm income of €46,400 (66%) for the average dairy farm. Farm revenue or sales decrease by €88,000 (41%), which is offset by a reduction in costs of €40,000, mainly related to feed and fertiliser. At this level of livestock reduction, it is likely that smaller, less profitable and below-average-efficiency dairy farms will no longer be profitable and consolidation is likely.

The average beef farm would see a reduction of €5,600 (62%) in farm income. Farm revenue or sales decrease by €11,100 (30%), which is offset by a reduction in costs of €6,000, again related mainly to feed and fertiliser. As in Scenario 3, fixed costs remain the same.

The decline in farm output would result in an overall loss of €4.63bn (30%) in the value of farm output.

The combined supply chain impact is an €8.9bn (46%) reduction in the value of output at farm and processor level by 2030. This would result in job losses of the magnitude of 94,400 jobs, largely in rural Ireland, 26,700 of which are at farm level and 67,700 at processor level.