Tuesday, June 23, 2009

Economics 24/06/2009: Agriculture's Value in Economy

Let the number speak for themselves. Per CSO data release yesterday:
Subsidies as a share of total value of production are creeping up, accounting in 2008 for 31.6% of the entire sector output. Intermediate consumption is also up, made up of various inputs. Net value added is down - the contribution of the sector to this economy through activities actually attributable to production: from 32.3% in 2004 to 13.7% in 2008. Why are we still having a Department of Agriculture in this country if the net and gross value added by this sector is smaller than the net subsidies the sector receives, i.e the sector produces less real value than it takes out of the EU in handouts...


Anonymous said...

Its funny you raise this topic right now.I was discussing this the other day with a colleague.
He was regaling me with tales of his in laws from County Mayo,all farmers who are in receipt of all kinds of subsidies and grants.

He correctly maintained that much of the power of the political system is transmitted through rural constituencies via farmers.

He thought agriculture was a massive part of our economy.
I pointed out to him that INTEL probably adds more value to the Irish economy than agriculure and that INTEL's output as part of GDP is probably higher that the whole agricultural sector.


Anonymous said...

Apart from feeding everyone. what has agriculture ever don for this country?

TrueEconomics said...

About the 'feeding us' thesis: Irish agriculture, in absolute terms, does not cover our entire food consumption. Outside meat production, I do not think we actually know how much of food supply share accrues to Irish producers.

This is an argument about so-called 'food-security' that claims that absent vast subsidies there will be (a) no food supply security in a given geographic area, and (b) there will be shortages of food as no alternative supply can be found to replace lost production.

Argument (a) is false - many countries, including Ireland rely on imports of food and in all of these countries, imported food is cheaper and/or of superior quality to domestic alternatives. Even in the most adverse conditions of WWII, Switzerland - a small neutral economy - was able to access international food supply markets. Unless you are saying that we should be insuring ourselves against another World War, the argument of security is a false one.

Some argued that security argument applies to rising global demand for food. But this argument is also a fallacy. Irish food prices are determined by a combination of domestic mark-ups (greed of farmers and other parties involved in production and supply chains, in parlance of our socialists) and global prices. Thus, if global prices were to increase over time, driven by, say, demographic pressures elsewhere around the world, Irish prices will also rise. Subsidies are not a cushion against this inflation.

Argument (b) is non-falsifiable directly, but indirectly history shows that no country has faced severe food constraints (or any food constraints) in the past due to the reductions in the size of its own agricultural production.

In fact the opposite is true - as agricultural production as a share of economic activity fell around the world, availability and quality of food actually increased.

Even if Irish agriculture were feeding this country, one has to weigh the costs and benefits of such economic activity taking place here, as opposed to elsewhere on planet earth. These should include the opportunity cost of having low value-added production domiciled in a country with some of the highest labour costs in the world. Would you find it reasonable to argue that since we all shower, we need domestic security of soap supply too?

Third, you are assuming removing subsidies will end Irish agricultural production. This is false, as New Zealand's example amply illustrates.

The only reason we can afford the luxury of having such a wasteful sector here in Ireland is because of our free-riding on other EU taxpayers in terms of CAP subsidies. But this free-riding is also deceptive. Since Ireland is now net contributor to the EU, our transfers to the EU come back in the form of agricultural subsidies. Given that farmers pay much smaller share of their income in taxes, this results in a net transfer of funds from Irish middle classes to Irish farmers.

The consumer, as always is the case, gets to be ripped off twice - once in the grocery store buying 'Made in Ireland' and second time in the Revenue office. But hey, we are all patriots, aren't we? It is all about preservation of the rural traditions, even though majority of us never get any benefit of these traditions and when we wish to have some, we can get an angry farmer chasing the urban dwellers off his property (for which we, the urban residents have paid many times over in subsidies)...

Yeah, they are 'feeding everyone'...

Anonymous said...

I seem to remember seeing analysis that stated that if Ireland's beef output (very heavily subsidised) fell by 30% our GNP would actually rise very slightly. There would be job losses of course, but the only sector that would particularly lose out is the processing sector. Suits them nicely to have an easy supply at world prices on their doorstep. Not friends of FF though, the beef processors. Oh wait a second..

Unknown said...

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