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: https://www.cfr.org/blog/130-percent-trumps-china-tariff-revenue-now-going-angry-farmers.

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: https://trueeconomics.blogspot.com/2019/05/14519-agent-trumpovich-fails-to-deliver.html. 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.

9/10/15: Subsidies and Irish Agriculture: 2014 Data

Per latest data from CSO, Net Subsidies accounted for 59.6% of agricultural income in Ireland in 2014, ranging from 105.3% in the Midlands to 40.6% in South-West.

High as a kite on subsidies, Irish agriculture nonetheless managed to improve, thanks in part to lower euro valuations, its value added relative to subsidies. In 2012 net subsidies counted for 72.1% of total operating surplus (or income) in the sector, falling to 63.4% in 2013.

Key computational definition here are for GVA (Gross Value Added) and Operating Surplus (Income):

GVA at basic prices = Agricultural Output at basic prices – Intermediate consumption
Operating Surplus =    GVA at basic prices – Compensation of employees
                              –  Fixed capital consumption
                              + Other subsidies less taxes on production

Net value added in Irish agriculture in 2014 was EUR1.463 billion, up on EUR1.316 billion in 2013.

For the politicians claiming immense importance of the sector to Ireland, a quick reality check: Gross Value Added (which includes all labour inputs and capital spending in the sector, as well as subsidies net of taxes) stood at EUR2.192 billion in 2014.

And of that, subsidies accounted for 69.4 percent of total Gross Value Added - more than 2/3rds of Irish Agricultural Value Added came via a cheque from Europe, not from customers buying the goods.

In fact, claims about Irish Agricultural Sector contribution to the economy are often wildly off the mark. Per CSO data, the highest metric of this sector activity - Agricultural Output at Basic Prices is EUR7.328 billion for the entire 2014 and of these 20% (one fifth) were net subsidies.

11/12/2014: QNA Q3 2014: Sectoral Activity

Here is the first post on QNA detailed analysis, covering sectoral distribution of activity in Q3 2014.

Note: I covered top level results here: http://trueeconomics.blogspot.ie/2014/12/11122014-q3-2014-irish-growth-broadly.html

Based on seasonally unadjusted data expressed in constant prices (real terms).

Overall all sectors output amounted to EUR40.868 billion in Q3 2014 which is 3.44% higher than in Q3 2013. This marks a significant slowdown on Q2 2014 growth that clocked at 6.53% y/y, but is marginally above Q1 2014 y/y growth at 3.23%.

For the first nine months of 2014, output of all sectors is up 4.41% compared to the same period in 2013. A very healthy number, albeit moderated by the following factors:

1. ESA2010 application is boosting (superficially) business activity relating to R&D allocations, now counted as investment; 
2. Ongoing shift in MNCs patterns of activity here, including (but not limited to) outsourcing of production; and
3. Ongoing shift of the externally trading economy in favour of ICT services, heavily reliant on profit shifting and tax optimisation.

Agriculture, Forestry & Fishing sector output stood at EUR989 million in Q3 2014, which is down 1.59% y/y - the worst performance since Q2 2013. In Q2 2014 y/y growth in the sector was massive 12.43% and in in Q1 2014 it was 3.74%. Over the first nine months of 2014, activity in the sector expanded 5.47% y/y.

Industry, including Construction, output stood at EUR10.281 billion in Q3 2014, which is up 1.96% y/y - a slowdown on Q2 2014 growth rate of 6.47% but an improvement on Q1 2014 decline of 4.97%. Over the first nine months of 2014, activity in the sector expanded only 1.11% y/y, which is weak. Meanwhile, Building & Construction sub-sector output stood at EUR895 million in Q3 2014, which is up 7.31% y/y - a slowdown on Q2 2014 growth rate of 9.54% and on Q1 2014 growth of 9.73%. Q3 2014 growth is the weakest since Q1 2013. Over the first nine months of 2014, activity in the sector expanded 8.76% y/y, which is ok-ish, given abysmally low levels of overall activity. Current level of activity is comparable to Q1-Q3 1997.

Distribution, Transport, Software & Communications output stood at EUR10.832 billion in Q3 2014, which is up 6.39% y/y - a healthy reading. Nonetheless, Q3 growth represents a slowdown on Q2 2014 growth rate of 11.46% and on Q1 2014 growth of 10.67%. Over the first nine months of 2014, activity in the sector expanded by a hefty 9.4% y/y, which is a good news.

Public Administration and Defence output stood at EUR1.572 billion in Q3 2014, which is down 1.26% y/y, against Q2 2014 growth rate of 3.75% and on Q1 2014 growth of 3.67%. Over the first nine months of 2014, activity in the sector expanded by 2.02% y/y in real terms.

Other Services (including rents) output stood at EUR17.622 billion in Q3 2014, which is up 3.67% y/y, against Q2 2014 growth rate of 2.69% and on Q1 2014 growth of 3.85%. So this sector showed acceleration in y/y growth rates. Over the first nine months of 2014, activity in the sector expanded by 3.48% y/y in real terms.

Summary of changes y/y is shown below in the table.

In summary: only one sector of the economy posted higher rates of growth in Q3 2014 compared to Q2 2014. Two sectors of the economy posted declines in activity y/y against four sectors that posted increased activity. This contrasts with all sectors posting growth in Q2.

Stay tuned for further analysis of QNA figures later tonight.

4/7/2014: Q1 2014: Sectoral Growth Decomposition

In the previous post I covered the revisions to our GDP and GNP introduced by the CSO. Setting the caveats set out in this discussion aside, what are the core underlying dynamics in the National Accounts?

Let's deal with sectoral distribution of output, expressed in constant factor cost terms:

• Agriculture, forestry & fishing sector output registered EUR1.042 billion in Q1 2014, which is up 11.2% on Q1 2013. Pricing effects contribute to the improvement which is now running at double digits y/y for three quarters consecutively. Compared to Q1 2011, output in this sector is up 15.3%, although activity remains below 2006-2007 average (some -6.5% lower).
• Industry output is at EUR11.462 billion, which is 2.1% ahead of Q1 2013. This marks first quarter of increases and the pace of expansion is not exactly fast. Compared to Q1 2011 output in the Industry is up only 2.9% and compared to @006-2007 average it is down 9%.
• Distribution, Transport, Software and Communication sector activity is at EUR9.775 billion in Q1 2014, up 8.0% y/y, marking the first quarter of increases after four consecutive quarters of y/y declines. The sector is down 2.5% on Q1 2011 and is -7.8% below 2006-2007 average.
• Public Administration and Defence sector activity is at EUR1.495 billion in Q1 2014, down 2.0% y/y for 21st consecutive quarter of y/y decreases. The sector is now down 7% on Q1 2011 and 16.6% below activity in 2006-2007.
• Other Services (including Rents) are up at EUR17.064 in Q1 2014, a rise of 3.9% y/y and marking 12th consecutive quarter of increases. Sector activity is now up 11% on Q1 2011 and is up 10.2% on 2006-2007 levels. All of this is down to MNCs operating in ICT services sector and much of the increase on 2006-2007 levels is accounted for by tax optimisation, not by real activity.
• Within Industry, Building & Construction sub-sector posted EUR0.719 worth of activity in Q1 2014, which is 7.6% ahead of Q1 2013, marking a slowdown in the rate of growth from Q2-Q4 2013. The sub-sector now posted expansion over the last 6 consecutive quarters. Still, Q1 2014 activity is 4.8% behind Q1 2011 and is down 57.1% on 2006-2007 average.
• Also within Industry, Transportable Goods Industries and Utilities sub-sector activity registered at EUR10.744 billion in Q1 2014 - an increase of 1.8% y/y and the first quarter of expansion. The sub-sector activity is now up 3.4% on Q1 2011 and is basically unchanged on 2006-2007 average.

So in the nutshell, only two sectors activity is currently running at above 2006-2007 average levels: Other Services (aka ICT Services MNCs) and Transportable Goods Industries & Utilities. All other sectors are running below 2006-2007 levels.

Charts below illustrate y/y growth rates in the sectors: