Professor Alan Renwick:

I thank the committee for inviting me to address it. I will briefly outline the key findings of the report. I take it that members have had an opportunity to read it and copies of my presentation have been circulated to them.

The purpose of the report was to examine the current economic impact of the cattle and sheep sector in Ireland and to consider the implications of possible scenarios.

On the positive side is the achievement of the Food Harvest 2020 goals. Less positive is the question of what would happen if the sector were to continue contracting.

It is important to remember that this was a short study and dealt with the activity's direct impact, for example, the production of cattle and sheep, processing, the sale of meat, etc. It does not cover what are perhaps some equally important economic, environmental and social outputs from the agriculture sector. For example, it does not deal with agriculture's relationship with providing scenery that attracts tourists or other factors that members might wish to take into account. It only focuses on production.

We reviewed the current numbers in and structure of the industry. In Ireland, there are 4.75 million sheep and 6.6 million cattle. Of the 139,000 farms classified within Ireland, 110,000 have some cattle production and 32,000 have sheep. As Mr. Bryan mentioned, cattle and sheep are prevalent throughout Irish agriculture. It is estimated that 170,000 people are working on specialist sheep and beef farms, representing almost 100,000 full-time jobs. This is a major form of employment.

I have included a graph showing cattle and sheep numbers since just after Irish accession to the EU. Its purpose is to highlight the change in numbers, but also the dramatic influence that policy can have on Irish beef and cattle numbers and the sector as a whole. Once we overlay key policy changes during this period, we can see how dramatic a direct impact they had. The introduction of the sheepmeat regime and new premiums led to a dramatic rise in sheep numbers. The MacSharry reforms of 1992-93 have led to a major decline. We have also witnessed a major growth in suckler cow numbers. They did not decline to the same extent as sheep numbers after the MacSharry reforms, but we have witnessed a decline in recent years. We are using this graph to highlight how policy choices have a direct numerical relationship with the beef and cattle sector.

Something that is clear from the report and the Teagasc data on the national farm survey is that agriculture is a low income sector. I have supplied a table setting out average incomes in 2011 for cattle rearing, cattle other and sheep farms. The average farm family income was approximately €10,500 for cattle rearing, €14,500 for cattle other and approximately €16,800 for sheep. That year was a relatively good one. However, the five-year average to 2011 for cattle rearing, for example, was only €7,819.

The table outlines the market income figure, that being, the gross output from selling the product, excluding payments, minus the cost of production. For all of these systems, that figure is negative and goes as high as minus €5,000 across the five-year average for cattle rearing. Farmers are not getting a return from the market that covers their expenditure. This highlights the importance of support payments. Although it is not shown on the table, support payments average approximately 50% of gross output for these types of farms and between 140% and 147% of income. Obviously, the payment is greater than the level of farm family income for all of these farm types. These are the 2011 figures rather than the 2012, but the picture is not markedly different. The story is still the same.

Farm economics only form one part of the chain. In this study, we examined how activity on the farm fed through the supply chain to the retailer or the consumer. Ireland has approximately 68,000 specialist and 20,000 mixed breeding, rearing and finishing units. We slaughter approximately 1.4 million head at 29 active, export-approved slaughter plants. In addition, there are more than 195 local authority-registered abattoirs, but they only slaughter 70,000 head or so. The majority of animals go through export plants. On average, this year saw live exports of 160,000 head.

Before I came to Ireland, there was something about the nature of its industry that I did not realise, namely, the crucial importance of exports. While we import approximately 46,000 tonnes, some 442,000 tonnes were exported. These figures cover 2010 to 2011, or possibly 2012. Domestic consumption accounts for in or around 85,000 tonnes. The majority of exports go to other countries in the EU.

Farm production leads to widespread activity throughout the economy. One way to show this is what we call the measles map. Coming from Scotland, I found this map interesting in light of the wide distribution of activity in beef and sheep. We have marked factories, livestock markets, approved export points and local authority abattoirs. They are spread throughout Ireland. A similar map for Scotland would show a greater concentration. This is a key issue, as the beef and sheep sector reaches every corner of Ireland in terms of production, further processing and export. It is fair to say that it is probably the only possible economic activity in some regions.

What does all of this activity generate in terms of the wider economy? As Mr. Bryan mentioned, we found that farm output in the beef and sheep sector was approximately €2.3 billion. Using multipliers derived from Dr. Ana Corina Miller's work as part of the Teagasc Walsh fellowship, a valuable study that has enabled us to do this, the €2.3 billion equates to outputs amounting to €5.7 billion or so across the economy. We will revert to this point but, for a number of reasons, the multipliers within the beef and sheep sector are among the highest in the Irish economy. Therefore, every euro generated in farm output from beef and sheep generates well over €2 in the wider economy.

Examining output slightly overestimates the overall impact on the economy, as it tends to double count while going from one stage to the next. If we consider actual contribution to GDP, which excludes double counting, it generates approximately €3.23 billion for the economy. According to our analysis, we have estimated - these figures are difficult to come by - that 45,000 jobs beyond the farm and processing sectors relate to the economic activity of beef and sheep production.

We can consider these figures in another way by relating total output to the amount of support provided to beef and sheep farms. This support is a key component of the incomes of such farms. We estimate that approximately €1.39 billion in support goes to the sector, leading to €2.3 billion in farm output.

This multiplies up to €5.7 billion in terms of economy-wide output. Another way of looking at this is that every euro of support that goes to this sector underpins over €4 of output in the economy. That is an impressive figure but one of the key issues is whether it is better to have this money going to the beef and sheep sectors rather than elsewhere. In the report we have highlighted that, for a number of reasons, it is an effective use of money. This relates to the fact that the beef and sheep sectors have among the highest multipliers in the economy in terms of multiplying up to economy-wide output. In addition, the vast majority of this production is exported and so gives us export earnings.

The study by Mr. Brendan O'Riordan again highlights the importance of agriculture in generating export income. Given that it is so embedded in the economy, a lot of the value is generated and kept within the economy rather than being imported with added value and then re-exported. The basic product is developed here in Ireland.

That was our overall examination of the current economic performance, but we were also tasked with looking at future scenarios. Since I arrived in Ireland, barely a day has gone by without hearing about Food Harvest 2020 and the ambitious growth targets for Irish agriculture. What potential impact would the achievement of these targets in the beef and sheep sectors have on the overall economy? I will not go into detail but clearly a number of assumptions have to be made. Work undertaken by Dr. Ana Corina Miller as part of her fellowship has examined this issue. It is useful to be able to draw on this data.

We are assuming an achievement of increases in volume and value. Unlike dairy where the target is a volume increase of 50%, in beef and sheep it is also expressed as a value increase. Clearly a value increase can be achieved by any combination of price increase and quantity change. We therefore took some figures done by Teagasc through its factory modelling, of potential scenarios to get to Food Harvest 2020. We also examined the multiplier effects of that. For example, Teagasc's estimation of achieving growth in the sheep sector was a decline in numbers but a significant increase in value, whereas for the beef sector it was an increase in numbers and value. Taking those together, we estimated that the increase in output value of beef and sheep farms would be about €234 million with an increase of somewhere between zero and 4,800 jobs. The difference in the ratio of jobs depends on the assumptions about the relationship with employment. We have discussed this matter in the report. This would lead to an increase in output of roughly €407 million in processing and an extra 1,200 jobs. Overall in the economy we estimate this to be about a €1.5 billion increase with anywhere between 5,000 and 10,000 extra jobs. It is not an insubstantial impact if we are able to achieve the positive goals of Food Harvest 2020.

One of the key issues is that the benefits of growth will spread out spatially not only across Ireland because a number of factories are in rural areas, but also across sectors. A large number of other sectors will gain through that growth. The table highlights those sectors where there is an estimated increase greater than €20 million or 100 jobs. For example, we see growth in transport, wholesale trade, animal feed and other sectors including hotels and restaurants. The model highlights those linkages going forward. The agricultural sector is intrinsically linked in our economic system and the impacts are felt throughout it.

In addition to that positive view, we also looked at the potential impact of cuts in supports. There has been a range of actual and potential cuts in supports to the sector. It is clear that so far, these cuts have been proportionally greater on the beef and sheep sectors. This table highlights the direct relationship between cuts in supports and cuts in farm family income. Based on the 2011 income of cattle-rearing farms, a 10% cut in supports would equate to a 13% cut in income. A 20% cut in supports would lead to a 26% reduction in income, while a 30% cut would mean a 38% drop in income.

Considering the five-year period that preceded it, 2011 was a relatively good year. Taking the five-year average, a 30% cut in support would lead to a 53% reduction in income. We have not done any work on the direct relationship between falls in income and numbers but our earlier work on the relationship between policy changes and cattle numbers does highlight the close relationship between the changing economic situation and production.

We then examined some hypothetical changes in beef and sheep numbers, which are not unrealistic given the sort of decline we have witnessed over time. We looked at the impact of a 25% fall in cattle numbers and a 20% fall in sheep numbers. In a sense, we get the multiplier effect working in reverse. Growth of this magnitude would lead to a €4.9 billion growth in output, while we estimate that similar declines would lead to a €4 billion fall in output. Depending on the approach adopted, it would have an impact of between 16,000 and 34,000 jobs.

One of the issues we touched upon but did not discuss in detail is the scale of the industry. If those sort of declines began, would one reach tipping points in certain parts of the country where the beef and sheep sectors are no longer viable? Would it be difficult to maintain haulage firms, vets and input suppliers? Is it getting harder for the industry to fulfil large orders from abroad? One could look at it as a step relationship between each percentage fall which has a percentage output impact. However, one could also say that, potentially, a tipping point could be reached beyond which it no longer becomes viable to have an industry in certain areas. That was the final conclusion of our report.