Agricultural Overproduction: Time to Diet?

Úna Clarke (Senior Freshman)

The efficient and equitable allocation of factors of production has always posed a problem for economists, nowhere more so than in the agricultural sector. In this essay, Úna Clarke highlights the problem of excess supply and analyses the solutions now being prepared.

The agricultural sector enjoys considerable importance in Ireland, not least for historical and cultural reasons, but due also to its impact on the economy. In total it supplies 16 percent of total employment in the primary sector, which increases to 30 percent when account is taken of food industry linkages. It amounts to 15 percent of GNP and is a very significant component of our export earnings. Thus, European Union (EU) agricultural policies are of vital importance to Irish agriculture, with 85 percent of total spending on agriculture accounted for by the then EC in 1989. Therefore, any changes at EU level reverberate throughout the Irish economy. EU spending on agriculture has arisen through its price and market support of agricultural producers, with the dual aim of ensuring food supply stability and of maintaining agricultural incomes. This Common Agricultural Policy (CAP) has however resulted in the creation of excess capacity in the sector because of the distortion of demand and supply signals. In this essay, I intend to discuss how this excess supply is to be dealt with. Prices and markets policy will be examines first before an analysis of rural development is entered into.

CAP has loomed large within Irish agriculture, since our joining the EU in 1973 and has contributed to growth in GNP and rising farm incomes. However, to a large extent the seeds of its downfall have been sown by its oven success, with extensive overproduction and EU budgetary pressures leading to the need for a substantial overhaul of the system. CAP, operating via market intervention, export subsidies, import controls and direct aid, had in recent years become increasingly difficult to justify. It had contributed to, inter alia, higher consumer food prices, polarisation of the agricultural sector between large and small farms, the capitalisation of the support system with purchase of quotas and higher land prices, environmental pollution and land degradation. Budgetary support realistically could not continue at such a high level, as funds were needed for cohesion payments in advance of the Single Market and the prospective membership of Central and Eastern European countries (CEECs). Large proportions of these economies' GNP are derived from agriculture and therefore the maintenance by the EU of support at previous levels would have led to its bankruptcy. International demand for reform were also growing, emanating mainly form the US in the GATT negotiations. America's own price support system was under pressure from falling world prices. Reform of the world systems, in the New World Order, allowed an opportunity to bind the developing world and ex-COMECON economies both politically and economically into market-oriented policies.

CAP reforms have resulted in reductions in both price levels and output levels, penalties for overproduction and compensation for non-production. Further reforms are in the pipeline to accommodate the accession of CEECs to the EU. As these countries are engaged in the production of commodities already oversupplied in the EU, further cuts will be necessary, leading to the disappearance of the present CAP system by the end of the century in an enlarged EU. If the cost of food production subsidisation is shifted away from the EU, it will fall back on national budgets. The Irish taxpayer hasn't to date had to bear this burden, being a net recipient of EU funds. The issue of overproduction is thus due to become a very real and contentious issue in Ireland, and, one imagines, one that will highlight the urban-rural divide. The GATT agreement, taking effect fully, means in essence, world free trade, the opening of European markets to world competition, and loss of export subsidies. Food industry linkages, meanwhile, are obvious areas to develop as they create markets for agricultural output. However, the agricultural industry must begin to take seriously the concerns of consumers and environmental groups, use of inputs and pollution.

Rural development has become increasingly more important at both EU and national level. Issues such as distinct urban and rural infrastructures aside, rural development is viewed as a method of reducing excess supply by encouraging movement of resources to non-agricultural activity. Such measures would encourage rural diversification into agri-tourism, forestry, development of industrial bases and infrastructure in rural communities. But one wonders if the opportunity for rural development has already been missed. Has the dependency culture of the last twenty years, which has been engendered by massive subsidisation, sapped the entrepreneurship within the agricultural community and indeed outside it. In addition, any proposed initiatives will be enacted against a backdrop of reduced public services in rural communities, rationalisation of hospitals, schools, creamery outlets, garda stations and post offices. Rural populations are falling due to migration from the land to either non-agricultural work in urban areas or emigration abroad.

To conclude, it is evident that the problem of excess capacity in the agricultural sector has to be tackled. Attempts to solve the problem, whilst maintaining rural populations and standards of living are proving difficult. The urban population, who account for 80 percent of the total EU population, have borne for years the cost of excess supply in higher food prices. One seriously doubts their willingness to pay higher taxes in order to support non-production in the long-term The urban-rural divide has been fuelled by the predominant view of a farming community paying little tax and yet benefiting from huge aid packages. However, the division within the sector itself means that the larger, highly capitalised farmer benefits from EU polices whilst the marginal farmer becomes more and more dependent on non-farm income. One must wait to see if the new rural development programme will maintain that divide and simply result in an excess of heritage parks interpretative centres and golf courses.


Matthews, Alan: 'Agriculture and Rural Development' in The Economy of Ireland by J.W. O'Hagan (ed.), IMI, Dublin, 1991.

The Irish Times Jan 5th, 1995.