Agriculture: After World War I

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Agriculture: After World War I

At independence in 1922 the agricultural sector in the Republic accounted for about one-third of the gross domestic product, just over half of total employment, and almost three-quarters of merchandise exports (Kennedy, et al. 1988). Economic growth over the past century has reduced the relative importance of agriculture dramatically. In the year 2000 it contributed 3 percent, 7 percent, and 6 percent of national output, employment, and exports respectively. Similar trends can be observed in Northern Ireland, although the more industrialized status of the North has meant that agriculture there was always less important in the economy. It accounted for 2.6 percent of Northern output and 5 percent of employment in 2000. This shift from an agrarian economy to a predominantly urban, postindustrial one is the defining change in Irish society during this period. Although the declining importance of farming is something that Ireland shares with all developing economies, the particular pattern of adjustment that it experienced was influenced by a specific combination of historical legacy, market constraints, and policy interventions.

Post-World War I to 1960

The fortunes of the agricultural sector in the Republic over the past century can usefully be chronicled by distinguishing between three periods: spanning the early independence period from World War I to 1960; a brief burst of growth between 1960 and the mid-1980s; and a period of adjustment to tightening farm supports since then. In the period from the aftermath of World War I to around 1960 there was very limited growth in overall agricultural output. The policy dilemma throughout this period was that the pursuit of Ireland's comparative advantage in grass-based cattle production conflicted with the social imperative of employment creation. Cattle farming had been substituting for till-age production since the middle of the previous century, but its limited labor requirements meant that it was accompanied by a substantial decrease in the demand for rural labor. The extensive nature of cattle farming was also unsuited to the structure of predominantly small, family-owned farms inherited as a result of the land reforms at the end of the nineteenth and beginning of the twentieth centuries. The promotion of efficiency in farming conflicted with the social objective of maintaining the maximum number of farm families on the land.

Successive governments responded to this dilemma in different ways. The Cumann na nGaedheal government (1922–1932) rejected any policy of widespread support to the sector on the grounds that in a predominantly rural economy the costs of farm support would fall largely on farmers themselves. Both internal and external circumstances changed in the 1930s. The onset of the Great Depression led to a general rise in protectionist barriers. Fianna Fáil came to power in 1932 on a platform of stimulating local industry, including arable agriculture, behind tariff barriers. Price supports were paid to encourage local wheat, dairy, and sugar production. The refusal to pay the land annuities led to the "Economic War" with the United Kingdom, in which Britain placed tariffs on imports of Irish cattle. The costs of this episode were largely borne by agriculture, which also saw its terms of trade fall during the period. The conflict ended with the Anglo-Irish Agreement of 1938, which relaxed access conditions for cattle to the U.K. market again.

Irish agriculture failed to capitalize on the U.K. market deficit during the Second World War, in part because input shortages limited the potential expansion in output and in part because the United Kingdom put monopoly-purchasing arrangements in place that limited the scope for price increases. The 1948 trade pact with the United Kingdom signalled a return to a more export-oriented agricultural strategy. Though agricultural output slowly increased during the 1950s, intense competition in the main export market in the United Kingdom and inadequate attention to marketing meant that prices were depressed and farm incomes remained low.

The Productivist Period: 1960s to Mid-1980s

An important change in the Republic was the emergence of a nascent urban-based industrial sector in the 1960s, which allowed the possibility, for the first time, of significant net transfers to the farm population. Price guarantees were strengthened for dairy products and extended to beef under the terms of the 1965 Anglo-Irish Free Trade Agreement. The next quarter-century saw a brief flowering of the "productivist" period in Irish agriculture. Deliberate efforts were made, under successive Programmes for Economic Expansion, to stimulate agricultural output through grant aid and other incentive schemes. Agricultural output responded; the output volume in 1970 was 31 percent higher than in 1960. But the growing budgetary cost of providing support would not have been sustainable without the benefits granted to the Republic by its membership in the European Union (EU) beginning in 1973.

Agricultural output per worker was marginally lower in Northern Ireland compared to the South in the 1920s, but the South subsequently lost most of its advantage. Indeed, over the period 1926 to 1962, output growth in the North of 150 percent contrasted with the growth of output in the South of just 30 percent (Ó Gráda 1994). The U.K. policy of free trade in grains stimulated farmyard-enterprise production in the North (i.e., pigs, eggs, and poultry), and beef and dairy farmers benefited from the introduction of postwar price supports in the United Kingdom. Southern agriculture suffered from policy disincentives in the 1930s, input shortages in the 1940s, and underinvestment in the 1950s, but with the increased protection given to farmers in the Republic in the 1960s, overall agricultural performance converged.

The importance of EU membership for the Republic lay not so much in the improved terms of trade for farm produce that access to the high-price EU market brought about, for this was quite short-lived. Rather, it was the fact that for the first time since World War I, Irish agriculture had unrestricted access to its main export markets. At the same time the cost of farm support was no longer borne by the Irish exchequer but by the EU taxpayer and consumer. Agricultural output continued to grow rapidly by a further 52 percent from 1970 to 1985. New technologies, including the use of fertilizers, silage-making instead of hay-making for forage conservation, improved animal breeds, and greater use of compound feeds, led to a marked improvement in productivity. Average farm incomes narrowed the gap with nonfarm incomes and in some years exceeded them. Agriculture in the Republic also began to reverse the productivity gap that had emerged with Northern Ireland agriculture as successive governments in the South exploited the limited discretion available within the EU's agricultural policy in favor of farmers, while policy in the United Kingdom (and hence Northern Ireland) tended to keep prices lower in favor of consumers.

Not all farms shared in the growing prosperity. The modernization of farming was accompanied by the growing marginalization of the small-farm sector. A significant divide opened up between the larger farmers in the south and east of the country who were quick to adopt the new technologies and the smaller farmers in the more disadvantaged western region who fell farther behind. The self-sustaining nature of the small-farm economy began to break down as the deterioration in its relative economic position was reflected in a growing proportion of single, elderly farmers without immediate heirs. While the acceptance of off-farm employment became an increasingly important strategy for viability on smaller farms, a growing proportion of farm households disengaged from commercial agriculture and became increasingly dependent on state welfare payments to maintain their living standards.

Tightening of Farm Supports: Mid-1980s to the Present

The productivist period in Irish farming was relatively short, brought to an end in the mid-1980s by changes in EU farming policy. The costs to the EU of farm support were spiralling out of control, and increasing awareness of the environmental, animal-welfare, health, and food-safety consequences of intensive agricultural practices forced new concerns onto the policy agenda. The growth of milk output, which had expanded by 5 percent per annum over the previous two decades, was brought to a halt by the introduction of milk quotas in 1984. Grant aids for farm modernization were severely curtailed in the reform of EU structural policy in the following year. The MacSharry and Agenda 2000 CAP reforms substituted direct payments for market-price support, but in doing so, they introduced effective ceilings on beef, sheep, and cereal output. The growth of agricultural output slowed from 2.6 percent in the period 1970 to 1985 to 1.4 percent between 1985 and 2000 and 0.7 percent between 1990 and 2000.

Similar trends are evident in Northern Irish agriculture, although the strength of sterling in the second half of the 1990s relative to the euro and the difficulties caused for beef exports by the "mad cow" crisis have meant that farm incomes in the North have been under much greater pressure. Total income from farming at the end of the 1990s was less than half what it was at the beginning of the decade in real terms.

On the threshold of the new century agriculture faces a number of challenges. Farm incomes, though comparable to nonfarm incomes on average, remain hugely dependent on subsidies or off-farm income. EU farm-support mechanisms are under considerable challenge both externally, in the context of World Trade Organization negotiations on trade liberalization, and internally, because of the budgetary implications of extending these levels of support to farmers in the candidate countries of central and eastern Europe. Farmers also face the challenge of integrating environmental concerns into agricultural production, including stricter pollution regulations and the public's desire for environmentally benign and animal-friendly (but technically inefficient) management practices. Farmers must also respond to the calls for traceability and quality production from consumers who, in light of an increasing number of health scares, want ever-higher standards of reassurance that their food supply is safe and wholesome. The role of agriculture may have shrunk in importance over the past century, but its capacity to cause controversy and debate remains undiminished.

SEE ALSO Common Agricultural Policy; Economies of Ireland, North and South, since 1920; Economic Development, 1958; Economic Relations between North and South since 1922; Economic Relations between Northern Ireland and Britain; European Union; Farming Families; Marshall Aid; Transport—Road, Canal, Rail; Primary Documents: Speech to Ministers of the Governments of the Member States of the European Economic Community (18 January 1962)


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Alan Matthews

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Agriculture: After World War I

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