Agricultural and Resource Economics ARE UPDATE Giannini Foundation of Agricultural Economics, University of California Vol. 22, No. 3 Jan/Feb 2019 ALSO IN THIS ISSUE California Farm Commodities and the 2018 Farm Bill Hyunok Lee and Daniel A. Sumner...... 2 What Does the 2018 Farm Bill Mean for California and the Environment? Spotlight on the Conservation Programs Ellen M. Bruno and David Zilberman ...... 6 Changes to Nutrition Programs in the 2018 Farm Bill Charlotte Ambrozek and Tim Beatty...... 9 Brexit and the Disruption of Agricultural Trade: A View from Ireland Colin A. Carter and Doris Läpple ...... 12

Introduction to the Issue: The 2018 Farm Bill and Brexit Richard J. Sexton and Daniel A. Sumner

We’re very pleased to present ARE programs have been renewed and reallocated across key programs. The Update readers with an expanded issue modified. As is also true with the 2018 authors break down what it all means focused on two timely policy topics: Farm Bill, much of the content of these for California. The passage of the 2018 Farm Bill and farm bills took the form of amending Ambrozek and Beatty address Title the impending “Brexit” of the United the previous law for a fixed number of IV on Nutrition. The major change in Kingdom from the European Union. years. For example, many of the 2014 these programs involves work require- authorizations expired in 2018, so some The Agriculture Improvement Act of ments for able-bodied adults without legislation was needed or else those 2018 is the official title of the newest dependents (ABAWD) in the Supple- programs would have simply ended or Farm Bill. It is the most recent of a line mental Nutrition Assistance Program reverted to so-called “permanent legis- of periodic laws that authorize a set (SNAP). Ambrozek and Beatty also lation” that is more than half a century of loosely related government pro- draw attention to administrative rules out of date. Much of the current Farm grams that are mostly administered proposed by the USDA subsequent Bill authorizes programs and annual by the U.S. Department of Agriculture to passage of the 2018 Farm Bill that expenditures on them only for the next (USDA). The nickname “Farm Bill” will tighten requirements for states five years, so the cycle continues. emerged when these laws dealt mostly to obtain exemptions from enforcing with farm issues, something that has The 2018 Farm Bill has 12 Titles. Our work requirements for ABAWD. not been true for decades. Today food first article by Lee and Sumner focuses Brexit is scheduled to occur on March and nutrition subsidies, programs far mainly on Title I on commodities. They 29 of this year. UC Davis professor removed from the farm, comprise the also touch on Titles X (Horticulture) Colin Carter is on leave this year in Ire- great bulk of the authorized spending. and XI (Crop Insurance). The authors land and, with co-author Doris Läpple, highlight changes in 2018 that provide Although agricultural programs have provides Update readers with key added subsidies to dairy (the largest existed in the U.S. since the earliest insights into the disruptions to inter- farm revenue generator in California) days of the republic, the modern era national agricultural trade that loom and cotton. of farm commodity subsidies, price on the eve of Brexit. Carter and Läpple regulations, crop insurance, storage The second article by Bruno and Zil- forecast major disruptions in Irish trade programs, and soil conservation and berman addresses conservation, Title II. of beef and dairy products to Britain, environmental programs began in 1933 They report that total funding for con- and explain what it is likely to mean with New Deal legislation. Every few servation programs is little changed in for other major agricultural exporters, years for the next nine decades, these the new Farm Bill, but funds have been including the United States. California Farm Commodities and the 2018 Farm Bill Hyunok Lee and Daniel A. Sumner

Commodity provisions in the 2018 are most important for grains and oil- (DMC) program, renamed from the Farm Bill are much like those in seed crops that are grown mainly in the Margin Protection Program, which has the 2014 Act, except for dairy South and Midwest. Therefore, rather been the main dairy subsidy program and cotton, where the new law than attempting to list every commod- since its introduction in the 2014 Farm increases subsidies and, for dairy, ity-related change in the new law, this Bill, and which was expanded and increases production incentives article focuses on explaining changes made more costly in the Bipartisan for small farms. in those few parts of the 2018 Farm Bill Budget Act of February 2018. The DMC that may have potentially significant continues to provide payments when- The Agriculture Improvement Act of impacts on markets for farm products ever the margin between milk price 2018, popularly known as the 2018 that are important in California. and feed costs falls below some legis- Farm Bill, is the latest in a long line of lated thresholds. The premium sub- similar legislation stretching back to Outline and Overview sidy declines for higher margins and the New Deal of the 1930s that autho- We consider first the changes in dairy disappears for high margins for large rizes expenditures and sets regulations subsidies, in particular the changes quantities per farm. related to food, agriculture, rural to the main remaining dairy subsidy DMC program payments are tied to development, and more. Unlike the program, which, in 2014, replaced the a shortfall in the national average price passage of the previous Farm Bill, the old dairy price supports and direct of milk minus a national average cost Agricultural Act of 2014, which was farm payments. A new cotton subsidy of corn, soybeans, and alfalfa hay that delayed for 18 months due to conten- program was introduced and expanded is needed to produce that milk. Thus, tious debate, the 2018 Farm Bill, which in 2018, and despite the decline in the the program does not use information expires in 2023, was signed into law by California upland cotton industry, the about the actual milk price to feed cost the president on December 20, 2018, new cotton program may be important margin of the actual farm enrolled. essentially on time. The Congressio- for some California producers. Under the new DMC program, farms nal Budget Office (CBO) projects total may enroll in margin coverage from outlays of $867 billion over the next 10 We then turn to a brief summary of $4.00 up to $9.50 per cwt, for up to 5 years for the programs authorized by changes for the other field crops such million pounds of milk per farm. For the 2018 Farm Bill, which is down $89 as rice. Fruits, tree nuts, vegetables, additional milk, the highest margin billion from similar CBO projections and other specialty crops do not have covered is $8.00 per cwt, and premium under the 2014 Farm Bill. specific commodity subsidies, but there are a few provisions that are new or rates are far higher. Although it has kept the nickname modified in the Horticulture Title of the For perspective, a margin of $4.00 has “Farm Bill” that was attached more bill. We also address (relatively minor) been rare and leads to huge losses on than a half century ago, in recent changes in provisions in the Crop most farms because that margin leaves iterations the great bulk of the Farm Insurance Title, including those that too little revenue to pay for the labor, Bill budget authorization goes to food apply to horticultural crops. cow replacement costs, capital costs, and nutrition subsidies for low-income equipment, health services, manage- people, with at best only indirect and Crop insurance programs have their ment, and other dairy farm expenses. tangential impacts on farms. Over own authorization legislation and A margin of $8.00 may allow profits on the next five years, out of $428 billion most major changes to crop insurance some farms, but for others, the combi- of Farm Bill budget authorization, programs has occurred outside Farm nation of low milk prices or high feed the share of food assistance exceeds Bill legislation. Finally, we address a costs would squeeze the long-term 76%, and crop insurance, commodity few miscellaneous provisions that have viability of the operation. programs, and farm environmental and gotten attention, such as legalization conservation programs together have a and regulation of industrial hemp pro- The 2018 Farm Bill increases subsidies 23% budget share. duction in the United States. and increases the maximum cover- able margin from $8.00 to $9.50 per In the current Farm Bill, most farm pro- Dairy Programs cwt for the first of 5 million pounds of gram provisions changed only slightly The most important change in the coverage. Based on recent data, with from the 2014 Farm Bill. The commod- dairy provisions of the new Farm Bill a covered margin of $9.50 per cwt, a ity-related provisions in the Farm Bill relates to the Dairy Margin Coverage

2 Giannini Foundation of Agricultural Economics, University of California farm would expect a payout exceed- The California dairy has milk revenue continue to produce milk when it ing the premium more than half the of about $6.0 million per year (assum- would otherwise exit. Importantly, for time. The result of these 2018 changes ing farm milk price of $15 per cwt) industry-wide impacts, the smaller is substantially more subsidy for the and in recent years has lost money or herds could, and likely would, respond first 5 million pounds of milk per farm, barely broken even at that price. The to the subsidy by increasing milk which is especially important for the New England farm, that typically has production. The small herd used in this small dairies that predominate in the had higher milk production costs but example could expand by 31%, from East. Production of 5 million pounds higher milk prices, has also lost money the current 160 cows up to 210 cows to is equivalent to the milk from about or barely broken even with an example maximize its expected DMC program 200 cows. This is above the average price of $17 per cwt and revenue of benefits and remain under the 5 million herd size in most states in the Eastern about $680,000 per year. pound limit. United States, but would cover only To make the comparison easy, assume The numbers in this comparison are for 10% to 15% of herds in California and that both farms enroll 3.8 million illustration only, and were chosen to other major Western dairy states. pounds in the program (the maximum make the calculations simple. But, they To offset expected government budget 95% of the base milk production of the are not unrealistic. They illustrate the costs of providing more subsidies for smaller farm) at a margin of $9.00 per potential negative impact for California small farms, the 2018 Farm Bill raised cwt. The farms pay a Tier I premium dairies (and other dairy farms with the premiums for milk enrolled above of $0.11 per cwt for a cost of $4,180. larger herds) of a subsidy program 5 million pounds per farm per year. Consider a year when the calculated designed especially for the smaller Thus, the new Farm Bill strongly margin is lower than $9.00, say $8.00 herds. The DMC program encourages favors the small farms in the East to per cwt because national average feed an expansion by smaller herds with the detriment of dairy farms in Cali- prices are high or national average fewer than 200 cows that produce fornia and the West. The favored farms milk prices are low. With this example, about 20% of U.S. milk. This expansion tend to be high-cost (and high-price) both farms get a payment of $38,000 would lower the market price of milk producers, sometimes targeting niche ($1/ cwt times 38,000 cwt) for their for all U.S. dairy farms. For the larger markets but also selling butter, milk invested premium of $4,180. For the farms, only a tiny share of this loss in powder, and cheese on national and California farm, the net payment of revenue due to the lower market price global markets. $33,820 is about 0.56% of revenue, would be offset by DMC payments. thus too little to affect farm survival These added subsidies are large Let us illustrate a conservative estimate or decisions about production. Notice enough to keep smaller, high-cost of expected market price impacts. If that added revenue does not pro- operations in production during down- DMC subsidies expand production vide an incentive to expand the herd, turns when they might otherwise exit, of smaller farms by say 10% relative because producing more milk would and encourage expansion in herd size to what they would have otherwise not increase the amount allowed to be among farms with fewer than about produced, this leads to a 2% increase enrolled below the 5 million-pound 200 cows. Both these implications are in aggregate milk production. Using a limit. Any milk enrolled above 5 likely to result in larger price declines short-run demand elasticity of -0.5, the million pounds is only eligible for a and longer durations of low prices and implication is for prices to be 4% lower maximum of an $8 margin at the very thus lower revenues for larger farms than they would otherwise be. high premium of $1.816 per cwt, which that receive relatively little benefit from will be attractive to few producers and Starting with a price in California of the program. would have been a major net loss in $15 per cwt, under this example, the Such impacts may be important for our example. DMC would cause the price of milk to California dairies, so we will provide be $0.60 per cwt lower at $14.40. This For the New England farm, the ben- a numerical example to illustrate $0.60 per cwt decline would reduce efits are the same in dollar terms, but the magnitudes. Let us consider the revenue for a typical California dairy are of far more significance in farm revenue impacts of the DMC program with 1,600 cows (producing 40 million operations. The $33,820 insurance for a typical California dairy farm in pounds of milk) by about $240,000—far gain is about 5% of milk revenue, the San Joaquin Valley with 1,600 cows more than any realistic DMC pay- implying that the margin payment producing 40 million pounds of milk ment gain (such as the $33,820 in our would increase expected net revenue per year compared to a typical New example). substantially. This increase in expected England farm with 160 cows produc- income would allow the smaller farm The DMC provides a range of options ing 4 million pounds of milk per year. to weather margin downfalls and for dairy farms, but the main thrust

Giannini Foundation of Agricultural Economics, University of California 3 of the 2018 changes were to make the price for japonica-type rice. California prices fall significantly. Low prices sim- program far more lucrative for small produces a japonica-type medium ilar to those that occurred from 2006 to farms. When enrollment incentives are grain rice, which now has a program 2008, which averaged about $0.21 per combined with incentives for smaller provision separate from the indica-type pound, would mean payments would herds to increase milk supply, the medium-grain and long-grain rice expand to $2.5 billion per year and be implication is that milk prices will be that is grown in the rest of the United more than 75% of market revenue of even lower, especially during periods States. These changes in provision cotton lint. of already low prices. The bottom line allow for higher expected payments for Three other changes to commodity for larger farms is clearly negative. The California rice farms than they would program provisions are now also DMC program was driven by inter- have otherwise expected. important for cotton subsidies. First, ests of small, typically high-cost dairy the update of program yields will allow farms that produce a small and declin- Cotton higher payments per acre and create an ing share of milk in the United States. The 2014 Farm Bill replaced farm pro- incentive to undertake yield-enhancing The subsidy in the program transfers gram subsidies for cotton with a heav- practices to gain from future updates. money from the USDA budget to dairy ily subsidized, insurance-style sub- Second, broader payment eligibility producers, but the likely impact is a net sidy. Despite the subsidy, most cotton for family members will likely increase loss to larger dairy farms such as those acreage did not enroll, and the program the payments for cotton. And, third, in California. was unpopular. The Bipartisan Budget the 2018 Farm Bill adjusted rules for Act of February 2018, mentioned above setting the effective reference price that Grains and Oilseeds, in the context of increased dairy sub- triggers payments, which will likely Including Rice sidies, reintroduced cotton eligibility increase cotton payment per pound The 2018 Farm Bill continues with little for the ARC and PLC subsidies under from above the projections made under modification of the subsidy programs the guise of subsidies not for cotton lint the February 2018 program. for grains and oilseeds. Eligible farms (fiber) but for “seed cotton” (meaning enroll in one of two programs: the the seeds to which the cotton lint is still Crop Insurance Price Loss Coverage (PLC), which attached prior to ginning). Cottonseed Provisions of the federal crop insurance pays when prices are below a govern- is used for oil and meal, as are other program, which is permanently autho- ment-set threshold, and the Agricul- oilseeds such as soybeans. Since the rized under the Federal Crop Insurance tural Risk Coverage (ARC), which pays cottonseed and cotton lint are produced Act, changed little under the 2018 Farm when crop revenue falls below the together, the payments, based on either Bill. The subsidies include administra- government-set threshold. An import- seed or lint, go to cotton producers tion and operations costs, reinsurance ant provision of the 2018 Farm Bill is and create an incentive to plant cotton. provided to insurance companies, and that farms are allowed to update the The 2018 Farm Bill extends this new premium subsidies averaging about per-acre yields used to determine their seed-based cotton program and makes 60% of total premiums. The Congres- production eligible for payments under it even more lucrative for producers of sional Budget Office projected crop these programs. With average yields upland cotton. insurance outlays for the next 10 years gradually rising, such updating allows The government-set reference price to be about $7.8 billion per year, which for larger payments and creates an for seed cotton, which is a weighted is almost 40% of all agriculture-related added incentive to adopt yield-enhanc- average of the price of cotton lint and outlays. Crop insurance subsidy has ing practices. the price of the cottonseed by-product, been an important source of revenue The other provision that may be has been set high enough that budget for field crops such as cotton, feed important for California producers analysts expect substantial payments grains, and oilseeds for many years. using these traditional commodity under the program. Based on price pro- However, it has been a smaller share programs is relaxation of limitations jections for the next decade (averaging of revenue for specialty crops, even that had attempted to reduce pay- $0.34 per pound), the payment rates though its availability has expanded ments to larger family operations with per pound are in the range of $0.025, to most fruit and nut crops and some members that supply management, and the resulting total cotton payments vegetables. but not physical labor on the farm. For would be in the range of $400 million One change to crop insurance pro- California, rice is the most important per year—about 7.5% of the market visions in the 2018 Farm Bill, which crop covered by these programs. The revenue of cotton lint. However, like may be important for small California 2018 Farm Bill also includes a separate other such programs, the potential sub- specialty crop farms, is the increase in and higher government-set reference sidy rate may be much higher if cotton the administrative fee (from $300 to

4 Giannini Foundation of Agricultural Economics, University of California $655) for enrolling a crop in the premi- international promotion programs that there may be practical political reasons um-free catastrophic risk protection. are used heavily by California industry (probably less compelling in the recent Catastrophic insurance, also called groups. For organic farms, it adds a few environment) to cobble together these CAT, is fully government-subsidized, million per year of authorized funding disparate sets of policies. But, in terms except for the administrative fee for for organic programs and strengthens of sound public policy, it seems hard each policy (defined as an enrolled the organic certification requirements to rationalize. A thorough evaluation crop in a county). The CAT enrollment for imported agricultural products. of food and nutrition funding that fee increase may induce some smaller provides income support for the poor One specific provision has received farms to no longer enroll. and a separate thorough evaluation of much attention in the popular media. farm commodity subsidy and revenue CAT provides indemnity payments The 2018 Farm Bill removes severe support for farm businesses would based on 55% of the “normal” price limits on production of industrial likely lead to policies more suited to for losses of more than 50% of normal hemp. The new law defines industrial public goals in both arenas. yield, and is, thus, designed to provide hemp as a cannabis plant that has no farms with basic protection at no pre- significant amount of THC. Industrial Authors’ Bios mium in the event of severe crop loss. hemp produces fiber that may have However, with the new fee increase, some commercial uses and oil that has Hyunok Lee is a research economist is some farms with small acreage of some some attractive properties. It has been the ARE department at UC Davis, where crops may find it cheaper to enroll in produced in Canada for many years, Daniel Sumner is the Frank H. Buck, Jr. conventional (non-catastrophic) crop and is typically grown as an alternative distinguished professor. Sumner is also director of the UC Agricultural Issues insurance (also called buy-up), which in rotation with wheat, feed grains, and Center. They can be contacted by email also offers higher protection in return other oilseeds. at [email protected] and for (still subsidized) farmer-paid Industrial hemp may also be used as [email protected], respectively. premiums. a source of CBD, a compound that Suggested Citation: Consider an example of an almond has garnered considerable interest for Lee, Hyunok and Daniel A. Sumner. farm with revenue of $6,000 per acre. health-related claims. In addition to “California Farm Commodities and For this farm, the premium for buy-up relaxing production restrictions, the the 2018 Farm Bill.”ARE Update 22(3) insurance with the same protection 2018 Farm Bill has made hemp eligible (2019): 2–5. University of California as CAT would be about $33 per acre for subsidized crop insurance along Giannini Foundation of Agricultural (assuming the 2% premium rate with other field crops. It is not yet clear Economics. applied to the liability of $1,650 per where in California growers may have acre). With about two-thirds of that a comparative advantage in hemp For additional information, premium paid by the government, the production. the authors recommend: cost to the farm is about $11 per acre. Final Remarks Congress.gov. H.R.2-Agriculture For this example, the premium cost Improvement Act of 2018. www. of buy-up crop insurance is cheaper The 2018 Farm Bill commodity provi- congress.gov/bill/115th-congress/ than the CAT fee for growers with less sions are mostly business as usual. We house-bill/2. than about 60 acres ($655/$11). This have highlighted a few places, espe- Lee, H. and D. A. Sumner. 2014. “The is an increase from 28 acres under the cially in dairy and cotton policy, where 2014 Farm Bill, Commodity Subsidies, previous fee of $300. Given that many the 2018 Farm Bill increases subsidy and California Agriculture.” ARE specialty crop farms in California rates or made the programs more lucra- Update 17(4) (2014): 1-4. University grow several crops, the $655 fee per tive for some farms. of California Giannini Foundation crop can be a substantial cost for farms of Agricultural Economics. https:// As with previous farm bills, food and with small acreage of each crop, and giannini.ucop.edu/publications/are- nutrition subsidies dominate “Farm the CAT fee increase may cause some update/issues/2014/17/4/2014-farm- Bill” spending. Those policies mainly farms that had enrolled in the CAT to bill-commodity/. operate as income assistance for the go uninsured. Sumner, Daniel A. 2018. Dairy Policy poor and linkage to the commodi- Progress. Completing the Move ty-oriented farm programs is tenuous Other Provisions of Interest to Markets. January 29. American to California Agriculture at best. It is, therefore, once again Enterprise Institute. http://www. important to ask why a “Farm Bill” The 2018 Farm Bill includes little aei.org/publication/dairy-policy- that combines such unconnected sets change in specialty crops programs progress-completing-the-move-to- of policies should be formulated as a markets/. from the 2014 law. It maintains spe- single piece of legislation. Of course, cialty crop research programs and Giannini Foundation of Agricultural Economics, University of California 5 What Does the 2018 Farm Bill Mean for California and the Environment? Spotlight on the Conservation Programs Ellen M. Bruno and David Zilberman

The 2018 Farm Bill largely Agricultural practices can be geared (ACEP) fall under this category. The reauthorizes the same to provide environmental services, larger of the two land retirement conservation programs from the and this defines an important role of programs, CRP, pays farmers annual 2014 Agricultural Act. Funding the Farm Bill. The most recent Farm rental payments, based on both soil changes in the Conservation Title Bill includes provisions aimed at attributes and the cash rental value will result in an expansion and incentivizing agricultural practices of the land, to convert land from crop contraction of the pre-existing that minimize environmental impacts production to vegetative cover. or provide ecological services. The primary programs, with impacts Other conservation programs exist programs can be divided into two to California agriculture and the that encompass both working farm- primary categories: 1) working lands environment. land and land-retirement efforts. The programs that provide financial Regional Conservation Partnership incentives for farmers to establish Program, which was created under On Dec. 20, 2018, the newest Farm conservation practices on actively the 2014 Farm Bill, was introduced to Bill, the Agricultural Improvement Act farmed lands; and 2) land retirement address watershed-scale or regional of 2018, was signed into law, replac- and easement programs that provide conservation concerns, rather than ing and reauthorizing many of the incentives to take land out of pro- farm-level issues, by leveraging pri- components of the 2014 Agricultural duction in environmentally sensitive vate-public partnerships. In California, Act. Every four to six years, a new areas. Examples of the former include recently funded projects included Farm Bill is passed with programs to integrated pest management, cover several water conservation and flood support farm income, nutrition, and cropping, and altered tillage practices. capture initiatives. agricultural resource conservation. Without financial incentives offered The Conservation Title is a designated through the Farm Bill, many farmers Brief History and Role of section of the bill designed to support would not introduce these practices, Economics in the Farm Bill specific environmental objectives, which can incur short-run costs in including improvements in soil and exchange for long-run, and somewhat The Conservation Title, which speci- water quality. The total allocation diffuse benefits. fies programs related to the environ- of funds to the Conservation Title is ment, was first included in the 1985 largely unchanged under the new bill; The two largest working lands pro- Farm Bill. However, iterations of the however, different programs within grams are the Environmental Quality bill have incorporated provisions for the title will expand or contract, with Incentives Program (EQIP) and the the environment since its creation in implications for climate, land, and Conservation Stewardship Program 1933 following the Dust Bowl. The natural resource use over the coming (CSP). EQIP is a cost-sharing program CRP originated out of the Soil Bank years. to incentivize cover crops, forest stand Program of the 1956 Agricultural Act, improvement, prescribed grazing, and but was formally established in 1985 Farming and the Environment improved irrigation. EQIP subsidizes as the program we are familiar with the costs associated with various con- The relationship between agriculture today. EQIP was initiated about a servation improvements on actively and the environment is one of com- decade later as part of the 1996 Farm managed land, including the costs to plex coexistence. The environmental Bill. install structures that limit runoff of and ecological impacts of agriculture fertilizers. Conservation programs in the Farm can include soil erosion, groundwater Bill rely primarily on payments for depletion, greenhouse gas emissions, Land retirement and easement pro- environmental services, whereby and impacts on wildlife and natural grams pay private individuals for farmers are compensated or subsi- habitats, both terrestrial and aquatic. long-term or permanent land use dized for undertaking actions that The magnitude of these impacts changes, typically under 10- to 15-year improve environmental conditions. depends on the interplay between contracts. The Conservation Reserve This stands in contrast to many other agricultural practices and their envi- program (CRP) and the Agricultural environmental policies where envi- ronmental and climate context. Conservation Easement Program ronmental “bads,” such as pollution,

6 Giannini Foundation of Agricultural Economics, University of California are taxed or otherwise limited via Table 1. Estimated Changes in Spending Outlays under the 2018 Farm Bill regulation. (By Fiscal Year, Millions of Dollars) By Fiscal Year, in Millions of Dollars An ideal agri-environmental policy 2019– 2019– Title II – Conservation 2019 2020 2021 2022 2023 is one that achieves the greatest net 2023 2028 benefits to all those that depend on Sec. 2201, Conservation 38 -52 -110 -80 15 -189 0 agriculture and/or the environment. Reserve Program Sec. 2301, Conservation This requires thinking systematically -25 -358 -796 -1,103 -1,387 -3,669 -12,426 about the costs and benefits associated Stewardship Program Sec. 2302 and 2308, Environmental with farming and the environment, Quality Incentives and Conservation 170 356 539 692 903 2,660 8,451 and how different policies stack up. Stewardship Program Sec. 2401, Small Watershed Designing and evaluating programs to 2 8 19 29 37 95 317 Rehabilitation meet environmental objectives while Sec. 2405, Grassroots Source 2 2 1 0 0 5 5 minimizing costs to the agriculture Water Protection Program industry is a major area of research in Sec. 2406, Voluntary Public 10 10 10 10 10 50 50 agricultural economics. Access and Habitat Incentive Sec. 2408, Feral Swine 15 25 20 10 5 75 75 Over time, environmental programs in Eradication and Control Pilot Sec. 2601, Agricultural Conservation the Farm Bill have been improved to 73 151 177 187 198 786 1,779 more efficiently provide environmen- Easement Program Sec. 2701, Regional Conservation 80 141 157 174 191 742 1,742 tal benefits. Newer incentive struc- Partnership Program tures better incorporate heterogeneity Subtotal, Title II 365 283 17 -81 -29 555 -6 in the value of management practices, maximizing the benefits per dollar Source: Congressional Budget Office, (https://www.cbo.gov/system/files?file=2018-12/hr2conf_0.pdf). expended. Similarly, by allowing farm- Notes: The table lists estimated spending changes relative to a baseline that was calculated assuming the continuation of 2014 Farm Bill provisions. ers flexibility in their approaches to The location of the CSP program in the bill was moved to the same section as EQIP, which explains the environmental best-management prac- organization of outlays by CBO. tices, diverse, site-specific techniques are being incentivized that maximize new title. Table 1 shows the estimated rate. Furthermore, if corn and soybean the value of conservation spending. changes in spending outlays under the prices continue to decline, then farm- The CRP, for example, has transitioned 2018 bill by fiscal year in millions of ers growing those crops may be will- over time to a more cost-effective dollars, as reported by the Congressio- ing to enroll land in CRP for less. As a incentive structure by implementing nal Budget Office (CBO) in December result, we may expect to see regional benefit-cost targets for enrollment of 2018. Estimated changes in spending shifts in the location of contracted land in the program. The CRP previ- are expressed relative to CBO’s April acres in response to lower bid caps ously targeted either the most afford- 2018 baseline projections, which and changing commodity prices. assumed a continuation of 2014 Farm able or the most environmentally Figure 1 (on page 8) illustrates enroll- Bill provisions. sensitive land to pay owners to retire ment in the CRP in 2016. California land. The program now targets land With 24 million acres under contract, had far fewer acres enrolled compared that exhibits the highest benefit-cost the largest portion of the Conservation to other agriculturally productive ratio, which is designed to maximize Title budget continues to support the states, due in part to the high cost of environmental benefit at minimal cost. CRP. Over the next decade, spending land in California and the balance of in this program is projected to remain crops grown there. Since California Changes in the 2018 Farm Bill constant. However, the cap on how grows high-value crops with high The Conservation Title remains the many acres that can be enrolled in the yields, the opportunity cost of land third largest program on the bill program will increase, expanding to is generally high. This opportunity by projected outlays, following the 27 million by 2023. cost is capitalized in the land rent and nutrition and crop insurance titles. translates to lower enrollment in CRP How can CRP spending remain con- Funding allocated to agricultural relative to other states. stant while the cap on enrolled acreage resource conservation remains largely increases? The answer lies in changes Arguably the most significant changes unchanged in the new act. However, to the bid limits or county rental rates to the Farm Bill pertain to the Con- some reallocation and reorganization for CRP contracts. The bill imposes a servation Stewardship Program among programs will occur under the 10% cut on the maximum CRP rental (CSP), where enrollment will likely

Giannini Foundation of Agricultural Economics, University of California 7 Figure 1. 2016 Enrollment in the Conservation Reserve Program (CRP) Overall, the 2018 Farm Bill largely reauthorizes the conservation pro- grams from 2014. It does little to address new, emerging issues in agricultural resource conservation, nor takes a substantially different approach to old issues. The biggest concern around this new bill may not be how the allocation of funding has shifted, but rather what is not being covered. The bill takes small strides towards addressing climate change Southwest or inspiring climate-smart agriculture * 1 Dot = F.O. 126 and climate adaptation. Incorporating 1,000 Acres cost-effective solutions to address a changing climate and other challenges Total: 23.8 million acres at the interface of agriculture and the Source: USDA’s Farm Service Agency : https://www.fsa.usda.gov/Assets/USDA-FSA-Public/usdafiles/ Conservation/PDF/CRPEnrollmentMar2016DotDensity.pdf environment will define a key role of the agricultural economics community be reduced. From 2014–2017, total The Congressional Budget Office over the coming years. CSP obligations averaged $1.1 billion projects a reduction of $12.4 billion in per year, where total obligations are estimated outlays for CSP, and a com- Authors’ Bios defined by money spent on all binding bined increase for EQIP/CSP of $8.4 Ellen Bruno is an Assistant Cooper- agreements (contracts and services), billion (Table 1). The net decrease will ative Extension Specialist and David either now or in the future. Under the be offset by the increases in funding to Zilberman is a professor and holds the 2018 bill, 2019–2023 funding will drop the Agricultural Conservation Ease- Robinson Chair in the ARE department to an average of $800 million annually. ment Program and Regional Conser- of UC Berkeley. They can be contacted EQIP, on the other hand, will likely vation Partnership Program, which by email at [email protected] and see an expansion of its enrollment. total $3.5 billion. [email protected], respectively. From 2014–2017, total EQIP obliga- tions averaged $1.42 billion, while Across all conservation programs, the Suggested Citation: the new bill reports annual funding 2018 Farm Bill will increase short-term Bruno, Ellen M., and David Zilberman. increases that average $1.86 billion per funding (first five years), but projects “What Does the 2018 Farm Bill Mean year from 2019–2023. a fairly constant long-term funding for California and the Environment? outlay over the next 10 years, with a Spotlight on the Conservation Pro- The contraction of CSP and expan- net decrease in projected outlays of $6 grams”ARE Update 22(3) (2019): 6–8. sion of EQIP could have important million by 2028. University of California Giannini Foun- implications for California agriculture. dation of Agricultural Economics. Based off of data from fiscal years Conclusion 2009–2017, California received the The new Farm Bill has implications For additional information, largest share of EQIP financial assis- for the environment. It incorporates the authors recommend: tance obligations of any state, which adjustments to previous environmen- Lichtenberg, E. 2018. “Conservation implies that California stands to gain tal policies that may induce land use Programs in the 2018 Farm Bill.” from an expansion of this program. changes, impacting California agricul- Available: www.aei.org/wp-content/ Yet California ranks as the 24th state ture and its relationship to the envi- uploads/2018/10/Conservation-Pro- in terms of its share of CSP finan- ronment. The greatest impacts due to grams-in-the-2018-Farm-Bill.pdf. cial assistance obligations based off changes in the Conservation Title will 2010–2017 numbers. If we assume that likely stem from expansion of EQIP, Zilberman, D. and K. Segerson. 2012. the primary beneficiaries of EQIP will contraction of the CSP, and adjust- “Top Ten Design Elements to Achieve gain and the primary beneficiaries ments to rental rates in CRP, which More Efficient Conservation Pro- of CSP will lose as a result of these constitute changes to the primary grams.” Available: https://agecon- changes, then it appears as if Califor- programs. search.umn.edu/bitstream/156623/2/ nia may benefit on balance. Zilberman-Segerson_final.pdf.

8 Giannini Foundation of Agricultural Economics, University of California Changes to Nutrition Programs in the 2018 Farm Bill

Charlotte Ambrozek and Timothy Beatty

Nutrition programs comprise spending has evolved over time rela- tied to the federal poverty level – when 76% of Farm Bill spending. These tive to WIC and NSLP, the next largest incomes drop, more people may partic- programs target families, children, food assistance programs. ipate. Figure 2 (on page 10) illustrates and other vulnerable populations, expansion of participation in food Households become eligible for SNAP and have historically enjoyed assistance programs across the Great when their income falls below the state Recession, showing the unemploy- wide bipartisan support. A broad limit. Individuals must also be Amer- ment rate and the number of program literature documents positive ican citizens or qualified legal immi- participants from 2008 to 2018. Gener- health and well-being effects on grants. For California’s SNAP pro- ally, nutrition programs enjoy broad program participants. Changes gram, CalFresh, households with net bipartisan support given the appeal in the most recent Farm Bill and income less than 100% of the federal of supporting children, families, and in proposed rules by the USDA poverty level may participate. More other vulnerable populations, but will affect eligibility requirements, than 4 million Californians use SNAP, some lawmakers have raised concerns restricting the population of and 1 in 10 SNAP participants lives about continued (relatively) high levels individuals who qualify for food in California, but the share of eligible of participation despite relatively low stamps. We synthesize these people participating is lower in Cali- levels of unemployment. changes and consider likely fornia than in most other states. Aver- consequences. age SNAP household income is low, at Over the period 2019–2023, total Farm 61% of the poverty line in FY2016. The Bill spending on nutrition will increase average household on SNAP has two by 0.03%, or $98 million, mostly as a people and receives $252 per month result of the employment and training Most spending allocated by the Farm for groceries, a quarter of the total (E&T) and nutrition targeting items Bill goes to nutrition programs—$326 funds for the household. Most SNAP discussed below. Changes to federal billion over 2019–2023, which consti- households include children, although nutrition programs in the 2018 Farm tutes 76% of total Farm Bill spending. elderly and disabled people also make Bill focused largely on work require- This funding will go to social safety up a sizeable share of participants. ments for participants in SNAP. No net programs focused on ensuring explicit legislative changes were made Programs like SNAP, WIC, and NSLP food and nutrition security, especially to WIC, and minor clarifications were are designed to act as automatic stabi- the Supplemental Nutrition Assistance made to the administration of the lizers during recessions. Eligibility is Program (SNAP), the Special Supple- mental Nutrition Assistance Program Figure 1. Annual Spending on Select Nutrition Programs, FY2008–2018 for Women, Infants, and Children (WIC), the National School Lunch Pro- 100 gram (NSLP), and the School Breakfast 90 Program among other food distribu- 80 tion and child nutrition programs. 70 SNAP is by far the largest of the 60 nutrition programs in terms of both 50 reach and spending. More than 12% 40 of the U.S. population participated in Billion USD 30 FY2018. Studies show that SNAP and WIC increase food security of par- 20 ticipants, while participating in WIC 10 improves child health and nutrition 0 outcomes. Research suggests longer 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 run educational and economic improv- SNAP NLSP WIC ments from participating in food Data from USDA FNS Program Data site: https://www.fns.usda.gov/pd/overview assistance. Figure 1 shows how SNAP

Giannini Foundation of Agricultural Economics, University of California 9 Figure 2. Annual Participation, Selection Nutrition Programs, FY2008–2018 private organizations to receive state funds for administering E&T pro- 60 12 grams. New entrants to these E&T partnerships will be restricted by 50 10 another change—previously funded E&T programs have an assured 50% 40 8 share of future funding.

Changes to SNAP not related to work 30 6 requirements generally focused on reducing fraud and tightening nutri- Unemployment Rate Million Individuals 20 4 tion targeting of the SNAP program. 10 2 Experts on food assistance policy have testified before the House that rates of 0 0 fraud are notably low. Previous work 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 has concluded that tighter fraud pre- SNAP NLSP WIC Unemployment Rate vention measures likely would not be Data from USDA FNS Program Data site: https://www.fns.usda.gov/pd/overview cost effective. The nutrition component allocates NSLP, specifically enforcing the “Buy Bill reduces the number of waivers additional funding for nutrition American” requirement. In this brief allocated to each state agency from education and produce prescription overview, we focus on changes made 15% to 12% of the the state’s caseload programs that would allocate fruits to SNAP as part of the Farm Bill and that is ineligible for program benefits and vegetables to households. These also on a proposed rule change issued because of the ABAWD time limit. programs have the advantage of by USDA shortly after the Farm Bill Importantly, the current Farm Bill did providing healthful foods to partici- was signed. not implement a proposed change to pants, but may result in wasted food apply work requirements to individu- and resources if barriers to uptake are Changes to SNAP als ages 18–59 with dependent children sufficiently large. Finally, the bill elim- in the Farm Bill aged 6–18 as well as those aged 50–59 inated an additional deduction option Changes to SNAP in the Farm Bill without dependents under the age of 6. for homeless SNAP participants. largely focused on work requirements, Changes to SNAP in the Farm Bill will particularly for able bodied adults affect E&T programs that are designed Changes to SNAP without dependents (ABAWDs) who to increase the ability of ABAWDs after the Farm Bill make up 8.8% of the 43.6 million to obtain regular employment, for Shortly after the Farm Bill was signed SNAP participants. An ABAWD is example through trainings, services into law, U.S. Department of Agri- defined as an individual age 18–49 for job seekers, or volunteering activ- culture, Food and Nutrition Service who is of sufficient physical and ities. Funding for E&T programs will (FNS) proposed a new rule that would mental health to work (not disabled) be expanded by more than 10%, and lead to tighter work requirements for and has no dependents (not pregnant the new Farm Bill imposes minimum ABAWDs. Historically, states have and does not care for a child or inca- requirements for state spending on been able to apply for exemption from pacitated family member). E&T programs. SNAP participants ABAWD work requirements for areas Since implementation of the Personal who fulfill the work requirement of the state where unemployment Responsibility and Work Opportu- through job search programs must is exceptionally high or where there nity Reconciliation Act (PRWORA) now attend a program that has direct aren’t enough jobs to go around. These in 1996, receipt of SNAP benefits for supervision. exemptions are generally referred to ABAWDs is limited to three months The 2018 revisions in the Farm Bill as ABAWD waivers. Waivers were in a 36-month period, unless those allow E&T programs to be designed widely used during and after the Great individuals work 80 hours per month, by non-State agencies, and allow for Recession. participate in E&T activities, or comply partnerships between private insti- Reasoning that economic conditions with a state-approved volunteering tutions and SNAP administration in have changed, a current policy priority program. States can apply for dis- implementing these programs. These is to reduce the number of waivers in cretionary waivers from these work changes expand opportunities for use, since the administration believes requirements. However, the 2018 Farm

10 Giannini Foundation of Agricultural Economics, University of California that present use of waivers is out of Effects of Policy Changes complex process. Another unintended step with the intent of the law. on SNAP Participants consequence is pushing otherwise eligible households into alternative The proposed rule, entitled “Supple- The policy debate around the changes safety net programs, such as disabil- mental Nutrition Assistance Program: from the Farm Bill and other proposed ity insurance, offsetting the intended Requirements for Able-Bodied Adults regulations on food assistance pro- cost reduction from restricting SNAP Without Dependents,” would gener- grams hinges on the participation and participation. ally tighten the criteria for states to expenditure effects. Additional work apply for waivers of work require- requirements will almost certainly Authors’ Bios ments for ABAWDs. States may no drive some participants off SNAP. longer group towns, counties, or In the current form, this will occur Charlotte Ambrozek is a Ph.D student cities at a level smaller than that of as jurisdictions are less easily able to and Tim Beatty is a professor, both in a labor market area when applying obtain waivers or to qualify under the Department of Agricultural and for ABAWD waivers. The proposed revised E&T programs. Larger drops Resource Economics at UC Davis. rule eliminates the use of non-federal in participation would result from They can be reached at ceambrozek@ data to evaluate waiver eligibility. For expanding the populations for which ucdavis.edu and [email protected], instance, an academic report showing work requirements apply, as proposed respectively. a declining employment-to-popula- by an initial draft of the Farm Bill. Suggested Citation: tion ratio would no longer suffice for Evidence from a report by the Ham- waiver status. Ambrozek, Charlotte and Timothy ilton Project suggests that most of the Beatty. “Changes to Nutrition Programs As long as Bureau of Labor Statistics individuals who would be affected in the 2018 Farm Bill.”ARE Update 22(3) (BLS) unemployment rate statistics by tighter requirements on ABAWDs (2019): 9–11. University of California are available, these statistics must be are either in the labor force already, Giannini Foundation of Agricultural used to determine waiver eligibility. If although failing to meet the 80 hour a Economics. month requirement because of unsta- appropriate data for eligibility deter- mination are not available, the entire ble employment, or might be eligible For additional information, state may apply for a waiver. Impor- for hardship exemptions. These are the authors recommend: individuals who, during a particu- tantly, states would be prohibited from Bauer, L., D. Schanzenbach, and J. applying for waivers unless the state lar month, are unemployed, not in Shambaugh. October 2018. ``Work overall has an unemployment rate the labor force, or working less than Requirements and Safety Net Pro- greater than 10% or greater than both twenty hours, but, over two years, are grams.’’ Brookings, The Hamilton 120% of the national average rate and much more likely to transition into Project: Washington, D.C. http:// 7%. States may still apply for waivers part- or full-time work. These individ- www.hamiltonproject.org/papers/ for counties or cities that specifically uals cite health or job-related issues work_requirements_and_safety_net_ have very high unemployment rates. when asked why they are not working programs. during a month. If the labor force is a Three additional mechanisms for football game, these are individuals Neuberger, Z. February 2017. “SNAP and WIC Help Young Children Now waiver eligibility are eliminated. The who are sidelined for part of the game, and in the Future.” Center on Budget first mechanism was designation as a but will cycle in and out of play. labor surplus area, meaning that the and Policy Priorities. https://www. two-year average unemployment rate These participation losses result in a cbpp.org/blog/snap-and-wic-help- was 20% higher than the same 2-year variety of mechanisms for loss of social young-children-now-and-in-the-future welfare from SNAP. First, food assis- national average. The proposed rule USDA FNS. 2019. “Supplemen- tance programs have well documented disallows states from implementing tal Nutrition Assistance Program: a waiver prior to approval even if the health and well-being benefits for Requirements for Able-Bodied state meets the waiver criteria. Also, participants. Cutting eligible partici- Adults Without Dependents”. Pro- having a historical seasonal unemploy- pants off from the program eliminates posed Rule 84 FR 980. https:// ment rate greater than 10% would no those improvements. Secondly, tight- www.federalregister.gov/docu- longer be a criterion for approval. This ening eligibility requirements has the ments/2019/02/01/2018-28059/ last change may well strike agricul- unintended consequence of increasing supplemental-nutrition-as- tural communities and their fluctuat- administrative burden for both states sistance-program-require- ing workforces particularly hard. and participants as caseworkers and ments-for-able-bodied-adults-with- households navigate an increasingly out-dependents

Giannini Foundation of Agricultural Economics, University of California 11 Brexit and the Disruption of Agricultural Trade: A View from Ireland Colin A. Carter and Doris Läpple

Agricultural markets across the 28 of Brexit will be felt all the way from could not be reached by the end of Member States in the European Australia to California to Italy. 2020. Union (EU) customs union are On June 23, 2016, citizens of the U.K. Inventing a new technology to allow closely integrated under the voted, in a referendum, to leave the for an electronic border (without Common Agricultural Policy. The EU—the Brexit vote. The vote was the normal border infrastructure) United Kingdom (U.K.) has chosen won by a slim margin, but it passed is regarded as an alternative to leave the EU, and the separation by more than two to one among arrangement. An e-border would has become known as Brexit. U.K. farmers. U.K. farmers will be permit commerce between the EU and While Brexit itself is complicated, adversely hit, which illustrates that the the U.K. to proceed with very minimal with less than two months to the decision was not made by economic border transactions costs, through exit date, no decision on how to interests, but for other reasons such scanning truck contents without leave the EU has been made, as issues relating to sovereignty and stopping them, etc. The problem, which further aggravates already immigration. however, is that such a technology has prevailing uncertainty surrounding not been developed. its implications. Brexit will disrupt However, Scotland and Northern Ireland, both part of the U.K., As a result of the uncertainty agricultural supply chains and voted not to leave. The stakes are surrounding the UK’s access to trade within Europe and will also particularly high in Northern Ireland food imports, U.K. consumers are affect European agricultural trade because of its strong geographic and understandably worried about food with other countries, including the economic linkages with the Republic supply disruptions and higher prices United States. of Ireland (RoI). The border between after Brexit. This is why a retailer the Republic and Northern Ireland in the U.K. is briskly selling “Brexit is now invisible but that could soon Boxes,” retailing at about $400, with A hard Brexit might be tough on the dairy change to a hard border with serious food rations to last a household 30 industry, but it would be ‘catastrophic’ on negative impacts on commerce, not days. Additionally, U.K. merchants the beef industry in Ireland. to mention the political consequences and consumers are stockpiling frozen —Mike Brady, Agricultural Consultant, of possible renewed violence in the foods and general hoarding of food Brady Group, Ireland North. has apparently begun in the United Kingdom. The United Kingdom (U.K.) will exit It is particularly problematic that the the European Union (EU) on March U.K. parliament cannot decide on Brexit will have significant 29, 2019. With less than two months how to leave the EU. The withdrawal implications for global agricultural to go, no decision on how to leave agreement, resulting from 18 months trade as the U.K. is a large importer of the EU has been made. The default of negotiations between the U.K. food including meat, dairy products, is a “no-deal” Brexit, also known as and EU, was rejected by the British and fruits and vegetables. Post Brexit, a “hard Brexit.” The consequences House of Commons in early January assuming no deal, the EU will have of an exit without a trade agreement 2019. The main reason for rejecting an external border on the island would be severe for the U.K. and its the withdrawal agreement was the of Ireland interrupting an efficient trading partners. The main purpose “backstop” provision, which was supply chain that seamlessly moves of this article is to discuss the impacts drafted to honor the 1998 Good Friday goods back and forth on the Irish of Brexit on Ireland’s agricultural peace agreement and includes a island (between the RoI and Northern sector. We focus on Ireland because commitment made by the U.K. not to Ireland) and across the Irish Sea into Irish farmers will be the hardest hit of re-introduce a hard border between Great Britain and continental Europe. RoI and Northern Ireland. This exit all EU countries, due to the fact Irish The EU operates as a single trading plan would have kept the U.K. in the farmers rely heavily on exports to the bloc, with common external tariffs EU customs union, if a free trade deal U.K. We also draw out implications and other trade barriers. It also has that eliminates the need for a hard for world food trade, as the impact numerous free-trade agreements with border between the EU and the U.K.

12 Giannini Foundation of Agricultural Economics, University of California Table 1. Irish Beef Exports (2015–2017 annual average) would mean U.K. beef tariffs on Irish imports would be an average of 65%. Partner Exports $Millions Percent of Exports This would no doubt disrupt the U.K. 1,069.7 46.3 supply chain because Ireland is the only foreign beef supplier to the three France 216.7 9.4 largest U.K. supermarkets: Tesco, Netherlands 207.0 9.0 ASDA, and Sainsbury’s, as well as to

Italy 182.5 7.9 McDonald’s and Burger King. In a January 28, 2019, letter from the top Germany 141.2 6.1 ten U.K. supermarkets to Members of Sweden 77.4 3.3 Parliament, the CEOs wrote in relation to a hard Brexit: Belgium 57.6 2.5 We anticipate significant risks to Spain 56.4 2.4 maintaining the choice, quality, and Denmark 39.9 1.7 durability of food that our customers World 2,311.9 have come to expect in our stores, and there will be inevitable pressure on Source: UN Comtrade. HS codes: 0201,0202, 021020, 160210, 1620250 food prices from higher transport costs, countries outside the customs union. A View from Ireland currency devaluation, and tariffs. The U.K. would be giving this all up, Agriculture is one of RoI’s most and after Brexit, the U.K. will establish important indigenous sectors, Irish dairy, in general, is not so its own trade agreements with the generating about 7% of gross value dependent on the U.K., shipping United States and all other trading added and accounting for over 10% about 24% of its exports to the U.K. in partners. of national exports. There are about a typical year (Table 2). However, we see from Table 3 that the Irish exports If the U.K. opts for a no-deal 137,500 farms in RoI, and beef and of certain dairy products are heavily break and cuts itself off from the dairy are the dominant sectors with concentrated on the U.K. market. EU customs union preferences 72,400 and 16,637 farms, respectively, This is especially true for cheese, as on trade, then the U.K..’s existing accounting for almost 70% of annual about 53% of Irish cheese exports World Trade Organization (WTO) gross agricultural output. RoI is the are sold to the U.K. in a given year, commitments on agriculture will sixth largest exporter of beef in the which suggests that some Irish dairy have to be renegotiated with all WTO world, and the largest in Europe, and farmers will be more exposed to the members. This will create challenges provides about 2% of world dairy impact of Brexit than others. Butter, and opportunities for agricultural exports. and milk powder and infant formula exporters who would like greater From an environmental perspective, are more diversified across import access to the U.K. market, but at the the Irish dairy and beef sectors markets. It is notable that RoI exports same time not wanting to forego perform relatively well, as RoI has approximately 30% of its milk powder future market access to the remaining the joint lowest carbon footprint per and infant formula to China. With 27 countries in the EU. After Brexit, kg of milk and the fifth lowest carbon Brexit, RoI may try to increase this the U.K. may source some of its food footprint per kg of beef produced market share to replace lost sales to imports from outside the EU, pivoting within the EU. Approximately 90% of the United Kingdom. towards low-cost exporters like beef and dairy products are exported, Australia, Brazil, or the United States. but dependence on export markets Brexit brings into question the likely transition of Irish agriculture to When the U.K. abandons free trade differs, as shown in Tables 1 and 2. more market discipline if it loses within the EU, some U.K. trading RoI exports over 46% of its beef to preferential access to the U.K. market. partners will be affected more the U.K. in a typical year (Table 1), It is important to recognize that Irish than others; but as the above quote which means Brexit will have an agriculture is highly subsidized, suggests, the Irish agricultural sector outsize influence on Irish beef especially in the case of beef. There will be severely hit, at least in the farmers because significant U.K. is an astonishing difference in farm short run. RoI is a small country and trade barriers will come into play incomes and subsidy dependence its agriculture is very dependent on after Brexit. According to Bord Bia between Irish dairy and beef farms. international trade, much like New (the Irish Food Board), a hard Brexit Figure 1 shows a three-year average of Zealand. Giannini Foundation of Agricultural Economics, University of California 13 farm incomes and subsidies received Table 2. Irish Dairy Exports (2015–2017 annual average) by dairy and beef farms, as well as Partner Exports $Millions Percent of Exports corresponding average farm sizes, which are relatively small. U.K. 948.3 24.4

Remarkably, 101% of beef farm China 550.4 14.2

income is due to subsidies, indicating Netherlands 346.6 8.9 that, on average, beef farmers do not make a profit. However, the Germany 262.6 6.8 vast majority of farm families have USA 203.4 5.2 off-farm incomes or are receiving France 162.1 4.2 pensions, as 30% of all Irish farmers are 65 or older. The high subsidy Saudi Arabia 153.7 4.0

dependence of beef farming Belgium 120.8 3.1 introduces another important way that Brexit will affect Irish farmers. Hong Kong 105.0 2.7 The U.K. has been a net contributor World 3,883.0 to the EU budget, and unless the Source: UN Comtrade. HS codes: 0401 through 0406, 2105, 3501, 190110 U.K.’s contributions are met by the remaining Member States, which is Brexit also threatens Irish-EU trade border will disrupt that truck traffic unlikely to happen, the EU budget that moves via a “land bridge” due to customs inspections, relating will be reduced. It is expected that this through the English Channel to phytosanitary standards and other will imply almost a 10% reduction in tunnel. The Freight Transportation issues. direct payments, which would present Association of Ireland estimates that a major challenge to the Irish beef 80% of the Irish truck freight that Implications for Other sector. reaches mainland Europe passes Agricultural Exporters through the U.K. The land bridge is In contrast, dairy farming is a Like other WTO members, the EU by far the quickest route for trucks profitable industry in RoI, and uses import barriers such as tariff rate between Ireland and the rest of the subsidy dependence is much lower, quotas (TRQs), which allow imports EU. For instance, Irish beef exports to at 29%. (For comparison purposes, of fixed quantities of a good (e.g., beef Italy are shipped via truck through according to the Organisation and dairy products) at a relatively low the U.K.,, with fruits and vegetables for Economic Co-operation and tariff. For import volumes above the back-hauled. Brexit will threaten the Development [OECD], U.S. farms quota amount, typically a much higher shelf-life of that backhaul. A hard receive about 10% of their income tariff is applied. The TRQs protect from subsidies, while the EU average is about 20%.) RoI has one Figure 1. Annual Farm Income, Subsidy Dependence, and Size of Dairy and Beef Farms in Ireland (2015–2017) of the lowest costs of producing milk worldwide due to favorable 80,000 60 agronomic and weather conditions 70,000 50 that sustain a grass-based, spring 60,000 calving milk production system. 40 50,000 Moreover, the Irish dairy sector is currently undergoing a major phase 40,000 30

of expansion, facilitated through farm per

€ 30,000

the abolition of EU milk quotas on 20 hectares farm per April 1, 2015. Milk production has 20,000 increased by over 50% over the last 10 10,000 10 years. Access to land is one of the main constraints to further expansion, 0 0 and the implications of Brexit on the Dairy Beef beef industry may benefit the dairy Farm Income Direct Payments Farm Size (UAA in ha) industry as it will likely free up land. Note: Farm incomes are derived by subtracting production expenses from total sales and direct payments. Source: Teagasc National Farm Survey data 14 Giannini Foundation of Agricultural Economics, University of California farmers at home but they are part Table 3. Top Foreign Markets for Irish Dairy Products (2015–2017 annual average) and parcel of the EU TRQs and so would have to be renegotiated by the Top Irish Export Markets (Percent of Irish Exports) U.K. after Brexit. Such negotiations Milk Powder / Infant Formula Cheese ($824 million) Butter ($800 million) will involve most global agricultural ($1,696 million) exporters serving Europe as the EU UK (53%) UK (28%) China (30%) has over 80 different TRQs in place for Germany (6%) Netherlands (18%) UK (11%) agricultural products. Netherlands (5%) Germany (14%) Netherlands (7%) After the U.K. leaves the EU it will have to establish its own set of tariffs France (5%) Belgium (12%) Saudi Arabia (7%) on imports, in compliance with WTO USA (4%) France (8%) Hong Kong (6%) rules. This will be complicated with agricultural products subject to TRQs Algeria (4%) USA (8%) Germany (4%) because the TRQ import quantity is Source: UN Comtrade. Product code aggregation follows USDA product description for exports. based on EU-wide demand. Therefore, outlined the impact of Brexit on the TRQs will have to be modified Authors’ Bios to account for U.K. demand versus Irish agriculture, which is highly demand in those countries remaining concentrated on beef and dairy and Colin A. Carter is a distinguished in the EU. dependent on exports to the U.K. professor in the Department of Agri- While Brexit will no doubt have cultural and Resource Economics at In 2017 the U.K. and the EU proposed negative consequences for Irish beef UC Davis, who can be contacted at to the WTO a way of splitting the farmers due to trade destruction with [email protected]. Doris Läpple is TRQs based on historical imports, U.K.’s departure from the customs a lecturer in the School of Business and but some exporters (e.g., Argentina, union and reduced direct payments, Economics at the National University Brazil, Canada, the U.S., and others) the impact on Irish dairy farmers will of Ireland Galway. have complained this proposal would be more diverse. New trade flows will Suggested Citation: reduce their overall market access. also be created with other agricultural Carter, Colin A., and Doris Läpple. One of the WTO principles is that exporters seeking access to the U.K. “Brexit and the Disruption of Agricul- no member can be made worse off market. tural Trade: A View from Ireland.”ARE (in terms of market access) by any Update 22(3) (2019): 12–15. University of splitting of the TRQs. From an environmental and social point of view, there could also be California Giannini Foundation of Agri- The U.K. accounts for about 10% of wider implications—say, for instance, cultural Economics. the overall EU population. Suppose U.K. imports more beef from Brazil, that the UK’s historical share of the and less from the Irish industry. EU imports of a good under existing Reductions in Irish beef production TRQs is 20%. Post Brexit, if the U.K. that is made up by less carbon- takes 20% of the TRQ share for that efficient beef production, would have product and then demand in the U.K. negative environmental consequences, wanes, the exporters would not be but will free up land that may be able to shift supplies towards the EU utilized by an expanding dairy sector because their quota would be fixed at in RoI. Expanded Irish dairy exports the historical level. This is a market to China and elsewhere could crowd access issue. out exporters like the United States in that market, which again will shift the Conclusion environmental balance of production. All major players in global Given that California agriculture is agricultural trade will be impacted also reliant on dairy product exports, by Brexit. For instance, U.S. President with China being an important Trump recently stated the likelihood of market, expanded Irish dairy sales any future U.S.-U.K. trade agreement to China will impact the California could depend on the details of how industry. the U.K. will leave the EU. We have

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