Minister for Agriculture, Food and the Marine, Charlie McConalogue is right – government cannot do everything, but its role as regulator carries responsibilities.
It was interesting to see McConalogue state last week that the government cannot be expected to do everything in response to a call from Kerry TD, Danny Healy Rae, to support farmers who do not grow or cut fodder on their land because it is not suitable.
Like everywhere else, we have to recognise that government support is a scarce resource and must be used wisely and in proportion to an assessment of need versus effectiveness.
In that context, it is also worth reflecting on where the role of government sits in 2022 given the dramatic changes in policy and philosophy over the last two years in particular.
2008 austerity – government role curtailed
Any student of the recession between 2008 and 2012, and in particular the EU response to the catastrophic impact of the financial sector meltdown on the global economy, will see that while many banks and financial institutions were rescued or supported, this intervention to offset economic depression did not stretch out into the broad economy.
The result of this balanced budget / strict control of public spending policy was a huge increase in unemployment; over five million jobs lost in the EU at its peak; and an economic recession in the EU which still has impacts right up to now.
This ‘austerity’ approach in the EU was in contrast to the much broader interventionist policy in the US which notably saw the US auto sector rescued and saw its economy emerge from recession five years earlier than the EU.
Along comes Covid-19 in 2020 and the lesson that doing nothing is both ineffective and politically dangerous, has surely been learned.
So both in the context of providing unlimited finance to fast-track the development of Covid-19 vaccines, and the provision of direct wage supports to millions instructed to stay at home during lockdowns, the key role of the state as the definitive manager of the economy in crisis is reasserted.
Ukraine conflict
Now, with the impacts of the horrors of the war in Ukraine and its devastating effect, firstly on energy price and availability, and increasingly in addressing global food price inflation and shortage issues, government’s role as economic fixer is again in the spotlight.
But as stated, there are limits to government spending, not least because the impact of rising inflation deriving from the war and the supply chain impacts of Covid-19, are increasingly manifesting in increased borrowing costs, which directly impacts on government spending.
Unlike throughout the Covid-19 pandemic, the cost of borrowing to intervene is becoming higher and higher and more risky in terms of a government deficit overhang causing an economic recession.
Looking at this evolving scenario from an agri-sector perspective, I think two specific issues arise above and beyond broad economic impacts.
These are:
- What will happen to food prices and food inflation in the context of overall inflationary pressures?;
- In terms of climate action regulation – Irish government decisions on sectoral carbon budgets are becoming the defining/limiting factor on Irish agricultural production and food output, rather than global competitiveness and market development capability, which were the drivers of expansion and export growth over the last 20 years.
The big question is – is there a fair balance between reducing environmental impact and meeting climate action commitments on the one hand, and undermining productive capability and the unique Irish economy impact of the sector on the other?
Food inflation
In terms of food inflation, my sense is that the government will do nothing one way or the other.
If anything, they will be more swayed by concerns about low income consumers being hit by another significant cost increase on top of energy prices, rather than any sense that the abuse of dominance issue, whereby food prices have declined by 18% in real terms (food prices fell by 10% between 2011 and 2021 whereas overall cost-of-living rose by 8%), should be addressed now.
In the context of the balance between maintaining the huge economic capability of a sector which underpins 240,000 jobs and is the largest source of expenditure in the Irish economy while dealing effectively with climate challenges, the broad acceptance of a balanced livestock policy through the Food Vision process by government departments will be an acid test.
While we as a large-scale economic sector need to recognise the limit of government intervention in the context of priorities across the economy, government must also recognise that the credibility of its role as regulator and legislator depends on its capability to bring those directly impacted, along, in an inclusive, fair and transparent manner.