Tough tines for Europe's farmers

Farmers are known for complaining, but right now they may have a point. Agricultural commodities such as grains and sugar have plummeted on futures markets as global supplies have surged. European farmers are suffering in particular as they contend with high input costs and increasingly competitive global rivals.

Benchmark wheat futures in Paris have fallen more than 20 per cent this year to multiyear lows, dragged down by bumper harvests in Russia, Australia and parts of South America. Meanwhile, speculators are building bets on further price falls, with investment funds adding more than 280,000 new short lots in milling wheat futures in the week to November 21, extending their net short position, according to Euronext data. 

For UK growers, the fall has been brutal. Wheat prices are now little more than half the levels reached in 2022 following Russia’s invasion of Ukraine. Yet fertiliser, fuel and machinery costs — inflated during the energy shock — have barely retreated.

For arable farmers in Europe, “it’s not a happy situation at all,” Ole Hansen, head of commodity strategy at Saxo Bank told the Financial Times. There is a big gap between “the cheap crop that leaves the farm gate” and the price of bread “when it hits the store”, he said. While the upcoming harvest in Norfolk looks promising, the UK’s wheat yields at this year’s harvest fell after last winter’s torrential rain. But because international markets are well supplied, that does not translate into higher prices.

The financial squeeze is prompting visible restructuring. Brown & Co, the UK’s largest dedicated agricultural auctioneer, said the number of agricultural machines being put up for sale has risen sharply. “It’s become hard to find a day of the week without an auction,” said partner Simon Wearmouth. “I’ve never known the calendar this crowded.”

Even as grain markets sink, UK shoppers have seen little relief in the cost of bread, beer or baked goods. That is because the raw commodity typically accounts for only a small fraction of the retail price. In a loaf of bread costing £1.50, wheat may only account for 16.5 pence to 22.5 pence, according to Financial Times calculations based on research by the Agriculture and Horticulture Development Board, while barley only accounts for a small proportion of a pint of beer.

Energy, packaging, transport and processing costs and retail margins are the main components of the final price. Annual food inflation in the UK was 4.9 per cent in October, up from 4.5 per cent in September. The rise has been driven by five products — beef, butter, milk, coffee and cocoa — where supply shortages globally have pushed up prices.

Across the Channel, growers say the situation is similarly dire. In France, where sugar beet is a flagship crop, producers describe a sector under existential pressure after global sugar prices plunged almost 50 per cent over the past year.

Concessions for South Africa, Mercosur countries in South America and traditional cane exporters have added to supply on a market where European consumption is flat or declining. The result, has been factory closures, with six sites shutting in France since the end of EU sugar quotas in 2017, with more expected if 2026 prices fail to recover.

Producers on both sides of the Channel emphasise a structural problem: Europe’s high environmental and labour standards, while politically popular, make production significantly more expensive than in major exporting nations. In Brazil and India, cane cultivation benefits from favourable climates, large vertically integrated estates and looser rules on pesticides and labour.

The Commission's view of the CAP 'facts'

Professor Alan Matthews writes: 'The Commission has published a Fact Sheet on "The CAP post-2027" in the next EU budget' which includes, for the first time, an Annex showing how the minimum ring-fenced amount for CAP income support interventions will be allocated among Member States (this will eventually become Annex XVIII in the proposed NRPF Regulation). These minimum ring-fenced amounts per MS are based on their relative shares in the total CAP envelope for 2027. 

Farmers and commentators should not fall into the trap of comparing the current national Pillar 1 and Pillar 2 envelopes with these minimum amounts as countries are free to add additional resources from the non-ringfenced amount in the NRP Fund. The Commission also highlights that the budget proposal has higher mandatory minimum amounts of national contributions (co-financing) which, in its view, will create a larger financial volume for CAP support, though the precise impacts will depend on the relative shares of expenditure on interventions that require national contributions and those that do not. Overall, the total CAP budget in a Member State can go up or down (in nominal terms). The eventual amounts cannot be known until draft National Plans are submitted and approved, optimistically in 2027.'

Read what the Commission has to say: https://agriculture.ec.europa.eu/common-agricultural-policy/cap-overview/cap-post-2027-next-eu-budget_en#national-and-regional-partnership-plans

My personal view is that any formula is always subject to political bargaining which means that policy instruments become less attuned to their stated objectives.

At the end of the day it comes down to raw politics

Here are some extracts from the conclusions to an important post by Professor Alan Matthews on changes in CAP governance based on a recent conference presentation.   I certainly agree with his observation that these issues are ultimately political rather than technical but with such a complex policy one has to grasp the technicalities which he helps us to do.   His full analysis is here: https://capreform.eu/strategic-planning-in-the-new-cap/

The proposed NPRR and Performance Regulations represent a structural shift in CAP governance. By embedding agriculture within a horizontal EU performance framework, it moves oversight from predominantly ex post checks to a model combining ex ante compliance verification with real-time monitoring. This will require significant adaptation by Member States and CAP actors but offers the potential for earlier intervention, greater transparency, and stronger alignment with EU-wide objectives.

The fundamental question is whether the proposed changes make genuine strategic planning in the CAP more likely or not. Good strategic planning in the EU budget context requires that objectives are specific and clearly defined, measurable, achievable, relevant, and time-bound (SMART). It also requires that interventions are logically linked to these objectives through a coherent theory of change. Resources should be allocated in ways that reflect political priorities and trade-offs rather than institutional inertia.

Monitoring and evaluation should provide timely and credible evidence both for accountability and for course correction, while the system as a whole should allow learning and adaptation. Strategic planning is about much more than indicator reporting: it aligns objectives, resources, and accountability mechanisms.

Several limitations in the Commission proposal might be highlighted. I am not convinced that linking output and result indicators to intervention fields rather than specific objectives is a positive step. The CAP alone (including forestry) has 40 different intervention fields, and there are hundreds specified in Annex 1. This proliferation in the number of intervention fields is hardly conductive to making reasoned choices between strategic priorities. There is a danger of formalism, where indicator compliance substitutes for genuine strategic steering.

Ultimately, we must recognise that agricultural policy can never be reduced to solely technical considerations and trade-offs. Strategic planning will always be subject to political dictates. But a question for debate could be whether the proposed strategic planning framework for the CAP does as much as it could to align the incentives of Member States with the needs of the Union as a whole.  

What those affected think about Commission proposals on the CAP

If you're a real CAP buff, this material unearthed by Alan Matthews at TCD may be of interest.   It includes the latest version of proposals for the future of the CAP and the reactions of stakeholders: https://ec.europa.eu/transparency/expert-groups-register/screen/meetings/consult?lang=en&meetingId=63821&fromExpertGroups=3877

'Stakeholders' is common language these days, both in the Commission and in the UK, but we used to call them 'interests' which required us to be cautious about the neutrality of their views.

CAP budget may not shrink

Alan Matthews of TCD writes: 'We are still digesting the implications of the Commission's MFF and CAP proposals. In a new post (link in the comments) I present a more optimistic view of the likely size of the CAP budget under the Commission proposals (from the perspective of those in receipt of this support).

While most commentators (myself included) have argued that the proposal implied a reduction in the nominal size of CAP spending, I would now argue it is more plausible to assume that the nominal amount of EU spending on the CAP will remain unchanged from what it is today. There are both upsides and downsides to this forecast which I explore in the post. In the end, of course, it is how the money is spent rather than its absolute size which will determine the impact that it has.'

Read his full commentary here: https://capreform.eu/how-big-will-the-cap-budget-be-in-the-next-mff/

Can 25 year negotiation end with a Christmas present for Brussels?

Brussels is offering European farmers unprecedented guarantees that South American imports will not damage their livelihoods as it seeks to swing support behind its trade deal with the Mercosur bloc of economies.

The European Commission on Wednesday announced legal commitments to investigate any complaint by a member state that its agricultural sector is being damaged as it started the approval process for the EU’s biggest-ever formal free trade deal.

 European farmers in countries including France and Poland have pressured their governments to oppose the “cows for cars” pact with the Mercosur countries, which include Argentina, Brazil, Paraguay and Uruguay. Brussels wants to secure final approval for the deal by December as it seeks to replace US demand for its products after Donald Trump’s tariffs.

The pact would create a market of 700mn people and boost exports of EU industrial and agrifood products such as cheese and wine. It is expected to compensate for about a third of the export volumes the EU is forecast to lose after Brussels agreed to 15 per cent tariffs on most of the bloc’s exports to the US in July. 

French trade minister Laurent Saint-Martin said the “strengthened safeguard clause . . . is moving in the right direction”. He added: “France will now examine the proposal in detail to ensure the effectiveness of the mechanism.”  Italian Prime Minister Giorgia Meloni’s office said it would also assess the safeguards before “supporting or rejecting the final approval of the EU-Mercosur agreement”.

It would take at least four states with 35 per cent of the EU population to block the deal, which was struck last year after 25 years of talks. France’s commissioner, Stéphane Séjourné, told his colleagues at their weekly meeting on Wednesday that he had grave reservations that could be addressed only by a “robust safeguard clause”. 

The Commission said it would monitor imports of sensitive products such as beef, chicken and sugar from the South American countries. If they rise by 10 per cent or above — or prices fall 10 per cent below domestic levels — in any member state it will launch an investigation.

The Mercosur agreement allows for either side to suspend or reverse tariff liberalisation if they can prove it has caused injury to farmers, reflecting their continued political clout. Brussels is also expanding an emergency compensation fund that covers market disruption and weather damage to almost €1bn a year.

“We have a belt, we have braces and an insurance policy,” one senior EU official told the Financial Times. The EU estimates it will increase annual exports to Mercosur by up to 39 per cent, or €49bn, supporting more than 440,000 jobs across Europe.

EU agrifood exports to Mercosur are expected to grow by half through the reduction of tariffs on wine and spirits (by up to 35 per cent), chocolate (by 20 per cent) and olive oil (by 10 per cent). South American producers of 344 EU-protected foods such as feta cheese or Parma ham will not be able to use those names. 

However, Copa-Cogeca, which represents EU farmers, said the push to ratify the deal “is deeply damaging and sends yet another negative signal” to the agriculture sector. 

European industry groups issued support statements about the deal. Tariffs on some cars will drop from 35 per cent to zero through the agreement, helping European automakers at a time when they face 15 per levies in the US, their biggest market.

 “We fully support this. The EU has benefited greatly from markets opening up over decades,” Ola Källenius, the boss of Mercedes-Benz and president of the carmaker lobby group ACEA, told the Financial Times. John Clarke, a former commission official who helped negotiate the deal, said it would “eventually be agreed”. “Even France — at least the government — understands it’s a good deal. I and others have demonstrated that the deal will not impact much on European farming,” he told the Pink ‘Un.

Some French members of the European parliament have already said they would vote against the deal. The Greens will bring a case to the European Court of Justice claiming it breaks EU environmental policy. But Bernd Lange, chair of the assembly’s trade committee, still expected overall approval. “It will be a wonderful Christmas gift for the world that we can demonstrate trade can be based on a democratic constructive partnership,” Lange said.

A developed country expert takes a look at ag policy in the Global South

I thought I would take a look outside my comfort zone and see how agricultural tax and subsidy policies are developing in DCs and emerging countries.   I am not an expert on either so apologies in advance for any errors or misunderstandings.   I have drawn a lot on IMF, FAO and Royal Geographical Society analyses.

Caution is necessary in making generalizations about developing countries as they range from emerging countries that are significant agricultural exporters to least developed countries where semi-subsistence and subsistence agriculture is predominates and engagement with the global economy is limited.   Each country can tell a different story that is the product of interacting factors that include climatic conditions (and how rapidly they are changing); economic structures; and the political framework.    However, some useful generalizations can be made about what is a complex and changing picture.   In particular, developing countries are being increasingly pressed by the World Bank and other international institutions to take account of climate change in their domestic policies and indeed for many of them water scarcity is an increasing challenge.

Leading Mercosur members

The variety of trajectories and the factors that influence them can be considered by briefly examining the cases of the three leading Mercosur countries: Chile, Argentina and Brazil.  Each of them is a significant agricultural exporter and in that sense can be seen to be beneficiaries of globalization, but the constraints and opportunities they face have been mediated by domestic considerations.   Above all, one can see the influence of path dependency, historical choices of strategy.

Chile is an OECD member, reflecting its relative prosperity.  It has a dynamic domestic retail market with sophisticated consumers that help to underpin the agri-food sector as a whole.   It has a wide variety of climatic regimes, but is particularly strong in wine, fruit and vegetables.  In 2022 agriculture and related sectors accounted for some 27 per cent of total Chilean exports.    Political tensions surrounding the constitution, but also stemming from income divergence, have not been resolved, but on the whole there is a stable political and regulatory environment.    

However, a crime wave contributed to growing unrest in the run up to the presidential elections scheduled for November 2025.   Agricultural technology and production is well supported by a mix of public, private and academic stakeholders. The country has had a relatively open commercial policy with 33 international trade agreements that cover 65 markets.   Water scarcity as a result of climate change is a potential challenge with 70 per cent of available water resources used by agriculture.

Argentina is in many respects a story of long-term decline resulting largely from mismanagement by successive populist governments.   Nevertheless, it remains a major exporter of grain, soya, meat and wine (the latter, particularly from the Andes foothills, is an international success story).  It is the world’s third largest agricultural exporter, with the agricultural sector accounting for 16 per cent of GDP and 11 per cent of tax revenues in 2021.   There has been a history of governments imposing export taxes on the sector to raise revenues, aggravated by uncertainty surrounding the peso.

 In 2021, Argentina ranked second among countries with the highest rate of tax collection from duties (2.1 per cent of GDP).   The World Bank notes that ‘In recent years the country has been losing market share in international markets which raises concerns about the sector’s competitiveness.’ In the World Bank’s view ‘the country’s poor performance in agri-food production and exports relative to its potential can be attributed to policies that have heavily taxed and constrained the sector.’

Even under the libertarian oriented Milei regime these policies have not changed fundamentally. The administration’s economic strategy relies on agricultural exports bringing in badly needed foreign currency to build up the central bank’s depleted foreign exchange reserves and to boost the state’s financial credibility.   In January 2025 Milei temporarily lowered export duties on key agricultural exports, e.g., from 33 per cent to 26 per cent for soybeans, and the main grains from 12 per cent to 9.5 per cent.   However, he made it clear that the duties would be reintroduced in July to the disappointment of large scale agricultural producers.

 Brazil’s great asset is plentiful supplies of land for growing a range of crops and raising beef, but the grubbing up of large tracts of Amazon rain forest has attracted international criticism because of its potential adverse contribution to climate change.   Agriculture has accounted for around 25 per cent of GDP in the last two decades   Brazil is the fourth largest agricultural producer in the world and is the leading producer of crops such as soy, sugar cane and maize. 

In 2025 Brazil found itself locked in a trade battle with the US despite running a trade deficit with that country.   President Trump threatened 50 per cent tariffs against Brazil because of the court proceedings against former right-wing president Bolsinaro who was charged with plotting a coup.  These are among the largest tariffs threatened against any country by the US, but Brazil took a defiant stance, resenting interference in its internal affairs on this and other matters.   This example show how patterns of agricultural trade can be disrupted by considerations that have nothing to do with agriculture. 

These three emerging countries are substantially reliant on agricultural trade and this influences their domestic and international trade policies.   At the other end of the spectrum are the countries of sub-Saharan Africa where water constraints are particularly severe and are worsening because of climate change. 

Charities such as Farm Africa follow an incremental strategy of converting subsistence farmers (often women) into semi-subsistence farmers who sell into local markets so that they can invest in their crops.   The International Monetary Fund (IMF) notes that ‘overall (explicit and implicit) agriculture and food subsidies are lowest (in fact, often negative) in sub-Saharan Africa {and] relatively low in Latin America and the Caribbean.’  The strong implicit taxation of low income developing countries agriculture ‘is primarily a sub-Saharan African phenomenon.’

Kenya

 There are, nevertheless, some relative success stories which are related to international trade.  ‘Agriculture is key to Kenya's economy, contributing 33 per cent of the Gross Domestic Product (GDP) and another 27 per cent of GDP indirectly through linkages with other sectors. The sector employs more than 40 per cent of the total population and more than 70 per cent of Kenya's rural people.’  (FAO). 

Kenya joined the WTO in 1995 as it sought to move away from an import substitution model in favour of an export oriented engagement with the global economy.  Changes in the political environment may have contributed to this shift in terms of: ‘the gradual transition to a relatively embryonic democratic multi party-based political system.  Despite democratic electoral process, Kenya follows a hybrid regime—a mixed type of political regime that combines autocratic features with democratic ones.’  (Singh, 2023, 2567).   Nevertheless, there are episode of instability including rioting, fuelled by continuing income inequality and poverty in urban and rural settings, even if overall levels of poverty have declined.

Kenya has developed a strong horticultural export trade with Europe, particularly the UK, becoming a leading exporter of cabbages and leguminous vegetables such as peas, beans and mage tout.  As they are high value and perishable, they are generally ‘air freighted for freshness’, a practice that has attracted criticism because of carbon emissions.  Kenya sends out about 350 tonnes of vegetables and cut flowers each night ready to be sold next day in UK supermarkets.  Horticulture accounts for over 90 per cent of exports.   The country has been a pioneer in the development of the use of biological pest control products as an alternative to chemical pesticides.      

However, critics of Kenya’s integration in global value chains argue that ‘The framework considers value chain inclusion as a management or competency issue but overlooks the asymmetrical relations in the agricultural value chain (buyer-driven) dominated by lead firms. Furthermore, it fails to recognise that small and marginalised farmers have limited capacity to assess risk factors that exist due to asymmetrical power relations.’ (Singh, 2023,2567).  Farms based in Kenya that have contracts with UK companies are high-tech, commercial businesses that have to produce food to very high standards.     Kenya’s integration in global value chains has had positive economic results for the country, but there are concerns about the wages paid to labourers, over use of irrigation and other environmental impacts.

Input subsidies were important in developing countries in the 1960s and 1970s, but the preference of growing urban populations for cheap food saw farmers disadvantaged.   Producer subsidies were restored in many countries in the 21^st century, often with the support of donors. As developing countries become more prosperous it is possible to introduce new producer support programmes such as the Kenyan Fertilizer Support Programme in 2023 which covered 54 per cent of fertilizer costs.   In LIDCs there is not the fiscal space to provide subsidies and after account is taken of border measures and market price control net assistance to agriculture is negative.

‘In Emerging and Developing Asia, implicit support starts out negative, a tax on agriculture …. And after the late 2000s, it becomes strongly positive.’  (IMF)   Historically Taiwan used the agriculture sector to provide capital for industrialization, as indeed happened in Britain’s Industrial Revolution but without government intervention.   Farmers had to buy fertilizer from government factories at 40 per cent above the market while taxes had to be paid for in the rice they produced.  Those policies have long since been abandoned.

For agricultural exporting countries like those in the southern cone of South America the international trade regime remains of critical importance.   These are generally emerging countries, but it is also important for countries integrated into supplying global value chains such as Kenya.  Global value chains (GVCs) have played a transformative role in reshaping agricultural trade flows by linking producers in developing countries with retailers and processors in developed and increasingly other developing economies.   Peru offers another example of a boom in horticultural exports such as avocados and blueberries with trade agreements with China and Japan opening up new markets.   For structural reasons, LIDCs have less direct engagement with global markets.

In analysing DCs one can see aggregate trends that are reshaping trade flows, but also particular country stories that reflect specific geographic considerations and economic and political histories which can lock countries into path dependency, but they can also embark on new paths.    What us therefore needed is a political economy that takes account of both specific national considerations and the international context.   The erratic trade policies of the US make it even more challenging to develop such a framework.

A small step towards ending the CAP's exceptionalism

The merger of the CAP into another fund under broad horizontal principles is a complex subject, but Alan Matthews takes a deep and comprehensive dive into it here, exploring every possible angle: https://capreform.eu/horizontal-principles-in-the-next-mff-and-implications-for-the-cap/

But it looks as if any impacts on the CAP will be incremental and relatively limited.  Matthews concludes: 'This reframing of the horizontal principles marks a very small step towards eroding the CAP’s historical exceptionalism. CAP spending is treated the same as other shared management spending in the National and Regional Partnership Plans. The impact of the new architecture on the way CAP money is spent remains to be seen.'