Monday, June 11, 2018

Macron is president of cities says French farm leader

Just as England's NFU has a woman leader for the first time, so does France's leading farm lobby, the FNSEA. Christiane Lambert, a 56-year old pig farmer, does not hold back in giving it large to President Macron. She says that his image is as a president of the cities who had no idea how farmers lived and worked.

She thinks that French farmers stand to lose €5bn over the next budgetary period if cuts in the CAP budget are confirmed. She thinks that Macron is dithering over the issue. Last year the number of farm bankruptcies in France rose by seven per cent.

More competitive countries such as Germany and the Netherlands have pushed down the prices of beef. dairy and pork products and gained market share abroad. Ms Lambert thinks that labour intensive farming activities have suffered from distorted competition from German producers who employ cheap labour from Bulgaria and Romania.

French farmers are resorting to their usual direct action tactics, planning to block 13 oil refineries tomorrow. The farmers are protesting against imports of palm oil to make biofuels.

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Wednesday, June 06, 2018

Committee report criticises Defra

The House of Commons Defra Committee has produced a report in response to the Government's consultation on the future of agriculture: Report

It states, 'The evidence from a range of agricultural businesses indicates that their sectors will face significant impacts from the proposed withdrawal of Direct Payments. The level of impact will vary by sector as the economics of each are so different. There are likely to be particularly damaging effects on grazing livestock, cereal and mixed farms and the withdrawal of support and any subsequent closures of businesses could have wide reaching impacts on the rural economy and its communities. As in our Brexit: Trade in Food report, we were disappointed that these impacts have not been thoroughly assessed by Defra on a sector-by-sector basis, to then inform future agricultural policy.'

The report notes, 'The consultation paper lacks discussion of wider food policy and has failed to link agricultural policy to wider public health goals and reducing diet-related diseases. Healthy food makes a wider contribution to public health, which is in the public good and we recommend it should be supported as such under the new model of awarding payments to farmers.'

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Tuesday, May 15, 2018

The future of agriculture

The Defra consultation on a future domestic agricultural policy received 44,000 responses, among them that from the Farmer-Scientist Network of the Yorkshire Agricultural Society which you can read here: Consultation response

I think that we submitted particularly strong sections on public goods, international trade and animal welfare.

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Friday, May 11, 2018

Choices on food policy

The House of Lords European Committee has published a report on Brexit: Food Prices and Availability: Food Prices

The report finds: 'If an agreement [with the EU] cannot be negotiated, Brexit is likely to result in an average tariff on food imports of 22%. While this would not equate to a 22% increase in food prices for consumers, there can be no doubt that prices paid at the checkout would rise. To counteract this the Government could cut tariffs on all food imports, EU and non-EU, but this would pose a serious risk of undermining UK food producers who could not compete on price.'

'At least as significant as tariffs are the non-tariff barriers that may result from Brexit. The Government remains confident that it can secure an agreement that would allow ‘frictionless’ imports of food from the EU to continue, but it is unclear how that would be possible outside of the customs union. Any such agreement would be likely to require the UK to mirror all EU standards and regulations; a condition the UK Government may find politically difficult to accept.'

'If no agreement is reached, and food imports from the EU are subject to the same customs and border checks as non-EU imports, the UK does not have the staff, IT systems or physical infrastructure to meet that increased demand. Any resulting delays could choke the UK’s ports and threaten the availability of some food products for UK consumers. The Government’s proposed alternative is to allow EU imports through with no, or very few, checks: this raises safety concerns as well as questions over how customs charges would be processed.'

'As well as securing a deal with the EU that will allow continued tariff-free, frictionless imports of food, the Government must also secure agreements with the non-EU countries from which the UK currently imports food as part of EU trade agreements. 40 such agreements are currently in place, covering 56 countries and accounting for more than 11% of UK food imports. The Government’s belief that most can be simply and easily ‘rolled over’ is not shared by those who have given evidence to previous EU Committee inquiries.'

The report concludes, 'The Government should develop a comprehensive food security policy for the UK. A long-term view is needed on whether to prioritise food standards or food prices, whether to reverse the UK’s declining self-sufficiency or increase imports. Other factors should include workforce shortages, priorities for investment, and bigger, global issues such as the impact of climate change on food production worldwide.'

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Sunday, May 06, 2018

CAP budget to be cut by 5 per cent

The European Commission's proposals for the 2021-27 EU budget suggest a 5 per cent cut in CAP funding. (Some analysts think that the cut is actually bigger). Direct payments would be reduced by four per cent and Pillar 2 payments would take a fifteen per cent hit: Budget cut

Payments to farmers would be capped at €60,000. This is at the lower end of the €60,000-€100,000 spectrum suggested in the original communication on the CAP last autumn. The relatively low capping figure favoured by the Commission will reassure UK farmers concerned about being put at a competitive disadvantage by the reduction of direct payments after Brexit.

The Basic Payment Scheme will be renamed the 'Basic Income Support Scheme'. This is the first time the EU has explicitly identified area payments as being for the purpose of income support. It is an inefficient means of supporting income as the relationship between farm size and household income is far from straightforward.

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Monday, April 23, 2018

Risks for food and drink sector from Brexit

A report from a House of Commons Select Committee on Business, Energy and Industrial Strategy highlights some of the risks that the processed food and drink sector faces after Brexit.

'The processed food and drink sector is the largest manufacturing sector in the UK and contributes £28.8 billion to the economy. Exports were worth £22 billion in 2017 and they continue to grow. The sector directly employs 400,000 people throughout the country, a third of whom are EU nationals. It is characterised by just-in-time delivery of products with short shelf lives and is heavily integrated with supply chains spread across the UK and the EU for sourcing raw materials, processing goods and selling them. Many manufacturers have factories in both the UK and the rest of the EU.

The success of the UK processed food and drink sector has been so far highly dependent on participation in the Single Market and Customs Union: free movement of goods and people have tipped the UK export balance towards an over reliance on the EU as a trading partner with 60 per cent of UK exports going to EU markets. 50 per cent of total UK food and drink exports go to five countries, four of which are EU member states.

It is crucial that the sector is able to remain competitive when we leave the European Union as failure to do so would not only impact businesses and workers but also consumers at the till point and the choice available to them in shopping aisles all year round.

The sector would undeniably suffer from reverting to WTO tariffs in the event of a ‘no deal’ scenario. The EU’s Most Favoured Nation tariffs under WTO rules would be disastrous for UK exports and must be avoided at all cost. It is unrealistic to expect that the sector will stop relying on the EU as its main export destination at least in the short term. Consequently, the negotiation of a free trade agreement with the EU should be the number one priority for the Government. Should the UK lower or remove its tariffs on imports in the future, the consequences for British farming could be extremely damaging and the positive impact on prices for goods to households is likely to be very limited.

UK competitiveness would also be adversely affected by any additional delays and bureaucracy encountered at the UK-EU border, given the prevalence of cross-border just-in-time supply chains in the sector. The Government should seek to secure as few additional impediments to trade between the UK and the EU as can be negotiated. Frictions at the border between Ireland and the UK are of particular concern as the sector is highly integrated across the two countries. A credible solution to avoiding a hard border must be found as soon as possible.

The EU regulatory regime in food and drink is also highly integrated, and the UK is a full member of the European Food Safety Authority (EFSA). EU food regulation is associated with high safety and quality standards and already allows divergence. The majority of the evidence was in favour of remaining aligned with EU regulation as it is favourable to exports amongst other things but some opportunities from divergence were identified in a few sectors. Nevertheless, all were unanimous in rejecting any ‘race to the bottom’ as UK consumers would not tolerate any lowering of standards. Most stakeholders also supported the UK continuing its membership of EFSA after Brexit.'

The full report can be found here: Report

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The future for agriculture

At last week's Agricultural Economics Society meeting, Jonathan Brooks of the OECD convened a panel on the links between agricultural market prospects and policy challenges at the global, European and UK levels.

At the global level, food prices increased sharply in 2007-8, sparking fears about food security as well as about the earth's capacity to produce enough food for a growing and increasingly wealthy population.

World population growth is slowing. The growth in consumption has halved over the last ten years and is not coming from per capita income growth with the exception of Africa. This pattern is different for dairy, sugar and vegetable oils. India is driving dairy demand. Cereal demand is driven by animal feed.

Since 2007-8, world agricultural markets have stabilised, with prices of most commodities well below the peaks of a decade ago. The return to lower prices has led to resurgent demands for agricultural protection, with several large emerging economies now adopting policies previously pursued by high income countries. PSE levels have increased in those countries.

Markets also remain vulnerable to periodic shocks, and many countries have sought to find ways of managing the risks such shocks pose to both producers and consumers, often via policies that may have a significant impact on world markets (such as public stockholding).

Over the next ten years, the demand for most agricultural commodities is projected to slow. This will provide relief to the supply side challenge of feeding a rising world population and provide greater room for policy makers to focus on the parallel requirements of using the world's resources sustainably and making an effective contribution to climate change mitigation.

One interesting point was that a small number of countries dominate the production of particular commodities which does lend some reinforcement to food security arguments. Russia and Ukraine are increasingly important in world grain trade, but could withdraw exports to protect domestic markets in conditions of tight supply.

Wednesday, April 18, 2018

What can we learn from New Zealand?

One of the most interesting panels I attended at the Society of Agricultural Economists conference at the University of Warwick was on what, if anything, we could learn from the reforms in New Zealand, often held up as an example of the benefits to be obtained from a radical eradication of subsidies. Interestingly, the position first taken in the discussion was that the experiences were so different in terms of geography, the prevalence of cooperatives, the timing and form of subsidies etc. that little could be learnt. However, as the discussion progressed, some lessons were extracted.

It is important to understand the context in which reforms took place. New Zealand was suffering from fixed exchange rates, the Think Big energy projects and high inflation, leading to a fiscal crisis. The subsidies were in place for a relatively short time and were also offered to manufacturing to offset the effects of a high exchange rate. Capitalisation into asset prices did not have the same impact as elsewhere.

For a long time New Zealand agriculture enjoyed preferential access to UK markets at guaranteed prices, but in the 1960s commodity prices fell. There were some really sad cases among farmers, but not that many went bankrupt. Because most farms were family farms, some use was made of unpaid labour.

New Zealand had first mover advantage with exports to China, but failed to follow through on that and let others capture market share. Hence, the first mover advantage was squandered.

New Zealand had 67.8m sheep in 1985 and 29.1m in 2015. The dairy herd has expanded, particularly on the Canterbury Plains, but this has led to concern about environmental impacts in terms of climate change and water pollution.

It was pointed out that the structure of cooperatives allowed the rapid transmission of intelligence from external markets to producers.

Some specific mitigation measures were provided. For example, although subsidies on interest payments were withdrawn, the actual payments were kept at the same level. There was also help with farm business plans.

The UK should aim for value added growth, but what sorts of policies did this imply? One approach might be to enhance the knowledge base.

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