Friday, May 29, 2020

EU lays down the gauntlet on biodiversity

The EU has set out a new biodiversity strategy.   When I have studied it in detail I will provide some analysis, but for now the summary can be found here: https://ec.europa.eu/environment/nature/biodiversity/strategy/index_en.htm


It is clear that a particular vision of farming is inherent in the document which states: 'certain agricultural practices are a key driver of biodiversity decline. This is why it is important to work with farmers to support and incentivise the transition to fully sustainable practices. Improving the condition and diversity of agroecosystems will increase the sector’s resilience to climate change, environmental risks and socioeconomic shocks, while creating new jobs, for example in organic farming, rural tourism or recreation.'

In other words, intensive forms of farming may face challenges.

The Commission's new Green Deal also has implications for agriculture and it has been leaked ahead of publication: https://www.euractiv.com/section/agriculture-food/news/commission-hikes-caps-second-pillar-spending-to-deliver-green-deal/

The recovery plan from Covid-19 'aims to digitalise and modernise the farming sector to increase the EU's resilience and to lower EU's dependency on third countries.'

Something similar may find favour in the UK after Brexit.

Thursday, February 06, 2020

How can the CAP reduce GHG emissions?

Climate change has been an absent element of the CAP. A proposal for a third pillar was put forward in the last round of reforms, but was quickly squashed - I suspect by agri-business interests. However, the pressures to do something are now substantial, but what policy instruments should be used?

In that respect an article in the latest Journal of Agricultural Economics is helpful: M Himics et al, 'Setting Climate Action as the Priority for the Common Agricultural Policy: a Simulation Experiment.'

They examine the possibilities of re-directing the direct income support provided to farmers to a direct greenhouse gas reduction subsidy. They find that such a reallocation of financial resources could reduce agricultural non-carbon dioxide emissions (nitrous oxide and methane) by 21 per cent by 2030, compared to a business-as-usual baseline. Two-thirds of the emission savings are due to changes in production levels and composition.

A table lists various technological mitigation options, e.g., feed additives for livestock and breeding programmes to increase ruminant feed efficiency. Crops could use measures such as precision farming and better timing of fertilisation.

The special needs of remote island farming communities like the Orkney Islands would be respected

The greening top up of Pillar 1 would be retained, as would coupled supports for sectors and regions in competitive disadvantage. There would also be support for farmers in areas with natural constraints. My example would be the Orkney Islands which receive coupled support via the Scottish Government.

However, the removal of the basic payment could be associated with accelerated structural change and variable income effects. This does raise questions of political feasibility.

In future member states will have more flexibility to choose from a menu of greening policy options. However, it is not clear how the new CAP design would enable agriculture to meet the EU's emission reduction targets.

One area of difficulty in terms of the article's proposal is the impact on the livestock sector, already under economic pressure. 'The ruminant meat sector is most affected (-10% decrease in herd size and -9% in production), but pig production is also negatively affected.' Prices for beef and sheep and goat meat would go up, but would be offset by increasing imports and decreasing exports.

There would also be a six per cent decrease in the total utilised agricultural area, particularly of fodder activities and a 34 per cent increase in set aside activities and fallow land.

Emission savings in the EU are partially offset globally due to increasing production in less emission efficient trading partners. (Not given as an example, but Brazil comes to mind).

The scheme might also penalise farmers who have already invested in emission-efficient technologies and might require above average financial incentives to achieve further GHG reductions.

The authors argue that 'taking the current status quo of the regional pattern of basic CAP payments as a benchmark for direct agricultural GHG emissions-reduction policy would be suboptimal'. In terms of political acceptability, that might be problematic.

Thursday, December 26, 2019

Nearly half of Kiwi greenhouse gases come from farming

Caroline Saunders, the president of the Agricultural Economics Society writes in its latest newsletter: 'Climate change is impacting on agriculture, both through consequences such as extreme weather events and through major changes in policy.'

'New Zealand [where she is a professor] is in an unusual position with 48 per cent of its greenhouse gases coming from agriculture. The New Zealand government has passed a Zero Carbon Bill with zero emissions by 2050. The agricultural sector has until 2022 to show how it will achieve this; otherwise, it will go into the Emissions Trading Scheme in 2025. In the UK, agricultural emissions are about 10 per cent of the total, but the UK also has the ambition of net zero emissions by 2050.

Both countries must work out how to measure the emissions, the point of obligation, the treatment of methane and the methods available to farmers to reduce emissions, and how to support farmers through the transition. There is also the issue of trade and the potential substitution of imports produced with higher emissions (New Zealand has relatively low carbon emission per unit of output).

New Zealand and the UK have strong links and it will be interesting to see how negotiations between the countries address these issues. Given WTO rules, this may be through a new trade agreement and/or through promoting consumer preferences for products with low carbon footprints. New Zealand was the first country to adopt a formal well-being budget in 2019.

Whilst it is early days to see how this will transform policy, it is a step in the right direction. One consequence is a shift in policy thinking to put more weight on the well being of those in the agricultural sector, given the changes mentioned above. A key challenge for the [agricultural economics] profession is to research the distinctive role of government to ensure transitions that consider farmer wellbeing.'

One interesting consideration is how Brexit will affect any future trade agreement which is likely to be sought by the UK. One issue could well be trade offs between financial services (for the UK) and agriculture (for New Zealand).

Tuesday, October 29, 2019

A new type of CAP?

The French Government has supported the idea of a CAP based on creating farmer employment rather than being based on the area cultivated: Supporting farmers jobs

The second pillar would become a set of incentives and penalties with an emphasis on tackling climate change.

Monday, September 16, 2019

New farm commissioner from Poland

With Phil Hogan promoted to be trade commissioner, the new agriculture commissioner is from Poland. Janusz Wojciechowski is a 64-year old Polish politician and has 15 years of experience in European politics, having been elected to the European Parliament in 2004, a seat he held until 2016 when he went to the Court of Auditors.

He has specific experience in agri-politics at European level, having served as the vice-chairperson of the European Parliament Committee on Agriculture and Rural Development for most of that time.

Wojciechowski was nominated as a commissioner by the Polish government after the countries original nominee for this commission, Krzysztof Szczerski, decided to withdraw his candidacy. This was because, as Szczerski explained in the Polish media after it was first mooted that he would be given the agriculture and rural development job, he felt that someone with experience in agriculture would be better suited to the role.

Wojciechowski started his European political career as part of the European People’s Party (EPP), of which his national party, the Polish People’s Party. However, he was dismissed from the Polish People’s Party after leaving the EPP for the Union for Europe and the Nations, a political grouping that is considered more conservative and eurosceptic.

He will face the challenge of dealing with a reduced farm budget after Brexit.

Monday, September 09, 2019

Intergenerational renewal in farming

An interesting report on the challenge of intergenerational renewal in European farming, an important issue given the current age profile: Farm demographics

The report argues, 'farming as occupational choice often becomes a very particular lifestyle choice. Hence, policies to increase the attractiveness of farming as an occupation should consider the fact that it often becomes a lifestyle choice. Several features of this lifestyle choice are considered unattractive, such as the hard work, often isolated occupational activity and the difficult work-life balance. Policies that address these issues can have a positive impact on the attractiveness of farming and thus enable intergenerational renewal.'

The report recognises that the increasing capital intensive nature of farming raises financing issues for those that do not inherit (and inheritance raises often difficult succession issues). In the UK the reduction in county council tenancies has reduced the availability of one entry route.

Farmers back no deal Brexit

A surprising number of farmers back a no deal Brexit given that many of them would suffer financially as a result. At least that is the case if one believes polls from Farmers Weekly. A health warning is always necessary about these polls as respondents select themselves and the Ns are often small. A poll which purported to show that a majority of farmers backed Brexit in the referendum has nevertheless embedded itself in the public mind.

43 per cent of 'about 300' farmers said they would be happy with a no deal Brexit while 57 per cent said they would not. Concern about leaving without a deal was strongest in Northern Ireland, Scotland and Yorkshire and Humberside. Optimism about farm business prospects is at its lowest level since the survey started a year ago.

A snapshot 24 hour poll found that 53 per cent would choose to leave the EU with no deal if they could vote again. 38 per cent said they would vote remain and just 9 per cent said they would back the withdrawal agreement backed by Theresa May.

It is interesting that the first poll is below a story about the impact of a no deal Brexit on the sheepmeat sector. About one-third of the UK's production of lamb is exported and 95 per cent of this goes to the EU. 40 per cent tariffs and regulatory barriers would almost wipe out exports.

The Government has ruled out culling as a response to such a crisis. It looks as if they favour a combination of a headage payment on breeding ewes and a slaughterhouse premium. The UK breeding flock already reduced by about 30 per cent in the 2017-18 breeding season as farmers responded to an uncertain future.

Mike Gooding, director of Farmers' First, one of Britain's biggest lamb exporters, told Farmers Weekly: 'Essentially, Brexit risks excluding UK produce from the EU market. A no-deal Brexit would result in the same outcome - but with that risk greatly increased.'

He predicted a substantial fall in sheep farming in the UK. 'My own personal view is that there will be far fewer farmers managing what sheep there are in larger flocks - possibly across multiple holdings.'

Tuesday, July 23, 2019

The New Zealand experience of removing subsidies

Caroline Saunders, the current president of the Agricultural Economics Society, writes about the experience of removing subsidies in New Zealand in the organisation's latest newsletter.

'New Zealand famously removed all subsidies to agricultural producers as part of its post-1984 reforms. Prior to those reforms, New Zealand (NZ) had a relatively high degree of regulation throughout its economy. With a change in government in 1984 accompanied by an exchange rate crisis and a looming fiscal crisis, NZ undertook widespread liberalisation.

The pace and extent of the reform programme was impressive (Paul Dalziel, New Zealand’s economic reforms: an assessment. Review of Political Economy, 2002). In summary, NZ removed all financial controls, floated its exchange rate, undertook major privatisation of state enterprises, relaxed labour market controls, and removed most import tariffs and regulations.'

'The agriculture subsidies were relatively short lived. Until the mid-1970s, support levels were relatively low. However, the introduction of Supplementary Minimum Payments (SMPs) in 1978 – a form of deficiency payment that favoured the sheep breeding flock – followed swiftly by a raft of other measures, marked a rapid escalation in support levels. These measures included: incentives for land development; concessionary livestock valuation schemes; preferential credit for farm purchase; tax concessions; and fertiliser subsidies. Most were phased out in 1984, with some transitional arrangements persisting until 1986.'

'The main impacts were a drop in sheep production and increases in beef and dairy. Farm incomes for beef and sheep farms fluctuated from NZ$23,000 in 1983 to NZ$18,000 in 1984, NZ$34,000 in 1985 and $15,000 in 1986 before rising again to around $25,000 from 1987 to 1990. The impact of the reforms on fertiliser use was significant, since fertiliser subsidies had been in existence since 1963. Between 1986 and 1991, fertiliser use fell considerably, from around 2 million tonnes per annum, to around 1.2 million tonnes. The real value of farmland doubled from 1972 to 1982, then falling from 1982 to 1988 by 58 per cent.'

'The New Zealand experience of liberalisation of agriculture offers some useful insights. There were clear changes in land prices and production decisions in response to the changes in incentives. However, some caveats also need to be observed, notably that New Zealand had a relatively simple and short-lived support system and the removal of subsidies was accompanied by liberalisation throughout the wider economy. The impact was felt by those who had changed or bought farms during the period with subsidies, and subsequently had debt that was not sustainable after the prices fell. The changes also happened within a generation, which certainly would not be the case in the UK.'