880 large farms or agri-businesses each received over €500,000 in the final year of the old pre-Single Farm Payment CAP regime according to draft Commission figures. This means that just 0.02 per cent of beneficiaries received 2.5 per cent of the total EU budget for direct aids (€700m out of €28.2 billion).
Germany once again had the largest number of farms receiving payments of over €0.5 million each, 620 farmers who received €0.5 billion between them. This is a reflection of the survival of large farms in the former East Germany.
However, France has its large farms as well. France was the largest overall recipient of direct aid in 2004, €6.9 billion, and of this €1.7 million was shared out between fewer than ten of the biggest farms.
Well over half the farms received CAP aid in 2004, just over 2.5 million, received annual aid cheques of less than €1250. Of these farms, 2.1 million were situated in either Italy, Greece or Spain. There has been speculation that these very small payments could be phased out because of the transaction costs involved in calculating and paying them. However, even very small sums can be important to marginal enterprises, e.g., where the farmer is past retirement age.
Thursday, July 27, 2006
Wednesday, July 26, 2006
'Yo liars' claim as Doha blame game gets under way
Rookie US Trade Representative Susan Schawb has effectively accused the EU of lying as the blame game for the collapse of the Doha Round gets under way. The US has been taking a lot of the heat and no doubt the search for someone to blame makes the participants in the failed talks feel better but it does little for the future growth of the world economy or fairer trade.
Ms Schwab said that the US had so far 'refrained from responding to the finger-pointing by some' but she said the EU's claim that the US had doomed the talks by failing to show flexibility in negotiations was 'false and misleading' and made with the intention of 'attempting to divert blame for the stalemate.'
Attention is now focusing on the US farm bill due to expire next year which has provided considerable aid to large-scale farmers. Three-quarters of the subsidies have gone to growers of rice, corn, wheat, soyabeans and cotton. One idea that is being floated around Congress is to extend for one year both the current spending arrangements under the farm bill and fast-track authority.
The EU is certainly not blameless in all this as its stance was weakened by the rebellion of agrarian states led by France, leading to a relatively weak, if cleverly presented, tariff cutting offer. Emerging countries like India have also been running scared of the electoral damage that can be done by their poorer farmers.
As Susan Sechler, US director for trade and development at the German Marshall Fund of the United States (a think tank) commented, 'It used to be that first you got a deal at the WTO and then used it to discipline domestic agricultural spending. That doesn't work any more, partly because developing countries in the WTO won't accept a post-dated cheque.'
At the heart of all this is the changing economic structure of power in the world. Relations between the EU and the US have become increasingly tense over a range of issues, not just economic ones. But even if they wanted to function as a duopoly resolving their own disputes at the expense of others, they couldn't do so because too much influence has passed to the emerging countries. That is why the G7/8 is largely an irrelevance and we need a G4 of the US, EU, China and Japan, with some involvement from medium-sized powers like Brazil.
Ms Schwab said that the US had so far 'refrained from responding to the finger-pointing by some' but she said the EU's claim that the US had doomed the talks by failing to show flexibility in negotiations was 'false and misleading' and made with the intention of 'attempting to divert blame for the stalemate.'
Attention is now focusing on the US farm bill due to expire next year which has provided considerable aid to large-scale farmers. Three-quarters of the subsidies have gone to growers of rice, corn, wheat, soyabeans and cotton. One idea that is being floated around Congress is to extend for one year both the current spending arrangements under the farm bill and fast-track authority.
The EU is certainly not blameless in all this as its stance was weakened by the rebellion of agrarian states led by France, leading to a relatively weak, if cleverly presented, tariff cutting offer. Emerging countries like India have also been running scared of the electoral damage that can be done by their poorer farmers.
As Susan Sechler, US director for trade and development at the German Marshall Fund of the United States (a think tank) commented, 'It used to be that first you got a deal at the WTO and then used it to discipline domestic agricultural spending. That doesn't work any more, partly because developing countries in the WTO won't accept a post-dated cheque.'
At the heart of all this is the changing economic structure of power in the world. Relations between the EU and the US have become increasingly tense over a range of issues, not just economic ones. But even if they wanted to function as a duopoly resolving their own disputes at the expense of others, they couldn't do so because too much influence has passed to the emerging countries. That is why the G7/8 is largely an irrelevance and we need a G4 of the US, EU, China and Japan, with some involvement from medium-sized powers like Brazil.
Monday, July 24, 2006
Doha Round suspended
Given that the G8 summit failed to make any substantive progress on the Doha Round, it is no surprise that its attempts to kick start the Round have failed. Negotiators were going to given up their holidays to meet a new August target date, but Pascal Lamy has just announced that the round has been suspended. He commented that some countries clearly preferred a 'Doha Light'. Certainly there are many in the United States who think that the country's interests can best be served by bilateral deals.
The suspension followed a failure to make progress in Group of Six meetings on Sunday. Four of the six G6 participants blamed the US for the collapse of the talks. EU trade commissioner Peter Mandelson commented, 'If the US continues to demand dollar-for-dollar compensation for reducing domestic support, no one in the developing world will ever buy that, and the EU will not either.'
For its part the US has become increasingly frustrated by what it sees as the gutting of its proposals to cut farm tariffs which generated opposition from the EU, Japan and Switzerland. Susan Schwab, US trade representative, complained that some participants were more interested in loopholes than in market access.
The Uruguay Round was, of course, suspended in 1990 after the supposedly final talks in Brussels collapsed and was eventually revived. However, the political climate is not favourable. Mid-term elections are looming in the United States which seem to have affected President Bush's thinking. If the Democrats take either the House or the Senate, a renewal of authority to negotiate trade deals is even less likely.
The collapse of the talks is good news for heavily subsidised large-scale farmers in the US and the EU. Trade negotiations have been the most successful driver of CAP reform. Politicians in poor countries will get political points for protecting poor farmers against competitive imports. But it's bad news for agricultural exporting countries such as Australia and Brazil. And despite the celebratory noises emanating from some NGOs who argue that no deal is better than a bad deal this is not good news for farmers in least developed countries, for example cotton producers in West Africa who have been hit hard by US subsidies.
What of the WTO itself? The suspension of the Round does not mean the end of the Disputes Settlement Mechanism. Former EU commissioner and WTO head Sir Peter Sutherland commented, 'The WTO is so crucial, it will survive, but it will be damaged. The collapse of the talks leave global multilateralism in a parlous state.'
The WTO is regarded by many of its members as the last multilateral organisation by whose decisions the US agrees to be bound. In truth this is another victory for US unilateralism and any bilateral deals that are forged in the future will benefit the US more than the other participant. As Michael Cox of LSE warned in the March issue of European Political Science, the bridge across the Atlantic can no longer bear any heavy traffic and there is a widening gulf on issues and values between the EU and the United States. As an Atlanticist, this is something I regret, but it is difficult to see what remedies there are to hand.
The suspension followed a failure to make progress in Group of Six meetings on Sunday. Four of the six G6 participants blamed the US for the collapse of the talks. EU trade commissioner Peter Mandelson commented, 'If the US continues to demand dollar-for-dollar compensation for reducing domestic support, no one in the developing world will ever buy that, and the EU will not either.'
For its part the US has become increasingly frustrated by what it sees as the gutting of its proposals to cut farm tariffs which generated opposition from the EU, Japan and Switzerland. Susan Schwab, US trade representative, complained that some participants were more interested in loopholes than in market access.
The Uruguay Round was, of course, suspended in 1990 after the supposedly final talks in Brussels collapsed and was eventually revived. However, the political climate is not favourable. Mid-term elections are looming in the United States which seem to have affected President Bush's thinking. If the Democrats take either the House or the Senate, a renewal of authority to negotiate trade deals is even less likely.
The collapse of the talks is good news for heavily subsidised large-scale farmers in the US and the EU. Trade negotiations have been the most successful driver of CAP reform. Politicians in poor countries will get political points for protecting poor farmers against competitive imports. But it's bad news for agricultural exporting countries such as Australia and Brazil. And despite the celebratory noises emanating from some NGOs who argue that no deal is better than a bad deal this is not good news for farmers in least developed countries, for example cotton producers in West Africa who have been hit hard by US subsidies.
What of the WTO itself? The suspension of the Round does not mean the end of the Disputes Settlement Mechanism. Former EU commissioner and WTO head Sir Peter Sutherland commented, 'The WTO is so crucial, it will survive, but it will be damaged. The collapse of the talks leave global multilateralism in a parlous state.'
The WTO is regarded by many of its members as the last multilateral organisation by whose decisions the US agrees to be bound. In truth this is another victory for US unilateralism and any bilateral deals that are forged in the future will benefit the US more than the other participant. As Michael Cox of LSE warned in the March issue of European Political Science, the bridge across the Atlantic can no longer bear any heavy traffic and there is a widening gulf on issues and values between the EU and the United States. As an Atlanticist, this is something I regret, but it is difficult to see what remedies there are to hand.
Sunday, July 23, 2006
Rising grain prices may push up cost of bread
Record summer temperatures, low global grain stocks and the expected growth in biofuels, have seen wheat prices rise to ten year highs and may lead to big increases in the cost of bread and pasta. Corn [maize] and barley prices are also likely to raise which may affect the cost of beer and breakfast cereals. For the fifth year in six global production is expected to fall short of demand. Hedge funds have been active in wheat futures, with a sharp increase in the number of contracts bought in the US, UK and elsewhere in Europe.
Both the US and Northern Europe have experienced record temperatures, which some see as evidence of the reality of global warming. Some wheat farmers in the UK are harvesting a month early for the first time since the 1979 heatwave. In Northern Italy, the hot, dry weather is estimated to have caused €100 of damage to crops with yields forecast to fall by 9 per cent.
Ethanol plants using wheat as an ingredient will open in Europe in the next two years. Christopher Brodie, a partner at hedge fund Krom River, commented, 'Once the ethanol plants open, we will link the price of petrol to the price of bread, because the price of wheat will be settled by who pays more, the oil industry or the food industry.'
Shroud wavers among the farming community will no doubt see these developments as supportive of their food security arguments for continuing subsidies. Alternatively, one could see it as market forces of supply and demand generating a better rate of compensation for farmers, ultimately leading, if the trends are sustained, to a rise in supply.
Both the US and Northern Europe have experienced record temperatures, which some see as evidence of the reality of global warming. Some wheat farmers in the UK are harvesting a month early for the first time since the 1979 heatwave. In Northern Italy, the hot, dry weather is estimated to have caused €100 of damage to crops with yields forecast to fall by 9 per cent.
Ethanol plants using wheat as an ingredient will open in Europe in the next two years. Christopher Brodie, a partner at hedge fund Krom River, commented, 'Once the ethanol plants open, we will link the price of petrol to the price of bread, because the price of wheat will be settled by who pays more, the oil industry or the food industry.'
Shroud wavers among the farming community will no doubt see these developments as supportive of their food security arguments for continuing subsidies. Alternatively, one could see it as market forces of supply and demand generating a better rate of compensation for farmers, ultimately leading, if the trends are sustained, to a rise in supply.
In the land of fresh rice ears of many autumns
I recently returned from my first visit to Japan, a country about which I have read extensively over the years. It was therefore no surprise to see paddy fields located in the middle of the urban sprawl of the Osaka area, one of them being tended by a presumably part-time farmer. Japan, I was told, has something like 2.2 times the population of the UK but half the useable land area. In the area where I spent most of my time, Fukuoka prefecture, there was more emphasis on value added niche crops like strawberries.
In the 8th century Nihon shoki [Chronicle of Japan] there is a famous passage that refers to Japan as 'the land of fresh rice ears of fifteen hundred autumns.' This is seen as example of the deep roots of agriculture among the Japanese. A former PhD student, now teaching in Japan, had negotiated with a farmer to obtain a supply of brown rice in return for helping with the planting.
Rice production in Japan and the Republic of Korea remains highly protected. Although the high tariff barriers will have to be reduced, I have some sympathy with demands to maintain them on cultural grounds. Japan is a unique blend of tradition and modernity and certainly the most distinctive place I have ever visited (and that includes remote ethnic minority areas of China).
There is an inconsistency in calling for the maintenance of some protection in Japan and pressing for its elimination in France. In both cases the attachment to a particular form of agriculture might seem to be sentimental, even though both countries have distinctive and much admired food cultures. I would maintain that the French way of life is less tied up with a particular pattern of agriculture than is often believed, particularly given that many French farms are large scale. But perhaps I feel an affinity with another island kingdom that I do not feel with France, a country I have never visited.
In the 8th century Nihon shoki [Chronicle of Japan] there is a famous passage that refers to Japan as 'the land of fresh rice ears of fifteen hundred autumns.' This is seen as example of the deep roots of agriculture among the Japanese. A former PhD student, now teaching in Japan, had negotiated with a farmer to obtain a supply of brown rice in return for helping with the planting.
Rice production in Japan and the Republic of Korea remains highly protected. Although the high tariff barriers will have to be reduced, I have some sympathy with demands to maintain them on cultural grounds. Japan is a unique blend of tradition and modernity and certainly the most distinctive place I have ever visited (and that includes remote ethnic minority areas of China).
There is an inconsistency in calling for the maintenance of some protection in Japan and pressing for its elimination in France. In both cases the attachment to a particular form of agriculture might seem to be sentimental, even though both countries have distinctive and much admired food cultures. I would maintain that the French way of life is less tied up with a particular pattern of agriculture than is often believed, particularly given that many French farms are large scale. But perhaps I feel an affinity with another island kingdom that I do not feel with France, a country I have never visited.
UK farmers slow to respond to reform
A survey of farmers carried out by HSBC Bank shows that most farmers are aware of the need to adapt their businesses as production support declines, but few have a clear vision of how to achieve this.
The survey found that 64 per cent of farmers have done the calculations to find the level of their likely Single Farm Payment over the next three to five years. However, 87 per cent of the sample intended to either maintain their set aside at the same rate as last year or ro reduce it, indicating that the cropped area for the 2007 harvest is likely to remain at a similar level to that of recent years. Surprisingly, only 52 per cent of the farmers questioned know the cost of producing a tonne of wheat on their units which is the key of basic information that one would think that any business needed to make commercial decisions.
Few farmers are planning ahaead to replace the state support or reduce their costs in line with its withdrawal. Stuart Ellwood, head of agriculture at HSBC, is surprised that the rate of change is not faster and is urging producers to move away from the traditional cropping patterns dictated by CAP payments to growing for other food and feed markets, and alternative land uses such as biofuels, pharmaceuticals and textiles.
The survey found that 64 per cent of farmers have done the calculations to find the level of their likely Single Farm Payment over the next three to five years. However, 87 per cent of the sample intended to either maintain their set aside at the same rate as last year or ro reduce it, indicating that the cropped area for the 2007 harvest is likely to remain at a similar level to that of recent years. Surprisingly, only 52 per cent of the farmers questioned know the cost of producing a tonne of wheat on their units which is the key of basic information that one would think that any business needed to make commercial decisions.
Few farmers are planning ahaead to replace the state support or reduce their costs in line with its withdrawal. Stuart Ellwood, head of agriculture at HSBC, is surprised that the rate of change is not faster and is urging producers to move away from the traditional cropping patterns dictated by CAP payments to growing for other food and feed markets, and alternative land uses such as biofuels, pharmaceuticals and textiles.
Friday, July 21, 2006
Blame game on Doha Round
Unless there is some sudden and unanticipated breakthrough, the Doha Round trade talks look increasingly likely to fail over agricultural trade. It has to be remembered that under US trade law the schedules must be handed to the US Congress at least 180 days before Trade Promotion Authority expires on 1 June. It is unlikely to be renewed and it would be impossible to get any deal through the inward looking Congress without it.
So the blame game is now on with many fingers pointing at Uncle Sam. One view is that the US remained particularly intransigent, refusing to give ground on domestic farm support until it was assured significant market access to emerging economies. The US was pressing for a 90% cut in tariff rates compared with the 75% sought by the G-20. Moreover, Oxfam argued that the US's offer on farm support would actually allow it to increase farm payments compared to present levels.
US negotiators argued that developing nations would only reap real benefits from trade if there was significant market liberalisation. This neo-liberal vision did not appeal to the developing countries who argued that substantial opening of markets should be not be forced on their fragile economies.
The US is perhaps on stronger ground when it criticises the stance of emerging countries, arguing that richer developing countries such as Brazil, India and China should stop hiding behind poor nations in the trade talks and start to open up their own markets. This overlooks the fact that Brazil, where the agriculture minister has recently resigned, has a big problem with the army of landless labourers belonging to the radical MST movement. The large peasant populations in India and China (where there have been a number of disturbances surrounding the seizure of farm land for development) could easily be radicalised or could flood into the cities looking for work.
US ag policy is in a mess
The fact remains that US ag poicy is in a mess. As the authoritative Agra Europe has commented, 'What stands out a mile on the farm support issue is that successive US Administrations have got themselves into an unholy mess on agricultural support from which the current Administration will have to extricate itself both to be able to move on Doha and, eventually, to conciliate its own taxpayers.'
At the root of the problem is electoral politics in the US. As Graham Wilson has shown, the farm vote can still be decisive in tight contests for the Senate in interior states. But, above all, the cost of getting re-elected, not least in the House, means that even urban Congress members are willing to take donations from farm lobbies.
The FAIR act of 1994 appeared to open up a whole new era in US farm policies, including the introduction of totally decoupled income payments to replace production subsidies. However, once commodity prices started to fall in the late 1990s, the farm lobby successfully pressured for more handouts, initially on an 'emergency' basis and later consolidated in the 2002 Farm Bill which was a backward step. In particular, the introduction of counter cyclical payments was particularly damaging from a world market perspective as they maintain US production at high levels even when market prices are falling.
The US also hands out $1.5 billion in government-financed crop insurance. This is treated as non-product specific under the 'de minimis' rule. However, the EU and others argue that almost all US crop insurance is product specific.
The EU does appear to be prepared to give ground on senistive products, lowering them from 8% to about 5% of all tariff lines, although that would still be far too high as far as almost all other participants in the trade talks are concerned.
So the blame game is now on with many fingers pointing at Uncle Sam. One view is that the US remained particularly intransigent, refusing to give ground on domestic farm support until it was assured significant market access to emerging economies. The US was pressing for a 90% cut in tariff rates compared with the 75% sought by the G-20. Moreover, Oxfam argued that the US's offer on farm support would actually allow it to increase farm payments compared to present levels.
US negotiators argued that developing nations would only reap real benefits from trade if there was significant market liberalisation. This neo-liberal vision did not appeal to the developing countries who argued that substantial opening of markets should be not be forced on their fragile economies.
The US is perhaps on stronger ground when it criticises the stance of emerging countries, arguing that richer developing countries such as Brazil, India and China should stop hiding behind poor nations in the trade talks and start to open up their own markets. This overlooks the fact that Brazil, where the agriculture minister has recently resigned, has a big problem with the army of landless labourers belonging to the radical MST movement. The large peasant populations in India and China (where there have been a number of disturbances surrounding the seizure of farm land for development) could easily be radicalised or could flood into the cities looking for work.
US ag policy is in a mess
The fact remains that US ag poicy is in a mess. As the authoritative Agra Europe has commented, 'What stands out a mile on the farm support issue is that successive US Administrations have got themselves into an unholy mess on agricultural support from which the current Administration will have to extricate itself both to be able to move on Doha and, eventually, to conciliate its own taxpayers.'
At the root of the problem is electoral politics in the US. As Graham Wilson has shown, the farm vote can still be decisive in tight contests for the Senate in interior states. But, above all, the cost of getting re-elected, not least in the House, means that even urban Congress members are willing to take donations from farm lobbies.
The FAIR act of 1994 appeared to open up a whole new era in US farm policies, including the introduction of totally decoupled income payments to replace production subsidies. However, once commodity prices started to fall in the late 1990s, the farm lobby successfully pressured for more handouts, initially on an 'emergency' basis and later consolidated in the 2002 Farm Bill which was a backward step. In particular, the introduction of counter cyclical payments was particularly damaging from a world market perspective as they maintain US production at high levels even when market prices are falling.
The US also hands out $1.5 billion in government-financed crop insurance. This is treated as non-product specific under the 'de minimis' rule. However, the EU and others argue that almost all US crop insurance is product specific.
The EU does appear to be prepared to give ground on senistive products, lowering them from 8% to about 5% of all tariff lines, although that would still be far too high as far as almost all other participants in the trade talks are concerned.
Tuesday, July 04, 2006
Doha Round in crisis
'Crisis' is an overworked word in relation to trade talks, but the Doha Round now appears to be in serious trouble after a failure to make any progress on agriculture in Geneva at the end of last week. The talks petered out on Saturday, having reached no conclusion on modalities,the next step towards an actual agreement.
The Group of Six (the US, EU, Japan, Brazil and Australia) have asked WTO director-general Pascal Lamy if he can mediate between them and he will report back in two weeks, but is unlikely to produce his own text which would serve as the equivalent of the Dunkel draft in the Uruguay Round.
The EU was prepared to give some ground on tariffs, moving its position closer to that of the G-20 group of emerging countries. They were privately indicating that they would prepared to cut tariffs by an average 51 per cent compared with their original offer of 39 per cent. This is very close to the 54 per cent cut asked for by G-20 which the EU calculates as actually nearer 52 per cent.
Much of their G-20's fire is now concentrated on what they see as the intransigence of the United States with a new rift appearing between Brazil and the States. For the United States, new trade supremo Susan Schwab said that the problem was the three S's, not the two in her name, but the 'sensitive' and 'special' products which would enjoy lower tariff cuts and the 'special safeguard mechanism' that allows poor countries to block sudden surges in imports.
The fact is that ministers or other representatives, whether they are from India or the United States, get few domestic points for pushing for trade liberalisation which can disadvantage politically influential groups in their societies. India's trade minister Kamal Nath turned up late for a green room discussion on Friday evening. His excuse was the Argentina v. Germany match in the World Cup which had not delayed the Argentine delegation. Nath's problem is that he and his prime minister are under pressure from Sonia Gandhi to protect poor farmers. The agri-business interests, principally based in the US, that pushed for liberalisation in the 1990s are more divided or less effective a decade later.
It might be possible for the G-8 and national political leaders to intervene, but these 'deus ex machina' interventions have had little lasting impact in the past. Moreover, leaders from most G-8 countries at the moment are either coming towards the end of their tenures (France, Japan, the UK and the US) or lead governments that are coalitions or have fragile political majorities (Canada, Italy, Germany), while Russia can hardly sort out the problems even if it was that much interested in them.
Does it matter? For two reasons it does. First, an agreement in the Round would bring some advances for developing countries, although far short of what they could hope for. Second, a failure of the Round would remove the key exogenous pressure that has led the EU in particular to at least start down the road of dismantling the CAP in its present form.
The Group of Six (the US, EU, Japan, Brazil and Australia) have asked WTO director-general Pascal Lamy if he can mediate between them and he will report back in two weeks, but is unlikely to produce his own text which would serve as the equivalent of the Dunkel draft in the Uruguay Round.
The EU was prepared to give some ground on tariffs, moving its position closer to that of the G-20 group of emerging countries. They were privately indicating that they would prepared to cut tariffs by an average 51 per cent compared with their original offer of 39 per cent. This is very close to the 54 per cent cut asked for by G-20 which the EU calculates as actually nearer 52 per cent.
Much of their G-20's fire is now concentrated on what they see as the intransigence of the United States with a new rift appearing between Brazil and the States. For the United States, new trade supremo Susan Schwab said that the problem was the three S's, not the two in her name, but the 'sensitive' and 'special' products which would enjoy lower tariff cuts and the 'special safeguard mechanism' that allows poor countries to block sudden surges in imports.
The fact is that ministers or other representatives, whether they are from India or the United States, get few domestic points for pushing for trade liberalisation which can disadvantage politically influential groups in their societies. India's trade minister Kamal Nath turned up late for a green room discussion on Friday evening. His excuse was the Argentina v. Germany match in the World Cup which had not delayed the Argentine delegation. Nath's problem is that he and his prime minister are under pressure from Sonia Gandhi to protect poor farmers. The agri-business interests, principally based in the US, that pushed for liberalisation in the 1990s are more divided or less effective a decade later.
It might be possible for the G-8 and national political leaders to intervene, but these 'deus ex machina' interventions have had little lasting impact in the past. Moreover, leaders from most G-8 countries at the moment are either coming towards the end of their tenures (France, Japan, the UK and the US) or lead governments that are coalitions or have fragile political majorities (Canada, Italy, Germany), while Russia can hardly sort out the problems even if it was that much interested in them.
Does it matter? For two reasons it does. First, an agreement in the Round would bring some advances for developing countries, although far short of what they could hope for. Second, a failure of the Round would remove the key exogenous pressure that has led the EU in particular to at least start down the road of dismantling the CAP in its present form.
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