The European Parliament has thrown out a plan agreed at the 2005 summit of EU heads of government to allow the transfer of funds from Pillar 1 expenditure on farm subidies to Pillar 2 rural development to be increased up to a maximum of 20 per cent. Only the UK was planning to use the full amount, given that it receives low levels of rural development funding and wants to find money for its ambitious agri-environmental schemes. The Parliament can only delay the eventual decision, as it is not part of the co-decision procedure.
The motion was carried by 599 votes to 64. The Parliament believes that such a high rate of voluntary modulation would jeopardise subsidies to farmers and would also repersent a further step towards renationalisation of the CAP with farmers in different member states receiving differing amounts of cash. The Commission itself would prefer a higher rate of compulsory modulation to a range of voluntary rates.
Because of the summit deal the EU will receive on average 30 per cent less funding for rural development between 2007-13 compared with the current funding period. The Commission asked for €88.75m but this was cut by more than 20 per cent to €69.76m. This will be partly offeset by compulsory modulation, but this was intended to provide additional funds for rural development, not offset cuts made in a budget deal.
Spending more money on rural development compared with traditional farm subsidies is seen as a way of building a more diversified, dynamic and yet environmentally friendly rural economy in Europe.
Tuesday, November 28, 2006
Monday, November 27, 2006
UK to become net milk importer?
Two separate respected sources, Sir Stuart Hampson and Kite Consulting, have claimed that the UK could become a net milk importer within a few years. Such a story is manna to the supporters of farm subsidies on food security grounds. It also has a good populist feel, allowing papers to run stories about British tea being drunk with French milk if they so wish. But what is the substance behind these claims?
Sir Stuart Hampson, having just finished his year long stint as chair of the respected Royal Agricultural Society of England, argued that the UK could become a net importer of milk within five years if small dairy farmers continued to be forced out of business.
Sir Stuart made his remarks as Defra released figures showing that England lost on average one dairy farm a day in 2005. He argued that supermarkets had a responsibility to pay a 'fair' price for milk, pointing out that up market Waitrose (part of the John Lewis Partnership of which Sir Stuart is chairman) paid a 3p premium to all farmers.
He commented, 'The price paid to the farner is too low, it is not meeting the cost of he farming. I am trying to draw attention that this is a market that has a fair price. [I am not quite sure what such a price is other than a market clearing price]. The decline in incomes of dairy farmers does give me cause for concern.'
Kite Consulting's Milk Forecasts report warned that the UK is heading for its largest ever under quota position. The report's co-author John Allen said, 'The exodus from the dairy industry is running at 7% and accelerating. In the next three years one in five dairy farmers will quit.' With annual demand at 12.6bn litres if the decline continues supply will be as low as 12.68bn by 2011. That meant that by November of that year, when supply is seasonally at its lowest, the UK could see a real milk shortage.
The government and the processing industry hit back
The government was quick to point out that of the 13bn litres produced annually, only 7bn litres went into fresh milk. Robert Wiseman Dairies said the problem for the milk industry was not that it was producing too little milk, but that it was producing too much. 'Unfortunately the volume of milk produced by the dairy farming sector in the UK is such that three in every 10 litres is having to be sold in commodity markets.'
Arla chief executive Tim Smith said that importing liquid milk was unlikely. 'Anyone contemplating importing milk is committing financial suicide. The eye-watering costs of transporting milk from abroad make it unviable. The market price will be adjusted as we near the balance of supply and demand. But it is all down to market forces. We are still in a position of over supply.'
An overview
We should remember that this sector still receives substantial CAP subsidies, even if they are reducing. There is also a distinction between the number of farms going out of production and the volume of production. If smaller (and often unavoidably less efficient) farms mainly go out of production, the effect on volume will be muted, indeed other producers may expand if the price is sufficiently attractive. Of course, a decline in the industry in, say, western England could have landscape and social effects, but that is another matter.
The price UK dairy farmers receive is the lowest in Europe and this in part no doubt reflects the market power of retailers, but that same market power has led to falling food prices and hence a positive effect on the overall level of inflation. Dairy farmers sometimes claim that they are making a loss, but this may be after labour costs (mostly those of the family) have been paid out of the business.
There is no doubt that dairy farming is a particularly demanding type of farming and the rewards are not that great for smaller enterprises. But whatever is done we should not increase the level of subsidy. Production would have to fall a long way before fresh milk supplies are threatened.
Sir Stuart Hampson, having just finished his year long stint as chair of the respected Royal Agricultural Society of England, argued that the UK could become a net importer of milk within five years if small dairy farmers continued to be forced out of business.
Sir Stuart made his remarks as Defra released figures showing that England lost on average one dairy farm a day in 2005. He argued that supermarkets had a responsibility to pay a 'fair' price for milk, pointing out that up market Waitrose (part of the John Lewis Partnership of which Sir Stuart is chairman) paid a 3p premium to all farmers.
He commented, 'The price paid to the farner is too low, it is not meeting the cost of he farming. I am trying to draw attention that this is a market that has a fair price. [I am not quite sure what such a price is other than a market clearing price]. The decline in incomes of dairy farmers does give me cause for concern.'
Kite Consulting's Milk Forecasts report warned that the UK is heading for its largest ever under quota position. The report's co-author John Allen said, 'The exodus from the dairy industry is running at 7% and accelerating. In the next three years one in five dairy farmers will quit.' With annual demand at 12.6bn litres if the decline continues supply will be as low as 12.68bn by 2011. That meant that by November of that year, when supply is seasonally at its lowest, the UK could see a real milk shortage.
The government and the processing industry hit back
The government was quick to point out that of the 13bn litres produced annually, only 7bn litres went into fresh milk. Robert Wiseman Dairies said the problem for the milk industry was not that it was producing too little milk, but that it was producing too much. 'Unfortunately the volume of milk produced by the dairy farming sector in the UK is such that three in every 10 litres is having to be sold in commodity markets.'
Arla chief executive Tim Smith said that importing liquid milk was unlikely. 'Anyone contemplating importing milk is committing financial suicide. The eye-watering costs of transporting milk from abroad make it unviable. The market price will be adjusted as we near the balance of supply and demand. But it is all down to market forces. We are still in a position of over supply.'
An overview
We should remember that this sector still receives substantial CAP subsidies, even if they are reducing. There is also a distinction between the number of farms going out of production and the volume of production. If smaller (and often unavoidably less efficient) farms mainly go out of production, the effect on volume will be muted, indeed other producers may expand if the price is sufficiently attractive. Of course, a decline in the industry in, say, western England could have landscape and social effects, but that is another matter.
The price UK dairy farmers receive is the lowest in Europe and this in part no doubt reflects the market power of retailers, but that same market power has led to falling food prices and hence a positive effect on the overall level of inflation. Dairy farmers sometimes claim that they are making a loss, but this may be after labour costs (mostly those of the family) have been paid out of the business.
There is no doubt that dairy farming is a particularly demanding type of farming and the rewards are not that great for smaller enterprises. But whatever is done we should not increase the level of subsidy. Production would have to fall a long way before fresh milk supplies are threatened.
Sunday, November 19, 2006
New world wines continue their challenge
Santiago, Chile. Yestredya I visited a vineyard here in Chile´s central valley not far from Santiago. This vineyard was founded in 1880 and is currently producing 19 million litres a year. I have seen similar operations in Australia, although not on this scale.
A German in the party asked about the concept of terroir which is very much emphasised by European wine producers giving a wine its distinctiveness. However, this was clearly of no importance in Chile. As in Australia (now suffering from a glut of wine), Chilean vineyards produced drinkable and affordable wines for the world market. They then keep the best wines for themselves, as in Australia. At a reception at the presidential palace in Santiago, I had one of the best reds I have ever drunk.
There is no appellation system in Chile, only reserve wines finished in oak barrels and other wines. The New World wine countries have eight years to come up with a system, but this is proving difficult.
Our guide was less emphatic than those in Australia about the merits of screw top bottles or synthetic corks but pointed out that the rising price of natural cork meant that it could cost as much as the wine.
As the discussions about the reform of the European wine regime meander on, there is no sign here in Chile that the marketing challenge they present to European producers is going to diminish.
A German in the party asked about the concept of terroir which is very much emphasised by European wine producers giving a wine its distinctiveness. However, this was clearly of no importance in Chile. As in Australia (now suffering from a glut of wine), Chilean vineyards produced drinkable and affordable wines for the world market. They then keep the best wines for themselves, as in Australia. At a reception at the presidential palace in Santiago, I had one of the best reds I have ever drunk.
There is no appellation system in Chile, only reserve wines finished in oak barrels and other wines. The New World wine countries have eight years to come up with a system, but this is proving difficult.
Our guide was less emphatic than those in Australia about the merits of screw top bottles or synthetic corks but pointed out that the rising price of natural cork meant that it could cost as much as the wine.
As the discussions about the reform of the European wine regime meander on, there is no sign here in Chile that the marketing challenge they present to European producers is going to diminish.
Thursday, November 09, 2006
US election results not good for trade
Whatever other benefits they bring, the US election results are not good news for agricultural trade. Protectionist sentiment in the Congress has undoubtedly been strengthened and Trade Promotion Authority is likely to be renewed. This makes a Doha Round settlement less likely, removing a key pressure for CAP reform.
The next chair of the agriculture committee in the House is likely to be Minnesota congressman Collin Peterson. His constituency has a strong representation of corn and sugar beet farmers, two crops that have the most to lose under changes to the farm bill backed by agriculture secretary Mike Johanns. He is likely to oppose efforts to change American's generous farm subsidies, thereby weakening incentives for the EU to give ground.
The next chair of the agriculture committee in the House is likely to be Minnesota congressman Collin Peterson. His constituency has a strong representation of corn and sugar beet farmers, two crops that have the most to lose under changes to the farm bill backed by agriculture secretary Mike Johanns. He is likely to oppose efforts to change American's generous farm subsidies, thereby weakening incentives for the EU to give ground.
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