Sunday, June 25, 2006

Farm subsidies remain at high level in OECD

The latest figures from the OECD show that the amount its thirty members spent on domestic agriculture in 2005 was almost unchanged from 2004 at $279.8bn (€221bn, £152bn). Subsidies accounted for almost one-third of farm incomes across the rich world.

EU aid to its farmers fell marginally from $136.1bn to $133.8bn while Japanese and Swiss farmers remained among the most protected. The producer subsidy equivalent, which measures the cost to taxpayers of subsidies and consumers of tariff barriers, was 32 per cent in the EU, 56 per cent in Japan and 68 per cent in Switzerland. The $42.7bn US support represented 16 per cent of receipts.

In very simple terms, a concentrated interest deriving benefits from intervention prevails over the diffuse interests of consumers and taxpayers.

Saturday, June 24, 2006

In the land of the square bracket

Just how far apart the leading participants in the Doha Round are on farm trade issues is revealed in a draft paper on modalities published by the chair of the agricultural negotiations, Kiwi Crawford Falconer.

Falconer was obliged to admit that his document is 'inelegant' and it contains no less than 760 pairs of square brackets, indicating a lack of agreement, in a document of 74 pages. This beats the current world record of 402 square brackets in the Seattle draft in 1999.

It is difficult to see any progress on the key issues. For example, there is no narrowing of positions on sensitive products with the text stating that 'each member shall have the right to designate up to [1-15] per cent of dutiable tariff lines as "sensitive products"'.

It is difficult to escape the conclusion that the ministerial meeting in Geneva expected for June 28 - July 3 will fail to make the badly needed significant progress. There is, however, an increasing realisation that the whole Doha Round is in jeopardy given the need for a timetable that will allow for American approval under fast track negotiations.

High level political leaders need to intervene effectively to ensure a renewed focus on the broad picture rather than the ad valorem tariff for butter. That is not an easy task, however, given that many (from American politicians to NGOs, not to mention the French) are arguing that no agreement is better than a bad agreement. What is increasingly likely is that this will be the last omnibus trade round as they hinder as much as help progress towards fairer world trade.

Friday, June 23, 2006

Dubya is cone sharing fave

President George W. Bush may have had bad poll figures recently, but they are starting to recover, and now Americans have chosen him as the No.1 VIP they would like to share an ice cream cone with.

In a survey by Ben and Jerry's, Bush received 21 per cent of the vote, followed by Bill Clinton with 20 per cent, Angelina Jolie with 19 per cent, Jennifer Aniston with 19 per cent and Kelly Rippa with nine per cent. The survey was conducted to mark the launch of the first packaged super-premium ice cream cone which is available in Chocolate Chip Cookie Dough and Cherry Garcia flavours.

Now back to the Doha Round.

Tuesday, June 20, 2006

New bid to drain wine lake

Wine is the next sector to be targeted for reform in the CAP with proposals to be unveiled in the next couple of days. Farm Commissioner Mariann Fischer Boel seems to be hoping that a successful wine reform will reinforce her credibility as someone who can bring about meaningful change. But she is well aware of the challenge ahead. She told the informal meeting of farm ministers at the end of May, 'There are so many cultural feelings on wine, I would consider [the reform] is going to be even more difficult than the sugar discussions.'

Whatever shape the reform takes the EU is still going to spend €1.2 billion a year on wine subsidies, but the aim is to spend less of the money on the wine that no one is going to drink and is distilled into industrial alcohol or bioethanol. As wine drinkers, especially those looking for a reasonably priced but drinkable wine, turn to 'new world' wines such as those from Australia and Chile, European wines need to become more competitive. My own consumption pattern is probably not unusual in the UK - Australian or Chilean wines for everyday drinking, and more expensive German, Alsatian or Italian wines for more special occasions.

The EU has been considering four broad options: keeping the status quo, carrying out a fundamental reform, implementing the 2003 CAP changes in the sector, or endorsing a complete deregulation of the market. Because this is the CAP we are talking about, the two more radical options are not really on the table.

The most likely mix is temporarily encouraging wine producers to 'grub up' their vines in return for funding, although such policies have not always been cost effective in the past, and extending the current restrictions on planting rights until 2013. Many of the existing cash subsidies would be cut back and overall EU production would be reduced. This would not be welcome news for traditional wine producing nations like France, Italy and Spain.

Incidentally, England does not yet produce enough wine to come within the EU regime but could do in the future if the area occupied by vineyards continues to grow, encouraged by the prospect of global warming. Many of the existing vineyards are boutique wineries, often appealing to a tourist market. English wines can be of good quality, but often cost more than a comparable wine from the continent.

For good reasons, Fischer Boel has particularly targeted crisis distillation. She stated, 'Crisis distillation is becoming a depressingly regular feature of our common organisation for wine. While it offers temporary assistance to producers, it does not deal with the core of the problem - that Europe is producing too much wine for which there is no market.'

The problems the EU faces in this area is shown by the news that French wine growers will receive extra money from their own government to supplement the crisis distillation cash awarded to them recently by the Commission. The EU Wine Management Committee agreed to allow France to convert up to 1.5 million hectolitres of table wine and 1.5 million hl of quality wine into bioethanol. Unpopular French prime minister Dominique de Villepin is calling for 'exceptional national measures' to supplement the Commission's subsidy, a move that is probaby illegal.

I have just got hold of an interesting book on The World's Wine Markets: Globalization at Work edited by Kym Anderson and published by Edward Elgar and I will report any interesting points made when I have read it.

Doha Round crisis

Crawford Falconer, chairman of the Doha agricultural trade negotiations, is to present a paper on Wednesday June 21st in an attempt to get a basis for agreement in the troubled Round. Apparently Falconer's proposals will be close to the compromise model put forward by the Brazilian-led G-20 group. On the biggest tariffs, their compromise proposal of 75% cuts is halfway between the EU offer of 60% and the US demand for 90%. G-20 also proposes a maximum tariff of 100% whereas the EU has ad valorem tariff rates substantially over 100% in several sectors.

However, it will be far from a conclusive document with options and lots of brackets. Nevertheless, his efforts and those of Canada, which has cast itself in the role of mediator, may not be enough. The ministerial meeting at the end of the month may not produce the hoped for outline settlement. The parties are digging their heels in and taking quite entrenched positions.

EU Farm Commissioner Mariann Fischer Boel has refused to confirm or deny rumours that the paper will be based on new figures given to Falconer by the Commission that go further than the EU's October proposal. Falconer's paper is, however, likely to be closer to the G-20 proposal than Brussels would want.

Opposition to what they would see as a sell out is buiilding among member states with the usual suspects involved. France, Italy, Greece, Poland, Ireland and Hungary are the countries most worried that the Commission is ready to sacrifice European agriculture for limited gains in areas such as services and industry. The UK and its liberal allies (Sweden, Denmark, Lithuania and Estonia) is backing the Commission's aim to get a deal in Geneva before the summer break.

Fischer Boel faces a real dilemma. She thinks that the EU still has 'some slight room for manoeuvre' within the negotiating mandate given it by the Council of Ministers, but an EU spokesperson admitted that the room for manoeuvre was 'not very large'.

It should also be remembered that there is a group of countries in which Japan and Switzerland are prominent that take an even harder line on market access issues. The Swiss have argued that if the idea of a tariff cap was dropped, there could be more flexibility in other areas of the negotiations. Canada has suggested that a cap could exist, but countries facing the biggest difficulty in complying could be given some leeway. This is a well intentioned idea but it is very vague in its present form and could drive a coach and horses through parts of any agreement.

Georgaphical indications

This remains a key issue for the EU because of its relationship to the strategy of developing high value added niche products in Europe. The EU and Switzerland, backed by accession states Bulgaria, Romania and Turkey, together with Kenya (with its horticulture sector), Morocco and Thailand, argue that the higher level of protection awarded to wines and spirits should, in the future, be extended to all agricultural products.

The EU has already won the battle to stop marketers using terms such as 'champagne' or 'port' for products which are not made in the specific region to which they relate, although success there was partly the consequence of direct agreement between wine producers in the EU and US. However, products such as 'Parma ham' can still use the name provided that their packaging states they are produced outside of the EU.

Little progress is being made on the issue with opposition to the EU's stance coming from countries as diverse as the US, Brazil and Taiwan.

Wednesday, June 07, 2006

Toffs would be hit by farm subsidy cap

Some of Britain's wealthiest aristocrats would be hit by a plan to revive caps on farm subsidies, a proposal fought off by Britain and Germany in 2002. However, farm commissioner Mariann Fischer Boel is proposing to revive the plan next year., a group that monitors CAP payments, calculated that the Commission's original proposal for a €300,000 (£207,000) cap would have hit 1,880 farms in the old EU 15. 1,430 were actually in Germany, many of them former collective farms in East Germany. There were 330 farms in Britain and just 30 in France. British landowners that would be hit include the Duke of Westminster and Duke of Marlborough.

The British government hit back at the proposal, claiming that blue blooded gentry were exponents of modern, large-scale efficient agriculture. A Defra spokesman said that the main objective of CAP reform was to make the EU more competitive in world agricultural markets. 'To achieve that it needs to reward farmers who are the most efficient', he said. 'There is no point in CAP subsidies propping up a failing market.'

Others would argue that the CAP is not there to help farms that are capable of being internationally competitive without large subsidies, but rather to promote rural development and help more marginal, peripheral farmers survive. One solution might be to taper subsidies above the €300,000 level.

In any case the policy might be difficult to implement. The legal definition of a 'farm' is far from clear. Jack Thurston of warned that large farms might simply split up ownership to get round a cap.