Dairy quota row highlights industry divisions

Commissioner Mariann Fischer Boel's proposal for five annual dairy quota increases of 1 per cent each, adopted unchanged by farm ministers, is under attack from two sides. The Commission believes that this is a sure sign that it has negotiated a fair middle path through a morass of conflicting objectives. A less charitable interpretation would be that the needs of an internationally competitive industry have been partially sacrificed to those of marginal farmers with political clout.

What is at stake here is a deeoply divided industry. Parts of the European milk sector, largely found in Northern Europe (although also in Italy's Po Valley) is an efficient, hi tech branch of the food industry that is well capable of competing on the international market and has a strong export orientation. But there are also a lot of marginal dairy farmers who are conservative in outlook and manage to 'get by' economically with the help of political protection. This is given to them by groupings like the CSU in Bavaria.

Member states in the north and west of Europe, especially the UK and Denmark, have criticised the Health Check accord as a missed opportunity to set the EU dairy industry on the road to a prosperous and expansionist future. Member states to the south and east have lamented the prospect of more milk coming on to the market at a time when dairy farmers' incomes are coming under sustained pressure.

Kirsten Holm Svendsen, policy director of the Danish Dairy Board, commented, 'Restricting milk production in Europe will only generate higher support volumes from non-European dairy nations. Thus, by refusing to liberalise dairy production, the EU gives up the expanding European dairy market to the Brazilians.'

The Danes are also concerned that the new support mechanisms available to dairy producers under 'Article 68' of the Single Farm Payment regulation will allow member states to effectively re-introduce coupled support of the dairy sector, with a consequent distorting impact on competition.

The possibility of creating a new coupled dairy cow premium from 2010 is regarded as a negotiating victory for Austria. Outgoing Austrian farm minister Josef Proll said that the biennial reviews of the milk market would allow the Commission to put the planned quota increases in hold if there were to be any risk of exceptional market disturbances - or even to cut quotas. Thus, even modest steps in the direction of market liberalisation could be threatened.

Auditors roast cross-compliance policy

The European Court of Auditors has published a strong critique of the way that cross-compliance policy, a key element in the reformed CAP, is executed by the Commission and the member states.

The Court carried out an audit in 2008 of the cross-compliance policy at the Commission and in seven Member States representing the diversity of agriculture across Europe. In the report which it recently adopted, the Court concludes that the objectives of this policy have not been defined in a specific, measurable, relevant, and realistic way, and that at farm level many obligations are still only for form’s sake and therefore have little chance of leading to the expected changes, whether reducing the size of payments or modifying farming practices.

More precisely, the Court finds that:
􀂃 the Member States have not translated all the cross-compliance standards into obligations applicable at farm level.
􀂃 monitoring whether these obligations are being respected is weak and in some cases non-existent. One of the reasons for this is that the checks are largely carried out during the summer months and a significant number of obligations relating to agricultural practices which occur during other seasons and cannot therefore be properly checked.
􀂃 the minimal reduction in direct payments seen to date stems both from monitoring weaknesses and an inadequate system of sanctions. For example, the audit found no breach of cross-compliance after carrying out 11 633 checks of the Birds Directive and 14 896 checks of the Habitats Directive over two years in four Member States.
􀂃 the introduction of cross-compliance has weakened key elements of the control and sanction system for rural development. In addition, the separation between cross-compliance and agri-environmental measures is not always clear.
􀂃 the data sent by the Member States to the Commission are unreliable and overestimate both the rate of monitoring of farmers and the farmers’ compliance rates. The Commission’s system for monitoring these data is incomplete and suffers in particular from the absence of performance indicators and baseline levels.

Overall, the Court considers that cross-compliance is a vital element of the CAP but concludes that it is not effective as currently managed by the Commission and implemented by the Member States. It states, 'If the public authorities wish cross-compliance to achieve its full effect, they must define specific and measurable objectives which can be translated into obligations that are controllable at farm level. The Court therefore recommends that the applicable rules should be simplified, clarified and prioritised.'

The Estonian vision

A charming young Estonian woman greeted me at the European Parliament yesterday when I went to give evidence to the Agriculture and Rural Development Committee (of which more in due course). Of broader significance Estonia is orobably the only new member state with a clear concept of how the CAP should evolve. This is outlined in an Agra Focus interview with farm minister Helir-Valdor Seeder.

Estonia's view is that reform has not gone far enough and believes that we need a significantly reformed CAP. Seeder's view is that 'the system of direct aid today is innovative in its form ... but in practice it is the factual continuation of the 1992 MacSharry reform where farmers were compensated for the internal market price drop.' He argues there should be a continuing base payment to farmers to compensate for the EU standards they are obliged to follow.

However, more payments should be targeted. He sees the future in terms of a Common Rural Policy which should be open to entrepreneurs in rural areas, but 'should not be a cartel for the farmers club.'

He argues that price volatility requires a single intervention mechanism that would enable the EU to offset the negative effects of extreme temporary price drops. However, why not deal with this through some kind of insurance mechanism that had EU backing? It would be less market distoring.

More bids to grub up vineyards than expected

The scale of bids to permanently dig up vineyards under the first year of the grubbing-up scheme set up under the wine reform has surprised the Commission. They have been obliged to reduce each application by 54.1 per cent as a result. Bids across the EU for just under 160,000 hectares have been reduced to just over 73,000. The total budget for the first year of the grubbing up scheme was €464m.

The applications cover 4.2 per cent of the European Union wine area. but as mich as 12.7 per cent in Cyprus and 8.9 per cent in Spain. These countries perhaps have relatively high proportions of lower quality wines while Cyprus is a recent entrant to the EU and will have not been able to take advantage of earlier schemes. 91 per cent of the funds have been allocated to Spain, Italy and France.

Europe continues to face a challenge from the new wine producers of Australia, Chile, New Zealand and South Africa, particularly in relation to medium quality 'drinkable' wines.

CAP Health Check deal

An outline of the compromise deal brokered by the French presidency to complete the CAP health check can be found here: Euractiv . There is also extensive coverage on the CAP Health Check blog that we work with: see Health Check. Even if the name of the blog eventually changes, the need for its campaigning stance remains.

Further progress has been made in the direction of strengthening Pillar 2 payments which emphasise environmental protection. Indeed, this move has upset the NFU: NFU . However, this is not a fundamental reform of the CAP, but nor was it meant to be. For that we will have to wait at least until 2013.

In any case with economic crisis hitting Europe the attentions of its leaders is focused elsewhere. Industrial policy is making a comeback, particularly in France and Italy. In so far as payments to bail out firms in difficulty become fashionable once again, aid to farmers looks less exceptional and less open to criticism. A quote from Silvio Berlusconi about says it all: 'State aid, which until yesterday was considered a sin, is now absolutely essential.' So much for the internal market.

Industrial policy was, of course, as big a disaster as farm policy: it just didn't last as long. The least efficient firms went out of business eventually and those that were left were able to compete in normal economic conditions.

We will provide more analysis over the coming weeks.

The methane menace and hamburgers

A paper on the contribution to climate change of livestock methane emissions has found that the problem is likely to get worse as global demand for meat and dairy products increases. Dr Andy Thorpe, an economist at Portsmouth University, found that a single herd of 200 cows can produce annual emissions of methane roughly equivalent in energy terms to driving a family car 180,000 km.

Whereas carbon dioxide emissions have increased 31 per cent over the past 250 years, methane, which has a higher warming potential and a longer atmosphere lifetime than carbon dioxide has increased by 149 per cent over that time. Dr Thorpe commented that 'Methane emission growth ... has been increasing exponentially in the developing world due to a rise in incomes leading to an increased demand for meat and the "hamburger connection" where developing countries make a lucrative profit supplying meat to developed countries.'

Attempts to curb animal methane emissions have included feeding grazing animals on cottonseed and alfalfa, using food additives, and vacinnating animals with drugs, but it is not clear if they will work on a large scale. A reduction in the amount of livestock kept for meat and milk would only put pressure on other food sources, such as cereals.

Animal methane emissions from developing countries have increased to 75 per cent of the global total, with India and Brazil in the lead. It is thought that atmospheric methane is responsible for one-fifth of the global warming since 1750.

Cows, sheep, goats and camels have an additional stomach and produce large amounts of methane as they digest their food. A dairy cow in New Zealand will typically produce around 80kg of methane a year, just through burping.

The policy pressures this produces is shown by complaints from the Irish Dairy Industries Association that the Republic's commitment to reduce greenhouse gas emissions is piling further economic pressure on the country's beleaguered dairy industry. It was argued that because Ireland's greenhouse gas emissions (GHG)were closely linked to methane from cattle, a 20 per cent cut in GHG emissions would result in a 20 per cent cut in Ireland's dairy herd.

The association complained that there is no international standard for measurement of emissions from enetric fermentation in cattle. The background to these concerns is a sharp drop in prices from 40 cents a litre in 2007 to around 24 now.

Vegetarians would no doubt argue that the GHG emissions of cattle reinforce the case for not eating meat. In practice, it is difficult to see how the problem can be tackled given that the livestock sector is under heavy economic pressure.

Auditors' report makes for sobering reading

The very complexity of the CAP opens it to scams of various kinds. These may not be fraudulent in the criminal sense of the term (although such instances have occurred) but they do represent a use of loopholes to divert public money to line the pockets of individuals.

In this respect the report from the EU Court of Auditors for 2007 makes for sobering reading. The EU spent 51 billion euros in 2007 on agriculture and natural resources of which all but 2 per cent was on agriculture and rural development. The Court's press release states, 'the estimated overall error rate is still material. [Translated out of bureaucratic code, a lot of public money is being wasted]. Rural development, with its often complex rules, accounts for a disproportionately large part of this error rate.'

Of 196 transactions examined, 61 were affected by error and some two-thirds of the errors (40) were classified as 'serious'. In its response, the Commission finds reassurance in the fact 'that the most likely overall error rate is not significantly different from last year's'. So that's all right then.

Once again olive oil in Southern Europe is a particular culprit. In its 2006 report, the Court pointed out that in Greece, Spain and Italy the olive cultivation data were neither complete not reliable. 'These weaknesses persist in Italy and Greece, where four out of five transactions audited contained errors, some of which led to significant overpayments.'

Significant overpayments were found in relation to nuts and dried grapes in Spain and Greece. In one case in Spain a farmer appeared to have far fewer sheep than the number that had been claimed for.

Northern European states were far from blameless. In relation to the Single Payments Scheme which now accounts for 55 per cent of all payments, 'in England the four entitlements audited were erroneously calculated mainly due to failure to take account of changes in land parcels; while these errors did not have a significant impact on the 2007 payments since England applies the "dynamic" model, these initial entitlements, unless corrected, will result in significant over/underpayments in future years.'

In England the same parcel of land can be claimed by two 'farmers' under different area related and EU schemes. In nine out of 12 on-the-spot visits to 'new beneficiaries' of EU direct aid, 'the area declared for SPS was not eligible in whole or in part either because it was not in good agricultural condition, its main use was not agricultural or the beneficiary was not eligible because he did not carry out any agricultural activity on the land.' [This is sometimes referred to as 'sofa farming']

More generally, the Court states that 'the administrative controls in England do not provide assurance that EU aid is paid out correctly. England [does] not avail of the option to use aerial or spatial orthoimagery'. As the Commission points out in its response, this is not legally required, but it is still good practice.

Portugal has paid out €3.5m on 'balido' land. This land is usually public land of very poor pasture and mainly covered by bushes and trees. In Greece quantities of rice were missing from public storage.

In nine out of 13 agri-environmental schemes audited in France and Ireland farmers had not met the eligibility conditions. Even the Commission admitted that many of these errors had 'an important financial impact' in relation to records about nitrate reduction. The Commission also conceded that it was following up with French authorities the lack of an adequate audit trail in relation to interest rate subsidies.

One is left with the impression that public funds will contunue to be misallocated or wasted.

Farmers and the credit crunch

Over ten years ago I was involved in an international project on farm finance as part of which I interviewed the agricultural finance specialists in all the banks in Britain and Ireland. One thing that came across was that banks competed to lend to farmers because it was seen as a lucrative market with very secure assets.

Figures from the Bank of England show that agricultural borrowing in the UK is at an all time high, £11bn at the end of September, compared with £9.94bn at the end of 1997. The debt burden was, however, offset by an increase in farm incomes. According to Defra, the average income was about £48,000 in 2007-8, about 40 per cent higher than the previous year, owing largely to higher prices for cereals and milk.

The falling exchange rate may also benefit farmers, given that subsidies are denominated in euros (the notorious 'green pound' which was one of the most complex aspects of the CAP is no longer with us). The estimated €3.8bn (£3.1bn) in subsidies this year should be worth more. Sterling's weakness may make exports more attractive. In 2006, the last year for which figures are available, the UK exported £10.5bn of farm products.

Agricultural land is still fetching historically high prices, giving farmers an equity cushion. Borrowing is much lower than in other sectors. The total value of farming assets in the UK is estimated at around £150bn, giving a gearing ratio of less than 10 per cent, far less than the rates other industries have come to see as normal.

Buckwell expresses doubts about SFP and pillars

Allan Buckwell expresses doubts about the efficacy of the Single Farm Payment in his interview with Agra Focus (see below). He comments, 'It is a very simplistic stablization measure and the distribution of the payments is a big odd.'

Later in the interview, he explains, 'I was never really a big fan of the Single Farm Payment. It was an absolutely necessary step to unhook support from prices ... When you look at the payments per head or per hectare or per annual work unit by Member State, there is a variation of about 3-50 fold from the highest to the lowest.'

He also expresses doubts about the two pillar distinction which has been regarded, perhaps too uncritically, as a central plank of the recent development of the CAP in order to increase spending on the 'multifunctional' or public goods aspects of agriculture. He notes, 'The distinction between the two pillars served a purpose. If it's creating an obstacle to the development of a better policy, then let's scrap it.'

He comments, 'There is little doubt that Pillar 2 is becoming unpopular. It is unpopular with farmers: many farmers in many countries say they cannot access the schemes that are available. They see it as bureaucratic, and also complain that money is leaking away to others. The bureaucrats and the administration say that it is a complex system with very high administrative costs and co-financing puts off Member States from doing more of it.'

He argues that co-financing is the key issue. If co-financing rules are stopping sensible reform, they should be changed. It might be better to co-finance everything with the member state contribution related to the national income per head. What is needed, he argues, is an explicit debate about the underlying principle rather than about 'funny little new programmes.'

Interview with Allan Buckwell

Agra Focus has been conducting a series of interviews on EU farm policy and one of the longest and most interesting to date is with Allan Buckwell. He is currently policy director with the (England and Wales) Country and Land Business Association, but is also chair of the policy committee run by the European Landowners Association. He was for many years a respected agricultural economics and policy academic at the now sadly diminished Wye College. Perhaps his most interesting role in policy terms was when he spent a year in DG Agri in 1995-6 and chaired a group which wrote a report on a Common Agricultural and Rural Policy for Europe.

The whole interview is well worth reading as is Agra Focus for those who wish to keep up to date with developments in the CAP debate. Over the next few days we shall publish some highlights from the interview.

Allan Buckwell said that in the 1990s there was a consensus that policy had to change and the direction in which it had to move was liberalisation. That meant moving away from distorting commodity markets. Now there is not the consensus on what direction to take the CAP.

Moreover, the broader European debate, which in 2005-6 seemed to be moving away from the accumulated outcome of 40 years of incrementalism was now replaced by very little strategic thinking at all. There was retrenchment all over Europe and a shift to Euroscepticism rather than taking a clean sheet of paper and thinking about what a new Europe could look like.

Allan Buckwell suggested that policy faced two challenges, a food challenge and an environmental challenge. Recent events suggested that there might also be a risk management challenge as well.

He reiterated his belief that the CAP should evolve to become a Food and Environmental Security Policy. There was no difficult in convincing people that environmental security was a big issue. 'Unfortunately, coming from where I do, if you mention the words food security you are immediately accused of being a farmer protectionist and wanting higher prices.'

Buckwell insisted, 'I am arguing that food and the environment are inter-related and there are such big market failures surrounding the environmental impacts of agricultural production, that this justifies a policy.' What was needed was not the agricultural policy we have had for the last 40 years, but there was a clear job to be done.

Part of what he has in mind is stimulating agricultural development in the new member states and modernising infrastructure and marketing there. He also emphasises the need for research and development work on how one maintains the productivity of agriculture and yet reduce its environmental impact. These are worthwhile aims for public action.

Farmers divided over DECC

Farm organisations in the UK have divergent opinions on the consequences of the formation of a Department of Energy and Climate Change (DECC) which takes over responsibility for the key environmental issue of climate change from DEFRA.

NFU vice-president Paul Temple said he hoped the separation of energy and climate change would leave DEFRA with a sharper focus on food and farming. That would echo the days of the Ministry of Agriculture, Fisheries and Food (MAFF)that was focused on food production.

To echo the language of the film The Graduate I have one word to say to that: BSE. MAFF was a hopelessly clientilistic ministry that was in a symbiotic relationship with the NFU and almost always put productionist values first.

Because the Country Land and Business Association represents a lot of large landed estates (ok, I know that it has farmers like my brother-in-law in membership as well - a 7th generation Welsh farmer) it tends to be more interested in conservation. Actually, I also think there is a bit of self-selection in who becomes a member.

A CLA spokesman said that unless the two departments retained cohesion, the role of landowners in environmental management could be marginalised. 'Ed Miliband [the new DECC minister] will need to appease many groups in his new post and many campaigners who had relationships with DEFRA will have to introduce themselves to him afresh,' said the CLA.

Farmers Weekly blogger David Richardson, an unreconstructed productionist who is a very effective spokesman for large-scale arable farmers, said that until Hilary Been was removed, food production would never regain prominence, whatever the reshuffle. He accused Mr Benn of thinking of himself as an 'overseas development minister', presumably because he has expressed concern about the impact of the CAB on the Global South.

You can read David Richardson's views here: Farmer . When I looked the Defra story was second, as he was on to badgers.

It will be interesting to know what the new DEFRA Council of Food Policy Advisers will do, or more particularly whether it will take a balanced stance:
Defra

At the moment, I do not know who is on it which would indicate whether it was a nest of productionists or a body that tried to take account of a range of viewpoints.

Is MAFF back in the UK?

Details are still sketchy and yet to be confirmed but it looks as if the Department of Environment, Food and Rural Affairs is to lose its climate change function as part of the Cabinet reshuffle. Defra would retain its agriculture, food and rural affairs roles, thus looking more like than a MAFF Mark II. Let's hope it isn't as clientilist and productionist as the old department.

Wait a minute

The Scottish farm minister Richard Lochead has firmly ruled out a demand from NFU Scotland for the early payment of £61m of less favoured area support. He pointed out that early payment would jeopardise the Single Farm Payment as EU rules state that SFP must be paid ahead of LFA support.

The Scottish NFU argued that early payment would provide some respite to farmers escalating feed, fertiliser and fuel payment. Many families are constrained by rising food, energy and petrol prices. Perhaps on the same logic child benefit should be paid out early?

In an editorial Farmers' Weekly calls for a 'coherent, joined-up plan ... from DEFRA, which encourages a scaling-up of UK food production'. It doesn't get much to get the farming community to fall back on a call for Stalinist five-year plans. Machine Tractor Stations anyone?

Those in farming tend to see the world rather differently from the rest of us. To be fair, there are progressive farmers who see the need to engage in a dialogue with consumers and respond to market opportunities. But all too often they are not the public voice of the industry.

Food security and CAP reform

A short overview article I have written on this subject can be read here:
Reform

New book recommendation

Whilst I have some reservations about plugging a book in which I wrote the concluding chapter (on 'Implications for Future Reforms'), I do recommend Johan Swinnen (edited) The Perfect Storm: The Political Economy of the Fischler Reforms of the Common Agricultural Policy published by the Centre for European Policy Studies in Brussels. You can now download it for free here:
Book

It was based on an excellent workshop in Brussels which involved some of the Fischler insiders as well as academics. The result is, I think, one of the most informed and authoritative accounts of the Fischler reforms that we have available to us.

An exercise in decoding

France has produced a paper on the future of the CAP which is designed to stimulate discussion at the informal farm council to be held there in the Rhone-Alps region on 21-23 September. The paper is very vague, no doubt deliberately so, and interpreting has to be an exercise in decoding.

The paper argues that in the 'new context' of rising food and fuel prices, the future of the CAP should centre around four areas. The first of these is assuring food security in the EU. No suprises there, as France has been a vigorous adopter and champion of the revived food security discourse which provides a new underpinning for subsidy and protection.

New content can be placed in it, however, as is evident from a discussion on economic patriotism I participated at Science Po in Paris last week. The argument there was that even new market approaches could be brought under the economic patriotism umbrella.

The second objective is contributing to sustainable and balanced food supplies in the world. A laudable aim, but the EU has frustrated it by dumping surplus produce on the world market and undermining local suppliers, as well as frustrating the development of commercial agriculture in the Global South by placing barriers to entry around the European market. Hopefully, some of the worst of these practices are coming to an end.

The third aim is preserving the rural fabric and ensuring territorial cohesion, an objective close to French hearts with its emphasis on the cultural dimension of the CAP. The paper argues that the uniformity of Pillar 1 is in danger of stifling the diversity of the French agricultural landscape. Vulnerable areas, of which no doubt there are many in France, should get some sort of 'top up'.

The fourth objective is participating in the mitigation of climate change, which everyone is in favour of, but the challenge is how you actually do it, particularly in an economic downturn.

The most specific the paper gets is a call for less static support tools which a decoding suggests are favoured in part because they may be a way of getting around international trade rules. As well as providing support for integrated enviromental measures, these tools (whatever they might be) would be a means of dealing with increased market volatility.

This leads me to suppose that one might be talking about some modernised verision of deficiency payments, as used in Britain before it joined the common market. It may be, and this is just surmise, that the French think they cannot keep the SFP going beyond 2013, but they may be able to sell a subsidy that is linked to climate change and environmental benefits and also gives farmers some protection in hard times.

Whether such a vague document will lead to a structured or useful discussion at the informal Farm Council remains to be seen, but somehow I doubt it.

More information on the meeting is at Council

Credit crunch hits organic food sales

Sales of organic foods to leading supermarkets in Britain are struggling, suggesting that when recessionary conditions hit shoppers are ready to sacrifice their green credentials in favour of cheaper food. According to TNS World-panel data, sales of organic produce at Sainsbury's fell by 3.8 per cent and at Tesco by 1.3 per cent in the three months to early August. Spending on organic produce in the whole market has fallen by 19 per cent from £100m to £81m this year.

Organic agriculture is inherently more expensive than intensive agriculture. However, the Soil Association insisted that what was happening was a plateau rather than a reversal. Year-on-year average growth over the last decade has been 25 per cent.

It is interesting that organic egg sales have taken a particular hit, falling by 18 per cent in the four weeks to end of August. Consumers think that they can still be ethical by buying free range eggs.

These market developments could offer an opening for Integrated Crop Management which offers a route to more environmentally friendly farming without going organic. It is, of course, remarkable how tolerant consumers are of the use of so-called 'traditional' compounds by organic farmers, but they may not be aware of their use. 'Organic' has certainly embedded itself in the public consciousness with a very favourable image.

Farm visit, USA

Gilmanton, NH: Stopping on a back road near here to buy some corn, Brad kindly gave me tour of the family farm. His is the eight generation on the farm which was established in 1780. Much of the land round here was abandoned later once the topsoil had been used up and the rocks presented problems. But here and there a few farms survive, often occupied by descendants of the original families.

The farm I visited was of a mixed type you rarely see in the UK today. They owned 160 acres with another 160 rented. The three boys were home from college but the wet weather had delayed the harvest. Once they specialised in chickens, some two thousand of them, but they abandoned that in grandad's day. Brad wasn't sure why.

They grow corn for their cattle and to sell in their roadside shop. Sometimes they sell sacks of corn for cook outs. They make and sell hay. In addition to their cattle, they have around 60 sheep, not usually a big item in the US but there is a niche market in local Bosnian American and Greek American communities. They sell for around $100 each. They still have a few chickens.

But their most lucrative line is probably their maple syrup which they sell in their store. But Brad admitted that cash flow was a problem at some times of the year which is where mom's job as a librarian came in handy.

Subsidies did not seem to feature much, but two other local people who were not farmers told me they were applying for federal grants for conservation work on their properties, opening up the woodlands to provide a better environment for the moose. One was planning to hold tented events on her land which counted as a form of agri tourism.

But with no Single Farm Payment, the viability of the farms that operate commercially must remain in doubt - not that one would want it introduced in the US.

What does Doha round collapse mean for CAP reform?

The Doha Round has effectively collapsed and if it is revived at all, it will be when a new US president is in office. However, US policy could take a protectionist turn while India, which has been a stumbling block in the negotiations anyway, may have an even less liberal government in power.

Trade has been the main driver of reform of the CAP. It played a key role in the MacSharry reforms and again in the 2003 reforms. In both cases wily farm commissioners (MacSharry and Fischler) used the international trade negotiations to broker needed reforms.

Now, not only have we lost the pressure from trade negotiations, the food security argument is being used to justify a reversion to protection and subsidy. The economic downturn has weakened the momentum behind pressures for a greening of the CAP.

However, it's not all bleak news. The opportunity cost of the CAP in terms of the EU budget remains considerable at a time when there is an imperative to invest in research and development to compete with emerging countries.

Greater transparency about CAP subsidies may also foster greater public pressure for change. In this respect the work being done by Jack Thurston and others to ensure that as much as information as possible becomes readily available on the internet is of crucial importance.

UK edges towards food security policy

The UK Government has taken its first steps towards a national food security policy and abandoning its long-held stance of leaving supply to be determined by the market. However, it does not look as if it is going to ditch its support for reform of the CAP.

A discussion paper issued by Defra found 'the current global food security situation is a cause for deep concern', listing high energy prices, poor harvests, rising demand, biofuels and export bans in some countries as the main factors.

The government said it wanted to keep British farmers' productivity high, but insisted that the UK should not aim to be self-sufficient in food as that would make food supply too vulnerable to shocks, such as a poor harvest, floods or disease.

A food security policy, according to the document, would have to ensure a reliable supply of food; an efficient transport system; and that food was available at prices people could afford - in particular 'whether low-income consumers can afford enough nutritious food.' However, the paper was short on specifics on how the latter would be achieved.

The paper does not signal a revival of subsidies. Peter Kendall, president of the National Farmers' Union, attacked the government for failing to commit to 'concrete proposals' to help farmers.

Britain now relies less on food imports than during most of the last century. The UK is about 60 per cent self-sufficient in food, up from about 40 - 50 per cent in the 1950s which was the heyday of productivism and national subsidies. The UK's self-sufficiency was at its highest at more than 70 per cent in the 1980s when generous CAP subsidies encouraged farmers to over produce.

Biofuel targets in doubt

The pace at which biofuels are introduced into the UK transport sector should be slowed, according to the 'Gallagher review' from the Government's Renewable Fuels Agency.

In the review Professor Gallagher states that 'there is a future for a sustainable biofuels industry. But feedstock production must avoid agricultural land that would otherwise be used for food production ... and the introduction of biofuels should be significantly slowed until adequate controls to address displacement effects are implemented.'

The report suggests that the target for road transport fuels to include 5 per cent biofuels by 2010/11 should be extended to 2013/14 and only increased thereafter 'if biofuels are shown to be demonstrably sustainable.' It also says that the EU's separate target of a 10 per cent inclusion rate by 2020 is not justified, and should be cut to 5 to 8 per cent.

Only 1 per cent of the world's crop land is given over to biofuel production at preesnt, and the review found it was probable that there was enough agricultural land available in the world to grow food and fuels at least until 2020. The review found that biofuels would contribute about 15 per cent to rises in the price of grain in Europe by 2020, compared with 2006 prices, if current biofuels targets were followed through.

The review also found, however, that the price of vegetable oils and oilseed was vulnerable to competition from biofuels, and would rise as much as 70 per cent in the US by 2020. compared with 2006 prices, if biofuel targets were met.

French press for EU summit on CAP

French farm leaders have asked President Sarkozy to organise a Special Summit of EU heads of government on 'EU ambitions for the agriculture and agri-food sectors.' Perhaps the word 'EU' should be replaced by 'French'.

French Farm Minister Michel Barnier has already made it clear that he wants to have an in-depth discussion on the post-2013 CAP at the Informal Farm Council in Annecy in late September. This has received a cool reception from Commissioner Mariann Fischer Boel who told Agra Focus, 'I am not sure that it is properly timed, to discuss this before we finalise the Health Check - but it is always a prerogatve of the Presidency to decide on the discussions during its tenure.'

Agra Focus also notes that during recent months 'French officials - and Farm Minister Michel Barnier in particular - have been omnipresent in Brussels, taking every occasion to raise issues, present memorandums or reports, and launch new initiatives. No one in our editorial team can remember a Member State ever being quite so keen to take office.'

France no doubt sees the food prices 'crisis' and the way that food security has moved up the political agenda as an opportunity to advance its agenda of subsidy and protection.

Thinking about food security

The Food Ethics Council has established an enviable reputation for reflective thinking about the challenges facing the food chain. It is therefore interesting to read a report from its Business Forum about food security.

The report points out that one reason that food security has risen up the political agenda is 'in part down to opportunism, as interest groups use a period of crisis to advance their agenda.' Although the report doesn't make this point, this has been particularly evident in relation to the CAP which its defenders seizing on rising food prices as a justification for maintaining subsidies, some even advocating the revival of discredited policy instruments such as intervention buying.

The report points out that 'Raised food prices may also put pressure on the environment, threatening to undo improvements in sustainability that have been achieved in recent decades. On the demand side, some consumers may "trade down", potentially compromising on premium products that make environmental, social and animal welfare claims. On the supply side, higher prices may drive producers to farm harder, potentially compromising biodiversity and other ecological benefits.'

The report commends the notion of 'food capacity' developed as an alternative to 'food security' by City University. In this approach, 'Building production capacity means improving the production base and supply chain governance, promoting labour skills and investing in R & D that supports sustainable agriculture.'

Has rural development money been wasted?

This is the question posed by Professor Harald von Witzke, Chair for International Agricultural Trade and Development at Berlin's Humboldt University, in the latest of the Agra Focus series of interviews on the future of agricultural policy.

He argues that a lot of white elephants are being financed with 2nd pillar money because there is more money available than good projects. In particular, some job creation projects are not creating the jobs.

He considers that it would be better to shift money into research and development than rural development policy. Of the increase in production between 1961 and 2000, only 22 per cent was due to an increase in land area. The remaining 78 per cent was due to improvements in yields. That is why increasing productivity remains the key.

He points out that the justification for direct payments to farmers keeps shifting. Initially, he thought they were made in order to compensate farmers for quality regulations they have to observe that competitors outside the EU don't have to observe and that they are being compensated for the production of public goods.

However, he had not seen any analysis that suggested that the amount of public goods and the competitive disadvantage for farmers is as high as €400 a hectare. Farm payments should be reduced to a reasonable level that reflected the public goods being produced by agriculture and represent some compensation for the competitive disadvantage for quality regulations in the EU.

Sarko blames Mandy for referendum result

French president Nicolas Sarkozy has blamed trade commissioner Peter Mandelson's stance on trade for the Irish referendum result. Sarkozy said, 'A child dies of starvation every 30 seconds and the Commission wanted to reduce European agricultural production by 21 per cent during World Trade Organisation talks. This was frankly counter productive.'

Apart from the fact that the Commission has never suggested a specific cut in production, which is beyond its control, only cuts in tariffs and subsidies, developing countries would be able to raise their standard of living if they had a more commercial agriculture which had better access to world markets.

Peter Mandelson hit back, saying'Any suggestion that Europe can turn its back on open trade or reverse globalisation is a dead end for the people of Europe.' He added, 'Europe cannot possibly feed the rest of the world but Europe can help the rest of the world to feed itself by reforming its trade-distoring agricultural policies.'

This does not bode well for the French presidency, although the likely delay to implementation of the Lisbon treaty would also postpone the introduction of co-decision to the CAP - which could make reform more difficult.

Animal welfare dilemmas

One of the advances made when Franz Fischler was farm commissioner was to recognise farm animals as sentient beings rather than agricultural products. This provided a basis for treating animal welfare as one of the planks of multifunctionality. However, a vet who is an animal welfare expert suggested in a talk (under Chatham House rules) that I attended that this could face a challenge under WTO rules at some point in the future.

She noted that most intensive, behaviourally restrictive systems had been or were being phased out – battery chickens, veal crates, sow tethers (the latter only in the UK). Things like veal crates were very obvious system which coud readily be understood by the interested public. The animal welfare problems we were running into now are more complex to do with breeds and genotypes of animals and whether they are fit for the systems they are in. Things like stocking density, length of journey, consciousness after being stunned were easy to measure. Which genotype was going to fit into a production system was more complex.

Of course there can be important differences between member states. The ban on sow tethering in the UK resulted from private members' legislation and did not apply in Denmark. Consumers in the UK seemed to be generally unaware of this difference in production methods. The UK pig industry was on its knees and got little reward for its more animal welfare friendly systems.

The food price 'crisis'

An analysis of the factors underlying the recent increase in food prices is provided in a Commission document: Prices

The document notes that the largest increases in agricultural prices are observed in the wheat and rice markets, where the two major causes commonly used in the press to explain the recent price increases - demand for biofuels and increased demand in China/India - have had the mallest impact. For rice and wheat, supply side factors - both in terms of unfavourable climate conditions and lower yield growth - are the main causes.

In the cases of maize and soya, however, strong demand for biofuels and increasing imports in China explain most of the price rises. The failure of wheat and rice production to respond to increased market demand is in contrast to development in the maize sector.

Slow yield growth, most notably for wheat, has been an important factor. Combined with short term weather factors, world stocks have fallen to significantly low levels, stimulating the sharp increase in prices. Maize and soybean markets have been mainly driven by a strong growth in global demand - mainly for increased meat consumption (through feed use) and to a lesser extent for biofuels use. In 2007, the Australian drought, high temperatures in central and eastern Europe, and a cold spring in Ukraine and Russia substantially reduced harvests.

The failure of agricultural output to keep pace with demand growth, the Commission says, is likely to be linked globally to lack of public research in agriculture - notably in seed improvement, as well as to the rise in production cists and the decline in farming profitability (until recently) in developed countries. Environmental legislation in some countries, particularly in Europe, is also said to be likely to be hampering production increases.

GM feed ban crisis

A row over the banning of GM feed by British supermarkets raises wider issues about how far new technology can be used to solve problems of world food shortage. There have been calls for a second 'green revolution', but the first green revolution was based on intensive use of fertilisers and irrigation. Fertilisers are rocketing in price while irrigation is a less environmentally friendly option in a time of climate change.

The next technological revolution is likely to involve GM crops, but they face intense resistance in Northern Europe with the concerns of consumers fanned by environmental groups. This applies as much to imports as to local production. The phrase 'Frankenstein foods' has lodged itself in consumers' minds.

Spiralling food prices are placing supermarkets under pressure from farmers' leaders to put poultry fed with genetically modified products back on the shelves. The English National Farmers' Union has held talks with the product managers of all the major supermarkets to explain that shortages of non-GM soyabeans - the key protien source for poultry - was making it both extremely expensive and increasingly difficult to source the GM-free products demanded by retailers.

There is no sign yet that the campaign has forced a change in policy. Supermarkets are very jealous of their green image which they see as giving them an edge over competitors, particular in value added markets where price is not the only differntiator. Sainsbury's have sad that they are investigating 'potential sustainable solutions.' Two of the greenest supermarkets, Marks and Spencer and Waitrose, have said that they will not change their policy.

As the world's biggest exporters have devoted more land to GM crops, the cost of unmodified soyabeans is rising. British farmers are currently paying around £276 per tonne for GM soya and £293/t for non-GM. With the US, the world's biggest producer, now 95 per cent GM, the UK has looked to Brazil for a GM-free alternative. But Brazil, the world's second biggest soya exporter, is expected to increase GM plantings from 54 per cent of its total crop to 65 per cent next year and 80 per cent over the next decade.

Back to the bad old ways

In a paper I gave in Norwich last week, I rather optimistically expressed the view that even if the current 'food crisis' shored up existing protectionism and subsidies in the European Union, we would not see a reversion to old, discredited policy instruments. One such instrument I had in mind was intervention buying which created a risk free market for farmers and produced the notorious grain and butter mountains.

I may have spoken too soon. The latest edition of Food Ethics produced by the estimable Food Ethics Council is devoted entirely to the 'food crisis', although quite what the food crisis is remains undefined. However, the editorial calls for 'rebuilding public stocks, which provide an important buffer against price volatility.'

Inevitably, Moses gets brought into one of the articles. Another article calls for 'public stocks .. to be re-established, with planning for local, national and regional roles. Such stocks provide an important buffer against price spikes and food insecurity.' Of course, they also provide a buffer between consumers and producers because the price mechanism cannot function as a transmitter of information. The writer does admit that they are expensive and there is 'lost theoretical market efficiency'.

That lost efficiency is not theoretical in the abstract sense of the word, it has real implications for whether we make optimal use of scarce resources.

Rethinking Less Favoured Areas

The Less Favoured Areas directive is one of the few examples of British influence on the design of the CAP. It was originally conceived as the Mountain Areas Directive with France pressing for a definition that would have excluded Britain's hills and uplands. But the British emphasis on latitude rather than altitude won the day in 1975. Other member states saw the Less Favoured Areas directive as a good route to justify more cash for their farmers and by 1995 56 per cent of the utilised area of the EU was designated as less favoured. In Scotland, 85 per cent of the farmed area has LFA status.

Not surprisingly, the Commission thinks that too many farmers get rewarded under the directive. As part of the 2005 reform of rural development policy, it tried to remove all socio-economic considerations from the delineation of the LFAs and to cut the rates of payment. But this was fiercely resisted by many member states and the issue was 'parked'.

Now the Commission has come up with fresh proposals for a new LFA system by the end of 2008. A consultation suggests only four options:

Option 1. Maintain the status quo linking LFAs to areas of natural handicap, but excluding socio-economic criteria. This option is effectively dimissed by the Commission as failing to meet Courts of Aufitors criticisms, but farming unions are saying it is the only one that is acceptable, but even then consideration must be given to socio-economc criteria.

Option 2. Set certain 'common criteria' for LFAs relating to natural handicaps, such as temperature, soil drainage and slope.

Option 3. As Option 2, but with each farm assessed for its environmental contribution.

Option 4. As Option 3, but with payments further limited to High Nature Value farmland.

COPA has expressed the hope that because the issue is so complex it will get bogged down in the decision-making process. However, the time has surely come to take a long, hard look at these arrangements and to see whether they deliver realistic objectives.

Health check contains few surprises

The CAP Health Check proposals have been trailed and leaked so extensively that the package contained few suprises. As Gareth Morgan, the head of agriculture policy at RSPB commented, 'The CAP is long past its use-by date and the Commission should be creating a policy fit for 21st century challenges.'

A few points are worth picking out. A new definition of 'farmer' is to be introduced to prevent companies with marginal farming interests from claiming subsidy. It will be interesting to see how 'mud on the boots' is translated into Community legal jargon.

The idea of capping payments has been dropped as anticipated. However, there will be higher compulsory modulation levels for larger farms: an extra 3 per cent for farms receiving €100,000 a year, 6 per cent for those receiving more than €200,000 and 9 per cent for those receiving more than €300,000. Predictably, this hasn't gone down too well in Britain.

The so-called Article 68 measures are a concern given that they are intended to buy off French opposition. These will allow member states to skim another 10 per cent off Single Farm Payments to pay for certain strategic programmes. The chances are that some countries will use this money for targeted, production-linked subsidies rather than environmental programmes.

On the positive side, the money could be used for crop insurance schemes and animal disease programmes. But it is also available to help milk, sheep and beef producers in disadvantaged regions like France's Massif Central. As a French farmer was saying on television earlier this week without such help there would be no sheep left in France. Would this be a national catastrophe?

Farm land price boom

The cost of agricultural holdings across the EU has risen to record levels. However, this is not entirely good news for farmers. It makes it even harder for those who do not inherit to enter the industry, while only farmers wanting to retire can cash in. Tenant farmers face higher prices making life more difficult for them.

Several funds have been set up to buy farmland, particularly in the UK where prices have risen 40 per cent over the last year. Manchester-based group Braemar had to close a fund it launched after two weeks. Higher commodity prices have also attracted institutional investors such as Blackrock and Schroeder.

Good quality arable land in the UK is fetching £6,000-£8,500 an acre in many parts of the country. Buyers from Denmark and Ireland have been piling into the UK for several years. Some estimates suggest that as many as 30 to 40 per cent of buyers in the eastern countries of England are coming from overseas.

Land prices fell between 1997 and 2003 in the UK after the BSE and foot and mouth crises. The price could rise to £8,000 - £10,000 an acre, close to the price in parts of Denmark, but industry experts predict that it will rise more slowly from now. One factor who has been 'lifestyle buyers' who run farms as hobbies rather than businesses, while field sports are a factor in purchases within reach of London.

There are considerable variations in land prices across the EU. In Lithuania a hectare of agricultural land cost €734 in 2006 compared with €164,340 in Luxembourg, the most expensive country. In Poland the average price rose 60 per cent between 2003 and 2006. Foreigners cannot buy land in Poland until 2016 but it is easy for investors to set up a local company to bypass the rules.

In France land is about €6,000 a hectare because it must be offered first to young local farmers. However, land prices are still 50 per cent up on 2003.

Germany backs 'European preference'

Germany has signalled its support for France's 'European preference' programme, possibly reflecting a mood in Germany which is critical of business and market liberalism. Horst Seehofer, Germany's farm minister, has said that China, India and the US should be forced to adopt higher environmental and health standards if they want to export to the EU. Poorer developing countries would not be affected.

British Chancellor Alastair Darling has claimed that the CAP is exacerbating the world food crisis. He is calling for the dismantling of the CAP, claiming it is costing consumers in Europe billions of pounds a year in higher food bills, while hurting farmers in the developing world.

Mr Seehofer dismissed Alastair Darling's arguments as 'complete rubbish'. We can rely on a lively debate, if not a very constructive or productive one.

Richest farmers benefit from CAP funding

An approximate 80:20 Pareto rule continues to apply to the funding of EU farmers from the CAP. Roughly 82 per cent of CAP farms receiving direct payments in 2006 received less than €5000 whilst just 23,000 of the 7.33 million farms claiming aid received more than €100,000.

The Czech Republic heads the proportion of farms receiving more than €100,000 at 3.5 per cent followed by the UK with 2.9 per cent and Slovakia with 1.9 per cent. In total 84.5% of CAP funds went to just 17.9 per cent of farms.

Loss of pesticides threatens EU food production

European arable cropping could be made uneconomic if proposed EU legislation to reform pesticides approvals is passed, a group of leading European scientists and researchers have warned. Drawn from seven countries, they issued a 'Declaration of Ljubljana' warning that the sustainability of European farming was at risk.

The ongoing EU re-registration process has already eliminated 530 out of 952 existing products, but the revision of that legislation could go much further. When the European Parliament discussed an EU Commission proposal for the revision of 91/414 in October 2007, they added criteria that would potentially remove 70 to 85 per cent of the remaining active substances.

I have some personal knowledge of this subject as I am on a stakeholders committee concerned with the implementation strategy of the Pesticides Safety Directorate. At a recent meeting, there was a discussion of the fact that we were now down to two actives to deal with carrot fly and one of those is not entirely desirable in terms of its impact on watercourses.

Pesticides are toxic and they need stringent regulation, which they receive. However, there has to be a balance in terms of food security, the availability of fruit and vegetables in particular at affordable prices and the desirability of a healthy and balanced diet. New detection methods can pick up miniscule residues which pose no threat to health. Indeed, where there are problems, they tend to be with produce imported from outside the EU.

Biopesticides can make a contribution, particularly in protected crops: See our RELU research project page Biopesticides . Despite what advocates claim, all our food needs cannot be met economically through organic production (which in any case uses so-called 'traditional compounds'). Synthetic pesticides are a precious resource that need to be used sparingly within a philosophy of integrated pest management. But we couldn't do without them.

EU rejects French call to limit food imports

France and the European Commission have clashed over the future of farming with the European Commission dismissing French calls to curtail food imports as self-defeating and backward-looking. 'Autarky is not the future. We are not aiming at a closed market where we are self-sufficient,' a spokesman for farm commissioner Mariann Fischer Boel stated.

French farm minister Michel Barnier favours domestic production and requiring imports to match EU welfare needs - moves the spokesman said would invite retaliation: 'It is not in our interests to become a fortress. If we erect new barriers, so will our trade partners,' he said. 'We are a major trader in agricultural products. We are the biggest exporter and importer of farm products in the world. What we believe in is trade. We are seeing increasing exports of our high-quality food products.'

In 2007, the EU exported €75bn of produce and imported €77.3bn. France's trade surplus with non-EU members was €8.3bn.

New protectionism

Imports had to meet basic health and safety standards, said Ms Ficsher Boel's spolesman, adding 'That does not mean we can impose on our trading partners to put in place exactly the same legislation we have.'

However, French proposals on 'European preference' that are expected to be circulated to agriculture ministers next month were gaining support. 'There is a growing feeling it is only fair and reasonable that imports are subjected to the same technical standards as our own producers,' an EU official said. The point is, of course, that it would be difficult for developing countries to meet these standards, and for many of them agricultural exports offer the best route to prosperity which would then enable them to import more manufactured goods.

EU farmers complain that their costs are rising because of increased environmental and animal welfare rules that the rest of the world do not have to meet. After a recent vocal campaign by cattle farmers, the Commission restricted imports of beef from Brazil, where foot-and-mouth disease is rampant.

The Barnier interview

The present debate was started by an interview with Michel Barnier in the Financial Times. He recommended that Africa and Latin America should adopt their own version of the CAP which would be the first time a policy disaster has been exported. However, Mr Barnier believes that the developing world should form self-sufficient regional blocs with a redirection of development aid.

Mr Barnier claimed, 'What we are now witnessing in the world is the consequence of too much free-market liberalism. We can't leave feeding people to the mercy of the market. We need a public policy, a means of stabilisation and intervention.'

This reveals the fundamental difference between British and French perspectives. Britain has a history of liberalism, France one of state intervention and protectionism. From a British perspective, the market is an effective way of transmitting consumer preferences through the price mechanism. The market should be able to supply food like any commodity. The only qualification is the effect that weather fluctuations have on production. But this does not justify an elaborate apparatus of subsidy and protection, rather the development of new and innovative mechanisms for offsetting risk.

Predictably, Mr Barnier criticised the WTO, stating that he was 'not sure' that it was 'the right place to discuss the relationship between food and agriculture.' He noted that the agriculture budget would be 37 per cent of the EU's budget, down from 81 per cent in 1985. However, that is still a considerable multiple of the sector's contribution, even if one adds in food processing which uses some imported ingredients anyway.

Farmers are already responding to high prices and strong demand for grain. According to the US Department of Agriculture, the world will produce a record 656m tonnes of wheat in the year starting in July, up 8.2 per cent on the previous year. However, this may not be enough to restore a comfortable supply buffer to the world market given that global wheat stocks have shrunk to their lowest level since 1978.

However, the report did project that global soyabean stocks would decline. There has been a large increase in US land devoted to soyabean production, but global demand is rising even faster. Moreover, corn (maize) output is expected to fall 7.3 per cent this year while demand for ethanol use is expected to rise by one-third. Ethanol will eat up 33 per cent of next year's US corn harvest, up from 22.9 per cent in 2007-8. All this suggests continuing upward pressure on prices.

Ag Committee To Give It Large

The European Parliament's Agriculture Committee is preparing to flex its muscles with the new powers given to it in the Lisbon Trety, which will give the committee co-decision in many areas. MEPs on the committee have served notice on the Commission that they would battle to get their full powers under the new Treaty, fighting issue in the European Court of Justice if necessary.

The Committee also decided to have a turf fight with the Environment, Public Health and Food Safety Committee to get the lead on related dossiers.

UK MEP Neil Parish, who chairs the Agriculture Committee, said that after the Parliament elections next year, he expected there to be stronger demand for membership of the Committee because of its new powers. The key question is: will these new members represent rural constituencies, or have links to the farming and food industries, like many existing members. Or will they be interested in pushing forward the reform debate forward?

Colbert lives!

France has launched a political campaign to restore protectionism to the CAP. French farm minister Michel Barnier has called on Europe to establish a food security plan and to resist further cuts in the EU agriculture budget. The EU should resist WTO pressure to cut farm subsidies. In contrast, Gordon Brown has called for a world trade deal that cuts subsidies to richer countries.

One might think that tighter supply and demand, producing higher food prices would mean that farmers would need fewer subsidies to carry out the commercial aspect of their work as they would be better placed to obtain a return from the market. Admittedly, the buying power of supermarkets that allows them to be price makers and often makes farmers price takers is an issue, especially in the UK, but what that requires is a more effective application of competition policy. Input costs are also rising, but smarter farmers are working out what they can do to use fertilisers more sparingly and more intelligently.

As the Financial Times commented last week, 'The bias towards home production in richer countries betrays ... a historic affection for farming that is often bound up with emotional attachments to culture, cuisine and landscape.' Interventionist measures that boost farmers' incomes may create shortages in global markets, accentuating the problems of those who have to depend on imports: what has been called a 'starve your neighbour' policy.

France says that the EU should increase aid to farmers in developing countries, but that often does not really help the farmers themselves and is really a political fig leaf for continuing the European subsidies game. Just as it seemed as if the skids were under subsidies, a new set of justifications has appeared.

Stefan speaks out

Professor Stefan Tangermann, Head of the OECD Department for Trade and Agriculture

Before he joined OECD, I would run into agricultural economist Stefan Tangermann from time to time at conferences. I was always impressed by his contributions so it is interesting to read his interview with Agra Focus, one of the latest in an excellent series. In a long interview, he had many interesting points to make and the publication itself is essential reading for those with a serious interest in agriculture and food policy. Below a few of his key themes are picked out.

Helping remote regions

This is a big item with the French presidency on the horizon. The French want to retain 'coupled' payments to areas like the Massif Central. Tangermann points out that coupling makes it harder for people to quit production if they want to. If one wants to maintain agricultural activity, a more efficient way of doing that would be to pay people to keep the land 'open' which means not allowing anything to grow above a given height. If this led to the disappearance of cows (or sheep in the UK case) tourists should be prepared to pay for them - it already happens in Austria, Tangermann points out.

Targeting

Payments need to be targeted, argues Tangermann (and the OECD). Payments need to be targeted towards specific objectives that have been well defined, and according to how much the farmer contributes to attaining these specific objectives. 'So it's a three-step process that our paradigm uses - old-fashioned directly coupled policies move to decoupling, and from decoupling to targeting. And in terms of the structure of EU policies, you find targeted policies much more in the 2nd pillar than the 1st pillar.'

Food security and biofuels

Biofuels add a further element of demand for agriculture products (and implicitly one that is under the control of policy-makers, unlike increasing demand in India and China). 'Moreover, it is extra demand which is very price-inelastic. In other words, demand is there irrespective of what the price is of these products.'

Tangermann states that according to OECD estimates the achievement of the EU's binding target of replacing 10 per cent of road fuel by biofuels would require something like 50 per cent of the area that is under the 'grand cultures' in the EU, i.e., cereals, oilseeds and sugar. [It should be noted that the EU estimate is much lower at 20 per cent]. 'So, all in all, the benefits of the current biofuels policy are relatively small, but the costs are obvious.'

New technology

Tangermann argues, 'It is high time that we put more resources into agricultural research and technology development. We must also make a better and more successful effort to explain to consumers and the general public what the benefit-risk ratio is in modern biotechnology and their products. People in Europe need to be aware that is a big luxury to say we don't want this modern food on our plates. And it is a luxury that will become more and more expensive.'

Who gets the money?

We are used to statistics that tell us that France is the biggest beneficiary of the CAP, but a novel way of looking at beneficiaries is to count subsidies per hectare. The EU-15 average is nearly €300 per hectare, but even extrapolating forward to full payments, it is less than €200 per ha for the twelve new member states, Latvia receiving less than €100 per ha.

This is less than 20 per cent of the rate in Greece and Malta, the top beneficiaries per hectare. Of course, Malta has a small agricultural area and the Greek figure reflects the high rate of aid formerly available for tobacco. It is interesting that the liberal (on the CAP) states of Denmark and the Netherlands receive nore than €400 per ha, along with Belgium. The UK is below the median.

In the EU-25, the average SFP payment is equivalent to €6000 a holding, but in Slovakia it is nearly €32 000 a farm and in the Czech Republic €50 000 a farm. The UK average is less than €25 000 a farm. Malta and Cyprus receive the smallest payments and there are eight countries in all, including Italy, which average less than €3000 a farm.

If you had an empty sheet of paper ...

It is often observed that if you had an empty sheet of paper, you wouldn't design the Common Agricultural Policy as it is today. Of course, you probably wouldn't create it at all.

Agra Focus has been having a little bit of springtime fun thinking up a new name for the CAP on the lines of 'a rose by any other name.' The two most plausible suggestions to come forward were FARMER (Food, Agriculture and Rural Measures in the European Union) and SAFE (Sustainable Agriculture, Food and Environment). The latter suggestion certainly encompasses the direction in which the CAP should be going.

The agri-humourists were out in force and the old chestnut of Common Rural and Agricultural Policy came up, as did the newer suggestion of Agricultural, Rural and Sustainable Environment policy. Someone obviously worked hard on 'Special Agricultural and Rural Key Offensive for Zestful Yields.'

Perhaps the corny and somewhat flakey character of the CAP was embodied in COmmon Rural Network for Food, a Living Agriculture and Keeping the Environment Sustainable = CORNFLAKES to save you the bother of working it out.

Food security fears mount

Fears of unrest are increasing in developing countries as shortages develop of staple foods or prices increase substantially. Governments have cut import tariffs to cope with the problem, but hoarding to take advantage of future price rises has exacerbated the difficulties being encountered.

Some of the most serious problems have arisen in relation to rice where prices have risen by 50 per cent in two weeks. Leading exporting countries including Vietnm, India, China and Egypt have banned foreign sales.

Another policy response is to resort to export taxes, a strategy being followed in Argentina, although raising revenue appears to be as much of a motive of ensuring domestic supply. Indeed, the strategy has backfired as farmers have gone on strike and mounted road blocks, emptying cattle markets so that Argentinians cannot get their steaks. President Cristina Fernandez has resorted to the classic Peronist trick of trying to rouse the 'masses' against an alleged privileged group, in this case the farmers.

Given the importance of Argentina as an agricultural exporter, increasing soyabean taxes from 35 per cent to 40 per cent affects world supplies. Grain exports have also been disrupted.

All this is grist to the mill of those who have been calling for self-sufficiency targets in Europe, backed up by the continuation of blanket subsidies. As we have suggested in earlier postings, this rhetoric has had a substantial influence on decision makers. There is a danger of a reversion to a simple minded productionist paradigm, already being celebrated with an element of triumphalism by some farming spokespersons.

A leading exponent of this position is Norfolk farmer and Farmers Weekly columnist David Richardson who has played his cards on this issue well. His paper on the issue suggests that 'it would not be much of an exaggeration to suggest that within the forseeable future it will be necessary to deal with the production of food as during the war.' In the UK it was, of course, the experience of wartime production which led to the 1947 Agriculture Act, creating privileged access to government for the National Farmers' Union and substantial subsidies for its members. Could these halcyon days return?

You can read David Richardson's full paper on line at Richardson . It's a concise statement of an increasingly influential viewpoint.

However, we must avoid a retreat into neo-Malthusian gloom. The gains available from new technology and better agronomic techniques must not be overlooked. Where there has been a policy error is in running down research on improving food production. The privatisation of the state extension service, something that was not done in the United States or, for example, Denmark, was also a mistake which means that there is no neutral body disseminating knowledge to farmers.

Farm subsidy disclosure angers farmers

The Farmers Union of Wales has attacked the decision of the EU to make all farm subsidy receipts public from next year. While farmers in Wales, Scotland and Northern Ireland already have their single farm payment details displayed on the devolved administrations' websites, it is intended to add full names, addresses and postcodes to the published details.

One objection is that this information could be used for criminal purposes such as identity fraud. It is also argued that such information is commercially sensitive. For her part, farm commissioner Mariann Fischer Boel argues that 'This is taxpayers' money, so it is very important that people know where it is being spent.'

The NFU's SPS adviser said that one key concern was whether the data was accurate. In the NFU's experience there were many inaccuracies. For example, a shortfall in the 2005 payment might be added to 2007 to give an inflated figure. (Strictly speaking, this is not an inaccuracy as it reflects the amount paid, but it could still be misleading).

He also complained that such information could raise the 'unwarranted' interest of the taxman, although I would have thought that if farmers have made an accurate declaration of their income there should not in principle be a problem. It has been argued, however, that the Revenue sometimes misuse their power to investigate the affairs of individual taxpayers.

The issue here is to balance conflict considerations such as transparency and privacy. Transparency is highly valued by economists and public policy analysts, while privacy is a value deeply embedded in British culture. For the information currently made available by some member states, visit Subsidies

Of course, the fundamental concern of some farmers is that more information could lead to more public demands for the abolition of subsidies. However, the relatively diffuse interests of consumers and taxpayers have always been overcome by the more concentrated interests of farmers. For all the criticism they sometimes receive from some farmers, the main farming organisations have done a very effective job of looking after their members' interests.

I was interested to read a letter by a farmer in Farmers' Weekly criticising the recent House of Lords report that called for farm subsidies to be ended. The writer makes the complaint that we are governed by 'intellectuals' which is news to me. I think what he really means is the political class.

He does make the valid point that farmers have become price takers because of the growth of retailer power. The remedy here would be effective competition policy rather than perpetuating subsidies, although politically this is not that easy to achieve.

The dilemma of Sunk Island

Sunk Island is neither an island nor is it sunken. See Sunk Island . It is a 600 acre area of land south-east of Hull reclaimed from the River Humber more than 200 years ago. A row about its future exemplifies current tensions between food security and environmental concerns.

Farmers there are angry that the prime agricultural land there could be surrendered to the Humber as part of the Department for the Environment's policy of managed realignment. Tenant farmer Geoff Buckie said, 'It is madness that they want to do away with such high-quality land apparently to create more wildlife habitat. They seem to care more about wildlife - at a time when English farming desperately needs to grow more food.'

I don't know enough about the specific case to comment about it, although I can see where the local farmers are coming from. However, in the rush to jump on the food security bandwagon, we must be careful not to start treating the environment as a luxury good again. Climate change deniers are looking increasingly intellectually isolated and a relatively small rise in sea levels could make low lying areas prohibitively expensive to defend.

Co-financing likely, says Parish

Co-financing of the CAP is likely to come in said Neil Parish, British Conservative chair of the European Parliament's Agriculture and Rural Development Committee in an interview with the excellent AgraFocus. This would reduce discrepancies between net contributors and net beneficiaries. However, he admitted that such a move could be difficult for the new member states, especially if they couldn't afford to introduce co-financing. It might therefore be necessary to have lower co-financing rates for them in the early years to make the change politically acceptable.

Parish noted the current turn towards food security commenting, 'The amazing thing is is that one year ago, most taxpayers would have been looking for a much more environmentally-based farm policy - not so much interested in the agriculture, but more in the landscape, which they still are. One year on, food security is back on the agenda. Taxpayers not only want a good environment, but if food supplies are tight, they will also be expecting the farmers to produce food.'

Other key points:
* It's proving difficult to get the CAP to work in the New Member States. Any further enlargement should be delayed until at least 2013 with the possible exception of Croatia.
* Taxpayers are 'questioning how we spend the money and why ... there has to be more transparency on how taxpayers are paid. In reality now with the SFP - in a lot of member states - you could go on to the websites and find out how much individual farmers are being paid.'
* He paid tribute to Mariann Fischer Boel as a very open Commissoner: 'I believe that a Danish Commissioner and a British Chairman is not a bad combination.'

Parish will be standing down after the next election as he is standing for the Westminster Parliament.

Capping plan dropped

Capping payments to large farmers - which would have particularly hit the UK, Germany and the Czech Republic - appears to have been dropped from the latest version of the CAP 'health check' circulating in Brussels.

Farm commissioner Mariann Fischer Boel originally intended to make large, progressive cuts to farmer' single farm payments when she launched her health check last November. Her plan was to start with a 10 per cent cut on payments of more than €100,000 (£76,000) increasing to 45 per cent off for payments more than €300,000(£228,000).

The plan would have hit more than 6000 British farmers, including some of the most influential ones such as the Duke of Westminster and others such as Oliver Walston (who is one of the few farmers who opposes subsidies to the ire of the rest of them).

The money was to be retained by each member state and used for so-called 'Article 69' measures - Pillar 1 subsidies targeted at specific sectors. But the lobbyists (including no doubt UK PermRep in Brussels) have been at work and the plan is for additional rates of modulation for larger farmers instead of capping. These would range from 3 per cent modulation for payments in excess of €100,000 to 9 per cent for payments in excess of €300,000.

Of course all this is a sideshow to the need to get rid of subsidies. I was taken to task for this yesterday by someone who argued, quite reasonably, that the battered livestock subsidy could not survive without subsidy. That may be so. It is supposed to be a commercial activity, but the argument then is that we need subsidies for food security reasons.

Even Gordon Brown has bought into this discourse following the recent (good) Cabinet Office Strategy Unit report on food policy. The prime minister is an intelligent man who is justly proud of his academic origins. He should know better.

No one believes that subsidies should disappear overnight. Farmers have to be weaned off them. That is why I think a farmers' bond scheme is a good mechanism for getting rid of them once and for all.

Lords Slam CAP

Farm subsidies should be phased out for good and a significant proportion of the funds released channelled into rural development says a new report from the House of Lords European Union Committee: Lords

The report points out that farm subsidies in their present form are a poorly focused policy instrument. The committee therefore advocates a phased reduction in farm subsidies from 2014.

The chair of the committee, Lord Sewel (who was a junior agriculture minister in Scotland from 1997 to 1999) commented, 'Agricultural interests can no longer be equated with rural interests. Public money should be targeted directly at environmental benefits and rural development goals, rather than being spent on income support for farmers and landowners in the hope that this will produce the desired knock-on effects. We are not persuaded by the argument that the risk of future food shortages should be hedged against by freezing current production patterns.'

NFU economist Carmen Suarez specified five conditions that would have to be met before Pillar 1 supports were removed, including 'policies to enhance agricultural competitiveness' which could well be a device for subsidies under another name.

The great land use debate

Do try and take part in the great RELU land use debate. I have in an effort to argue against attempts to revive productionist approaches to agriculture which threaten to reverse years of effort towards a more rational approach to farm policy. To find out about the debate, go here: RELU

The milk quotas mess

As the debate goes on in the EU about whether milk quotas can be increased by 2 per cent as part of the soft landing when they are eventually abolished in 2015, it is an opportunity to reflect how milk quotas have affected the UK dairy industry.

They were introduced in 1984 to ease the severe budgetary crisis brought about by the structural surplus of milk in Europe. They worked in terms of limiting production growth and coping with the budgetary crisis, but they brought a lot of unintended (or intended) problems in their wake.

The basic problem is that milk quotas ossify structures. Some member states do permit trading of milk quotas within their boundaries, but despite the existence of an internal market, they cannot be traded across national borders. Hence, it is difficult to transfer production from less efficient producers to the more efficient or from less efficient regions to the more efficient.

Of course, some politicians welcome this as a means of enabling farming to survive in these areas. French politicians proudly proclaim that quotas are the reason that milk is still produced in every corner of France. In many areas of Europe only the quota system can guarantee prices high enough to keep farmers in business.

But all this comes at a price. Europe's share of world dairy markets has been falling. Third country markets for dairy products are being captured by more efficient producers in North and South America.

Dairy farmers like them, of course. Their arrival gave them a windfall capital gain and a retirement pot that can be worth as much as €1m.

There was a bare qualified majority in the Special Committee on Agriculture for the quota increase. Germany with a Bavarian farm minister is against, as are Austria, Finland (where there are quite a lot of dairy farmers) and Malta (where there are very few). France would like to delay, but the change will probably be go through and a small step will have been taken towards a more market oriented system.

Cameron bangs food security drum

The popularity of the new rhetoric of food security is shown by its adoption by British Conservative Party leader, Dave Cameron, in address to the 100th anniversary conference of the National Farmers' Union. He revealed that he is himself a NFU member, although presumably one of the 'green welly' variety.

The job of the Leader of the Opposition is to question government policy and one can't blame him for jumping on any convenient bandwagon that comes on. Food security gave a coherent theme to a speech that was otherwise trying to push every possible button. Raising the spectre of a return to food rationing is a good way of dramatising some of the current changes in global food supply.

It's a bit harder to tease out from the speech what his remedies are. What he does make clear is that he is against a return to protectionism and trade barriers and to production linked subsdidies.

He seems to think that British farmers could produce more food for the domestic consumer if the burden of regulation was reduced. Standards in Britain are claimed to be more onerous than elsewhere in the EU. So, it is argued, one needs regulation that is based on outcomes, not processes, and on trust. What this seems to mean is more self-regulation and reliance on peer pressures with penalties only for the tiny minority of farmers who abuse trust.

All fine in principle, but how does this square with his emphasis on failings in animal health regulation at the beginning of his speech? Of course, the NFU is now blaming 'hobby farmers' for the second wave of the foot-and-mouth outbreak in Surrey last September. Smallholders have hit back by claiming that they often spend more on proper prevention practices than do commercial farmers, while others have argued that hobby farmers should not be demonised.

In time Dave Cameron may come to learn that the politics of farming brings you few votes and a lot of grief.

Fischler speaks out

Alpine farmer and CAP reformer Franz Fischler

I have recently been working with others on an edited collection to be brought out from the Centre for Policy Studies in Brussels which re-visits the Fischler reforms of the CAP. The discussions held in relation to the book, which involved some people who knew Fischler's work well, confirmed my view that he was someone who combined strategic vision with a wily use of tactics and an understanding of which political buttons to push when.

Now the former farm supremo has provided a rare interview to Agra Focus. One of the intresting points he makes that two much is made of the difference between the two pillars: 'They are man-made and we should not make an icon of these structures.' What is important is that the money goes to the right recipients.

Fischler clearly thinks that it doesn't and he considers that rural development funding gives 'too much emphasis ... to agriculture, and not enough recognition of the countryside as a whole, including the non-agricultural population.' He also thinks that co-funding of the Single Farm Payment will come back on the agenda, thereby removing one of the main differences between the first and second pillars.

Fischler thinks that there will be 'start-up problems' with the co-decision process in the European Parliament, for example in terms of potential conflicts between the Agriculture and Budget committees. If these problems cannot be overcome, there is a high risk of delay to all reforms. He thinks that in the longer run the driving force behind EU reform packages will be the budget.

With the disapperance of the traditional intervention mechanisms, Fischelr revives the argument about the need for new forms and mechanisms to cover price volatility such as private-public partnerships in insurance systems or even concepts linked to futures markets.

He raises the issue of concentration in the retail sector, suggesting that an international competion regulator is needed, perhaps the WTO. However, this would seem to lie outside its remit. Moreover, competition authorities have not had much success in tackling this issue at the domestic level.

Our farmers need handouts insist Scots

Scotland's rural affairs minister Richard Lochhead said he will be pulling out all the stops to ensure the UK government is in no doubt of Scotland's desire to maintain support for farmers and crofters. Scotland will take a tough line over the issue, even if its policies diverge from those of the UK Government.

Mr Lochhead insisted that there was an ongoing need to support Scottish agriculture, especially livestock. Scotland was not happy to move away from support mechanisms at the same pace as the UK. Scotland has a strong EU representation through its Brussels office and a dissident voice could prove embarrassing for the UK in its efforts to reform the CAP.

There is a genuine issue about how Scotland can deliver environmental benefits without viable farm businesses. There is a substantial issue about remote, small-scale farming in the Highlands and Islands. However, a proper European rural policy could help Scotland more than the current CAP.

Subsidies 97 per cent of farm profit

Subsidy income now represents 97 per cent of farm profits, according to the annual Farm Profits Survey by the Institute of Chartered Accountants' Farming and Rural Business Group. This is despite a small rise in turnover and profitability during 2006/7.

The survey of agricultiral accountants revealed that average farm turnover for 2006/7 was £312,000, yielding an average net profit of £46,300, up by £8600. This figure coincided with average drawings and was little more than the average receipt from subsidies of £45,000. Figures for 2007/8 should, of course, be better for cereal farmers in particular.

This survey emphasises the resistance that could be encountered if subsidies were ended or severly cut back. It also reinforces the case for a once and for all 'buying out' of subsidies through a bond scheme.

Lisbon and the CAP

The debate on the Treaty of Lisbon is about to start in the UK. It will be mainly focused on fears of loss of British 'sovereignty' and doubtless very little will be said about the CAP, other than as an example of what is wrong with the EU.

However, if ratified, the Treaty will have some profound effects on CAP decision-making. The decision-making process is likely to become more complex and longer (as if it wasn't already) which is why there is a rush to get dossiers completed by the end of the year. The Farm Council will no longer be able to ignore what the Parliament says as they effectively can at the moment.

The Parliament has been hardly in the vanguard of progressive thinking about the CAP and has got itself into a real muddle over pesticides policy, taking decisions that work against its own intentions. However, rather than being a spokesperson for farm interests, the Agriculture and Rural Development Committee will have to move into the political mainstream while other committees such as Trade and Budget will have to keep a closer eye on what it is up to.

Admittedly, some progress has been made under the former chairmanship of Joseph Daul and now Neil Parrish (representing South-West England). The recent wine reform agreement reflected what MEPs had advocated on grubbing up.

The new Treaty does make a clearer distinction between 'delegated acts', i.e., real legislation and 'implementing rules'. The Commission is understood to have suggested that there may have to be revisions to the existing comitology rules in order to clarify when decisions can pass to the Management Committee and when they stay in Council.

Perhaps most interesting of all the Treaty will bring about a reduction in the number of Commissioners from 27 to 15 by 2014. Coincident with what is hoped to be a radical reform of the CAP, the Agriculture and Rural Development post could disappear. If it was merged with say, environment, this would embed a new approach to agricultural issues.

Getting decisions on the Health Check

With 27 member states the whole negotiating process in the Farm Council has become a lot more difficult, not that it was ever easy. Another complication is that fisheries matters are now dealt with in the Farm Council and this means that the December meeting is the scene for an inevitable battle between fisheries ministers over quotas.

The only effective way to proceed is to forge compromises outside the Council chamber through bilaterals between the Presidency/Commission and individual ministers. A lot then depends on the negotiating skill of the Presidency, but the Portuguese Presidency is judged to have been a success. Slovenia is the first transition state to be in the chair, but both its farm minister and its officials enjoy a good reputation.

The Health Check will have to be finalised at the end of this year under the French presidency. France will probably try to get a deal in November as it can then include some direct reference to the Health Check in its final Summit conclusions, presumably providing some form of wording that would support French ambitions in the 2009 review of the EU budget with the objective of maintaining high levels of CAP spending after 2009.

Another reason to get a deal before December is that this would leave little time for lawyers and linguists to check it before the end of the year. This could then open up the prospect of a challenge from MEPs on the grounds that they should have had co-decision powers on the Health Check. Life under co-decision will be interesting once the new Lisbon Treaty enters into force (as anticipated) in January 2009.

The challenges of livestock production

At a recent meeting of its Business Forum, the Food Ethics Council reviewed livestock production in the context of climate change and the following key points emerged:

*Livestock contribute about eight percent of total greenhouse gas emissions from UK consumption. Meat accounts for more than two-thirds of that.
*UK consumption of poultry meat has doubled over the past 20 years, whereas red meat and pork has remained static. UK per capita consumption is well above the world average.
*Changes to production can increase efficiency and reduce emissions, but producers should be alert to potential trade-offs with other sustainability criteria and animal welfare.
*Policy makers are exploring the scope to reduce emissions by reducing meat demand. The economics of this are uncertain and, though potentially costly for UK meat producers, would not necessarily harm them.
*Initiatives to promote sustainable production and consumption must consider: (a) differences between livestock species, business models and production systems; (b) opportunity costs of sustainability strategies; (c) what foods we would eat instead if we ate less meat.
*Businesses should expect a range of public and private sector initiatives intended to improve the sustainability not only of specific products, but also of the diet that we produce, sell and eat.

The last two points should be relevant to the CAP, but there is little evidence that they are being considered in any systematic way.