Has a grand deal been done?

The future of the Common Agricultural Policy depends on what is decided about the EU budget. And the broad shape of the EU budget is usually decided in grand deals between the leading countries of Europe. Indeed, in the past, the future of the CAP has effectively been decided over lunch between French and German ministers. However, in a larger EU, that is not as simple, although the Franco-German axis is still very strong.

However, this time it looks as if a grand deal may have been done between Britain, France and Germany. David Cameron has been quite an effective negotiator in Europe and for understandable reasons he wants the EU budget frozen in real terms. It's very difficult to inflict misery at home when there is apparent profligacy in Brussels (a lesson that the European Parliament seems slow to learn).

Britain is denying it, but essentially what seems to have been agreed is that Britain's budget rebate, won by Mrs Thatcher, will stay intact although the original justification for it has been undermined. In return France will be able to keep the CAP more or less unscathed. Germany has already sold the pass, as it usually does, by signing up to a joint declaration with France calling for a strong CAP.

Needless to say, the accession states, and in particular Poland, are furious. They want the budget to be maintained and subsidies to their farmers brought in line with the rest of Europe. To some extent that could be achieved within the current budget envelope, although farmers in other member states would lose out.

There is a lot of hard negotiation to come, but it may be, despite denials, that the basic outlines of a deal have been agreed. If that is so, it will be a disappointment, but not a surprise, for the CAP reform camp.

Alliances and stances over CAP reform

The process of CAP reform is always marked by informal alignments or alliances between member states and there seems to be something of a rapprochement between Britain and Poland: Poland

Both countries support a shift of spending from pillar one (direct payments to farmers) to pillar two (more public goods oriented). However, the UK wants pillar one to be phased out, while Poland wants an equal split between the two pillars.

The two countries agree in principle that subsidies for farmers in older member states and the accession states must be equalised, a key agenda item for East European countries. However, Britain doubts whether it will be possible to go as far as a flat rate.

However, in a different alignment, Austria is backing France and Germany in calls for a strong farm budget, but opposes Warsaw's idea of a fixed rate of subsidies. France is confident that its stance is gaining broad support and that the CAP budget can be retained at around the current level: France

Carry on intervening

Conservative MEP and spokesman for agriculture Richard Ashworth has called for the return of intervention purchasing in the CAP in the interests of food security. He told a conference at the Royal Agricultural College: 'It's absolutely vital to have some sort of instrument through which you can intervene in the market - a tool or lever the Commission can use in times of crisis'. The only 'tried and tested' way to do this was through intervention.

Historically, intervention purchasing was a highly distorting policy instrument which was why there was a shift of guarantee expenditure to Single Farm Payments. It gave farmers a risk free market for their produce at a price which generally exceeded the marginal cost of production. Hence, farmers were incentivised to over produce, depressing the market price. It also encouraged more intensive forms of farming which inflicted environmental damage.

I suppose the argument could be that food security demands that we produce more in Europe. Leaving aside the implications for other parts of the world that would like to export to Europe, intervention buying is a crude and imperfect mechanism to achieve this objective.

There is a case for intervention in times of crisis to prevent the market for a particular commodity collapsing completely with damaging effects on production in the longer term. But there is also a risk of temporary help in crisis being converted to a permanent subsidy. All such interventions must be for a clearly defined time period and limited in scope.

Interestingly, Mr Ashworth did admit that a recent analysis showed that only 18 per cent of CAP spending delivered value in the areas of jobs, growth and competitiveness. This would make the current CAP share of the EU budget difficult to defend and he thought it might well drop to around 37.5 per cent.

Why there is a case for county farms

The demographic profile of farmers in Europe, not least in Britain, is an ageing one. To some extent the figures may be misleading as younger members of a family may be involved in the farm enterprise, but as junior partners or salaried employees. Tensions between the generations are a recurrent theme in fictional programmes like The Archers. They happen in real life on farms, too.

Farming does need an influx of younger people who are not only more energetic but are open to new ideas and new ways of farming and have a recognition of the importance of dialogue with the consumer. Some older farmers have modified their views and taken new initiatives, but they are often more resitance to change and accustomed to a world in the task was maximising production with generous assistance from the taxpayer.

It is, however, very difficult to get into farming except through inheritance. Of course, you can be a farm manager and many go down that route. But ownership or even tenancy is more difficult. The entry price in terms of start up capital is too high a barrier for many.

That is why county farms have played an important role. They were originally provide for under the 1908 Smallholdings and Allotment Acts, although most of them were created between the two world wars to provide smallholding opportunities for landless agricultural workers and soldiers returning home from the war.

They are rented out by county councils and sometimes it is possible to progress from a smaller holding to a larger one and then eventually to your own farm. Of course, many farmers stay on the county council farm.

Many of them are not really large enough to support a family. Most of the county estates are made up of farms of around 100 acres, too small to compete with larger farms, but arguably too large for smallholding type enterprises serve the local market. In practice the tenant often relies on the farmer's partner (usually a woman) obtaining paid employment as, for example, a teacher or a nurse.

This week the full extent of the cuts being made to local government budgets will be made known, but it is evident that local authorities are going to taken a big, front loaded hit. Some county councils have already sold off their farms, e.g., Oxfordshire, while others such as Buckinghamshire and Somerset look like going down that route.

It's a way of paying down debts, but it potentially harms the structure of farming. When asked about the sale of county farms the leader of Somerset County Council argued, 'It's not our core business.' Maybe it isn't, but it is still arguably worthwhile business for rural county councils.

The case for these farms is made by Simon Fairlie in a special issue on Land in the latest edition of the excellent Food Ethics journal published by the Food Ethics Council. See: Food Ethics

I'm not sure I agree with Fairlie's argument that there is an opportunity for the revival of smallholdings to meet demand for local food. To me this seems like a reversion to the nostalgic idea of spade husbandry advocated by some Chartists in the early 19th century.

Semi-subsistence farming is not the way ahead for the Global South or developed countries, but there is a case for providing opportunities for motivated and innovative farmers to pursue farming as a career. The case for government intervention can be made on food security grounds.

The Commission stance

The final version of the Commission Communication on the CAP does not differ that much from the original leaked version. Some of the language has been watered down a bit, e.g., on the 'capping' of payments to large farms. Probably it is in there in the first place to give something that Britain and Germany will have to use up political capital on. It's an idea that has been around a long time, but is flawed in all sorts of ways.

The paper is a typical Commission compromise which pleases no one: reformers, farmers or environmentalists. However, no doubt the Commission would say that it offers a basis for an eventual settlement. In other words, EU politics is all about messy compromise and not about good policy. It's a realistic stance, but not a very politically attractive one if one hopes for visionary thinking from the EU (if anyone still does).

At the end of the day it is the discussions on the budget that will determine what sort of CAP we will have after 2013. It will probably somewhat greener; fairer in the distribution of income between member states; but still reliant on subsidy and protection.

NFU criticises Commission paper

The European Commission has now issued its Communication on the future of the CAP and the NFU has made a critical response. It argues that the Commisson's proposals may entrench inefficiency rather than boosting competitiveness. It thinks that the Commission may have tried to please too many audiences, possibly leading to a rather incoherent document:

'Today’s future of CAP Communication has identified the challenges that European agriculture and the EU Common Agricultural Policy face over the next ten years. However the measures proposed in the EU Commission’s document are unlikely to help farmers rise to these challenges, the NFU has argued today.

The paper, which sets out the direction of the next reform of the CAP due to take place after 2013, describes the context for the next reform and argues that European agriculture must address concerns about food security, the environment, climate change and the economic viability of fragile areas. While these challenges are accurate, the NFU believes that the measures suggested in the paper to considerably reshape direct payments may harm the competitiveness of farming, as well as undermine efforts to simplify the CAP and make it more comprehensible to taxpayers.

NFU President Peter Kendall said that while these ideas come at a very early stage of the reform process it was difficult to take a firm judgment on the document.

“While today’s paper is not without good intentions or ideas, it does not appear to present the best approach to reform for the post 2013 period,” said Mr Kendall. “The proposals outlined in the paper are understandably general and will require considerable clarification.

“The Communication does provide a fair assessment of the economic, environmental and societal challenges facing farming and I am pleased that it recognises the importance of Europe to global food security and of farming to the economy, society and the environment. I am also pleased to see that the Commission supports the maintenance of a common European approach to agricultural policy.

“However when we set out our policy on the CAP in May we argued that any reform must be driven by core principles; commonality, market orientation, competitiveness and simplicity. It is against these principles that the proposals should be measured. When I look at ideas such as a tiered approach to payments, capping of support with labour adjustment and a significant flexibility measure, I tend to see a recipe for complexity, distortion and a risk of undermining efforts to help farmers become less reliant on support.

“This is the key long-term strategic challenge; to get farmers to a place where they can depend on the market for their income.

“We also must recognise the budgetary and political pressure the CAP will be under - and use the resources wisely. My worry is that the Commission’s proposals may actually entrench support and inefficiency in European farming rather than boost competitiveness.

“I believe that the Commission should build on the progressive direction of previous reforms, developing the two-pillar structure for the CAP and ensuring that each instrument has a clear objective – putting competitive agriculture at its heart.

“The Communication rightly dwells on the future of direct payments which, as the largest component of CAP spending, are a focal point for the next reform. However the complicated ideas from today confuse the role of direct support which should be about underpinning the economics of farm production and helping farmers deal with higher costs and volatility rather than delivering environmental goods. This is the role of rural development policies and I’m really surprised to see the Commission omit any reference to agri-environment schemes.

“I fear that the Commission has fallen into the trap of trying to please as many people as possible, in order to justify the money it spends, rather than adopting a clear direction for European agriculture. It is rare that a clear policy pleases all of the people all of the time but I fear that what we have here will end up as a confused proposal that suits no-one.”

This blog will provide further analysis and comment in the coming days, but at first sight the paper does not seem to differ greatly from the draft version leaked last month.

Greece criticised for 'systematic' cheating

The EU Court of Auditors has criticised Greece for 'systematic' cheating. Athens was criticised for overpaying farmers by €866m (£747m) over several years, including submitting false claims for pasture land subsidies when aerial photographs 'clearly show a significant density of trees and rocks.'

Although aerial photo checks on CAP claims became mandatory in 2009, the system in Greece was not still not fully operational in December 2009. Spot checks revealed that money had been paid out for land with 'different locations, different uses, different shape and perimeter' from thosee claimed by Greek farmers.

The auditors found that 'In Greece the bulk of administrative cross checks ... is carried out under a procedure that leaves no audit trail.' They found that Greece systematically calculated single farm payments incorectly.

Specific sums to be recovered from Greece include:

•€ 210.9 million charged to Greece for poor LPIS-GIS and deficiencies in on-the spot controls in respect of claim year 2006 for area-aids expenditure, including area-based rural development measures;

•€ 54.7 million charged to Greece with regard to dried grapes for reductions in the minimum yield, plot specialisation, ineffective vineyard register and weaknesses in scheme management and control for the financial years 2003-2007;

•€ 50.16 million charged to Greece for failure to reduce aid payments for non respect of veterinary requirements regarding the maintenance of sheep registers, for deficiencies in on-the-spot and administrative checks and for absence of specific risk criteria for Less Favoured Area additional premium controls;

Aristos own a third of all land in England and Wales

Almost a third of all land in England and Wales is still owned by aristocrats who will receive substantial payments from the CAP. Wealthy people and their estates are thought to control about 20 million of the country's 60 million acres.

Research by Country Life found that 36,000 members of the Country Land and Business Association, whose members are mainly individuals and estates, collectively own half of all rural land in England and Wales.

The Forestry Commission is the country's biggest landowner, owning about 2.6m acres. It is followed by the National Trust which has 630,000 acres, while Defence Estates has 593,000 acres. Pension funds collectively control 550,000 acres.

Blow for farm policy reformers

CAP reformers have used the publication of detailed figures about who gets what under the farm policy to draw attention to the extent to which big companies and large-scale farmers are beneficiaries.

However, the drive for more transparency suffered a setback yesteday after the European Court of Justice ruled that publication of databases listing recipients of agricultural subsidies breached farmers' human rights. The ECJ struck down rules that make it compulsory for member states to identify all recipients of CAP money.

The court sided with German farmers behind the action. They argued that publishing the name, address and details of how much money an individual received on a website did not strike the right balance between promoting transparency and the beneficiary's right to privacy. Governments will no longer be able to list individual recipients of public money, but companies listing funds should still be listed.

Jack Thurston of farmsubsidy.org, who has campaigned for the information to be made readily available, argued that disclosure of information was an important check against fraud and abuse, a perennial problem with the CAP. He commented that the decision went 'against the tide of public opinion, which is for ever more transparency and more accountability.'

CAP budget may be cut less than expected

Reports are suggesting that the CAP budget may be cut less than expected: Budget

The Commission had at one time been talking of cuts of between 10 and 20 per cent and was seen as a potential ally by reform minded member states. However, these demands appear to have been watered down and a cut of a few billion euros may suffice.

Weimar triangle fails to work

Informal groupings of member states have played a key role in the evolution of the CAP at different times. e.g., the 'Aachen five' which tackled agrimonetary questions. Before the publication of the recent Franco-German position paper, it had been suggested that it might take the form of a 'Weimar triangle' of France, Germany and Poland. Indeed, Poland was in talks with France and Germany, but they went ahead and published their joint text before Poland finalised its position.

Now Poland has criticised the Franco-German position paper as an unsuccessful attempt to exert undue pressure on other member states. Polish minister Marek Sawicki described the paper as a 'very conservative one', only signalling slight modifications of the historical criteria for direct payments. It defended the interests of French and German farmers but not of those from other member states.

Frandce and Germany have made it clearer that shifting towards a flat rate payment which would suit accession states is not acceptable to them and a clear red line in the negotiations.

Fischler emphasises need for reform

Former EU farm commissioner Franz Ficshler has emphasised the need for continuing reform of the CAP: Fischler

It was Fischler who carried out the most thorough reform of the CAP. But he points out that a strong farm lobby could halt the forward momentum of reform. He also emphasises the need for investment in research and development.

The devil is in the detail

This post looks at some of the more detailed proposals in the leaked draft Commission communication on the future of the CAP.

The Commission believes that the CAP should be continue to be framed around two pillars. The idea of a third pillar focusing on climate change had been floated, but is evidently not being pursued.

The difference between the two pillars is seen as one of payment structure with Pillar 1 made up mainly of annual payments to farmers and Pillar 2 beuing multi-annual in nature. Is this the right distinction? Or should Pillar 1 be about the economics of agriculture production, while Pillar 2 focuses on 'additionality' with a particular emphasis on improving sustainability?

The rejection by commissioner Ciolos of a single flat payment is upheld, but it is not clear how the question of equity between member states will be addressed. This is likely to be one of the most difficult political issues in the negotiations given that there are wide discrepancies between member states. Those who don't get very much at the moment will want a bigger slice of the cake and those who have a big slice will want to hold on to it. The only concrete option presented is moving towards an arrangement whereby farmers in all member states would receive a minimum share of the EU-average level of direct payments (about €250/hectare).

It is proposed that there would be a cap on payments to large farms. This would have an impact on competitiveness, as large farms tend to be more efficient. It would also particularly hit Britain, Germany and the Czech Republic.

What makes it worse is a suggestion to link payments to employment levels. In other words, a farm that was employing labour inefficiently would receive more support. This would certainly undermine competitiveness, but then the document as a whole tends to give lip service to that concept.

The proposals as a whole also increase complexity when there is supposed to be a move towards simplification. They would increase transaction costs for farmers and the already substantial costs of operating the policy.

CAP reform paper leaked

A draft of the EU Commission's 'Communication' on the future of the CAP after 2013 has been leaked. It is scheduled for publication on 17 November. This post examines the overall objectives and directions for reform. A subsequent post will look at some of the more detailed proposals.

The paper sets out three challenges and objectives for agriculture, two of which are not very surprising: food security, leading to an objective of viable farm production; and environment and climate change, leading to an objective of sustainable management of natural resources. So far so good, although clearly a question remains about whether these are seen as equivalent objectives or there is some kind of hierarchy (and how one resolves tensions between them).

The puzzle is the third objective, territorial balance. It's a bit difficult to work out what means, but it seems to be moving in the direction of making the CAP a social policy. Many would argue that is what it has been all along, but it has never been spelt out as such, leading to all sorts of inefficiencies.

Under this heading, the Commission talks about economic (boosting the rural economy) and social (local traditions and social identity) objectives. There is reference to supporting rural employment (i.e., motherhood and apple pie), promoting diversification and 'allowing for structural diversity in farming systems' which could be a code phrase for tolerating inefficiency.

The whole notion is not easy to grasp and may be honed in the final version of the paper now that this kite has been flown. What seems to be going on here is a (probably mistaken) attempt to mould economic and social objectives into one. It also implies a policy that is more locally-led and flexible in its approach.

What could this lead to is all sorts of special pleading for subsidies of various kinds which satisfied local client groups. It also does not seem to fit to well with declarations about preventing the renationalisation of policy. Indeed, the paper reiterates the case for an EU-led policy rather than a national one.

The paper sets out three broad policy options:

1. Enhanced status quo: adjusting the current instruments and delivering a more equitable distribution direct payments. This is viewed within the Commission as a missed opportunity to make the CAP more legitimate.
2. More 'balanced targeted and sustinable support': a fairly significant adjustment of direct payments, especially 'greening' the first pillar. This would seem to be the Commission's preferred route.
3. Abolish all market and income support and focus delivery on public goods/climate change: essentially the British approach and dismissed pretty much out of hand.

One important dog fails to bark in the nighttime. The paper remains largely silent on the scale of the budget. It is decisions on the budget that will shape the next phase of the CAP.

The paper talks of the need to improve competitiveness, but there are no measures set out to achieve it, indeed some proposals (discussed in a later post) could have a damaging effect. One critic has remarked that, taken as a whole, the document is neither very common nor very agricultural. But nor does it particularly emphasise sustainability.

In other words, it's a bit of a mish mash. Why I am not surprised?

Comprehensive and authoritative review of CAP

Review of Arie Oskam, Gerrit Meester and Huib Silvis (eds),EU policy for agriculture, food and rural areas. Published by Wageningen Academic Publishers, ISBN: 978-90-8686-118-7, €40, $60.

This book offers a comprehensive, authoritative and up-to-date review of EU agriculture, food and rural policy. One of the things I liked about it was that it covered areas that are often neglected such as animal health and welfare policy and plant diseases policy that are likely to assume a growing importance in the coming years.

The book is divided into six sections. It starts with an overview and then turns to the context of EU policies, with particular emphasis on the differences in decision-making before and after the Lisbon Treaty. The third section looks at the policies in more detail including alternative options such as the bond scheme and the fourth is concerned with food policy including developments related to food quality and safety. The fifth part provides a well informed analysis of a wide range of aspects of rural policy. The book culminates with a section which looks at the role of the CAP in European integration more generally and possible future scenarios.

The book does not set out to provide a theoretical treatment of the CAP and in that sense it is accessible to the general reader. Although there is material in the book which would be of value to the specialist researcher, particularly in the area of rural policy, this is a book which could be used with students approaching the subject for the first time. Indeed, it has been developed in relation to courses taught at Wageningen Business School, although the price militates against it being used as a text.

Given that there is a foreword by Mariann Fischer Boel, one would not expect this to be a highly critical treatment, although she points out that she does not share all the views expressed by the authors. The chapter authors are certainly prepared to be critical of current policy.

In a concluding chapter, Cees Veerman states that we should be cautious with the agricultural production capacity in the EU in both a quantitative and qualitative sense. He points out, 'EU surpluses are not the ultimate answer to food shortages elsewhere in the world, as they have never been. The battle against hunger can only be won by strengthening rural development in poor countries and supporting the spending capacity of their populations, and by creating fair and open markets'.

This book is a very useful contribution to the literature on the CAP.

Lib Dems lack say in farm policy-making

Defra is just one of three government departments that does not include a Lib Dem minister. Moreover, all the ministers in the department have strong farming links, inclining them towards a productionist agenda.

Lib Dem farm spokesman Andrew George, the MP for West Cornwall and the Isles of Scilly, has criticised the Conservative stranglehold on posts. Differences have emerged on the proposed badger cull and the decision to abolish the Agricultural Wages Board.

Mr George has been trying to work with the Secretary of State, Caroline Spelman, to have some say about how budget cuts are made. However, he has admitted that he was 'not yet in the inner circle of Defra ministers'.

Most disagreements are likely to be over matters of domestic policy such as the two that arisen already, rather than attitudes towards the CAP where both parties share a relatively liberal, market oriented stance. However, the Lib Dems are particularly attuned to the concerns of smaller farmers from whom they receive electoral support.

Livestock farmers rely on subsidies

With crop prices rising worldwide, arable farmers should be in for a good spell, although individual returns will depend on how they have sold their crops forward. However, many medium-sized livestock businesses still rely on subsidy payments to make a profit according to farm busienss consultant Andersons.

Latest results from its notional Meadow Farm model, which is typical of many mixed farming businesses, suggest that while better market returns are expected to lead to an improvement in margins in 2010/11, the farm will only achieve a surplus once single payment and agri-environment receipts are included. The farm, like many others, has been hit by higher feed, straw and forage costs, which havepushed this season's variable costs up by almost 14 per cent on 2009/10.

Profitability of Andersons' hypothetical dairy farm - Fresian Farm - was also tight, although the situation had improved following recent milk price increases. The 150-cow unit was predicted to make a small 0.7p/litre margin from production in 2010/11, despite cost of production increasing by 0.6p/litre. With the single payment and ELS money added in, that surplus was boosted to more than 3p/litre.

Dairy processors Robert Wiseman have issued a warning that their profits could fall by about a third. They are major suppliers of milk to supermarkets. Tesco have increased the price they pay to farmers by a little over 1p a litre.

Cur farm aid to one third of budget

The CAP should be cut to about a third of the EU budget rather than well over 40 per cent as at present, according to budget commissioner Janusz Lewandowski: Budget . This would then give more headway for spending on research and innovation.

The target is a realistic one, but Lewandowski admitted that the CAP was defended by a strong lobby. The budget negotiations would probablly be the toughest ever.

France will be a stalwart defender of CAP funding and it has many allies but it is interesting to speculate how much French political capital will be depleted by the row over the expulsion of Roma.

France gets biggest share of CAP budget

No great surprise but France got the largest share of CAP spending among member states in the 2009 financial year. France received €9.87bn, 17 per cent of the total budget of €56.781bn. Spain took second place with €7.26bn, followed by Germany on €6.9bn, Italy on €6.08bn and the UK on €4.04bn.

Poland headed the accession states on €3.72bn, followed by Greece on €3.05bn and Romania in €2.1bn (70 per cent from Pillar 2). Malta was bottom of the pile with €14.88m, most of it from Pillar 2 funds. The combined payments to the Baltic states of Estonia, Latvia and Lithuania amounted to €324m. The importance of the CAP to Ireland was illustrated by its receipts of €1,655.55m.

Budget DG warns of big CAP cuts

A spokesman for the Budget DG has warned of big cuts in the CAP budget given the financial situation of the EU: Cuts

The CAP share of the EU budget is already expected to decline from 45 per cent to 39 per cent by 2013, but it may need to be cut back even further.

Of course, such declarations of intent by the Budget DG are always heard ahead of new financial negotiations. In practice, the politics of interrelationships between member states often prevails so that the cuts are less extensive than anticipated.

Ideas from the NFU

After a long delay, I am returning to the NFU paper on 'The CAP after 2013', this time looking at some of their policy ideas. What guides their thinking is something I would agree with, the need 'to facilitate the creation of fairer and better functioning agricultural markets so that ultimately farmers can become less reliant on public support'.

There is no doubt that power has moved down the food chain to retailers to an extent that there is an imbalance in the market. The NFU note that 'most supply contracts are one-sided, conferring significant and undue power to purchasers.' The challenge is how to tackle this monopsony and the NFU suggests a legally enforceable code of conduct that would prevent abusive practices such as slotting fees. This is fine in principle, but the devil is in the detail given the complex distribution of responsibility between the EU and member states.

The NFU also suggests that more work should be undertaken on agricultural futures markets, including the prospects for their extension to a wider range of agricultural sectors. As they point out 'their availability is sparse in many sectors, which inhibits long-term price discovery.'

The NFU also draws attention to the need for more spending on applied science so that the sector can produce more but do so sustainably so that there is les impact on the environment. They suggest that the CAP could play a complementary role in supporting research and development, perhaps through a third pillar. The research infrastucture is an area where government has a legitimate and important role and it has been sadly neglected in recent years.

What is more open to question is the suggestion that Second Pillar programmes should be redefined to focus on agricultural rather than rural development. They are correct in arguing that 'There is a danger in seeing Pillar Two as a dumping ground for policy aspirations in different areas without providing the necessary funding'. However, the future of rural economies should be diversified and not overly dependent on agriculture.

Taken as a whole, the paper is a balanced contribution to the debate which has a number of constructive suggestions to make, although there is too great an emphasis on subsidies and protection for my taste.

Insurance back on the agenda

European farm commissioner Dacian Ciolos is considering plans for a publicly-funded insurance scheme for farmers' incomes. His view is that it is needed to give a minimum income to farmers after the disapperance of most market support mechanisms.

An alternative view would be that either these farmers would be better off exiting the industry or they should be funded by income support schemes for the least well off, although admittedly these vary substantially as they are a member state matter.

Economists tend to favour insurance schemes and consider that not enough has been done to promote them in the debate in the UK about cost and responsibility sharing in animal health. The difficulty in practice is that the pool is not big enough or lucrative enough to interest insurance companies.

You are then back to state subsidies, albeit delivered by a possibly more efficient policy instrument. EU farmers' group Copa-Cogeca states that average incomes in agriculture were about 50 per cent less than those in other sectors, with two-thirds of farmers' income coming from direct payments from the CAP.

An original objective of the CAP was to narrow the gap between urban and rural incomes and this has never been achieved as far as farmers are concerned. This suggests that for some people farming is simply not a viable activity, at least as a full-time occupation. If one considers that one needs people to remain in remoter areas, a subsidy should be paid specifically for that.

What one really wants is a more diverse rural economy and in the UK, and I suspect elesewhere, the absence of rural broadbrand or a service that is slow (as on the Isles of Scilly) is a real constraint.

A friend runs an agriculturally related consultancy business in a rural area. Recently her provider said that it could no longer offer a broadband service. There are mechanisms to complain, but it will all take too long. She is going to have to move. Action on infrastructure of this kind would help rural areas more than additional payments to farmers.

Scottish Government cracks down on sofa farmers

The Scottish Government is planning to crack down on so-called 'sofa' or 'slipper' farmers who use barren hillsides to claim Single Farm Payments. This proposal follows the short-term recommendations of the Pack Inquiry into Future Support for Agriculture in Scotland.

The proposals do not require EU approval and could be put in place by January. Minimum stocking rates would be established and farms that fell below them would find an inspector calling. They would then have 60 days to put things right. The Scottish NFU endorsed the plan as the best way forward.

It is also hoped that Scotland will secure a devolved animal health budget by next April which should help a number of innovations in policy that the Scottish Government has been pursuing in this area. Their policy experiments could provide lessons for the rest of the UK, although the fact that the UK is a single epidemiological unit poses some challenges.

Productionist move at Defra

Rural development programmes should place more emphasis on competitive agriculture and less on environmental considerations, according to new farm minister Jim Paice:
Rural development

In some respects this may be seen as a return to a MAFF-style productionism at Defra, even if the name of the department has not (yet) changed. However, it is often forgotten that there are three dimensions to sustainability: economic, social and environmental. What the balance should be between these is a matter for debate.

The biggest challenge facing Defra is the budget cuts that are going to hit it given the ring fencing of the NHS and lower than average cuts that are likely in defence and education. If it wasn't for coalition politics, one might wonder why Energy and Climate Change needs to be a separate ministry.

Disclosure of subsidies may end

Transparency in the CAP may be reduced with a ruling which suggests that EU rules which require member states to publish details of payments to individual farmers may be invalid. An opinion by an ECJ Advocate General is often indicative of the view that the Court itself may take. German farmers had challenged the rules on the grounds that they were an invasion of their privacy.

Advocate General Elinor Sharpston said that the rules were disproportionate and that there were discrepancies in the reasons the European Commission and the European Council had given for needing the legislation. The assumption that farmers consented to disclosure when they applied for subsidies was also open to question on the grounds of whether it was explicit enough.

Reform advocates have used the information to draw attention to the very large sums of money paid under the CAP to big landowners or to food processing companies making use of export subsdies. Farmers' organisations argued that members of the public often confused Single Farm Payments with profits.

How many members of the public have been interested is open to question. The information is not that readily digestible and is not equally available for all member states (in the UK it can be found on the Defra web site). However, when I have looked at information relating to farms in areas I am familiar with (admittedly not a representative sample) I have been surprised by how relatively low the payments have been. They would be higher, however, in areas like East Anglia and Lincolnshire.

Depending on the nature of the final ECJ ruling, the Commission may have to redraft the rules rather than scrap them altogether.

What's wrong with the CAP

A polemical attack on the CAP using data from farmsubsidy.org which nevertheless admits that the chances of real reform are slim: CAP

CAP consultation draws a big crowd

The consultation on the future of the CAP has been so popular that the deadline has been extended: Deadline

3,700 responses have been received, although that is not so many when one considers the size of the EU. I also wonder how many of them were from ordinary citizens or consumers and how many from special interests that derive benefits from the policy?

I am rather sceptical about such consultations as I think that they rarely change the minds of decision-makers who pick out those responses that suit their thinking. But I wouldn't want to discourage anyone from responding.

How the NFU sees the challenges

After some delay, I am returning to the NFU paper on 'The CAP after 2013.' I would agree with their basic definition of the challenges facing farming: 'Put simply, farmers across the world will be required to produce considerably more food, from finite and precious resources, amid a changing climate and at the same time impacting less on the environment.'

The NFU specifies the benefits of the CAP in the following terms:
1. European consumers expect food that is produced to exacting environmental and welfare standards. These lead to higher regulatory costs which do not always apply to third country imports. The CAP is a form of compensation for these costs.
2. The CAP plays a key role in the EU's long-term food security.
3. There is a territorial cohesion role in terms of allowing farming activity to be spread throughout the EU. It also underpins rural employment [only in some, generally more remote locations in my view].
4. The policy helps to ensure that agricultural production is environmentally sustainable and helps to maintain some of our most important landscapes and environments. [This is essentially an argument for the second pillar].

But perhaps the real point is that 'Fundamentally, the CAP helps to address the failure of agricultural markets to develop fair and profitable returns to farmers.' What constitutes a 'fair' return is a moot point, but in my view farmers have experienced what I would regard as anti-competitive behaviour by supermarkets, especially in the UK. The solutions, however, reside in more effective use of competition policy (more on this in a later post].

Arguments (1) and (2) are really those that underpin the SFP. However, the actual costs imposed on (1) fall far short of present SFP payments. (2) is more difficult to quantify, particular given the uncertainties associated with climate change, but there are grounds for taking an 'insurance' payment against this.

Without the SFP, many farms would cease production. This would probably hit public benefits more than food production given that it is the most marginal farms that would cease production. What this points to (in the absence of an acceptable bond scheme) is a SFP at a reduced rate.

The French perspective: the new French food law

Recently I had the opportunity to talk to some French agriculture and food policy advisers. This was very informative in the sense of understanding where we differ. The French stance on these matters is a product of their own values which in turn reflect their historical development. One has to understand their stance, even if one does not agree with it.

One topic was the new French law on the 'modernisation' of agriculture which I understand has reached the Senate. I think our understanding of modernisation is somewhat different from the French one. There appear to be three broad objectives: creating a public policy for food; stabilising and re-regulating the agricultural market; and ensuring food security.

Apparently, there is a view in France that there is need to combat new food behaviours. From an English perspective, I would say that this was no concern of the Government, but again this reflects the difference between a liberal and an étatiste tradition.

France was once the country of the one hour lunch: indeed it was not unknown for some lunches to extend more than hour and be washed down with more than a glass of 'vin ordinaire'. However, the view is that France has moved away from having a fixed eating time and young people are turning to fast food. This is thought to be not good for public health, but above all it is believed that restoring traditional behaviour would open the market for agricultural products.

France would also like to strengthen corporatist associations of producers, but admits this would require competition law changes at EU level. A somewhat more sensible idea is to seek longer-term contracts between farmers and the hypermarkets.

However, some of the goals sound a little strange to English ears. Preserving the food heritage is one. Now, whilst I do not share the English middle class love affair with France, I would admit there is something special about a Parisian café. But does this require government intervention?

The policy also seeks to rely on educated citizens, that is educated about food and that objective would certainly resonate with many in England. However, the notion of keeping competitive enterprises on all parts of the territory is a less comfortable one, even if one admits that many parts of France are thinly populated and at risk of depopulation. (Whether depopulation is necessarily a bad thing is itself an interesting question).

A British participant in our discussions argued that the structure of dirigisme facilitated collusion and was essentially anti-competitive. Were the objectives coherent and did they try to cut across the expressed preferences of the French people? The attempt to stabilise might be an attempt to immoblise.

Not surprisingly, this was seen as a rather polemical point on the French side. They explained, that their policy was not economically rational, but was a [normative] choice. The production of food had a very strong public good component and belonged to public policy. However, it was admitted that French consumers had a very limited role in food policy formation.

More from our discussions at a later date.

Ag econ folks give it large to SFP

The intention of the European Commission to retain the SFP as the centre piece of the CAP after 2013 is a fundamental error according to leading agricultural economists. In a paper by David Harvey and colleagues to the Agricultural Economics Society conference in Edinburgh, it was argued that direct farm payments should be phased out.

The very idea of general direct payments was said to be unjustifiable. Payments should be reoriented from payments that are still historically linked to production-based payments and towards the guarantee of food supplies, rural economic development and protection of the environment.

The ag ecnomists argue that the overall agricultural policy problem for the EU is the preoccupation with farm incomes which dates back to the formation of the CAP in the 1950s. The bulk of an expanding budget is still spent on that objective. Despite this expenditure, average farm incomes remain below the national average income in almost all member states (which, of course, could be seized on as an argument for not making things worse by removing farm support). The economists argue that whatever governments do, they are not going to substantially improve the incomes of the less efficient and marginal farm holders.

The economists note that these payments were originally meant to be transitional. Of course, following Mancur Olson, the politics of subsidies which have concentrated effects but diffuse costs means that they are often converted from temporary to permanent payments.

Harvey revives the idea of a bond scheme to buy out these payments as first suggested by Professor John Marsh more than twenty years ago and subsequently developed by Alan Swinbank and his colleagues. Uncertainty for farmers would be reduced and they would have time to adjust to liberalised markets.

I have always found such a scheme attractive in principle, but the Commission view is that it is not compatible with cross-compliance.

Cows account for 4 per cent of greenhouse gases

The urgent need for a stronger climate change dimension to the CAP is emphasised by a report from the Food and Agriculture Organisation (FAO) which is a UN agnecy. If one takes account of everything from nomadic herds to processing plants, milk production accounts for 2.7 per cent of global greenhouse gas emissions. This rises to 4 per cent when meat processed from the dairy industry is added in.

Methane contributes most to the global warming impact of milk, accounting for 54 per cent of emissions. Nitrous oxide accounts for 27 per cent of emissions in developing countrues and 38 per cent in developing countries.

You can find the full report here: FAO

Spel(l)ing it out

New Defra supremo Caroline Spelman went down well at her first Farm Council as she has a fluent command of French and German which facilitated informal discussions with ministers. She has built up informal links with German agriculture minister Isle Aigner on the issue of lighter regulation and is planning a bilateral meeting with French minister Bruno le Maire.

She is taking a relatively reformist stance on CAP, noting that there are four constituencies to be satisfied. She told Farmers Weekly 'Farmers need a good deal from CAP reform. So, too, do consumers, taxpayers and the environment. It is a four-pronged approach to how we reform the CAP.'

Rumours have been circulating that Defra will be abolished or rebadged and substantially restructured. However, the minister said: 'I am not a huge fan of big structural change. In my experience, messing around with structures can end up costing money as well as saving money. It is not my top priority.'

Reading the farming press one gets the sense that farmers have realised that it is not bonanza time, particularly given the fiscal constraints. Cost and responsibility sharing on animal health is still very much on the agenda and the commitment on a bovine TB cull is very qualified.

All four Defra ministers have strong farming connections which is how the Conservatives tend to recruit their ministers and there are no Lib Dems in the department, somewhat surprising given their rural focus. However, this is not necessarily a MAFF (Ministry of Agriculture) in all but name. As far as CAP reform is concerned, the personnel may have changed, but British interests in value for money have not. Indeed, they are likely to be emphasised even more.

Investors pile into farmland

As Britain's Con-Lib government threatens a big hike in capital gains tax, investors are piling into farms despite the fact that a typical yield on capital in the sector is only 2 per cent (although that is more than you would receive from many deposit accounts).

According to Strutt and Parker farmland in the UK has risen in price from an average of £5,260 per acre at the beginning of the year to £6,233 this month, an increase of 18 per cent. Prices have already topped those achieved when the market peak in 2006, but annual growth of about 5 to 6 per cent until 2015 is still expected.

Farmland has always been seen as a safe haven at a time of economic volatility, a kind of gold with cashflow. There are also capital gains and tax benefits. Agricultural property relief means that all of the land, as well as a portion of the farmhouse, is exempt from inheritance tax after two years, provided the owner farms the land or has a farming contract in place based on shared profit. You can also offset farm losses against other income.

The problem is that it is difficult to get a foothold in farming unless you inherit or become a farm manager. Tenancies don't come up that often and local authority estates which were a traditional entry route are being sold off. In any case, many of these units were not viable without an off farm income, although that is also true of many owned and tenanted farms.

The farm population is an ageing one and the industry needs younger people to come in other than through the inheritance route, valuable though that is in providing a sense of 'trusteeship' of the land. When my nephew takes over from his dad, he will be the eighth generation to farm in a very beautiful part of Cymru, although three formerly separate farms have now been combined into one big property.

Lobbying links

Questions are being raised in some quarters about links Defra secretary of state Carloline Spelman has had with the lobbying industry. Of course, it is not unknown for politicians in opposition to have such links or to undertake business roles and Defra has made it clear that everything will be done in compliance with the ministerial code. Read more here: Lobbying

Productionist emphasis at Defra

The productionist emphasis at Defra continues with junior ministerial appointments: Defra . Jim Paice, the Minister of State, was substantially involved in the Young Farmers' movement and has been connected with farming all his life. The 'Pussy', Richard Benyon, is MP for Newbury and is stated to be a local farmer. (As it so happens, I had lunch in the constituency on Sunday and my enquiries suggest that he is more a country landowner than a farmer, not that there is anything wrong that: they often tend to have stronger conservationist instincts).

However, Lord Taylor of Holbeach has not become the Lords minister as expected, the post going to Lord Henley.

The ministerial team would thus be an all Conservative one. However, I am uncertain what is happening to the fisheries portfolio and there were rumours that this was destined to be occupied by the Lib Dem MP for the west of Cornwall and the Scilly Isles, Andrew George.

Sweet appointment at Defra

Caroline Spelman is the new secretary of state for Environment, Food and Rural Affairs. As it so happens, I was with some Defra civil servants yesterday and they were intrigued about what the outcome might be.

Nick Herbert was the shadow spokesperson, but I was not greatly impressed by some of his comments: indeed, I even thought of writing to him and offering some advice! There was speculation that a Lib Dem might get the post and it has been suggested that one of the junior posts in the department will go to the Lib Dems.

Caroline Spelman has a background with big sugar. She worked for the British Sugar Corporation and held the sugar commodities post at NFU. She also worked for the International Federation of Beet Growers in Paris. I have had some dealings with big sugar myself and I know they are serious players.

Her appointment will no doubt be welcomed by the barley barons in East Anglia and the NFU. Farmers felt that Defra until Labour had become the Department for the Elimination of Farming and Rural Activity. I do think that there are some issues on which they have legitimate grievances, for example the failures of the Rural Payments Agency and policy paralysis on bovine TB.

Nevertheless, I would appeal to the new ministerial team not to shift policy too far in a productionist direction and neglect environmental considerations. A good record on the environment is ultimately important for the relationship between the farmer and the consumer.

I know that many individual farmers undertake excellent initiatives on conservation and environmental protection. The typical farmer still has a real dedication to his calling and sees himself or herself as a 'trustee' of their farm. This is not always sufficiently acknowledged. But it does need a supportive policy framework to sustain it.

NFU sets out ideas on CAP debate

The National Farmers' Union has published a major policy document setting out their ideas on the future of the CAP: NFU

The NFU has been working on this policy statement for some time and as one would expect it is a strategically oriented and sophisticated analysis. Clearly it takes account of the perspectives of farmers, but it is also politically realistic in terms of what can be achieved.

I don't agree with everything that is contained in the document, but it also contains a number of sensible and well thought through suggestions that provide a positive contribution to what is a very important debate.

As time allows over the next few weeks, I will through the document highlighting some of the major elements of the analysis provided and suggesting points of agreement and difference.

The future of the CAP

Interesting and informative article in The Economist looking at the future of the CAP: CAP

Debate on future on CAP launched

The European Commission has launched a debate on the future of the CAP. Judging by the remarks made by EU farm commissioner Dacian Ciolos to the European Parliament, one of his main concerns is to engender broader public understanding of and support for the CAP. But if you want to take part in the debate, you should go here: Debate

Foot dragging US damages Global South cotton farmers

An interesting study from the ICTSD finds that US cotton subsidies continue to damage farmers in the Global South. Ths US dragged its feet, only acting at the last possible moment to implement a WTO disputes settle mechanism decision. It could do more by cutting domestic subsidies, but it is not surprising that it fails to do so given the political influence exercised by southern cotton-producing states. More here: Cotton

The ICTSD has also done a study of how a trade deal would affect countries importing and exporting cotton: Trade

Commission announces plan for animal health law

The European Commission has announced plans for a new EU Animal Health Law: Animal Health . The law was anticipated in the Animal Health Strategy in 2007 with the objective of securing a single and simplified horizontal legal framework.

Promnoting animal welfare is, of course, a key aspect of a 'public goods' oriented CAP and there is need to move from dealing with animal disease outbreaks to stopping them happening in the first place.

The big question is: who pays? The EU proposes to review spending in the veterinary field with the intention of coming to conclusions in time for the review of post-2013 spending plans. However, member states and farmers will also be expected to contribute.

How can direct payments be justified after 2013?

This is the question that former OECD trade and agriculture supremo Stefan Tangermann poses in a recent issue of Agra Europe. In effect the answer that the agricultural economist gives is that they can't be, although he is too canny to say that in so many words. But he takes each argument for the SFP in turn and demolishes it.

He points out that direct payments make up nearly three-quarters of EU expenditure on the CAP, equivalent to about one third of the Union's total budget. The argument that they are compensation for earlier reforms can no longer be used to justify their continuation.

What about the view that farm incomes lag behind incomes in other parts of society, which in fact is not necessarily the case? Then payments would have to be in line with the criteria for other income support policies. It would have to be means tested so that better off farm families received less. Moreover, payment would have to be higher in member states where the gap was greater which is not compatible with the idea of a level playing field in a single market.

What about the food security argument, the desire to safeguard a viable agriculture in Europe? Tangermann points out that empirical studies show that farm support is largely capitalised in land values. Where land is rented, most of the direct payments flow to landlords. If support was eliminated, 'Land rents will adjust and farming continues.' This perhaps reveals an economist's faith in automatic adjustment in functioning markets. In fact adjustment would probably only occur after a time lag and then not fully. That delay could be cricial for some farmers.

What about enhancing competitiveness? Tangermann points out that competitiveness depends on productivity, know-how, product quality and the like. Education, training, extension services and research and development are the policies that help, not per-hectare payments.

What about the argument that environmental and other standards are more demanding in Europe than other parts of the world? Tangermann notes, 'Research has shown that they differ very much from sector to sector within the farming industry, but also from farm to farm. Overall, though, any such extra costs are relatively small, certainly much smaller than the level of payments currently granted to EU farmers.'

What about cross-compliance? Most of the requirements under cross-compliance would have to be respected anyway: 'Justifying payments on these grounds is akin to granting payments to all car drivers, which are then claimed back from drivers exceeding speed limits.'

So Tangermann concludes that it is doubtful whether any credible justification can be developed for direct payments. But when he gets on to political ground is touch is less sure. Having a good case matters, but there is also a lot of raw power politics surrounding agriculture with many member states willing to spend political capital to defend their farmers. Tangermann says that 'Europe's taxpayers are keen to know why they are expected to finance such payments', but I see little evidence of such interest. Hence, it is possible for agricultural lobbies to mount 'business as usual' arguments with little effective challenge.

Subsidy trade is on the up

Trading of single farm payment entitlements is almost double that of a year ago with prices noticeably higher than in 2009. English flat area or area-only entitlements are changing hands at about £185 a hectare while a full entitlement is worth £225 a hectare. Some purchasers were those who had taken on land without entitlements. Others were speculating on the current subsidy mechanism being rolled on after 2013 or hoping that if the system is dismantled, there could be some form of compensation.

It may seem odd to have a brokered trade in subsidy entitlements, but some economists would argue that it is a second best solution that allows them to be allocated where they are most needed in terms of ability and willingness to pay.

Sarko accepts budget cuts

President Sarkozy has accepted the reality of CAP budget cuts, provided they are offset by greater import protection for farmers: Sarko

Farmers do not lack protection as it is with many tariffs in the three figure range. Sarko says that imported products should be produced to the same standard as in the EU which sounds reasonable enough but in fact is a way of excluding developing country exports altogether.

Continued need for market support

A paper circulated by the Spanish presidency has argued for keeping a strong arsenal of market support measures within the CAP. The paper includes a series of graphs showing the volatility of EU and world food commodity prices, even before the 2007/2008 price spikes.

It is argued that a strong budget is needed to support such measures. Among those specifically mentioned are intervention buying, private storage aids and export refunds. It is evident that the perceived food security crisis is breathing new life into policy instruments that seemed to be on the way to extinction, encouraging those who hope for a 'business as usual' model for the future of the CAP.

The paper does mention earnings and incomes insurance, but does not back the idea pending assessments of the effectiveness of such a tool and its WTO compatibility.

The French agenda

An interesting article in the Financial Times which looks at some short-run political maneouvring in France, reviews French proposals to tackle price volatilty and suggests that, as CAP money is transferred to new member states, the policy may become a drain on the French exchequer, possibly leading to a long-run shift in the French stance: France

Call for tax on livestock emissions

Methane is a particularly powerful greenhouse gas and recent research suggests that it may have 33 times the effect of carbon dioxide when its interaction with airborne particles is taken into account. It is also very persistent in the atmosphere.

Calls for a tax on livestock emissions have been discussed half seriously in the European Commission, but now it has been advocate by the United Nations: Flatulence

What is evident more generally is that agriculture and the food chain has to be fully incorporated in attempts to mitigate and adapt to climate change. However, the farm lobby has been a powerful opponent of the cap-and-trade bill in the US.

CAP support levels reach new high

CAP subsidies as reported to the WTO reached a new high of over €90 billion for the decade in the 2006/7 marketing year, but conveniently most of them have been parked in the allegedly non trade distorting green box, something that has provoked disquiet in Geneva: Subsidies

Ciolos gets positive report

The authoritative Agra Focus has given a positive report on how new commissioner Dacian Ciolos handled his confirmation hearings in front of the European Parliament, although they and others think that the process leaves a lot to be desired.

Given his background it was not surprising that he would handle technical matters competently, but apparently his political atennae were impressive. Let's hope this doesn't mean kowtowing to farm interests. The longest spontaneous applause he received from MEPs in the committee was for stating that he will defend the largest CAP budget possible. He has also received the dubious accolade of being embraced by the farm lobby COPA-COGECA which welcomes his intention to defend a 'robust CAP'.

He did make it clear that direct payments will have to be maintained to provide 'a minimum level of stability in farmers' incomes', but this was not a surprising stance. He cited food security as one reason, but one might question why farmers need financial stability when it is not available to other small businesses that face fluctuating levels of demand.

He did, however, rule out any return to old style policy instruments, making the sensible suggestion of a guarantee or insurance fund that could kick in should there be price volatility. He also wants to reduce the gap between the average payments per hectare in member states by moving away from payments on an historic basis as used in most 'old' member states.

So, it's farewell then Mariann Fischer Boel

Farm commissioner Mariann Fischer Boel says goodbye to Brussels: Boel

I think she's done a reasonably good job, not as good as Franz Fischler, but he was a hard act to follow and whoever came after him was going to have to consolidate and deal with the unfinished business. I am sure that sorting out the unreformed sugar sector required a lot of determination and energy and used up political capital.

The farm commissioner is constrained by the political forces surrounding her and you need to be both a strategist and a wily tactician to change anything. Franz Fischler was both and he also seized a window of opportunity which may not repeat itself now that food security has become a dominant discourse.

NFU slams new CLA policy on CAP

Landowners and conservationists have launched proposals for a more environmetally friendly CAP: CAP

When I attended a RASE lecture last year it was evident that there were some differences of emphasis between the approach of the Country Land and Business Association and the NFU. These have now become more marked to judge from the NFU's response which sees the CLA's approach as 'out dated' and 'naive': NFU

Too much focus on environment

Conservative shadow minister Lord Taylor has said that there has been strong a focus on environmental considerations in agricultural policy. He said, 'If we want a very productive agriculture we want to re-focus the attention that's been diverted away from farming itself.'

It has been apparent for some time that a Conservative government would adopt a more productionist approach to farm policy, but that has always been foreshadowed by the recent Defra strategy paper which was substantially influenced by the growing influence of the food security discourse.

This comes at a time when a new study by WWF-UK and the Food Climate Research Network estimates the food we eat accounts for 30 per cent of the UK's carbon footprint. Previous official estimates had been below 20 per cent. However, these figures take into account emissions generated overseas. It is estimated that more than half of greenhouse gas emissions are accounted for by livestock farming.

What we do not want are ill thought out responses of the 'Meat Free Monday' type which have been criticised by careful analysts like Tom MacMillan of the Food Ethics Research Council. Too hasty a lurch in that direction could have implications for animal welfare.

New ideas from Scotland

The interim report of the Scottish Government's Pack Inquiry has called for direct support to Scottish farmers to continue beyond 2013. You can find out more here:
Pack

No surprises there, but the report also proposes a new top-up find which would be financed by money taken out of the direct payment budget. This could be used to support measures such as fuel efficiency, renewable energy and animal health schemes (an area where Scotland has often been ahead of the curve).

Former auctioneer Brian Pack commented, 'Much more consultation and research is needed, but the idea is that a top-up fund would be used to back outcome and transformational change. It could be the new contract between producers and Scottish society and give the Scottish public the sort of efficient and sustainable agriculture they want to see.'

This is an interesting and innovative idea which deserves further consideration.

It all kicks off in Greece

Greece's financial troubles may be hitting the euro, but this has not deterred Greek farmers who have been in a ten day confrontation with their government as it desperately seeks to stabilise the budget. The farmers have marched through central Athens demanding an extra €1 billion in subsidies.

This is cloud cuckoo land politics but, quite frankly, anything is possible in Greece which has shamelessly misled the EU about the scale of its budget deficit. Greece is the worst kind of party state reminiscent of Italy in the past where politics is about granting favours and can verge very closely to behaviour that is corrupt.

One of the populist slogans is 'Give money to farmers not bankers', referring to the government's attempts to raise funds abroad to pay down its debt. The realities of the situation have been well summarised by Yannos Papantoniou, the former finance minister who took Greece into the euro: 'Deep structural refoms are needed to engineer first growth, then productivity increases. Since the state sector is inadequate and inefficient, the country needs to embrace privatisation and market liberalisation to get growth going again.'

They could start with the agricultural sector which, if it was smaller, might be able to cause less disruption. Farmers have been blocking 20 highway junctions across the country, including a blockade of the country's border with Bulgaria which has upset the fellow EU member state. One might think that, in an internal market, this came within the remit of the EU itself.

But I'm afraid it's old style farm politics in Greece and we shall see a lot of that as the EU and its member states include agriculture in the round of budget cuts.

The health check is over

The health check is now well and truly over so the CAP Health Check blog has been replaced by a new and more attractively designed site at Subsidies

They also have a film on You Tube about the work of their site: You Tube . This is interesting and well-made.

I suppose my view would be that if you are going to have subsidies, one has to be careful about cutting them off from large farmers who are arguably more efficient and certainly more internationally competitive. Of course, 'efficiency' is a contested concept and does not take account of negative environmental externalities, but what that implies is a proper Pillar 2 in the CAP and a new Pillar 3 to deal with climate change (or at least a substantial climate change dimension to Pillar 2).

The NFU perspective on the future of the CAP

Britain's National Farmers' Union is noted for its strategic, long-term view of agricultural issues. Its officials have a sophsiticated, well informed view of developments and it was therefore interesting to read an interview in the latest edition of Farmers Weekly with the NFU's head of economics and international affairs, Tom Hind. He was at one time acting head of the NFU's office in Brussels.

Not surprisingly, he takes the NFU line that farmers need to continue to receive the single farm payment (SFP) to give them a degree of income stability, especially faced with volatile markets. A basic tenet of agricultural economics is that markets for farm commodities are relatively unstable: to put it at its simplest, even with modern agronomy, the weather remains a factor which can disrupt such markets. If one accepts the view that farmers as a category require market stabilisation measures (which is not quite the same thing as income stabilisation), there is still room for a debate about whether the SFP is a particularly efficient or fair policy instrument, but it could be argued that we have to work with what we have.

In any event, he is confident that the long-term legitimacy of direct payments will be strengthened during the upcoming debate about the future of the CAP. He is emphatic that decision-makers in the UK 'must move away from ideologically entrenched positions, especially on phasing-out direct payments.' Not surprisingly, he is heartened by the declaration made by 22 EU governments in Paris in favour of a strong CAP. It's a document short on specifics, but it really represents a political commitment, rather than a set of policy recommendations.

It is interesting that he does fear some further renationalisation of the CAP which many member states pushed during the health check. He notes that in recent weeks several governments have resorted to state aids to give support to their farmers. He is correct to point out that such activities can lead to competitive distortions between member states and hence undermine the single market. What particularly concerns him is the possibility of national co-financing of direct aids. With justification, he fears that UK farmers would lost out as the Treasury would not be keen to top up direct support.

He does oppose direct payment schemes that used farm size or turnover for determining levels of support. He says that such criteria are 'woolly' and they are certainly difficult to interpret and apply in practice given the legal and other issues surrounding what constitutes 'a farm'. However, the real objection is that Britain is one of the countries that would lose out. If one is going to have farm subsidies, and one wants European agriculture to be competitive, should they be denied to the farmers best placed to compete on international markets?

Where I have particular sympathy with him is when he says that what is wanted is a policy focused on the market. This does not mean just decoupling, but also correcting market failures such as excessive retail power. Whether the EU can do much about this is another question. In large part it falls within the competition policy remit of member state governments, but they are often reluctant to rein in retailers who keep down inflation by delivering cheap food to voters, albeit by using contractual and other tactics that are arguably unfair and not in the long-run interests of an efficient and effective food chain.

Clearly someone like Tom Hind is looking at these issues with the needs of his members in mind: that is what he is paid to do. Most of us wouldn't start from where we are and a sudden withdrawal of subsidies could have substantial negative impacts on the agricultural economy.

Nevertheless, modern farmers are much more market oriented and are aware that they have to deliver products that the consumers want: hence the proliferation of farm shops and small-scale processing businesses serving niche markets with value added products. Hopefully, they can eventually be weaned off subsidies, particularly if competition policy is used to remove unfair practices.

Hedge fund moves into agriculture

A leading New York-based hedge fund is moving into agriculture through a vehicle called the American Farmland Company. Optima has $6 billion funds under management. It plans to start its swoop by investing in arable land in Arizona and vineyards in California.

It has no European plans at present and the predominantly smaller nature of most farms in Europe may make it a less attractive location. Even though the US subsidises its farms, especially its larger ones, making farm investment even more attractive, the sheer complexity and the CAP and the uncertainties surrounding its future may be an off putting factor. In the States the initial plan envisages up to 15 farms with an average size of 500 acres, so the involvement is modest.

It is the longer-term strategy that is interesting. Dixon Boardman, Optima's chief executive, believes that economic recovery, continued population growth and increased incomes, especially in emerging markets, will create increasing demand for food. The diminishing availability of arable land, especially in China, is also seen as a key factor. In other words, a food security crisis leading to increasing prices is seen as being on the agenda.

Boardman argues that farmland is an asset class that has been overlooked by many investors. I am not so sure that is so true in the UK where interest has waxed and waned over the years with companies like Sentry Farming eventually pulling out of farm management. Boardman argues that in the US farmland has generated revenues exceeding 15 per cent per annum in the past five years, but part of that has been fed by the biofuels boom which is of questionable net environmental value. He also points out that the farming sector has low debt which is an attraction in the current crisis.

The sector produced a return of 31.7 per cent in America between June 2007 and June 2009, according to the National Farming Index. Over the same period the S&P 500 index declined 35.9 per cent.

Only a small proportion of American farmland, estimated to have a value of around $2 trillion, is owned by institutional investors. Boardman is confident that farmers will sell up: 'Farming is much more than a commercial choice than a lifestyle choice in America. A lot of these farmers are getting old and the next generation is not always interested in taking over these farms.'

In the UK farmland values in southern England have long been boosted by interest from the City. Sporting assets such as shooting and fishing are a key attraction, along with opportunities to stable and exercise horses. However, these activities may be undertaken alongside a commercially managed farming operation. There may be inheritance tax advantages in investing in farmland.

New Year Greetings

I had an interesting visit to Australia in February and March and met many people connected with agricultural policy. This llama on a property in Queensland did not seem too pleased to see me, probably having been told that there was about to be a CAP regime for camelids.

May I wish all readers a happy, prosperous and healthy new year. I would like to be also able to forecast that the momentum of CAP reform will be maintained, and that agricultural policy will increasingly be adapted to the needs of climate change mitigation and adaptation, but I am not optimistic on either point.