Mind the gap

HSBC head of agriculture Allan Wilkinson has drawn attention to the gap between returns from the market and costs of production, particularly in livestock enterprises. For beef the cost of production is £3.20/kg liveweight compared with a market price of just £2.10 so that only 60-70 per cent of production costs are recovered from the market. It costs £2.30 to produce a live kilo of lamb while market prices are at £1.75-1/85 kg lw. Thus, only 75 per cent to 80 per cent of production costs are met by the market.

These are, of course, average production costs and Mr Wilkinson emphasised the gap between the best- and poorest-performing farm businesses. He warned that unless the gap between the cost of production and returns can be closed, the size of the red meat sector will fall further and the industry will continue to decline.

Once again these figures show how dependent important sectors of British agriculture are on CAP subsidies which are bound to decline in the long run.

What do we mean by food security?

Food security has been a dominant element in recent debates on agricultural policy, not least the recent discussions on CAP reform. But what do we actually understand by food security? There are a number of standard definitions out there, but in fact various actors interpret the term for their own purposes. An important article in Food Policy by Jeroen Candel, Gerard Breeman, Sabina Stiller and Catrien Termeer, identifies six different interpretations or 'framings'.

Not surprisingly, the productionist and environmental frames were dominant, accounting for nearly 70 per cent of uses. Anyone who has followed the CAP debate is familiar with the productionist frame. It is the stock in trade of those who advocate a 'business as usual', 'more of the same' CAP. As the authors note, it 'revolves around a story line that considers food security as one of the key goals of a future Common Agricultural Policy.' World food crises increase the salience of this frame.

The policy conclusion that is drawn is that the CAP should maintain 'a strong first pillar.' Agricultural production and productivity should be stimulated, 'and should be considered as a form of public goods provision, for which a financial compensation is justified.' [Needless to say, I think that this is a spurious argument, but it is certainly widely deployed].

Whilst the productionist frame is the dominant one, the environmental frame accounts for almost a third of all uses. This is of itself interesting as such a prominence would not have been achieved fifteen or twenty years ago and shows how the debate about the CAP has been 'greened'. The provision of environmental services is seen as an integral part of European food production and the emphasis is on long-term sustainability which cannot be achieved by the continuation of current policy.

Interestingly, the third most used frame is the regional one which shows how the notion of food security can be appropriated for a range of purposes. I see this as a very political frame in the sense of securing benefits for a particular set of actors. The argument here is to look after less developed regions which it is argued cannot produce at world market prices. Farmers in these regions perform an important function as caretakers of the countryside. The Scottish Highlands and Islands are a good example. Although a continuation of the CAP is supported, the present distribution of funds is seen as unfair.

The free trade frame argues that food security is best achieved by free trade. The development frame critiques the impact of the CAP on developing countries. The food sovereignty frame offers a radical critique of traditional conceptions of food security and focuses attention on people's right to food. Historically, notions of equity did feature in the debate in terms of closing the gap in the standard of living between rural and urban areas, but this framing covers both consumers and farmers and is underpinned by notions of global solidarity.

Interestingly, the European Commission uses multiple framings, invoking various frames simultaneously. My take would be that various interpretations of food security can be utilised to justify whatever line the Commission has chosen to take. The consequence, the authors argue, is that a clear vision of the relationship between the CAP and food security is lacking and policy makers may need to develop a more coherent vision [although I would add that CAP decision-making processes rarely facilitate clear strategic thinking].

Not only is this article a very useful, empirically based overview of how the term 'food security' has been used in policy debates, it also provokes thought about where we might go in the future.

Farmland attracts institutional investors

There is nothing new about farmland attracting institutional investors. There was a surge of interest in the 1970s when it was seen as an asset that would hold value in inflationary times. However, there is a new wave of interest. The UK's £14.9bn Pension Protection Fund has recently appointed a farmland manager. In the US, TIAA-CREF had built up a $4.4bn portfolio by July 2012, encompassing more than 800,000 acres across four continents.

What's the attraction? It gives exposure to commodity prices as well as the return from production. Demand for agricultural commodities is growing as developing countries become more prosperous while supply is constrained by such factors as the availability of land and an assured water supply. Investing capital in, for example, machinery or irrigation could drive up the value of the asset as well as returns.

The downside is that this is not a liquid asset. Investment has to be for the long term. Yields can be impacted by weather events, the uncertainty and magnitude of which could increase with climate change. There are also political risk issues associated with subsidies, trade regimes and tax structures.

What is required is specialist knowledge of the sector. It is important to focus investments in locations that have good soil quality, reasonable infrastructure and access to the markets where growth is occurring. Many investors have been attracted to Australia for those reasons.

There are also potential ethical problems. Swedwatch has criticised Sweden's national pension fund AP2 for a lack of transparency on its Brazilian farmland investments: Swedwatch . It suggests that there may be serious negative impacts on the environment and human rights. Common problems include high use of pesticides, poor working conditions and a loss of biodiversity.

Can Doha lite succeed?

As trade ministers gather in Bali the question is can a 'Doha lite' agreement be concluded to rescue something from the Doha Round of trade negotiations? Or will agreement once again be foiled by arguments over agriculture?

The developing world will still want the US and the EU to stop export subsidies for their farmers, although those paid out by the EU have shrunk away to a fraction of what they were: Export subsidies . Cotton farmers in Africa will still demand better access to the American market and a reduction in domestic subsidies. Sugar cane growers in Australia and Brazil also want better access for their products.

However, the real sticking point could be Indian insistence on rewriting the rules of the WTO on food security programmes. A 'peace clause' was agreed, intended to give another four years to negotiators to come up with new WTO rules for farm subsidies and the prices paid for staples bought as part of government programmes to supply food to the poor. 70 per cent of the Indian population is covered by such programmes which have recently been extended by legislation and there is a general election due next year. It now appears that India wants the clause to be permanent or at least apply until a final deal is concluded.

Decline in meat eating claimed

A quarter of the British public say they have cut back on the amount of meat they eat over the past year, new research for the Eating Better alliance revealed today. Only 2% say they are eating more.

The YouGov survey of the British public (1) commissioned by Eating Better found around one in three (34%) say they are willing to consider eating less meat, with a quarter (25%) saying they have already cut back on the amount of meat they eat over the last year. Ready meals, and processed meats are most likely to be off the menu. Eating Better says this suggests the public remain wary, following the horsemeat scandal, of cheaper meats that are likely to be less healthy, of unknown origin and poorer quality.

Concern for animal welfare topped the reasons for considering eating less meat, ahead of saving money, food quality/safety and health. The survey found a large increase in awareness of the significant environmental impacts of producing and eating meat from just one in seven people (14%) in a YouGov survey for Friends of the Earth in 2007 to nearly one in three (31%) in 2013.

The most dramatic change has been in young people (aged 18-24) where there has been a five fold increase in awareness from just 8% in 2007 to 40% today. Young people were nearly 3 times more likely to say they don’t eat any meat at all – compared to the survey’s average – with one in six (17%) of young people saying they don’t eat any meat. Despite rising food prices, around half those surveyed said they would be willing to pay more for ‘better’ meat if it tastes better, is healthier, produced to higher animal welfare standards or provides better financial returns to farmers. Willingness to pay more was not restricted to higher (ABC1) social grade groups.

What the survey does not make clear is by how much people have cut back on the meat they eat. However, it is not good news for the hard pressed livestock industry.

The promise of precision farming

It has been estimated that the use of precision agriculture technology could increase yield on any given farm by about 10 per cent, compared with average global annual crop yield increases of about one per cent. Tractors that map fields, drive themselves and precisely calibrate their movements to within inches to minimise wasted fuel, fertiliser or seed are increasingly becoming a standard piece of kit.

Auto steer has been around for about 15 years, but the focus is increasingly on remote sensing and data collection on the dozens of variables, from soil moisture to nutrient levels, that influence success in modern farming. Agricultural companies are trying to make better use of the vast caches of data that farmers generate in areas such as yield and soil mapping, although some farmers have privacy concerns and want to limit the amount they share with big companies.

Monsanto recently spent nearly $1bn acquiring data science company Climate Corporation. Companies clearly see commercial opportunities in relation to climate change, but there is controversy about whether weather derivatives have the market smoothing effect that is claimed for them: Climate data

The final shape of CAP reform

A rural surveyor takes a look at the final shape of CAP reform, noting that, as always, the devil is in the detail with many points of implementation still to be resolved: CAP reform

He also notes the different perceptions between the UK and other member states with the reform being seen as a missed opportunity here and a substantial achievement elsewhere.

Subisdising oil seed rape

The threatened reduction of oil seed rape subsidies for biofuel from 10 per cent to 5 per cent is concerning some farmers who say that it will no longer make economic sense to grow the crop. Of course, one might ask whether such a market distorting subsidy was sensible in the first place which is why the UK and other member states such as the Netherlands would like to see it reduced.

However, for farmers on heavy land in particular oil seed rape has great advantages as a break crop. There aren't that many alternatives. Peas are very sensitive to weather conditions, particularly rain, and the returns on sugar beet are not that good.

Oil seed rape is also favoured by beekeepers as it flowers early in the season and produces plenty of pollen.

Why farmers have to hedge currency risk

One hundred years ago in 1913 the weather was also warm for the time of year with people claiming that it was too hot to play football. It all ended in a big thunderstorm here in the Midlands. According to a Farmers Weekly poll, the overwhelming majority of farmers still think they have been hit by the weather last winter and the wet and cold spring, the second in a row. I have been growing tomatoes in my greenhouse for over thirty years and this is the worst year I can remember (and, of course, I don't get a SFP!). In these circumstances subsidy payments become more important to farmers to maintain their cash flow.

Along with the uncertainties of the weather, farmers also have to face currency risk. Indeed, some of them follow the forex market as keenly as they keep an eye on the weather. The recent rally by sterling is not good news for farmers as September 30th is the day when their farm subsidies are translated from euros into pounds. (From next year it will be calculated as an average for the month). The pound has gone up by about two per cent since May when they submitted their claims.

A growing number of farmers are resorting to hedging their currency risk. According to Alick Jones, agriculture policy director at Lloyds TSB, about a third of their clients in receipt of the single farm payment hedge their currency risk. However, the Royal Society for the Protection of Birds, which receives £1m in subsidies as a big landowner, doesn't follow this practice.

It was interesting to read in yesterday's Financial Times report on this topic that on one 450-acre livestock farm in Anglesey, the single farm payment of about £30,000 represents about 40 per cent of profits. In the long run, such a dependence on subsidies cannot be healthy, as many farmers themselves recognise, but for now they are an integral part of the business model.

Farm subsidies up again across the world

A long-term trend towards a decline in farm support was reversed in 2012 according to the Organisation for Economic Cooperation and Development (OECD): OECD Report

This is perhaps a surprising development, given that government budgets are under pressure and farm subsidies offer a possible, although well-defended target. However, the OECD noted a particular trend towards increasing support in countries that emphasise self-sufficiency and they think that this has a poor relationship with food security.

This is a concern as self-sufficiency has been raised again recently in the UK debate by the NFU. Admittedly, there has been a decline in self-sufficiency in indigenous food between 1984 (95 per cent) and 2012 (76 per cent). (When foods from non-temperate climates are added in, the figure drops to 62 per cent). One might ask what the relevance of this is given that the UK operates within the CAP, but if the UK was to leave the EU this kind of discourse might become more relevant.

Admittedly, the overall increase in subsidies was 1 per cent, but that masked some sharp increases in emerging countries: 4 percentage points in China to 17 per cent of total income; 6 percentage points in Indonesia to 21 per cent; and 4 percentage points in Kazakhstan to 15 per cent. Norway provided the largest level of farm support with a 63 per cent share, up four percentage points. Switzerland, Japan and Korea were all over the 50 per cent of farmers' income level.

Farm support in the EU was consistent with the general trend, rising from 18 per cent to 19 per cent of farm incomes.

The search for a British baked bean

I spent an enjoyable afternoon at the Warwick Crops Centre (formerly Warwick HRI) Open Day at Wellesbourne yesterday. In part this was because of the opportunity to catch up with former research collaborators (and hopefully future ones), but there were also many interesting exhibits and a good crowd in attendance. My overall impression was that the Crops Centre is now in a more stable position than it was and able to make a real contribution to the need for applied research in agriculture that is of value to farmers and growers.

I was particularly interested in the exhibit of growing haricot beans. Baked beans are a staple of the British diet and they are very nutritious, although possibly they could be prepared and cooked in more interesting ways than being doused in tomato sauce (having said that, I do eat them in that format). At one time production was centred in Michigan, but we now mainly import them from Canada.

They are difficult to grow in the UK because they are sensitive to cold. Some twenty years ago work was done on a British variety of 'navy' bean (I'm not sure where the terminology comes from) but then the funding ran out. However, with a new emphasis on food security, BBSRC has come up with some funding for the work to continue.

Two types of bean were being grown, one that is disease resistant and one that is cold resistant. One of the varieties was white rather than the usual colour which would require some re-education of consumers. The hope is to combine these to produce a bean that is both cold and disease resistant which could then be grown in the UK. How economic this would be, even with an improved variety, is an open question. The plants seemed to be smaller than their counterparts in Canada.

Nevertheless, it is an excellent example of applied research and you can read more here: Baked beans

Can Scottish farmers be weaned off subsidies?

One of the claims being made in the Scottish independence referendum debate is that if Scotland had a seat at the negotiating table, its farmers would get much more way in the way of CAP subsidies. But is such a dependence on subsidies desirable when English farmers are being urged to orient themselves towards the market? This provocative piece from a New Zealander suggests that it can become tantamount to an addiction: Subsidies

Of course, as the writer recognises, farming in the remoter parts of Scotland faces special challenges, but these are better tackled under the umbrella of a rural development/remote areas policy rather than through blanket subsidies. Moreover, the treatment of the Highlands and Islands has not been ungenerous, particularly when compared with England's isolated Scilly Isles, a subject I have been tackling in a series of articles for Scilly Now and Then. The magazine's website is here: Isles of Scilly

China's new line on corn imports could affect world market

Changes in supply and demand patterns for food in China can have important implications for world markets. Even a small increase in Chinese imports can influence world markets in which there is a tight balance between supply and demand, as well as offering new export opportunities for farmers. Many of these decisions are politically determined and there appears to be a significant change in the line of the central authorities on corn (maize) imports recently.

Since 2001 when China lowered its import barriers, a policy of self-sufficiency has been followed in relation to corn, rice and wheat with imports kept to a minimum. In contrast the soyabean market was opened up to imports to release land for the key staples. China has become the world's largest importer of the oilseed, representing 75 per cent of global seaborne trade.

Last year China's agriculture minister Han Changfu said that corn 'should not become the second soyabean.' Recently, he has modified his line, saying that corn imports would have to increase gradually to meet demand for animal feed which in turn reflects growing prosperity and higher levels of meat consumption. It appears that China envisages importing 20-30m tonnes of corn a year, the lower figure representing 10 per cent of consumption. While China's grain output is at record levels, there are evident strains with urbanisation using up farmland and problems with water supplies.

China does not want to be solely dependent on the US and is encouraging exports from Argentina and the Ukraine.

Finance for farmers

Back in the 1990s I was involved in a research project led by Will Coleman from Canada which looked at how farmers got their finance. I interviewed all the clearing banks in Britain and Ireland, plus a specialist institution called the Agricultural Mortgage Corporation which was set up by government in the 1920s but by then was being absorbed into the private sector.

The general pattern was for banks to have a specialist agricultural manager at head office who, with local managers, kept in touch with the farming community. Farmers were seen as a very safe bet. They rarely defaulted and, even if they did, you ultimately had the land as an asset, although banks were very reluctant to foreclose. In many ways it was a very traditional form of banking. A relative who is a farmer was tipped off by his bank manager about a suitable farm to buy to diversify his business.

There's still plenty of need for finance for land and capital equipment. Those who inherit a farm sometimes have to buy out siblings. They may also want to buy additional areas of land to secure economies of scale. Finance is important if agriculture is to meet the challenge of increasing and more sophisticated demand and relatively finite supply, particularly of land suitable for farming. Food production will need to rise by at least 60 per cent by 2050 to feed a rapidly growing world population that is increasingly able to demand more resource intensive foods such as meat which create additional demand for animal feed.

However, since the financial crisis banks have been cutting their loan books, while the price of land continues to rise, stimulated by the availability of subsidies, good long-term demand for food, tax breaks and, in parts of the UK, the dual use of farms for sporting purposes. However, new types of finance provider are emerging like Aquila Capital of Hamburg.

Aquila actually buys equity stakes in a farm which could be as much as 70 per cent. However, they claim that it works more like a debt. They receive a guaranteed 3 per cent a year, although there might be circumstances in which the farmer had to borrow to meet this requirement, increasing the debt burden. The farmer receives the next tranche of income and the remainder is split 70-30 in Aquila's favour. It is envisaged that such investments will yield pre-tax, post-free returns of 5-7 per cent a year which are attractive in current circumstances. Savings accounts are typically paying less than 2 per cent and relatively few companies pay dividends above 5 per cent (and may not be able to sustain them). 4 per cent would be a good return on an income fund, although you should be able to get over 5 per cent from a peer lender, depending on how much risk you might be able to take.

Whether it is a good deal for farmers is an interesting question, but needs must. Aquila also claim that after 15 years or so farmers will have accumulated enough capital to buy them out.

The capping controversy

A full and very informative blog post here, although the English is a little stilted in places: Capping

I would just make a couple of points. First, it is always possible that businesses could be split into distinct legal entities to avoid the rules. Second, the last paragraph of the post points out that many wealthy estates benefit from large CAP subsidies.

However, this brings us back to the question of what the CAP is for. If its main objective is to help poor or marginal farmers, it is an inefficient means of doing so. (Actually, there are probably at least two objectives here, one an income distribution objective and one a rural landscapes/depopulation objective).

If one, however, one thinks that the CAP should be helping European farms and food processors to be globally competitive, larger farms are, in general, more efficient (and often more environmentally conscious and aware of animal welfare needs).

Devolution and agriculture

Devolution raises some tricky issues about who can do what and this interesting and informative blog post looks at a dispute involving the Welsh Assembly Government and the Westminster government that has gone to the UK Supreme Court: Devolution

Getting agreement on CAP is near impossible

Reflecting on the outcome of the CAP negotiations, NFU president Peter Kendall is critical of the decision-making process, saying that it is near impossible to reach agreement: Kendall. He makes a good point, but how could one start to change it, given the range of interests and institutions that have a stake in the way decisions are made?

A paradigm shift in CAP?

Gwilym Jones of the European Commission set out a vigorous defence of the CAP reforms at the Westminster Food and Nutrition Forum in London last week. He claimed that they represented a paradigm shift which would re-link farmers and citizens. It put farmers in greater control of their day-to-day economic choices.

Jones claimed that the greening measures were a game changer. They offered measures which protected soil, water and biodiversity (interestingly there was no reference to climate change.

One positive feature that Jones did draw attention to was that all payments to farms would be published, stating 'we have nothing to hide.' It remains to be seen what this move towards transparency means in practice and how accessible and reliable the data turns out to be.

Jones insisted that farming is different, asking what other industry faced exceptional weather events.

Chris Horseman of Agra Europe asked why decoupling had been put into reverse. Jones disagreed that this was the case, arguing that some sectors worked with very severe conditions, for example mountain areas. But this has always been the case and does not justify an extension of coupling.

CAP reform a dress rehearsal?

The CAP reform could simply be a dress rehearsal for a further reform, suggested David Baldock of the Institute for European Environmental Policy at a seminar of the Westminster Food and Nutrition Forum in London last week. The reform could serve as a means of showing which issues we had to get serious about. The reform had been a rush, it didn't have a finished feel about it. This was a widespread perception in Europe. What was needed was a credible mid-term review.

What was good about the reform was that the public goods idea survived in the CAP. It also couldn't be a one size fits all policy. On the downside, there had been a loss of the commitment to transparency and simplicity. There was a theoretical possibility of reverse modulation.

On the greening measures, it was quite difficult to see what was going to change on permanent pastures. The Ecological Focus Areas had changed greatly from original proposal. The idea covered much less than had been originally envisaged. Cross-compliance entailed a softening of the regime in some directions. Protecting carbon rich soils, the most innovative idea, had been lost.

The last Mid-Term Review was in the Fischler reforms and, as Baldock noted, the then Commissioner had created a platform and had worked to create relationships with heads of government and ministers. My question would be whether anyone around today possesses Fischler's adroit skills.

Challenges remain for Lithuanian presidency

EU agriculture ministers will meet in Brussels for the first time under the Lithuanian Presidency on Monday (July 15) and for the first time since an agreement on most aspects of CAP reform for 2014-2020 was reached by the EU institutions, reports Agra Europe. Vilnius began work on July 1, after being passed the torch by Dublin, who garnered wide praise after largely concluding the CAP reform package. But the Lithuanian Presidency, in it’s maiden term in the position, will have to oversee certain parts of the reform that were still up for debate when the deal was reached last month.

As part of their mandate, the new presidency will need to seek progress on the remaining issues left out of the reform agreement, which include the ‘degressivity’ proposal, co-financing and rural development. They will need to seek a compromise with Parliament, which is irked by the Council’s resistance to negotiate on the positions taken by heads of government on the 2014-2020 ‘multiannual financial framework’ (MFF). MEPs maintain that it is their legal right to have an equal say under the Lisbon Treaty.

Lithuania continues to affirm that member states will not be willing to re-open negotiations on CAP reform with respect to the recently approved budget. Monday’s meeting of EU agriculture leaders should shed some light on what, if anything, the Council is willing to do to appease MEPs, Agra Europe predicts.

What is the CAP for?

I give my views here: What is the CAP for? The editor has put in some helpful links.

Why no capping?

George Monibot complains in The Guardian about the absence of capping or degressivity in the CAP reform deal: Monibot

The reason Britain and Germany opposed these proposals is that they have a lot of large farmers and agreeing to capping would disadvantage them and cut national receipts from the CAP. The more fundamental issue is whether the CAP is there to support the global competitiveness of EU agriculture or is meant to be a social policy for marginal farmers.

EU backs away from commodity speculation controls

It look as if the EU is going to back away from imposing limits on commodity speculation. Of course, not all commodities are agricultural, but according to consultancy ETFGI there are 111 agriculture-focused products with €2.8bn of assets. Within exchange traded funds about 30 per cent or $55.5bn of these assets include agricultural investments, according to data from Somo, the centre for research on multinational corporations.

Critics argue that current trading practices help to boost food price volatility. There is no proof that this is the case, but many believe that excessive trading in derivatives can accelerate bubbles and create heavy price peaks which disadvantage the individual consumer. The US has already adopted position limits for a number of core commodity futures and option contracts, including corn (maize) and wheat.

NGOs had been hoping that position limits would be imposed on commodities speculation under the EU's revised Markets in Financial Instruments Directive (Mifid II). Such limits would restrict the activities of fund management companies that continue to engage in soft commodity trading, a number having pulled out earlier in the year. Reputational damage was a major motive for quitting speculative trading.

However, the European Council wants to allow individual member states to set their own position limits. Christine Haigh of the World Development Movement argues that this would pit member states against each other in a race to the bottom. The UK and France are thought to be the most likely to put lenient position limits in place to allow current trading practice to continue as normal.

The Commission and Parliament continue to favour Europe-wide rules, so it remains to be seen what emerges from the trilogue process with a final decision expected by March 2014.

CAP reform deal struck

A deal has been struck in the trilogue process on CAP reform: Done deal. It has been made possible by passing some of the thorniest issues on to heads of government. There has also been a considerable watering down of the original greening proposals which were supposed to be the motif of this particular reform. The National Trust criticised the deal as a backward step: National Trust

NFU president Peter Kendall argued that the deal granted individual countries too much flexibility. It would result in a CAP that was less common, less market-oriented and more complicated. Of course, one of his concerns is that within England the Government will go for more market oriented policies while subsidies are enhanced elsewhere, leading to the absence of a level playing field.

One colleague said that she would now have to change her lecture on the CAP. She won't have to change that much.

Progress made on CAP reform deal

As is so often the case, these things go down to the wire, but it looks as if real progress is being made at last on a CAP reform deal. European Union farm ministers reached a revised negotiating position as the clock struck midnight on Tuesday, raising hopes that a new common agricultural policy will be agreed on Wednesday as talks moved to Brussels, reports Reuters.

'We now have a clear updated mandate ... There's lots of momentum here,' said Irish farm minister and Council chair Simon Coveney following two days of negotiations in Luxembourg.

However, Coveney admitted 'There are some difficult issues to resolve. I am not predicting it is going to be easy. It is not.' Issues that still need to be resolved include the deadline for abolishing EU sugar production quotas, which are blamed for pushing up domestic prices and limiting European sugar exports.

A key sticking point in talks could also be who makes the key decisions on issues such as market intervention, with the European Parliament wanting an increased role, something which ministers have been reluctant to accept. Coveney said no member state voted against the revised mandate, but Britain and Germany abstained on the European Parliament issue. Co-decision has already made it more difficult to achieve agreement.

Parallels between Thai rice policy and the CAP

This interesting article by a former PhD student of mine looks at rice policy in Thailand and sees certain parallels with the CAP: Thai rice policy

CAP reform process hits new snags

Despite the relatively optimistic mood at the recent 'informal' Farm Council in Dublin, the CAP reform process has hit new snags which suggest that a deal may not be reached under the Irish presidency.It appears that a resolution to the EU’s CAP reform process could be delayed further beyond the end-of-June target date, after the European Parliament threatened to veto any deal over member states’ refusal to budge on certain issues, reports Agra Europe.

Parliament agriculture committee chair Paolo De Castro this week slammed the European Council for its approach to the recent ‘trilogue’ discussions on the issue, claiming their approach goes against the "spirit" of the Lisbon Treaty, which granted MEPs equal say on farm policy under the ‘Ordinary Legislative Procedure’. MEPs want to reach a deal by the end of June – when the Irish Presidency ends and the Lithuanian Presidency begins – but this will not happen unless all subjects are up for negotiation and the Parliament's views are heard, De Castro stressed in an impassioned speech this week.

De Castro is just the latest agriculture official to express his public frustration at the drawn out negotiations on CAP reform and perhaps calls into question the suitability of the co-decision procedure in reaching an agreement on this policy, something which has concerned me for some time.

Enhanced co-decision making has been defended as injecting greater legitimacy into the EU institutions, as directly elected MEPs should in theory increase the democratic input of European citizens, and thereby lead to improved legislation. But then according to one recent poll, over 50 per cent of British voters do not know they elect members of the European Parliament. In any case the process appears to have been the victim of growing euroscepticism across the bloc, as well as the austerity agendas of certain member states.

The CAP reform process appears to have hit a brick wall and unless there is a dramatic breakthrough at the ‘trilogue’ talks in the next couple of weeks, the Luxembourg Farm Council on June 24/25 – when it was hoped a CAP reform agreement would finally be signed, sealed and delivered – could turn into a damp squib. Some member states have said they may not even bother to turn up.

The GM debate

This continues to rage on with entrenched positions being taken on either side. However, this interesting post argues that we shouldn't treat all GMOs alike and that we now have a good enough knowledge base to make informed judgments: GMOs

UKIP and the CAP

It is perhaps not surprising to learn that their agricultural policy is not particularly coherent and they are clearer about what they are against than what they would replace it with, but here is an interesting account of their policy stance on agricultural matters: UKIP

CAP reform deal not yet sewn up

This week’s Farm Council meeting highlighted more of the divisions that remain on the CAP reform process than many observers, not least the EU Farm Commissioner and Irish Presidency, would have liked, reports Agra Europe. This meeting was significant in that it was the last opportunity for an agreement between EU agriculture ministers prior to what many are billing as the ‘final showdown’ talks at the Luxembourg Farm Council on June 24-25.

The three big points of discussion were over the nature and scope of the new support systems for ‘young’ and ‘small’ farmers under the next CAP, as well as whether or not an ‘active farmer’ provision – aimed at excluding ‘undeserving’ recipients from receiving subsidies through an EU-wide ‘negative’ list that countries could add to – should be mandatory across member states.

The issue of whether young farmers should be given a 'leg up' has proved controversial for the UK. As for undeserving recipients, subsidy transfer arrangements represent a second best solution offering reallocation in an inherently unsatisfactory system in my view. Interestingly, despite the Presidency testing the water for potential compromise agreements on these issues, many governments were steadfast in their opposition in making the first two schemes compulsory to top-up direct payments, while there was also much disagreement over the third provision.

Simon Coveney, the Irish agriculture minister chairing the member state government talks, came away from the Council stating that he was 'reasonably positive' that compromises on the three proposals can be reached with MEPs and the Commission by the end of next month. Commissioner Dacian Ciolos was also confident of a political agreement but at the same time he reiterated his frustration at the reluctance of several ministers to accept a 'common' and compulsory approach for the targeted schemes.

UK farm minister Owen Paterson, who is engaged in his own battle to defend the Defra budget, also said he was optimistic of a deal this week, but there have been whispers that an agreement may not be as cut and dry as is hoped, with measures such as ‘greening’ likely to be major stumbling blocks. Scottish Liberal Democrat MEP George Lyon even suggested that the Irish Presidency may be given additional time to try and get a deal in July.

Although Lithuania will have taken over the EU Presidency for the first time in their history by that time of year, the view is that the Irish will be best-placed to secure an actual CAP reform agreement due to being relatively more experienced in such matters.

Farmers and the EU

Yesterday I spent a very interesting day in Yorkshire talking with a cross-section of farmers. As always, it was good to hear of the ingenuity that farmers deploy in diversification such as an upland sheep farmer who was producing honey using the summer heather crop, a bit hit with consumers. Another interesting point to come out of the discussion was that many farmers, perhaps egged on by banks, had gone for increasing the area of their farms and had not thought enough about how they could improve productivity on existing land, e.g., by grassland improvement which could yield gains of 50 to 100 per cent.

Many different topics came up, the availability of plant protection products being a particular concern, but among other things we discussed Britain's membership of the EU. There was concern about EU regulations, particularly from the poultry sector, in terms of whether they prevented British farmers from enjoying a level playing field in terms of competition.

When I said 'many' farmers could not survive without the single farm payment, I was corrected by the word 'all'. If this is the case, it is worrying in terms of the viability of British farming. But I accept that the availability of the SFP is built into business models and can make the difference between profit and loss. An arable farmer did emphasise that most farmers would prefer to earn a living from the market if they could get a fair price and this led us into a discussion of the economic power of the supermarkets.

It is quite likely that we will have a referendum on Britain's continued membership of the EU: Labour would be disadvantaged at the next general election if it was unable to offer this. It is also quite likely that the vote would be to withdraw. In terms of the single market, a lot would then depend on whether a satisfactory association agreement could be concluded with the EU. European countries have an incentive to do so given the exports they make to the UK, but the devil would be in the detail.

But what would happen to farm subsidies? It would be an opportunity to think again about what the objectives of such subsidies should be, and also to reduce them. One of the problems with EU policy has been that the objectives in the Treaty of Rome were contradictory, had no preference ordering (although one appeared in practice) and were never changed in treaty revisions (too much of a hot potato).

What could be done is to pay farmers a tapering percentage of their historic SFP, say 90 per cent in the year after exit and 80 per cent in the second year while there was a serious conversation about what sorts of subsidies were needed, for what purpose and how they could be reduced over time. Indeed, farmers could be offered a buy out of their subsidies through a bond scheme.

Greening remains big issue in CAP talks

The general feeling from last week’s Farm Council and subsequent ComAgri meeting was that there needs to be more compromise from all sides in the forthcoming trilogue talks between the European Commission, Parliament and Council if they are to get the job done at the June 24-25 Farm Council as planned, reports Agra Europe

‘Greening’ remains one of the key talking points, with environmental groups again urging decision-makers not to ‘green-wash’ the CAP earlier this week, but many MEPs are still wary of the ‘double payment’ quandary should 30% of Pillar Two direct payments be linked to these measures.

Greening itself has not yet been tackled in the trilogues, yet EU Farm Commissioner Ciolos reiterated last week that an ‘equivalence’ system must be 'credible' and 'avoid double funding'. The measures must be 'clearly defined' and constitute a 'clear baseline' for Pillar Two agri-environment schemes, he added.

In England the concern among farmers is that Pillar Two measures will be maintained at the expense of the Single Farm Payment.

Commodity trading houses under fire

Commodity trading houses are secretive, largely unregulated, pay relatively little tax and, until recently, have made big profits. Not surprisingly, they have come under increasing scrutiny with the Financial Times headlining a major investigation on Monday ahead of its global commodities summit which was marked by an anti-industry protest. NGOs argue that their speculative activities increase volatility, creating more uncertainty for farmers, and force up prices for consumers. They also reinforce asymmetries in north-south relations. For a special issue of Food Ethics on this subject go here: Food Ethics

Leading commodity houses such as Cargill are reacting by saying they need to be more transparent about their activities. But there is a tension there, because it is having an information edge in relation to supply and demand patterns that enables a commodity house to trader profitably. Their defenders would argue that they enable the market to work more efficiently by clearing the market and helping price adjustments. They link regions of surplus and deficit around the world.

Commodity houses cover a number of sectors of the economy including minerals, metal and oil, as well as agriculture. According to the FT, the net income of the largest trading houses since 2003 surpasses that of the combination of mighty Wall Street banks Goldman Sachs, JP Morgan Chase and Morgan Stanley, or that of an industrial giant such as General Electric. They made more money than Toyota, Volkswagen, Ford Motor, BMW and Renault put together. However, times are now more difficult, particularly since the recent drop in commodity prices. Aggregate profit growth has stalled.

When I have attended specialist agriculture conferences, someone from Cargill is often there, but they generally keep a low profile. Probably their own data is better than that being presented. William Wallace founded Cargill in 1865 as an Iowa grain elevator, but it now operates in 65 countries, employing 140,000 people. The company is privately held by about 80 of Wallace's descendants, although staff have a 17 per cent stake. It is by far the world's largest trader of agricultural commodities, a turning point being when it bought rival Continental in 1998. It has the biggest market share in key raw materials such as sugar, corn and wheat, putting it in a position to be a price maker rather than a price taker.

Cargill's name is well known, but there are also less known companies in niche markets. For example, the Hamburg-based family-owned Neumann Kaffee Gruppe is behind the beans that go into one in seven cups of coffee worldwide. Swiss-based trading house Ecom Agroindustrial mills more coffee beans than any other company. According to the World Bank, its clients include Starbucks and Nestlé. Company turnover in 2011 was in excess of $4 billion.

The sector is largely unregulated. Switzerland, the main hub of these companies, has admitted that 'Physical commodities traders are, in principle, not subject to any oversight.' The tax burden is low. According to the FT, they pay less tax than oil or mining groups or Wall Street banks.

But the growing level of scrutiny is ringing alarm bells. Cargill has warned that trading houses must embrace ethical and transparent business practices or risk getting into hot water with regulators.

Hoovering up farmland

Sir James Dyson has bought up thousands of acres of Lincolnshire farmland, reports Farmers Weekly. He is believed to have paid some £150m for more than 6,800 ha./17,000 acres through a new company Beeswax Farming (Rainbow) Ltd. He has purchased much of the Norton estate which was destined to be Britain's largest dairy farm until the plan was defeated by animal welfare activists, backed up by objections from the Environment Agency.

There's nothing new about wealthy investors or even institutions buying up farmland, indeed the institutitional involvement has been greater in the past and led to a report. One of the advantages of owning farmland is that it does not incur inheritance tax. Some critics argue that farm land values are bumped up, making it difficult for 'genuine' farmers to expand or enter the market. Average English farmland values reached £22,500/ha (£9,100/acre) in the last three months of 2012. If you borrowed to buy at those sort of prices, you could not fund the lending out of farming.

There has been a fierce debate in Farmers Weekly about whether young farmers should be given a hand up the farming ladder if they are not going to inherit a farm. The general view seems to be against special subsidies, and indeed one would not want to create a new category of subsidy. Many would-be farmers have to settle for being a farm manager.

One argument in favour of some form of subsidy is the ageing farm population, which applies across Europe. However, the figures may be somewhat misleading as the nominal head of the farm may be semi-retired.

One challenge has been the reducing number of county council farms available for rent. For many farmers these relatively small farms served as the first, but sometimes the last, step on the road. Like many farms, they survived by the farmer's partner working. However, many county councils have been selling off these farms to realise the capital.

Farming is hard work and demands a wide range of skills. The returns are often little better, or even worse, than the minimum wage per hour worked (although not on arable farms in Lincolnshire). Of my two nephews from a Welsh hill farm, one has moved to Manchester where he pursues an urban lifestyle. The other works the farm with his father and evidently enjoys his way of life.

Life imitating art

The battle over the future of Bridge Farm in The Archers has been won by the hard headed business case over the more sentimental 'way of life' arguments associated with Pat Archer's affection for her cows. I thought that possibly the script writers were a bit behind the curve as in today's economic climate farms have to be run as a business. But I am also aware that farmers work very long hours in arduous conditions for returns that are often little better than the minimum wage, particularly on livestock farms.

It was therefore interesting to see a 'way of life' argument from a farmer who said that if money were the driving force he would be better cashing in and living off the interest (I don't think he would get much of a return at today's rates unless he moved into risky products). He took exception to remarks made by agricultural economist Sean Rickard who said that the weather was not to blame for small producers not being able to cope. The farmer argued that the weather affected everyone. That is true (subject to regional variations), but I infer that what Sean Rickard was arguing was that larger farms have a better capacity to cope with such events, e.g., they have more access to finance and better economies of scale.

Consumers are attracted by visions of the traditional family farm, but one also has to be hard headed about the financial dimension if the business is to survive and prosper.

Farmers face early SFP hit

Farmers are likely to face an immediate hit in their 2013 subisdy payments. 'If farmers budget the same as for 2012, they may be in for a nasty surprise,' warned Richard King, head of research at the Andersons Centre.

The proposed EU budget includes a 9 per cent in CAP funding. But one of the oddities of the system is that this year's single farm payment (SFP) will be based on the new CAP budget, but under the current SFP regime. The result could be a cut of about 10 per cent in the single farm payment. This comes at a time when many farmers have been hit by the unseasonable weather. This particularly applies to livestock farmers in higher areas who tend to operate on small margins.

The 10 per cent figure may be a little high, although Richard King insists that it contains a margin for safety. The Commission envisages a cut in single farm payments of marginally under 5 per cent (4.98 per cent) in 2013, equivalent to an overall cut of €1.47bn from the Pillar 1 budget of €44.1bn. This figure will have to be approved by the European Parliament. The cut is the first time that the 'financial discipline' included in the 2003 Fischler reforms has been triggered.

The difficulty is that farmers have become very dependent on subsidies to make a profit. This is the problem with subsidy dependency. Faced with cash flow problems, farmers have been borrowing more. Bank of England agricultural lending figures show farmer borrowing increased to almost £13.5bn for January 2013. This compares to £12.2bn in January 2012 and £11.7bn in February 2011 (albeit there is an inflation component in those figures).

One recommendation is that farmers should consider hedging at least part of their single farm payment to protect against exchange rate fluctuations. This could make thousands of pounds difference, but it is only an option for larger scale farmers.

Other farmers need to consider whether they want to stay in low margin businesses like dairying. There is a risk that if farmers sell their cows and machinery they may then be tempted to live on the assets while the capital value of the farm (if owned) deteriorates. They need an alternative business plan in place.

Fans of The Archers will note the controversy caused by Tom Archer's argument that Bridge Farm should stop milking its own cows and buy in the milk it needs on the market. Although the scriptwriters had the character put it tactlessly, he is right: milking cows is time intensive and the real money is to be made adding value to milk by making niche products such as organic ice cream and yoghurt.

The real difficulty for farmers is that they do not face a level playing field given the buying power of supermarkets. That is not going to change any time soon. But farmers need to recognise that subsidies are going to fall more in real terms than they have in the past.

Further cuts in direct payments?

CAP direct payments look set to be cut back even further than the recent level agreed by EU governments, it emerged this week, as the budget needs exceed the available funds. Agra Europe reports that the spending gap is due to the 2014-2020 funding cuts agreed by EU leaders in February, along with the need to fund a new 'Crisis Reserve' for emergency market measures under Pillar One and also the final stage of subsidy phasing-in for 'new' member states.

This is likely to lead to the first instance of the ‘financial discipline’ mechanism kicking in since its inception in 2003, as the European Parliament is treaty-bound not to accept a budget deficit. What happens next is somewhat uncharted territory. However, hard pressed farmers are likely to react angrily.

CAP negotiations overview

My views on the current state of the CAP negotiations can be found here: CAP reform

Not sure I agree with the headline, as I think there is still a long way to go in terms of getting a more functional CAP, although it is the case that I am in favour of more discretion being given to member states in terms of how they implement the policy.

The likely main sticking points in the trilogue negotiations are discussed in this video: Trilogue

Parliament good for democracy but not for decision-making

The CAP is such an important part of what the EU does, not least in budgetary terms, that the European Parliament had to be made a decision-making partner if the institution is to mean anything in democratic terms. The downside is that it makes the whole process of arriving at an agreement on reform even messier and more complicated than it was before. Moreover, those most directly involved tend to represent farm interests. The end result is likely to be a reform package that is more incoherent than usual, and that is saying something.

After marathon talks in Brussels earlier this week, EU member state agriculture ministers finally came up with a CAP reform negotiating position, reports Agra Europe in what can rightly be seen as a significant step forward for the process. The Irish Presidency should be praised for its persistence in getting a deal between member states done halfway through its term in office and hopes are raised for a final deal to be set in stone before the end of June this year. 25 of the 27 states were in agreement after the meeting – Slovakia and Slovenia chose not to support it – and this is a strong mandate to take forward into trilogue talks with the Commission and Parliament.

Compromises were made on all of the major aspects of the policy including direct payments, the single CMO, Rural Development and Financing and Monitoring. However, it is apparent that the agreement will not put to bed the matter of CAP reform as many Parliament rapporteurs expressed dismay at many aspects of the Council position. The fact that the farm ministers did not rule out the possibility of ‘double funding’ for farmers 'destroys the legitimacy potential of greening,' according to the Parliament's rapporteur on direct payments post-2013, MEP Luis Manuel Capoulas Santos.

Agriculture Commissioner Ciolos meanwhile said he is 'delighted a clear consensus exists for 30% of direct payments to be linked to a more sustainable CAP'. The greening measures would be of a 'mandatory' nature under Council's stance as, penalties for non-compliance would go beyond 30 per cent of the Pillar One subsidy, he stressed. Yet Italian centre-right MEP Giovanni La Via, the Parliament's rapporteur on the 'Horizontal' Regulation, claimed losing the greening component of payments would be 'a high enough penalty' for farmers not complying with the new requirements. In other words, he wants to water it down.

Paolo De Castro, the Parliament's agriculture committee chairperson, probably summed up best the current state of affairs. 'There are some areas where the Council followed the Parliament's lead and others where we will have to negotiate intensively,' he said. The ‘intensive’ trilogue talks between the European Council, European Commission and European Parliament are provisionally due to kick off in early April with a hectic schedule of meetings between then and the end of June, when it is hoped a final agreement will have been thrashed out. What sort of agreement it will be remains to be seen, but one fears that it will be watered down.

Parliament has its say

The European Parliament has had its say on the CAP reform process and, as predicted by Agra Europe last week, has largely backed the amendments proposed by its agriculture committee (ComAgri). The majority of MEPs backed the four ComAgri positions on direct payments, rural development, financing and market measures as the momentum towards a final agreement, potentially within the timeframe of the current Irish Presidency, gathers pace.

However, some hurdles remain. The Parliament vote largely proved that there is still work to be done before a deal that satisfies all member states can be reached. Parliament did back a number of key aspects of the Commission proposals such as the ‘capping’ of Pillar One payments as well as its plans on ‘active farmers’. 'Capping' would have implications for UK farmers in particular, a number of whom operate on a large scale.

Key vote in European Parliament on CAP

Next week, the European Parliament will get to vote on CAP reform and the compromises agreed by its agriculture committee (ComAgri) back in January. It would seem to be the opinion of the majority within European agricultural circles that some form of consensus will need to be found at the vote if the CAP is to be reformed in time for 2014, reports Agra Europe.

But what are the chances of an agreement being reached? There are still a number of hurdles to be overcome if a deal between member states is to be reached. The biggest sticking points appear to be over the ‘greening’ of the CAP and what this should constitute, the capping of direct payments, the speed at which the EU should oversee the convergence of Pillar One payments between member states and the scope of coupled aid.

ComAgri chairman Paolo De Castro says next week’s plenary will provide MEPs with the opportunity to ‘fix’ the problems with the CAP reform process. He conceded that his committee may have made some 'mistakes' when adopting its position earlier this year but the vote will provide the opportunity to write these wrongs. Meanwhile, other MEPs, such as German European People's Party member Elisabeth Jeggle have told Agra Europe that many of her colleagues will side with the ComAgri compromises next week.

10 per cent real cut in CAP budget

It looks as if the outcome of the EU budget negotiations might be a 10 per cent cut in real terms in pillar one for UK farmers and a 22 per cent cut in pillar two: Budget Outcome

A similar estimate of a 9 per cent in CAP expenditure in real terms, with an even bigger cut in rural development expenditure, is made by Oliver Lee of Andersons' Farm Business Consultants: Extent of cuts

It is interesting that he notes that this would bring CAP expenditure down to 39 per cent of the multi-annual financial framework, bringing it below 40 per cent for the first time. Given that it was over 70 per cent in the 1980s, this does show that incremental change can make a difference. But it is still questionable whether anyone starting with a blank sheet of paper would want to spend over a third of the EU budget on the CAP.

A typical CAP compromise

The Irish Presidency offered an alternative to the European Commission’s proposals on the convergence of CAP direct payments within member states at Monday’s Farm Council, and it seemed to go down well with most of those in attendance reports Agra Europe.

The Irish proposal, that would only require member states to move partially to uniform area-based direct payments by 2020, was backed by a majority of governments at the meeting, although Farm Commissioner Dacian Ciolos made it clear he opposes the plan, criticising it for a lack of 'ambition'. He has a point, as it is a typical CAP compromise on the lines of 'make me pure, but not yet'.

All member states are to move towards a uniform payment per hectare at national or regional level by the start of 2019, the European Commission said in its CAP reform proposals, with a transitional period to apply up to 2018. But many member states feel this suggestion is too drastic and the consensus seems to be that a slower pace of transition is required.

CAP reform assessed

Here is a thoughtful and detailed look at the CAP reform proposals from the slow food movement: Slow Food

In particular there is a detailed consideration of the greening proposals. Their general view is that the proposed reforms do contain some significant gains for sustainability.

CAP budget reduced in size

The EU Council finally reached an agreement on the Multiannual Financial Framework (MFF) after marathon talks last weekend and it did not make for good reading for those who wanted to see an increase or real terms freeze in CAP spending reports Agra Europe.

The CAP budget agreed for 2014-2020 will be nearly €16 billion below what the European Commission wanted at €362.79bn − €277.85bn for Pillar One and €84.94bn for Pillar Two (P2). This is provided it is passed in a straight Yes/No vote by the European Parliament – the first time this has happened – as mandated by the Treaty of Lisbon, which came into force midway through the current 2007-2013 MFF period.

Under the Council agreement, rural development spending will be €7.03bn less than proposed, but the blow is to be softened for many member states, who are to get a ‘special’ P2 envelope as well as their share of the remaining P2 pot.

What this represents is the first time a CAP budget has been reduced in size but also an unparalleled degree of flexibility for member states over how they shuffle the financial resources dealt to them. However, no member state is going to escape the fact that restrictions on agricultural subsidies and state spending will be in place for the next seven years at least as the CAP enters an age of austerity.

Sterling fall boosts farm incomes

The weakening of sterling against the euro over the past four months potentially boosts UK farmers' single farm payment subsidies by £240m. For every 1p/euro change in exchange rates, the UK's single farm payments alter by around £40m. SFP accounted for around 15 per cent of UK farm incomes and can be an even bigger slice of profits. For example, over half the profits at Cooperative Farms, the country's biggest farmer, are down to SFP.

Currency fluctuations also affect market prices with a 1p weakening against the euro adding £200m to UK farmers' total income. For example, a farmer producing a typical wheat crop should get about £18 a hectare more from wheat sales with the euro worth 6p more. That's nearly ten times the impact on that farm's SFP.

The downside is that inputs such as feed, fertilisers and sprays could now be 7 per cent more expensive in sterling terms, if all the currency effects are passed on. Machinery could also be more expensive.

France gives some ground

France, the EU’s biggest beneficiary of CAP funds, had previously been in favour of opposing to any cuts to the share of CAP spending and instead favoured a freeze at 2013 levels in nominal terms (meaning a real terms cut) – a view supported by other member states such as Germany, Spain and Italy. However, President Francois Hollande now appears ready to accept a reduction after addressing the European Parliament this week and claiming that his main priority for the summit is to ensure 'expenditure levels that preserve our common policies'.

CAP spending 'will be reduced' compared to the European Commission's spending proposal, he conceded, adding this will provoke 'difficult restructuring for a sector that is essential [for France]'. Hollande’s speech could well pave the way for an agreement between member states and signal that a compromise agreement is there to be had. Whether it will be enough to appease those states looking for deep budget cuts such as the UK, Sweden and the Netherlands remains to be seen.

France’s apparent move away from its pledge to fight for a nominal freeze in the CAP budget has not gone down well with farming groups in the EU, with umbrella organisation Copa-Cogeca demanding a freeze at a 400-strong meeting in Brussels on Wednesday.

A good survey of French interests, and changing perceptions, of the CAP can be found here: France

Is a CAP deal possible?

The next key phase of the CAP negotiations occur in the context of the budget negotiations at the EU summit on 6/7 February with spending on agriculture remaining a major stumbling block. A further summit is due in mid-March. The Irish presidency needs a deal on the budget agreed by the Council and Parliament by the end of March if it is to have any hope of securing a substantive CAP deal by the end of June

The recent vote in the European Parliament agriculture committee was a first step towards a CAP deal, although if it doesn't like what eventually emerges then the Parliament can veto it. It should be noted that the committee backed capping of support at £250,000 with payments reducing on a sliding scale after £125,000 which will hit many farms in the UK.

Some are concerned that the proposed extension of discretion to member states (and regional governments) in many areas of the CAP will create more of an uneven playing field, undermining the single market. Others would argue that such discretion is not only necessary to make reform politically palatable, but also reflects the geographical diversity and range of challenges encountered in what will soon be an entity with 28 member states with very different agricultures.

Is there still life in fat taxes?

Bruce Traill, the president of the Agricultural Economics Society, writes in their latest newsletter: 'Denmark is abandoning its short-lived experiment with the world’s first fat tax just as the use of fiscal measures to improve diets and offset the social costs of unhealthy eating appeared to be gathering momentum; the UN Special Rapporteur on the Right to Food, the National Heart Forum and the European Heart Network, have called for the use of various forms of food taxes and subsidies in the past year. Even David Cameron floated the idea in 2011.'

'The Danes taxed products with more than 2.3% saturated fat content at 16 KR (c£1.75) per kg of saturated fat (13% of current retail full-fat butter prices). This was deemed sufficient to have driven hordes of Danes into the welcoming arms of German and Swedish retailers, "exporting" 1300 jobs (according to the Danish Food Workers Union). It’s a pity there wasn’t time to evaluate the impact of the measures on consumption (Copenhagen University’s finding of a 20% fall in purchases of fats and cooking oil in the 3 months from introducing the tax were skewed by hoarding in the run up to the tax and cross-border shopping).'

'Small taxes (and subsidies) on foods or nutrients are never likely to have a big impact on consumption and health, but they do raise a lot of money and are cost effective according to OECD; the Danish tax raised about £150m in a year, the French soda tax a similar amount. Fiscal measures also give incentives to producers to reformulate their products. The EU EATWELL research project recommends ring-fencing revenue generated by a tax for use in other cost-effective healthy eating programmes.' [Although one might add that politicians are never keen on hypothecating revenues because it restricts their freedom of manoeuvre.]

'The US Supplemental Nutrition Assistance Programme and Women, Infants, Children schemes, targeted at subsidising healthy foods for poor consumers, would be good candidates. They have been shown to be highly cost-effective and would be good models for wider adoption in Europe. As they specifically target disadvantaged groups, they partially address a criticism that fiscal food measures are regressive. And if the taxes were applied Europe-wide, the Danes would have to travel a long way to find cheap butter.'

Irish presidency searches for consensus

Monday’s Farm Council meeting in Brussels kicked off with Irish agriculture minister Simon Coveney reaffirming that his country’s Presidency’s 'ambitious' aim will be to reach a consensus among member states on a 2014-2020 CAP by March 18-19 this year, with European Parliament approval by June reports Agra Europe. He believes there are '30 or so' elements of the reform proposals still dividing member states, which he stressed was a 'manageable number', while EU Farm Commissioner Dacian Ciolos said the proposed timetable was 'difficult but not impossible' (which means that it probably is unattainable).

Coveney urged his fellow ministers to start moving from 'fixed' to 'compromise' positions so the Council can reach a common position. 'This hasn't happened yet and it needs to start happening now,' he warned, noting wide support for Dublin's work programme and the 'extraordinary' job by the Parliament's agriculture committee (ComAgri) to establish its negotiating position last week.

Ministers raised a number of lingering individual concerns at Monday’s meeting, notably the need to make the 'greening' requirements of the proposed reforms simple and workable and the risk to certain sectors posed by the planned equalisation of subsidies within member states or regions by 2019.

The plan to tie 30 per cent of direct payments to new environmental requirements - and for recognition of 'equivalent' measures - remains a big concern for many countries, with the Dutch delegation warning there is still 'a lot to do' at both a technical and political level. The UK, Denmark, Latvia, Estonia and Slovenia all reiterated calls for states to have more flexibility to implement greening, though French agriculture minister Stéphane Le Foll urged ministers to focus on reaching a compromise based on the Commission's proposals.

Briefing on CAP developments

Here is a video briefing by agricultural journalists on latest developments in the CAP as the Irish presidency starts: Briefing

Not sure if all the foot traffic in the background is meant to provide authenticity, but it could be distracting.

Farmers could not survive without subsdies

Almost three quarters of farmers say they could not survive without subsidies, according to a Farmers Weekly poll: Subsidies

How does one wean farmers off their subsidy dependence so that they become more like any other business that relies on returns from the market? No one is suggesting that they should be withdrawn overnight. The official Defra position is to phase out the single farm payment and that is resisted by most other member states.

Part of the solution must to be to ensure that farmers are better able to earn a return from the market through competition policy measures that redress the balance between them and supermarkets. But the politics of that are complicated as supermarkets deliver cheap food to consumers whose budgets are already under pressure.

Defra boss upsets farmers

Defra secretary of state Owen Paterson has upset farmers by calling for direct payments to them to be scrapped as possible. He argues that taxpayer subsidies should be limited to public goods: Paterson

His predecessor had a farm organisation background so such plain speaking may come as a shock.

The Irish presidency

In this video interview, Irish farm minister Simon Coveney looks at the challenges facing the Irish presidency in terms of securing CAP reform: Presidency