Farm lobby forces delay to Mercosur pact

Europe's farm lobby has once again shown its strength with a further delay to the signing of the trade deal with the Latin American trade bloc Mercosur which has now been over 25 years in the making

The EU has agreed to delay the signing of its trade deal with South American countries until early January after Italy and France said they needed more time to convince farmers to accept the pact. The decision, which ends plans to complete the long-delayed Mercosur free trade accord by this weekend, came after Italian Prime Minister Giorgia Meloni pleaded for more time during a phone call on Thursday with Brazilian President Luiz Inácio Lula da Silva. 

“We have reached out to our Mercosur partners and agreed to postpone slightly the signature,” European Commission president Ursula von der Leyen posted on X. The Brazilian leader had warned on Wednesday that if the landmark deal was not signed this weekend it would never be signed during his presidency. But he softened his tone after the call with Meloni, the exponent of pragmatic nationalist politics.

 “Meloni explained that she is not against the agreement, she is simply experiencing some political embarrassment because of the Italian farmers, but that she is certain she is capable of convincing them to accept the agreement,” Lula said. “She asked me that if we have patience for a week, 10 days, at most a month, Italy will join the agreement,” he said, adding that he would relay Meloni’s comments at a meeting of Mercosur countries this weekend. 

The EU’s biggest free trade deal has taken 25 years to negotiate, having been agreed a year ago, pending formal ratification. France has also sought to delay the signing of a deal until its concerns about the impact on farmers were assuaged.

The politics have been complicated by a separate dispute involving French farmers which has somehow become related, at least in the minds of conspiracy theorists.

The French government's handling of an outbreak of bovine lumpy skin disease (LSD) has led to the blocking of highways and inter city railways along with the traditional dumping of manure outside government offices.  The disease can be fatal for cattle, but is harmless for humans.   

Ministers have ordered the culling of herds in affected areas and the vaccination of those nearby.  However, internet rumours say it is part of an EU plot to kill off French cattle in favour of South American beef imports.   Riot police have had to be brought in to protect vets implementing the culls,    The army has been drafted in to speed up vaccinations.

What does the rise of the populist right mean for the CAP?

Alan Matthews writes about the changing political landscape in the EU.  ‘The right-wing parties in power or close to power are generally Eurosceptic, though on a spectrum ranging from soft to hard Euroscepticism. This will inevitably influence the debate on the future CAP.

These parties favour the traditional priorities of agricultural policy, such as income support, productivism and food sovereignty, while objecting to Green Deal objectives. They also seek to repatriate powers from Brussels and thus favour greater subsidiarity in the CAP. On the other hand, they also favour a strong budget for farmers, but they may split on whether this should be funded by national budgets or by the CAP.

A more nationalistic stance in net budget contributor countries can put at risk the scale of transfers under the main transfer policies of CAP and cohesion. The Commission's MFF proposal keeps the amount of funding for transfer policies broadly constant in current prices. And its proposed allocation formula for these funds under the NRPF Regulation generally increases the transfers from richer to poorer countries though with notable exceptions (e.g. Belgium and Netherlands will get more while Czechia, Slovenia and Estonia will get less than in the current MFF period).

With the shift favouring Eurosceptic parties across the EU, net contributor countries may well see merit in a lower CAP (and cohesion) budget where the saving in their national contributions to the EU budget would more than allow them increase their national funding to their farmers. Both the scale of funding for transfer policies as well as the allocation formula will come under increasing scrutiny as the MFF negotiations proceed.’

One commentator observed: ‘From an analytical perspective, it is striking that food sovereignty—a concept rooted in left-wing peasant movements and their critiques of globalised, industrial agriculture—is increasingly taken up by right-wing parties. This illustrates how normative concepts can be reinterpreted and repurposed across ideological lines, often becoming detached from their original foundations. It shows why paying attention to how and why terminology travels, changes meaning, and is co-opted in political debates really matters.’

A Spanish perspective wax: ‘Speaking from the Spanish case (a net CAP receiver for 30+ years, with a lot to lose from re-nationalisation), the far-right narrative is that Brussels is dominated by “woke” elites pushing an agenda perceived as anti-farmer. By re-nationalising, they expect to regain sovereignty over what gets funded and under which conditions, so that support better matches their (climate change denialist) ideology. At the end of the day, I don’t think they care much if the pie gets smaller; what matters is choosing who gets a slice and being able to claim the medal of “defending farmers”. Something they can never do under the current CAP after years of demonising Brussels. Basically, nationalist clientelism.’

The farm finance conundrum

Professor Alan Matthews writes: 'DG AGRI EU Agriculture and Food has published a news item 'Access to finance: unlocking investment for Europe’s next generation of farmers' which states that affordable credit is one of the biggest barriers to entering agriculture for younger farmers.

I am puzzled by some of the inconsistencies in the item. For example, it states that across Europe young farmers tend to operate smaller farms. This is factually incorrect, as is documented in the DG AGRI Analytical Brief No. 10 on young farmers in EU agriculture which makes clear that young farmers tend to operate larger farms than the average (an average of 26 ha compared to an average of 16 ha for other farmers) and that on average they are also bigger in economic size terms.

The news item also highlights that young farmers have higher debt ratios than older generations, a fact confirmed in the Analytical Brief. But this does not support the view that young farmers are necessarily shut out of the credit market - otherwise how would they become more indebted? 

I do not dispute that young farmers due to a lack of a credit history may find it difficult to obtain credit finance, and no doubt all businesses would like to see easier access to credit, but does the evidence suggest that young farmers have greater difficulty than other farmers? Of course, we all want to see more young farmers in the industry, but is this focus on credit a bit of a red herring when the real issue is the large number of older farmers beyond pension age continuing to farm and to draw down CAP payments?'

 

In the distant past (1994/5) I took part in a multi-country study of farm finance, contributing the coverage of the UK and the Republic of Ireland.  (The US, Canada, France and Germany also featured). I had some fascinating interviews with bankers, government officials, accountants and farm organisations and I wish we had published more from the study (I had a very able Irish research assistant who undertook a lot of archival work on the history of farm finance in the UK and Ireland.)

The interviews reports are lodged with the Modern Records Centre at Warwick University.

If I was to summarise the findings in one sentence I would say that farmers, or at least larger scale ones, had some pretty good financial deals (and tax concessions).

It is, of course, hard for younger farmers to break in, but that has much to do with older farmers clinging on, as I know from my own family.

Tough tines for Europe's farmers

Farmers are known for complaining, but right now they may have a point. Agricultural commodities such as grains and sugar have plummeted on futures markets as global supplies have surged. European farmers are suffering in particular as they contend with high input costs and increasingly competitive global rivals.

Benchmark wheat futures in Paris have fallen more than 20 per cent this year to multiyear lows, dragged down by bumper harvests in Russia, Australia and parts of South America. Meanwhile, speculators are building bets on further price falls, with investment funds adding more than 280,000 new short lots in milling wheat futures in the week to November 21, extending their net short position, according to Euronext data. 

For UK growers, the fall has been brutal. Wheat prices are now little more than half the levels reached in 2022 following Russia’s invasion of Ukraine. Yet fertiliser, fuel and machinery costs — inflated during the energy shock — have barely retreated.

For arable farmers in Europe, “it’s not a happy situation at all,” Ole Hansen, head of commodity strategy at Saxo Bank told the Financial Times. There is a big gap between “the cheap crop that leaves the farm gate” and the price of bread “when it hits the store”, he said. While the upcoming harvest in Norfolk looks promising, the UK’s wheat yields at this year’s harvest fell after last winter’s torrential rain. But because international markets are well supplied, that does not translate into higher prices.

The financial squeeze is prompting visible restructuring. Brown & Co, the UK’s largest dedicated agricultural auctioneer, said the number of agricultural machines being put up for sale has risen sharply. “It’s become hard to find a day of the week without an auction,” said partner Simon Wearmouth. “I’ve never known the calendar this crowded.”

Even as grain markets sink, UK shoppers have seen little relief in the cost of bread, beer or baked goods. That is because the raw commodity typically accounts for only a small fraction of the retail price. In a loaf of bread costing £1.50, wheat may only account for 16.5 pence to 22.5 pence, according to Financial Times calculations based on research by the Agriculture and Horticulture Development Board, while barley only accounts for a small proportion of a pint of beer.

Energy, packaging, transport and processing costs and retail margins are the main components of the final price. Annual food inflation in the UK was 4.9 per cent in October, up from 4.5 per cent in September. The rise has been driven by five products — beef, butter, milk, coffee and cocoa — where supply shortages globally have pushed up prices.

Across the Channel, growers say the situation is similarly dire. In France, where sugar beet is a flagship crop, producers describe a sector under existential pressure after global sugar prices plunged almost 50 per cent over the past year.

Concessions for South Africa, Mercosur countries in South America and traditional cane exporters have added to supply on a market where European consumption is flat or declining. The result, has been factory closures, with six sites shutting in France since the end of EU sugar quotas in 2017, with more expected if 2026 prices fail to recover.

Producers on both sides of the Channel emphasise a structural problem: Europe’s high environmental and labour standards, while politically popular, make production significantly more expensive than in major exporting nations. In Brazil and India, cane cultivation benefits from favourable climates, large vertically integrated estates and looser rules on pesticides and labour.