Common Agricultural Policy

Wine reform up for grabs

2012-01-26T00:26:00.000-08:00

Farm commissioner Dacian Ciolos has announced that a high level group is to review the 2008 wine reform: Wine

Traditional wine producing states have been unhappy about its effects but it benefitted smaller producers like the UK which saw some bureaucracy removed.

Why the Indian wine market is not taking off

2012-01-24T00:23:00.000-08:00

With its rising middle class one might expect a growing demand in India for quality wines. But the reverse is the case. Wine volumes fell 15.7 per cent between 2009 and 2010.

China offers a stark contrast. It imports 2.5m cases of Bordeaux a year. India imports only 100,000 cases of wine a year. More is sold to the Maldives which are, of course, a major destination for western tourists.

In the UK consumption per adult of wine is 27.7 litres a year; in China it is 4.5 litres a year; and in India 0.01 litre a year, the equivalent of two teaspoons. Indians also consume less beer, barely one litre per person per year, compared with 23 litres in China, slightly above the world average.

The biggest obstacle to more sales is price which is the result of a punitive tariff on imported wines and spirits of at least 150 per cent. On top of that individual states apply their own taxes which range from 30 to 100 per cent. Gujarat, a state with one of the fastest growing economies, bans the sale of alcohol altogether. Labelling requirements are another obstacle to distribution.

A bilateral trade agreement with the EU is supposed to tackle the issue but talks have been dragging on since 2007 and no deal is in prospect. Mahatma Gandhi's austere doctrine still carries some weight and the government is concerned that cheap alcohol might blight the lives of poor people.

Indian wine has not enjoyed a good reputation, although the Mogul empire in 16th century India was supplied with wine from the High Indus Valley and Afghanistan. Quality wine production has increased with the support of subsidies and low-cost loans, but this has led to an over supply problem.

No deal before French and German elections

2012-01-11T22:14:00.000-08:00

No deal on CAP reform will be reached until after the French election in 2012 and the German election in 2013 according to Defra minister Caroline Spelman speaking at the Oxford Conference. She also said that Britain was reaching out beyond its traditional allies in Scandinavia and the Netherlands to countries such as Slovakia and Romania to build an alliance against the 'capping' of CAP payments to large farms: CAP reform

Opinion at the Oxford Conference and in polls of farmers was sharply divided on whether British agriculture could flourish outside the EU.

How would you spend your £200?

2012-01-04T22:24:00.000-08:00

Each of us spends on average £200 on the Common Agricultural Policy. How would you spend your £200. Try the interactive survey here: Survey

The European crisis, Britain and the CAP

2011-12-21T22:11:00.000-08:00

The outcome of the eurozone crisis remains unknown, although none of the measures taken so far have really tackled the fundamental problems of sovereign debt and structural uncompetitiveness in Southern Europe.

What effects will the exercise of the British 'veto' have on attempts to reform the CAP? NFU policy director Martin Haworth is one of the most experienced individuals in agricultural politics and policy and he told Farmers Weekly that only time would tell if Britain would be marginalised in Europe and hence have less influence on a range of issues.

He made a distinction between Britain's largely unsuccessful attempts to secure CAP reform and broader efforts on regulation. He noted, 'The UK has pursued CAP reform policies ... which have pursued UK negotiators on the margins of the debate, so it is unlikely that Mr Cameron's actions will change the way in which the UK is already viewed with regards to CAP.'

'However, on broader regulatory matters where the British voice has been heard in recent years, for example on environmental and market regulation matters, Mr Cameron's actions may affect Britain's influence in the EU.'

The NFU is concerned about a scenario in which agricultural powers were repatriated to the UK, although Eurosceptics have focused mainly on various forms of labour market protection and the Common Fisheries Policy.

A NFU briefing document states that 'A worst-case scenario would see the UK remaining in the single market but regaining autonomy over support arrangements.' The NFU fears 'That would allow the Treasury to achieve its long-standing goal of removing direct payments altogether.'

Supposing Britain left the EU or repatriated CAP payments, the withdrawal of subsidies overnight would cause chaos in agriculture. In principle one might want to see a return to a deficiency payments system which was the more market attuned form of subsidy that existed before Britain joined the EU.

However, in practice, it would be costly to dismantle the existing (albeit rather inefficient) administrative apparatus and replace it with a new one. One would therefore have to pay farmers the SFP on an historic basis, tapering the amount paid over time so that one might start at 90 per cent of the existing payment.

More radically one could compensate farmers for the subsidy by issuing them with interest bearing bonds which could also be sold on the market but that would probably be unacceptable to the parties involved.

Meanwhile British farmers who had opted to be paid in euros have been converting them into pounds on the spot market rather than waiting for a more favourable rate (which, of course, might well not materialise).

It is generally larger farmers who take payments in euros and they usually have some form of relatively sophisticated risk management in place, including hedging.

The crisis has also injected some uncertainty into the market that trades in English Single Farm payment entitlements. If CAP reform is not agreed in time for the 2014 claim, which in my view is more than likely, the purchase of entitlements now would give buyers access to claims for the years of 2012, 2013 and 2014 for little more than the value of one year's SFP.

Leading broker Webb Paton is reported to be doing about 15 deals a day. The existence of such a secondary market might seem to be perverse but, given that we have farm subsidies, it is a 'second best' solution that facilitates their more efficient allocation.

Biopesticides on the march

2011-12-07T22:11:00.000-08:00

I have just returned from an Informa conference on biopesticides (or biocontrol) in Amsterdam where I talked about the implications of the new EU legislation on plant protection products which is now starting to be implemented.

What was striking about the conference was not only the relatively large attendance (100), but also the number of large chemical companies present, particularly from the United States. Monsanto, Bayer and BASF were out in force while the largest specialist biocontrol company, AgraQuest, was also strongly represented.

The market for biocontrol products is now growing much faster than that for synthetic chemical products, the availability of which is diminishing. Of 400 or so active ingredients now authorised in the EU, getting on for a quarter are biocontrol products.

The biggest market for biocontrol products up to now has been in protected crops (greenhouses and polytunnels). There is certainly scope in field vegetables where residue issues are important for the final consumer, but we are some way off broad spectrum products which can be used extensively on arable crops.

Historically there were some poor products on the market which did not help the reputation of the industry. The so-called 'grey market' products or bio stimulants, which are generally outside the scope of regulation, are also a challenge in marketing terms.

For growers biocontrol products offer a lower kill rate and often lower stability because of their very character. They also require more technical expertise in their use. They can, however, be used in combinaton with chemical products in many cases which is consistent with the EU policy of integrated pest management.

There is no doubt that the US has done a better job than the EU in promotning and regulating these products (this is also true of the life sciences industry more generally). The new EU regulatory framework, including zonal mutual recognition, should make life easier but the devil is in the detail.

Green space controversy grows

2011-11-30T22:03:00.000-08:00

The controversy over the so-called 'Green Space' in the CAP reform proposals is growing: Green Space

A somewhat embattled farm commissioner, Dacian Ciolos, is insistent that the proposals do not amount to set aside. As farm as farm organizations are concerned, if it walks like a duck and talks like a duck ...

The farm lobby is up in arms over this proposal and are citing food security arguments advanced by the G20. However, this is not a straightforward food security/productionism versus the environment argument. I am concerned that the Commission has devised a rather blunt policy instrument that would not be very effective in achieving its objectives and would have too many unintended consequences.

Admittedly some of the more subtle policy instruments in Pillar 2 have not always worked well in terms of additionality, i.e., achieving something that would not have been achieved without spending public money. Devising policy instruments that make a difference without too many side costs is not easy, but the effort needs to continue.

The linked report also refers to the enhanced role of the European Parliament in the decision-making process. This may be an advance for democracy, but not necessarily for coherent policies and effective reform.

Doha lite?

2011-11-18T04:41:00.000-08:00

The recent G-20 summit was understandably dominated by the eurozone crisis so little attention was paid to the fact that leaders decided to effectively abandon all hopes of achieving a full blown Doha Round settlement and instead see if they could achieve a 'Doha lite'.

Many analysts think that they will achieve nothing. Either way this effectively means the end of 'Rounds' as a way of progressing international trade negotiations. Given the economic backdrop, it also means the end of further breakthroughs towards liberalisation, although the dispute settlement process could still spring some surprises, particularly in relation to agriculture.

The trend towards bilateral deals will be reinforced. Compared with a multilateral framework, such deals tend to be more asymmetrical, so this is not really a gain for the Global South, not that least developed countries got that much outof multilateral negotiations. It was agricultural exporters like Brazil that stood to benefit.

The global financial crisis has obviously shifted priorities over this issue. However, at the very least a ‘Doha-lite’ deal for developing nations will be discussed at a World Trade Organisation meeting in December this year, with an aim of reaching a consensus in time for the 2012 G20 summit in Mexico.

Will progress be possible in agriculture? The EU may stick to its promise to phase out export subsidies, although possibly later than planned given that CAP reform is likely to be delayed. However, EU is unlikely to give much more ground on market access and the US will defend politically sensitive subsidies for crops such as cotton.

It may be that a shortage of government money will now drive reform, but budgetary changes are open to fudging and they never provided as sure a pressure for reform as international trade negotiations. At the end of the day, manufacturing and service industry interests did not want to see potentially lucrative deals derailed by agriculture. These trade offs were one of the benefits of a multilateral negotiating framework.

Good objective, wrong means

2011-11-15T00:45:00.000-08:00

Choosing the right policy instrument to achieve your policy goal is of central importance in designing and implementing an effective agricultural policy as I argued in an article in West European Politics in 2010:
Policy instruments

I am very much of the view that environmental policy needs to be embedded in the CAP, but one has to do this in a way that achieves ecological objectives without unnecessarily undermining production.

The Commission's notion of a 'balanced' rotation seems sensible on the surface. After all, farmers rotate their crops for agronomic reasons that have been understood for centuries, at least in principle.

Monocultures of wheat and oilseed rape (canola) crops have been becoming more extensive in Europe and they can have a landscape impact, although personally I quite like the yellow of oilseed rape.

Part of the Commission's motivation seems to be an idea that rotation would cut the pesticide bill, but there are other ways of doing that. It could also disproportionately hit farmers on heavy soil who rely on wheat/wheat/rape rotations.

The proposals require farmers to grow at least three different crops, with none exceeding 70 per cent of the total farm area and the third not less than 5 per cent.

Not only is this meddling in business decisions, it also could hit small farms very hard as only those below 3 hectares are excluded. Member states with many small arable farms may have something to say about this.

In the meantime the Commission really needs to send this proposal back to its Daft Ideas Department and return to the drawing board.

The last one left standing

2011-11-06T22:39:00.000-08:00

Last week East Malling Research kindly invited me to give the annual Amos Memorial Lecture at the research station. My theme was 'Food: Safe, Sustainable, Sufficient?' They videoed the lecture so I will post a link if it becomes available, not that I can see it going viral.

I was able to have a short tour of the station which is effectively the last horticultural research station we have in England. As the Applied Crops Research Centre, what was Warwick HRI is doing its best, but it is a shadow of its former self. There are a few post-1992 universities who do some work, but they lack economies of scale and the concentration of different kinds of expertise which allows people to bring together various forms of knowledge to solve problems.

East Malling is fortunate in the sense that its land is owned by a trust which gives it security of tenure and provides it with some income. Its centenary is approaching and an appeal for a new laboratory is to be launched.

Applied research involves identifying the problems faced by growers and farmers and working with them to provide long-term, sustainable solutions. It enables productivity to be improved but in a sustainable way. At East Malling, they are doing important work on water conservation which is going to be one of the biggest challenges for world farming in the decades ahead.

Applied research is a practical way of tackling problems of food security. Diversion of some of the money spent on the CAP for this purpose would yield substantial dividends.

Is Europe losing touch with reality?

2011-11-02T07:25:00.000-07:00

Stefan Tangermann

Is Europe losing touch with reality? One might think so given the surprise Greek decision to hold a referendum on the austerity package. The fear of contagion is very real and if the euro is confined to a small core of northern member states, the single market project will be undermined. One of the main justifications for creating the euro was the need to avoid competitive devaluations between member states.

It also ended the nonsense of green money, now largely forgotten, but one of the more bizarre and distorting aspects of the CAP (which is saying something). Somewhere in Brussels we should have a sculpture commemorating the switchover mechanism as an awful warning.

However, it is also a question that leading agricultural economist Stefan Tangermann has posed in relation to the CAP reform proposals announced last month.

The former OECD director for trade and agriculture argues that the reform proposals do not reflect the economic realities that Europe currently finds itself in. It is unfortunate that the policy planning calendar dictates that the European Commission must make vital decisions on the CAP through to 2020 but Tangermann claims the proposals fall short of an adequate response to perhaps the biggest crisis the trading bloc has ever faced.

But he is not alone in his criticism of the reform plans. It appears that dissatisfaction with almost every aspect of the proposals is rife and MEPs were given the opportunity to vent their frustrations at the Special Committee on Agriculture (SCA) meeting in Brussels last week.

In stark contrast to farm commissioner Dacian Cioloş’ assertion that the reform proposals would simplify the various administrative mechanisms within the CAP, MEPs claimed that the European Commission’s proposals for CAP reform are costly, complex and fail to distribute fairly between member states.

Ciolos is in danger of being seen as the least effective farm commissioner since Réne Steichen who was also seen as a trojan horse for France. Like Ciolos, he was educated in France but at the end of the day he turned out to be somewhat less beholden to France than expected.

The European Parliament is also concerned about moves by national governments to cut almost €500 million from CAP spending in 2012 last week. Instead, they re-affirmed their backing for the European Commission’s draft budget plan issued in April, which proposes a 2.3 per cent CAP budget rise within a wider 5.2 per cent year-on-year increase in commitments.

This is, of course, a dangerously nonsensical proposition against the background of serious budget deficits in Europe. If there is a collapse of the eurozone it will look even more so.

'Greening' measures prove controversial

2011-10-27T10:54:00.000-07:00

The 'greening' measures proposed in the Commission's CAP reform plans attracted criticism from several countries at last week's Farm Council in Luxembourg.

Defra secretary Caroline Spelman argued that the measures to take 7 per cent of land out of production amounted to a return to set aside. There was too much focus on taking measures in Pillar 1 rather than proven approaches in Pillar 2: Pillars

The Commission maintains that the measures are aimed at marginal land, but it does seem to be a rather blunt policy instrument. Having said that, not everything done in Pillar 2 has been cost effective by any means.

CAP reform proposals have no friends

2011-10-19T11:41:00.000-07:00

The Commission's proposals for the reform of the CAP have not gone down well in any quarter and have managed to draw fire from Britain and France: Reform

Of course, it was ever thus and one is never going to devise a reform that is welcomed in all quarters. However, Franz Fischler as commissioner had a new vision for the CAP which was more adjusted to contemporary realities. He also showed great subtlety in the tactics that he used to secure some real changes in the CAP, albeit that much was left to be done.

One suspects with the present reform that it very much 'business as usual' with some greening at the edges. It is far from clear that the 'greening' element has been well designed and will actually achieve its aims and here the French have a point.

Similarly, the capping of payments has a populist appeal as it seems to target 'fat cat' farmers, but once again it reflects the confusion and uncertainty that surrounds what the real objectives of the CAP are. Is it a social policy, is it about food security or is it about a competitive and efficient agriculture? One doubts whether it is about the last objective.

No great suprises in CAP reform proposals

2011-10-12T13:32:00.000-07:00

There are no great surprises in the widely leaked Commission proposals for reform of the Common Agricultural Policy released today: CAP reform

Also, not surprisingly, UK ministers have criticised the proposals as inadequate.

The reform proposals have been overshadowed by the eurozone crisis which has understandably been dominating the EU agenda and media discussion. Its outcome will shape the future of the EU.

However, whatever shape the future eurzone takes, it is likely that budgetary pressures will ultimately play a substantial part in influencing the outcome of the CAP reform discussions.

CAP reforms 'turning clock back'

2011-10-07T01:57:00.000-07:00

Farm minister Jim Paice has luanched an outspoken attack on farm commissioner Dacian Ciolos, accusing him of 'turning the clock back' in his proposals for CAP reform.

Paice was addressing a fringe meeting at the Conservative Party conference. He hinted at disappointment that the efforts that he and secretary of state Caroline Spelman had made to build relationships in Europe had not paid off.

Read more here: CAP reform

Dual blast on CAP from Court of Auditors

2011-09-29T00:07:00.000-07:00

The Court of Auditors has delivered a dual blast at the CAP. The first report considers the £2.5bn of spending a year on agri-environmental schemes. It argues that poor design makes it difficult to assess the extent to which agri-environmental schemes achieve their goals: Agri-environmental

The Court found that objectives set by the member states were numerous and not specific enough for assessing whether or not they have been achieved. Although the environmental pressures are identified in rural development programmes, they cannot be easily used to provide a clear justification of agri-environmental payments.

There were considerable problems about the relevance and reliability of management information. In particular, very little information was available on the environmental benefits of agri-environmental payments.

The report is significant given the declared intention to 'green' the CAP in the next stage of reform.

In a report just released the Court has criticised the mechanism used by the European Commission to recover undue payments made under the EU's €55 billion-a-year Common Agricultural Policy (CAP): Recovery

The ECA found that 90 per cent of the amounts listed as recoveries in the EU's annual accounts represented reimbursements from national budgets rather than actual recoveries from CAP beneficiaries. Its report says that while this approach protects the financial interests of the EU, it diminishes the deterrent effect of recovery from beneficiaries.

Following an earlier report in 2004, changes implemented in 2006 had improved matters by providing more accurate information and greater detail on debts and recoveries at member state level. However, the system had certain shortcomings such as running the risk of encouraging the write-off of debt as early possible or reporting debt as late as possible.

There were also, not surprisingly, variations in the conduct of member states. This meant that debts were recognised at different times, reported figures were not comparable, interest was applied inconsistently and the point in time at which debts could be witten off varied significantly. All of this had a negative financial impact on the EU budget.

OECD calls for farm subsidies to go

2011-09-22T00:10:00.000-07:00

The OECD is arguing that currently relatively high farm prices provide a window of opportunity to scrap farm subsidies: OECD

If only it were so, but the underlying politics does not permit it. Farmers will point out that input prices have also risen and mobilise food security arguments to justify the need for subsidies. Veteran Farmers Weekly columnist David Richardson is even waving the threat of food rationing in the latest attempt to alarm politicians and consumers.

In fact the rise in commodity prices has reduced the share of farm incomes that comes from subsidies. Across the OECD countries this fell from 22 per cent in 2009 to 8 per cent in 2010. It is consistent with a long-term declining trend.

This is not because subsidies have been cut in response to the fiscal crisis, but because of a reduction in countercyclical payments. Even so the 34 OECD member countries spent $277bn last year subsidising their farmers. Subsidies account for about 9 per cent of US farmers' income, but the figure is 28 per cent in the EU.

China has jumped on the subsidies bandwagon. The amount paid out last year went up to a record $147bn, an increase of 40 per cent on the preceding year. This pushed the share of Chinese farm income drawn from subsidies to 17 per cent, near the OECD average of 18 per cent. Direct payments to grain farmers in China have been consistently increasing since their introduction in 2004.

Britain and Poland have issued a joint statement calling for CAP reform and in particular less emphasis on Pillar 1. Poland joining the reform camp is a step forward, although it is interesting that one of the stipulations is a convergence of direct payments across the EU. See more here: Poland

Sugar quotas to go

2011-09-16T01:03:00.000-07:00

The EU is to end sugar quotas and guaranteed minimum prices in 2016. This represents a one year extension after the scheduled end to quotas to give producers more time to adjust: Sugar

It is hoped that the change will boost output and reduce prices by as much as 8.2 per cent. It will also align the EU more closely with world markets, boosting exports and reducing imports.

It has a taken a long time to reform the sugar regime, but this is another step towards a more market oriented system.

Greening element in CAP reform increased

2011-09-16T00:34:00.000-07:00

The European Commission is proposing to increase the greening element in the CAP reform in relation to Pillar 1 measures: Greening

The proportion of farmland to be placed in ecological measures would be increased from the previously proposed 5 per cent to 7 per cent. Such features include fallow terraces, landscape features, buffer strips and afforested areas.

It is also proposed that farmers should grow a third arable crop covering at least five per cent of their farmed area. This seems to be an intervention in commercial judgments by the farmer which may not bring commensurate environmental benefits despite concerns about monocultures.

Needless to say, farming unions are not happy with these proposals which they are presenting as a threat to food security.

Farm incomes up

2011-09-12T04:34:00.000-07:00

Farm incomes are up in the EU, but there is considerable variation across member states. EU farm incomes jumped by almost 13% last year, thanks to higher crop and milk prices, but the UK was among just seven member states to see a drop.

The biggest increases in earnings are attributed to Denmark (an astonishing 57% higher), Estonia (+46%), the Netherlands (+39%) and France (+34%). The UK, however, recorded income 6% lower than a year earlier. It should also be noted that key input prices such as fuel and fertilisers have been on an upward trend.

In the UK's case, exchange rates have been a significant factor. The 2010 statistics reflect a decline in the exchange rate at which payments through EU direct aid schemes were converted from euros to sterling. In the UK, this meant a fall in the value of the Single Payment Scheme and other payments of some 12 per cent.

Interestingly, the statistics reveal that a mere 15% of EU farmers claim 85% of CAP subsidies.

The same figures also show that farmers in general are still relying heavily on CAP subsidies – Pillar One and Pillar Two funds made up 42% of farm incomes last year, up from 39% in 2008. This shows a worrying dependence on subsidies and illustrates why it is so difficult to dismantle them or even reduce them substantially.

Farm subsidies face cut in US

2011-09-08T03:27:00.000-07:00

There's nothing like a budget crisis for focussing the mind and it looks as if farm subsidies in the US may be facing cutbacks, even the politically well entrenched cotton subsidy: Subsidies

Quite how those pressures will play out in the tortuous EU budget process is another matter. In the US there is a direct trade off with spending on health and education. In the EU these are domestic budgetary responsibilities.

France seems confident that the existing budget can be defended, but there may well be some trimming.

Birdlife International critique greening delivery mechanisms

2011-09-06T07:32:00.000-07:00

Birdlife International have understandably welcomed the Commission's stated intention to devote 30 per cent of Pillar 1 funding to 'greening' the CAP. They think that it could make a real difference in terms of the delivery of public goods by the CAP.

However, as always the devil is in the detail and they think that some of the proposed policy instruments are not fit for purpose. Indeed, on a scorecard they fail six of the twelve and give an 'unclear' rating to the other six.

Read their report here: Birdlife

Defra tries to revive reform coalition

2011-09-06T01:42:00.000-07:00

Defra is trying to revive a coalition of support for radical reform of the CAP, holding meetings with Sweden and Denmark: Reform

Of course any coalition would need a broader base of support. In the past the Netherlands has joined in and at one time a particular political conjunction in Italy which no longer exists attracted their support. Liberally oriented former Communist states might also be supporters, but they will be hoping to get higher payments out of any settlement.

In any case the real obstacle to reform is the determination of France to maintain subsidy and protection. It usually has the support of Germany as part of broader political trade offs.

Of course, if the eurozone crisis deepens, as it threatens to, all bets may be off.

Storm of protest greets 'capping' plans

2011-08-12T01:42:00.000-07:00

A storm of protest from farmers and their representatives has greeted the leak of European Commission plans to cap Single Farm Payments (SFPs) to large farms. The proposals should have come as no surprise as the Commission sets out to meet imperatives to cut the CAP budget and make it superficially fairer. However, critics say that the move undermines the international competitiveness of EU agricultire.

Under the leaked proposals individual farmers receiving above €150,000 (£132,000) in payments would lose 20 per cent of that support with the amount increasing proportionately for those raising larger sums. There would be an overall limit of €300,000.

The cutbacks would not apply to the so-called 'greening' element of Pillar 1. They would also take account of farms with large workforces through a so-called 'salaried labour intensity' indicator. However, most large farms are relatively capital intensive and make extensive use of contractors who presumably would not count.

The Commission intends to introduce legislation to close a loophole that might be available to farmers by splitting up their holdings into separate legal entities or transferring payments to relatives. Some of them may have already done this or still have a period of grace to do so.

In a sense this is a shift in the direction of confirming that the CAP is essentially a social policy for marginal farmers. Competitiveness is a formal objective, but has always been given relatively little attention.

Not so sweet?

2011-07-25T06:54:00.000-07:00

Warwick University's Ben Richardson takes a look at sustainability issues surounding the sugar industry: Sugar

What does the budget mean?

2011-07-20T23:54:00.000-07:00

Sophia Davidova, president of the Agricultural Economics Society, offers her assessment (reproduced from the AES Newsletter):

The Communication from the European Commission on the budget for Europe 2020 is now in the public domain. Does it answer questions such as: whether the CAP budget will be consistent with the vision for future CAP developments; will the direction taken in previous CAP reforms for incremental increases in the funding of Pillar 2 be maintained or there will be a U-turn to what I call a ‘counter-modulation' towards transferring funds from Pillar 2 to Pillar 1; and to what extent will the CAP budget be maintained in real terms? These questions directly target the core justification for the CAP. But if there is no strengthening of Pillar 2, this may undermine the public value of CAP expenditure as a response to the priorities of the European citizens for ecosystem services and rural development.

The budget for the CAP for 2014-20 in 2011 prices is €372 bn, plus €15bn for research and innovation. Year on year the budget for ‘Sustainable Growth: natural resources' will decrease in real terms - by 10% from 2014 to 2020. On the other hand, expenditure on ‘Smart and inclusive growth' (including competitiveness and cohesion) will increase by 17.7%. The allocations plainly assume 2% annual inflation to maintain the budget for both Pillars 1 and 2 constant in nominal terms. The decline in the share of the total budget taken by total CAP expenditure will continue, reaching 33% in 2020 (from 39% in 2014).

It is difficult to say if this budget is a victory for the supporters of CAP and in particular Pillar 2, which recent rumours preceding the decision suggested. However, the lack of political will to rebalance funds in favour of Pillar 2 means that the EU will hardly be able to tackle the enormous rural and agri-environmental tasks ahead - unless we believe that mandatory Greening of Pillar 1 will deliver significant environmental public goods.

The budget could not be anything else than a compromise with such divergent interests amongst the EU-27. Many Member States, not just the UK, have criticised it as too generous. There will be debates on the own resource proposals, and what happens to the adjustments and rebates. It is also worth remembering that there are disagreements on the CAP budget even within the UK between government departments, and between DEFRA and the devolved administrations. Although a compromise, there is no certainty that these are the budgetary outlays that will be decided and implemented, since the European Parliament and the Council will have their say on the Commission communication. Thus, the uncertainty continues.

Real term cuts in CAP budget

2011-07-18T02:55:00.000-07:00

Now that more information is becoming available about the CAP budget 'freeeze', it is evident that what is really envisaged are real term cuts. The envelope for the CAP post 2013 is €371.7bn in 2011 constant figures (€281.8bn of that is first pillar and €89.9bn second pillar). This compares to €417bn in the current financial perspectives. There is yet much to be decided in terms of how policy will be revised in the light of these budgetary constraints.

A system of 'reverse modulation' was envisaged whereby money could be shifted back from the second to the first pillar, but after protests by environmental lobby groups this was axed at the last minute. 30 per cent of direct support will be made contingent on adhering to greening measures that go beyond current cross-compliance requirements.

There will be a slow convergence process to address the differences in direct payments received by member states, i.e., those that have will not see it disappear immediately. The long-term aim is to ensure that all member states reach 90 per cent of the EU average, but significantly this will take account of differences in wage levels and input costs. The main beneficiaries of this approach are likely to be the Baltic States, Portugal and Romania. Poland and Bulgaria will gain only marginally.

There has been some backing down on the capping of support to major agricultural holdings which will now take account of the 'economies of scale of larger structures and the direct employment these structures generate.' How these might be measured could in itself be controversial. Any savings would be retained in national envelopes and recycled into budgetary allocations for rural development, but influential, large-scale farmers will still lobby hard on this topic.

Environmental groups took the view that the proposed measures did not represent effective steps towards ecological sustainability and a green economy.

Farmers' unions accept CAP budget proposals

2011-07-08T00:25:00.000-07:00

Although they are concerned about particular aspects of the CAP budget proposals, such as the flexibility to transfer funds between the two pillars, farmers leaders are unsurprisingly generally satisfied with the deal against a background of fiscal austerity: Budget

Not surprisingly, farming organisations want to claim some of the credit, but much of it must go to France for a resolute defence of what it sees as its interests. It helps if the farm commissioner has strong French links and understands the French point of view.

Equally, the RSPB, as a leading spokesperson for conservation interests, is less happy. C'est la vie.

China goes nutty

2011-07-07T00:58:00.000-07:00

World supply and demand patterns for food are being affected by the development of a prosperous middle class, not least in China. Such developments provide challenges, but also opportunities for food producers and exporters. Moreover, in a market economy, production substitution can occur.

In China an appetite for healthier living has stoked demand for nuts, sending prices of cashews and other snacks to record levels. The trading price for cashew kernels is up more than 60 per cent from a year ago, walnuts are up 43 per cent and pecan kernels are up 38 per cent.

The Chinese have always enjoyed nuts, but the recent boom reflects a growing awareness of their health benefits. They are rich in vitamin E, oils and proteins. Walnuts are considered good for the kidney and the brain. In a country where traditional forms of medicine remain strong, recent news reports that pistachios prevent prostate cancer has triggered a rush for the nuts.

China used to be a net exporter of walnuts but is now a net importer. Imports from California doubled last year, making a small dent in the US trade deficit. Product substiution seems likely to occur with almonds, which are cheaper than most nuts, taking the place of cashews.

One must not forget that large portions of the Chinese population have Global South levels of income. On a per capita basis Chinese consumption remains low compared with developed countries but for nuts and other foods this will continue to change as the Chinese economy grows.

As far as the CAP is concerned, I must confess that I have forgotten how the support regime for nuts works. It just shows how much detail and complexity there is in the policy. I do know, however, that the Court of Auditors has criticised over payments in Spain and Greece.

Initial win for France

2011-07-03T01:03:00.000-07:00

France has won the first round of the CAP budget negotiations with the Commission recommending that the farm budget should be frozen in real terms up to 2020, although additional provision would be made for the accession of Croatia and a €500m 'crisis intervention fund': Budget

Of course this is only the first stage in a long battle. The budget plans also assume a 5 per cent increase in the overall budget at a time of fiscal austerity and the UK has made it clear that it will oppose this increase. If it went ahead it would shrink the CAP share of the budget from 45 per cent to 38 per cent despite the total farm envelope being protected.

This budget recommendation might seem to confirm the view that French educated farm commissioner Dacian Ciolos is in the pocket of Paris. NFU president Peter Kendall recently criticised him for favouring a bucolic view of the countryside that promoted small, traditional farms (which are numerous in Romania) Mr Kendall said that Mr Ciolos had taken a 'Lark Rise to Candelford' view of agriculture which was old fashioned and shunned development.

There are concerns that the complexity of the changes proposed for the CAP and the delays which result from co-decision mean that any new package will not be brought into place by the target date of 1 January 2014. It might have to be delayed for one year.

It has become increasingly evident that the CAP in its current form will outlive me but I wonder if it will also outlive my granddaughter who starts secondary school in September.

Why lack of data affects food prices

2011-06-27T12:20:00.000-07:00

One of the outcomes of the G20 food summit last week was an agreement to create a global database in an effort to better measure the level of supply, consumption and inventories of staple foods.

There is a justifiable view that insufficient information is contributing to volatilty in food markets. A price spike in 2007-8 was triggered by a fears of a shortage leading to bans on overseas sales and the hoarding of supplies. However, when better data became available, it was evident that fears of a shortage were misplace.

Outside the US little is known about the true state of supply, demand and inventories of staples. China, Russia and India are unwilling to share information with others about stocks in particular because they fear they could lose control over prices. Indeed, in China, such information is regarded as a state secret.

An earlier G8 initiative on oil markets is still struggling ten years after it was initiated. The agriculture market information system (Amis) has insufficient resources with the project based at the cash-strapped Food and Agriculture Organisation of the UN.

It's a good idea which should enable markets to work better but whether it can be really effective remains to be seen.

Sarko's regulation crusade makes modest progress

2011-06-26T01:02:00.000-07:00

President Sarkozy of France has been on a crusade to regulate agricultural commodity markets and he made modest progress at a two-day G20 conference in Paris last week. France made food security and commodity regulation a centrepiece of its G20 presidency after the 2007-8 food crisis and the rise of more than a third in global food prices over the last year.

France was able to secure a diluted deal to recommend that G20 finance ministers tackle the regulation of financial commodities markets. The communiqué agreed at the end of the Paris summit echoes an earlier deal by finance ministers to study limiting the number of contracts speculators can hold.

However, some argue that commodity markets bring a much needed liquidity to the farm sector. Last week the World Bank took the rare step of encouraging developing countries to buy insurance in the derivatives market against sudden changes in food prices with a deal that would allow the nations to hedge some $4bn worth of commodities.

The World Bank has struck a deal with investment bank JPMorgan who would offer simplified hedging instruments to the private sectors of developing nations, including farming co-operatives and food processing companies. The World Bank would underwrte $200m in credit risks while JPMorgan will take on a similar amount. It is anticipated that other banks will join later. Some critics would, of course, just see this as evidence that the World Bank is hand in glove with global capitalism.

The real problem with the G20 summit is that it backed away from action on biofuels and export bans. The subsidised encouragement of biofuels has boosted food prices. Marie Brill of ActionAid said it was a shame that the G20 had ignored a clear recommendation in a commissioned report from international groups to remove subsidies and mandates for biofuels. There are, of course, powerful interests in the US in particular linked to biofuels which are seen as a means of underpinning American energy security.

On exports, a report from the World Bank and the UN's Food and Agriculture Organisation said that 'export subsidies by major food exporters had strong destabilising effects on international markets' and recommended that the G20 use them as a last resort.

Threat to biodiversity funds

2011-06-23T00:45:00.001-07:00

The RSPB and Defra are concerned about a potential threat to funds paid under Pillar 2 of the CAP to support biodiversity and wildlife schemes: Biodiversity

It would be very unfortunate to say the least if savings in the CAP budget were made by capping payments that compensate for the provision of positive externalities for which there is the strongest case for public subsidy.

The bulk of any reductions should come from the SFP, although the concern here is that an attempt will be made to penalise efficient and competitive farms by capping payments. MEPs have been urged to vote against these proposals: Capping

A risk management toolkit?

2011-06-21T04:30:00.000-07:00

Farming as an activity is highly exposed to risk, in large part because of natural factors such as variable and unpredictable weather which are beyond the control of farmers even with modern agronomy and technology and a more knowledge intensive agriculture

As part of CAP reform the Commission has suggested the creation of a 'risk management toolkit' as part of the Rural Development Measures under Pollar 2. National governments of the member states might be given the option of choosing from a menu of options and receive co-financing from Brussels subject to an upper limit. One proposal is some kind of income safety net constructed in a way that is WTO compatible.

Stefan Tangermann is a highly respected agricultural economist who served as head of the agriculture and food division at OECD. He has produced an analytical paper on the subject of risk management and the future of the CAP: Risk management

Justifying farm subsidies

2011-06-12T04:28:00.000-07:00

There's been an interesting debate in the pages of the New York Times Book Review about the work of Freidrich Hayek.

Peter Dreier, a political science professor in Los Angeles, wrote in to justify some forms of government intervention. However, even he had a few problems when he came to farm subsidies.

He argues that 'during the Depression, federal agricultural subsidies saved family farms and rural jobs.' Anyone taking a social market position would accept that you have to take exceptional measures in a recession. The problem is that temporary crisis subsidies become permanent and create a set of clients who are prepared to use time and resources to lobby in their defence.

Drier admits, 'Today, a vast majority of farm subsidies go to large agribusiness conglomerates that don't need them, rather than to small family farmers.' It's an interesting question whether marginal businesses should receive some general subsidy as distinct from rewards for positive externalities such as environmental goods.

He goes on to say, 'food stamps, an indirect subsidy to farmers, clearly improve the general welfare.' However, that is the trick. By wrapping up subsidies to the poor in the farm budget, the agricultural lobby is able to win the support of Democratic urban congress members who otherwise would have no interest in maintaining farm subsidies.

It looks like there is an appetite in the House of Representatives to cut them against the background of an out-of-control federal budget deficit but it will be interesting to see what the eventual outcome is.

By the way, if you haven't seen it already, I would recommend the 'Keynes and Hayek rap': Rap . There is also a Round 2 in which JMK and 'Freddie' go toe-to-toe on the current recession.

France uses E.coli scare to boost CAP

2011-06-10T06:13:00.000-07:00

France's agriculture minister Bruno Le Maire has used the E.Coli outbreak in Germany to defend spending on the CAP. Pointing out that 17 people had died, he commented, 'I too would like us to be able to cut the budget [Really?], but we will have to explain to consumers that we will also have to cut back the sanitary controls that are partly paid for the common agricultural policy ... at a time when we are facing a big sanitary crisis.'

Mr Le Maire, who may become finance minister of Christine Lagarde goes to the IMF, called on member states to make a 'courageous and responsible decision' in negotiations over the budget for the CAP after 2013. In other words, minimal cuts.

This really is a presposterous and obnoxious piece of shroud waving. It would be perfectly possible to decide to maintain sanitary and phytosanitary spending whilst reducing the SFP.

Who compensates farmers and to what extent for the economic consequences of the E.coli scare remains to be seen. The amount available from the CAP has been topped up, but the question is how much cash strapped member state governments can afford, not least in Spain.

The German agriculture minister does not come out of this well. First, Germany went in to 'Club Med' mode, blaming it all on poor Spanish hygiene. Subsequently they have been unable to definitively identify the source of the outbreak.

MEPs side with Commission

2011-05-28T10:28:00.000-07:00

MEPs on the Agriculture Committee have sided with the Commission over the question of scaling farm payments so that bigger farms receive less: Scaling .

Such an idea has always been unpalatable to Britain, Germany and the Czech Republic which have a disproportionate share of larger farms. It was rejected by the Farm Council earlier this year, but farm commissioner Dacian Ciolos has continued to favour it. It has never been clear how practical it is, given that a farming business could be constituted as single different legal entities.

The MEPs assumed that the farm budget will remain the same as it is now. The CAP has some stout defenders but in a time of austerity and with many competing uses for the available funds, it is difficult to see some cutback being avoided. The MEPs also favoured the 'greening' of the policy but it is often Pillar 2 schemes that suffer when the budget has to be cut.

Of course, cutting back payments to larger farms would give some headway in the budget, but not that much. Underlying all this is the perpetual muddle about what the priority ordering of CAP objectives is, but in practice fostering an efficient and competitive European agriculture (which is what most larger farms do) often loses out.

Disciplining agricultural support

2011-05-25T01:44:00.000-07:00

The WTO may have rules in place to discipline domestic agricultural support, but in practice this is quite difficult given the propensity of countries to evade or fail to fully implement the rules given what they perceive as being their national interests. Three leading agricultural economists have produced a report on the subject which covers four developed countries (including the US, EU and Japan) and four developing countries (including India and China). It can be found here: Agricultural support

The report raises the question of the legitimacy of green box support which has been discussed on this page before. It notes that this has been treated as 'decoupled income support by the United States, the European Union, and China. There are large differences in the levels of such payments. The extent to which decoupled income support affects production remains uncertain but may be consequential. Limits might therefore be envisioned for this type of support to achieve a balanced set of future commitments.'

The EU has always taken the view that the SFP can be protected by putting it in the Green Box, but is always possible that this might be challenged in the WTO's Dispute Settlement Mechanism - although this would incur political costs for the country concerned.

Is a radical approach to CAP reform off the agenda?

2011-05-11T03:39:00.001-07:00

In the latest issue of Eurochoices the editor John Davis suggests that 'Those who favour a more radical approach to policy development [in the CAP] may now be considered "outliers".' He notes that CAP reform has followed an evolutionary path, which is certainly the case, and that as a consequence the Producer Support Estimate (PSE) has been reduced from around 35 per cent in the late 1990s to about 24 per cent in 2009 which is close to the OECD average (although the US figure is 10 per cent).

Of course, in the absence of any radical impetus, we may not progress much further. Those who take a relatively radical position may help to produce compromise positions which still lead to real progress on reform.

It is interesting that elsewhere in the issue an article by David Harvey and Attila Jambor point out the flaws in the conception that Single Farm Payments should now be interpreted as payments for public goods.

They note, 'In fact, these payments derive from and largely reflect previous coupled and production related support. They are a supplement to production-related market returns, and are treated as such by farmers.' As for cross-compliance it is 'often regarded as an unnecessary and irritating condition attached to deserved support for commercial farming.'

Commission insists on transparency

2011-05-06T00:01:00.000-07:00

The Commission has reacted to a court judgement on publishing details on farm subsidies by insisting on a commitment to transparency: Subsidies

While the judgement means that data cannot be published on 'natural persons' (individual farmers) the Commission's view is that it could and should be published about 'legal persons' (companies).

Given that many large farm businesses are constituted as companies, this could mean that taxpayers would still have access to data about the really big payouts. However, much depends on the follow up action taken by member states.

Defra no longer in charge of CAP reform

2011-04-30T17:25:00.000-07:00

The NFU's policy director Martin Haworth thinks that UK policy on CAP reform is no longer being driven by DEFRA. Rather the Treasury and the Home Office is in charge. Their priority is seen as being to protect the British rebate rather than British agriculture. The NFU is fighting to ensure that any deal to protect the rebate does not come at the expense of agreeing to cuts in farm support.

The NFU has been forced to give up its opposition to any 'greening' of Pillar One support and has accepted that CAP reform is likely to impose further environmental conditions on subsidy payments. The emphasis now is on ensuring that any measures are fair and achievable.

The NFU clearly considers that its stance has been undermined by that of the Country Land and Business Association (CLA) which has advocated ranking environmental mesures alongside food security in importance. NFU president Peter Kendall has described the CLA's stance as a 'noose around our neck' in the negotiations. It had made it easier for policy makers to argue that subsidy payments should be shifted from food production to the environment.

What impact will co-decision have on CAP reform?

2011-04-27T03:21:00.000-07:00

In an interetsing paper presented at the Agricultural Economics Society conference at Warwick University last week, Alan Greer and Tom Hind explored the possible impact of the introduction of the co-decision on CAP decision-making and reform prospects. They proceeded by setting out four scenarios:

Scenario 1 The 'conventional' view (often put forward in the media) in which the EP gains power at the expense of other institutions (assuming that there are significant points of difference).

There are two limiting factors on the ability of the EP to exercise power. First, as the lead committee ComAGRI has had very limited experience of co-decision and it has to develop positions that can command majority support across the Parliament. If its views are too close to those of the agricultural community (and the committee is more agriculturally focused than in the past), it could be challenged in the plenary, especially on environmental issues. Second, the Parliament has limited resources relative to the other institutions: the total staff of ComAGRI is around 15, plus three seconded researchers.

Scenario 2 The Council-EP axis in which the Council of Agriculture Ministers will use its expertise to work in close partnership with the EP to shape the legislation proposed by the Commission, weakening the latter. This depends on member states being able to work closely with national MEPs and the presenters argued (rightly in my view) that this scenario was not likely to develop in the next few years.

Scenario 3 The Commission-centric scenario in which the EP's resource void is filled by the Commission. The Commission would use its expertise and resources to work with the EP, using ithe role of arbitrator to facilitate agreement between the EP against the Council in order to shape the final outcome more closely to its preferences. The paper authors thought that this was the most likely scenario. The Commission had increased its displacement as a result of enlargement.

Scenario 4 'Co-indecision'. Co-decision might actually make decision-making more difficult. An average co-decision dossier takes 36 months to process. Some participants in the audience thought that this was the most likely scenario.

If that is the case, it does not bode well for reform. But any of the scenarios is likely to make the reform process more complex, slower and less radical.

'Greening' of CAP on its way

2011-04-23T04:42:00.000-07:00

Both Defra and the NFU think that they have lost the battle to prevent the 'greening' of the CAP: Greening .

The NFU is concerned about the impact of the proposed measures on competitiveness, but it looks as if farmers will have to comply with environmental requirements to claim their Single Farm Payment. The NFU is consequently going to re-think its tactics on this aspect of the negotiations.

The NFU also thinks that delays in putting forward formal Commission proposals means that the start of the new policy will be delayed until January with the existing policy rolled over for one more year.

Farmers' fuel tax break under threat

2011-04-19T00:02:00.000-07:00

The concession which provides farmers with 'red' diesel at a lower rate of duty are under threat. The diesel is coloured red so that checks can see if it is being used illegally off farm.

Draft plans by the European Commission say that current EU rules that allow member states to apply a zero rate of taxation on energy used for agricultural purposes should be repealed. The objective is to allow EU tax policy to contribute to 'green growth'.

The document argues that agriculture is one of the important sectors left out of the EU's Emissions Trading Scheme. The proposal says that a carbon tax of about £20/t should be introduced to bring agriculture in line with other sectors of the economy. It also calls for an energy consumption tax.

The news has been greeted with dismay by farming organisations at a time when oil prices have been rising. The duty rate on red diesel has increased nearly fourfold over the past decade. Farmers were paying an average of 63p a litre for red diesel in February, up from 46.9p in February 2010. This still compares very well with the price paid by hauliers and motorists.

Times have changed

2011-04-13T06:40:00.001-07:00

As farm commissioner Franz Fischler pushed through a reform of the CAP against resistance from member states. However, in an interview with Agra Focus he indicates that in the changed environment of co-decision such a strategy is no longer feasible.

Asked whether the plans put forward by current Commissioner Dacian Ciolos went far enough, Fischler commented that the plans were rather vague and went on to say, 'I accept that under the new circumstances, under the way decisions will be made in the EU with the co-decision procedure, one cannot do what we have done in the past - that is to say come forward with a big surprise, a big reform, where everybody is against this reform at the beginning. This doesn't work anymore so one has to find a different approach and in principle I think the approach of Ciolos is the right one, but how far can you go?'

Fischler is a candidate for the post of director general of the UN Food and Agriculture Organization which is perhaps not as influential as it once was and needs a strong hand at the helm to revive it.

Complete Doha Round demand reform states

2011-04-04T04:14:00.000-07:00

The prime ministers of the nine of the more reform oriented states have called on the EU to do it all it can to conclude the Doha Round in 2011 which they term a 'make or break year'. The letter, entitled Getting Europe Growing is signed by the leaders of the UK, the Netherlands, Sweden and Denmark, the leading lights of the traditional reform bloc. They are joined by the Baltic states, Poland and Finland. The absence of any southern member states is significant.

WTO trade rounds have been the most effective driver for reform of the CAP because they provide an exogenous pressure which helps to overcome internal obstacles. Manufacturing and service industry interests exert pressure when they see an agreement with benefits for them jeopradised by a failure to agree on agriculture. This is what happened in the concluding phase of the Uruguay Round.

Unfortunately for the hopes of reformers the political context has changed. The current administration in the US has not given a higher priority to trade policy and is preoccupied with coming up with a political deal that can provide an agreement on the budget. The political pressure for greater liberalisation that came in the past from agribusiness interests has weakened.

Even if the US and the EU could agree on the outlines of a deal they can no longer impose it on the other participants with some side payments. Emerging countries have become powerful players and while liberalisation suits Brazil's interests, India and China want to protect their peasant populations.

Plans to cap big farm subsidies lack support

2011-03-25T04:16:00.000-07:00

Plans to limit subsidies paid to big farms under the Common Agricultural Policy have won insufficient support in the Council of Farm Ministers: Big farms

The farm commissioner thought that the proposals would be popular with taxpayers. Possibly so, but they have always been opposed by UK and Germany, the countries with the largest number of big farms.

The CAP is supposed to be, among other things, about the international competitiveness of EU agriculture, although in practice more attention is given to propping up marginal farmers. Large-scale farms tend to be more efficient and competitive, so if there are to be subsidies, they should receive them on the same basis as everyone else.

Setback for reform

2011-03-21T04:52:00.001-07:00

Those wanting reform of the CAP have suffered a setback after 20 member states signed a declaration opposing radical reform of the policy: Reform . France was particularly pleased that Poland and Romania signed up given that accession states have been pressing for an eastward redistribution of funds.

The countries that refused to sign up were the reform camp of the UK, Denmark and Sweden; the three Baltic states (hardly big recipients of largesse); and Greece (which may have to do something with the current austerity package).

Although the UK acknowledged that the declaration was a setback in hopes for reform, budgetary pressures may yet have an impact on the final package.

Inside the CAP reform process

2011-03-10T02:09:00.000-08:00

A major new analysis of the CAP reform process, An Inside View of the CAP Reform Process by Arlindo Cunha with Alan Swinbank has been published by Oxford University Press. Cunha was Portugal's Minister of Agriculture during the negotiation of the MacSharry reforms and was involved in the Fischler reforms as a member of the European Parliament. Swinbank is one of the UK's most distinguished agricultural economists and has written extensively on CAP reform.

The books explains how the 'old' CAP became no longer fit for purpose, deals with the structure and functioning of CAP decision-making, examines the 1992, 1999 and 2003 reform and also the Health Check and includes the results of a Delphi survey of some of the key players in the reform process.

The analysis suggests that the series of reforms 'was initiated by the Commission, with a particularly important role played by the commissioner, with the Commission playing its cards as an agenda setter at a time when internal and external forces were pressing for policy change.' There is much talk these days of the relative weakening of the Commission in the EU policy process and one wonders how far it will be able to play this kind of role in the future.

It is noted that the Commission has not been as successful in developing rural development as the second pillar of the CAP as Commissioner Fischler would have liked, but the decoupling of support has been relentlessly pursued. Of course, one might add that it has made the CAP more respectable.

However, much has not changed. It is noted that that the CAP still pre-empts a large share of the EU budget and that support is very unevenly spread both between and within member states. Larger farms receive higher payments and payments reflect past production structures.

Lords committee calls for radical CAP reform

2011-02-02T00:19:00.000-08:00

The House of Lords EU Sub-Committee on Agriculture, Forestry and Fisheries has called for radical reform of the CAP: Lords . Direct payments should be phased out. The Committee welcomes proposals to 'green' Pillar 1.

The committee argues that innovation should be a central part of the whole reform agenda. This would unlock agricultural productivity which has been relatively static. High quality agricultural research and development, and its transfer to practitioners, are key to the future of EU agriculture. To boost funding, it should be possible to transfer money from the CAP to the research budget to fund Framework programmes.

The Committee calls for vastly improved farm advisory services so that farmers have better access to high quality impartial advice on possible innovative approaches. Unfortunately, publicly provided arrangements were dismantled a long time ago and it is difficult to see how they could be restored. Possibly private providers such as agronomists could undertake public policy work on a contract basis.

The report seems to reflect good sense, but there have been so many of these reports over the years and nothing much really seems to change as a result.

Financial speculation and volatile prices

2011-01-31T01:15:00.000-08:00

There has been increasing discussion recently about the link between financial markets such as those dealing with futures and derivatives and volatlity in farm prices. The subject has been highly contested and there is no consensus view.

This viewed is shared in a leaked draft of a Commission communication which concludes that there is no conclusive evidence on the causality between activity in derivatives markets increased volatility & price increases in the underlying physical markets.

The draft version suggests unsurprisingly that agricultural commodity prices are expected to stay higher than their historical averages reversing their long-term downward trend, with producer margins increasingly squeezed due to higher costs.

Similarly price volatility is expected to remain high, although 'uncertainties with respect to its causes and duration persist'. Referring to the ‘CAP Towards 2020’, it notes that food security has been identified as one of the main drivers for future reform in EU policy, underlining that a 'strong agricultural sector is vital for the highly competitive food industry to remain an important part of the EU economy and trade and a major contributor to international markets'.

Commenting yesterday on a decision to defer its publication, the Commission spokesperson outlined that there is 'no doubt about the links between the physical & financial markets', but that there is a 'need for more time to look at the specifics at play between the financial markets and markets that are not closely regulated' such as Over-the-Counter (OTC) derivatives. The Commission now intends to 'refine the analysis' on the reasons why markets fluctuate and seek greater clarity on the interaction between speculation and markets.

It's all in the green box

2011-01-28T01:15:00.000-08:00

The EU has done a good job of stuffing its CAP subsidies into the green box category which is supposedly free of distortions to international trade, this latest report from ICTSD shows: Green Box

Production-linked subsidies hit a new 'low' of €12.3bn, whereas green box subsidies such as the Single Farm Payment amounted to a new high of €62.6bn. That makes a total of €74.9bn and it is worth reflecting on the opportunity cost of that amount of spending.

As one comment on the report points out, what really distorts global trade are the EU's high tariff barriers, particularly in relation to so-called 'sensitive' products. Should the Doha Round resume, this is an area in which agreement will be needed.

Of course, there are questions about whether subsidies placed in the green box are really free of distortions to international trade and this could be tested in the quasi-judicial WTO dispute settlement mechanism at some point in the future.

The subsidies dilemma

2011-01-26T01:43:00.000-08:00

A farmer writing to Farmers Weekly says of Caroline Spelman's support for phasing out the Single Farm Payment, 'Surely she must realise the subsidy keeps most farmers in business?'

The correctness of this view in the short term, for livestock farmers at any rate, was confirmed by HSBC's head of agriculture Allan Wilkinson who said that livestock and dairy enterprises are likely to be even more reliant on subsidy payments to make a profit this year.

He told Farmers Weekly that while arable producers will benefit from the dramatic upturn in commodity markets, relatively static meat and milk prices, combined with big increases in feed costs, will put margins for beef, sheep and dairy producers under significant pressure.

Part of the answer is, of course, not subsidies but the response of the individual farm business to admittedly difficult market conditions. Mr Wilkinson acknowledged that output and costs varied significantly and that top-performing producers and those who had managed to secure higher end prices or cheaper inputs would fare better.

He commented, 'It's clear that volatility is here to stay and the successful busineses will be those that devote more effort to marketing strategies, in conjunction with a continued focus on technical efficiency and lowering production costs.' In other words, farmers have to get smarter.

Subsidies may not help them to get smarter. With Simon Marsh of Harper Adams University College, Farmers Weekly is following the month-by-month progress of an upland suckler herd that's consistently performing in the top 1 per cent of all costed herds. Mr Marsh commented, 'For too long, the UK beef industry has relied on support payments and it has stifled incentive to strive for efficient production.'

I was recently talking to a journalist from an esteemed weekly who has written on the CAP. He commented that when prices were low, the French (as the main defenders of the CAP) said that subsidies were needed to boost farm incomes. When prices were high or volatile, they were needed to ensure food security. He once asked a French minister if there were then any conceivable market circumstances in which an argument could not be produced in favour of subsidies.

We do not start with a blank sheet of paper and a sudden withdrawal of subsidies would seriously disrupt the market. But we should be starting down that road. Many farmers would be happier getting their return from their market without all the transaction costs of filling in forms to claim subsidies and the hazard that you may be denied part or all of your entitlement because of an inadvertent error.

What is more the UK is facing up to £1bn of fines from the EU in large part because of incompetent handling of Single Farm Payments (some £664m appears to relate to Defra). This was described in 2009 by the Commons Public Accounts Committee as a 'singular example of comprehensively poor administration on a grand scale.' Britain has now joined Italy and Greece among the worse offenders on farm funding

Global farming food and future report out

2011-01-24T06:35:00.000-08:00

An important report led by the Governnment's Chief Scientific Adviser, Sir John Beddington, setting out the challenges facing farming and food supply on a global basis is now available: Farming Future You can hear a Radio 4 discussion on the topic here: Beddington

This should provide a basis for a serious discussion about how agricultural productivity can be raised whilst coping with the challenge of climate change and other environmental considerations such as the maintenance of biodiversity.

Land is a finite resource, indeed its availability is diminishing because of urbanisation and the effects of climate change. Farming and food is very dependent on oil at various stages of the food chain, while the availability of water is an increasing constraint.

In the longer run support for the farming industry should not come through blanket subsidies but by, for example, ensuring that there is an adequate research structure that is oriented towards devising practical solutions towards the resolution of pressing problems.

Buoyant market for SFP entitlements

2011-01-23T10:06:00.000-08:00

The market for SFP entitlements appears to be buoyant. Buyers far outnumber sellers which naturally tends to push up prices. George Paton of WebbPaton told Farmers Weekly that they had a requirement for 2400ha on their waiting list.

The confiscation of entitlements under tighter usage rules has had the effect of reducing the number of 'spare' entitlements. There are also more buyers about, some of them finally getting round to buying entitlements for land that missed out on the original allocation in 2005.

English flat-rate entitlements of €241/ha are currently worth around £205/ha, which is close to the level they can be expected to pay out in 2011, assuming exchange rates remain similar to current levels (when the pound fell against the euro it pushed up the value of payments received by farmers in sterling.) Entitlements for Severely Disadvantaged Areas and Moorland Areas are once again in particularly short supply and are fetching up to twice their annual face value.

Ideally one would not pay general subsidies of this kind to farmers at all. However, if one does have them, there is an argument for having a secondary market to re-allocate them more efficiently to those who think they need them most.

In a sense those who buy and sell in this market are taking a bet on the sterling/euro exchange rate. Of course, this not only affects the sterling value of the SFP, but also key input prices which have been rising substantially recently. 'Red' diesel for use on farms is taxed at a lower rate than diesel bought for normal domestic or business use, but its price has been pushed up substantially recently by rising world oil prices.

Ciolos lays it on the line

2011-01-21T06:05:00.000-08:00

Dacian Ciolos has emerged as a more authoritative and decisive farm commissioner than many expected. Whether his line is the correct one is another matter. But the grumpy old man of British farming, Farmers Weekly correspondent David Richardson writes of his appearance at the Oxford Farming Conference, 'he had comprehensively mastered his brief and, when questioned, actually answered as fully and frankly as any politician I have known.'

The content of his message is perhaps less welcome. It's clear that he sees his job as being to change the CAP but also to defend its essential elements. I do, however, welcome the news that research and development may be included in pillar two. The food chain needs more publicy funded, applied research which can help to tackle pressing policy problems and on farm challenges. This has been cut back drastically over the years.

It is evident that the Commissioner thinks that part of the price of defending the CAP is capping subsidies to larger farmers. He is clearly influenced by his Romanian experience where it has been possible for farmers with very large farms (presumably in some cases former collective farms) to use the income from subsidies to start other businesses. This is evidently resented in Romania where there are also many small (and by European standards) relatively backward farms.

Ciolos argues that in some parts of Europe the choice is small farms or no agricultural activity at all. It may be that in some of these areas agricultural activity is not really viable and the land should be farmed as an ecological asset to maximise environmental benefits.

Ciolos argues that it's very difficult to explain how giving €2m to one individual or company is 'income support'. If the CAP really is income support, it's an inefficient way of delivering it.

What is continually overlooked with the CAP is the international competitiveness dimension which is supposed to form part of the policy. Large-scale farmers tend to farm to a high standard (including animal welfare standards), are highly competitive and also are often substantially involved in agri-environmental work.

If you cut off aid to them, you are penalising them for being more efficient. In any case there would be all sorts of legal problems over the definition of a farm business.

Ciolos evidently sees the CAP as more justifiable as a mechanism for the transfer of funds from taxpayers and consumers to marginal farmers. It is actually not an efficient way of helping them or the environment, it doesn't do much for food security (given that their output is low) and it doesn't help the EU food industry to become more competitive.

Spelman hits raw nerve with Ciolos

2011-01-14T05:16:00.000-08:00

The speech by Defra secretary of state Caroline Spelman has clearly hit a raw nerve with farm commissioner Dacian Ciolos: Ciolos

In essence what Ciolos is saying is that this was a speech made for domestic consumption, but it will cut no ice in Europe. Depressingly, he is probably right, but the secretary of state was still right to set out her stall. She may be able to have some impact on the details of any deal, particularly when the budget dimension is brought into play.

Once again food shortages and volatile prices are in the news. If nothing else, this is a case for doing something about the high tariff barriers which surround the EU in the food area, particularly on so-called 'sensitive' products. If developing countries could get more access to developed markets, they would be incentivised to move towards more commercial agricultures which would feed more people both at home and abroad.

There are, of course, a lot of complex issues here and there are undoubtedly some areas of the world where improving semi-subsistence agriculture is the best way forward. But no one is going to become genuinely prosperous that way.

The big politics behind the CAP deal

2011-01-07T01:28:00.000-08:00

Why was Dave Cameron willing to do a deal with France and Germany on CAP subsidies given that he is genuinely an Eurosceptic? This article (which was easy to miss as it came out on Boxing Day) explains the big politics behind the deal and opens with some amusing remarks about CAP subsidies: CAP deal

Call for fundamental CAP reform

2011-01-05T06:25:00.000-08:00

In a major speech at the Oxford conference, secretary of state Caroline Spelman has called for a more ambitious approach to CAP reform and a fundamental change in the nature of the CAP: Spelman

She's talking the talk like former secretaries of state, but walking the walk is always more difficult. Only in very special circumstances has it been possible to build anything like a winning coalition for reform. Current thinking reinforces the trend towards protectionism she rightly criticises.

Has a grand deal been done?

2010-12-20T21:49:00.001-08:00

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

2010-12-15T06:21:00.000-08:00

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

2010-12-13T08:20:00.000-08:00

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

2010-12-13T03:27:00.000-08:00

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

2010-11-29T01:39:00.000-08:00

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

2010-11-18T06:24:00.001-08:00

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

2010-11-15T06:32:00.000-08:00

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

2010-11-14T00:39:00.000-08:00

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

2010-11-10T10:52:00.000-08:00

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

2010-10-27T03:20:00.001-07:00

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

2010-10-19T07:50:00.000-07:00

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

2010-10-19T01:31:00.000-07:00

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

2010-10-08T01:59:00.000-07:00

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

2010-10-07T06:10:00.000-07:00

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

2010-10-04T01:44:00.000-07:00

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

2010-10-04T01:28:00.000-07:00

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

2010-09-19T00:31:00.000-07:00

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

2010-09-15T00:26:00.000-07:00

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

2010-09-14T05:24:00.000-07:00

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

2010-08-26T01:24:00.000-07:00

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

2010-08-06T05:58:00.000-07:00

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

2010-07-11T00:39:00.000-07:00

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

2010-07-06T04:42:00.000-07:00

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

2010-06-29T02:20:00.000-07:00

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

2010-06-28T09:59:00.000-07:00

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

2010-06-22T01:05:00.001-07:00

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

2010-06-17T01:03:00.000-07:00

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

2010-06-10T03:18:00.000-07:00

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

2010-06-05T06:20:00.001-07:00

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

2010-06-02T08:24:00.000-07:00

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

2010-05-24T03:49:00.000-07:00

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

2010-05-23T22:13:00.000-07:00

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

2010-05-23T00:28:00.000-07:00

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

2010-05-18T04:16:00.000-07:00

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

2010-05-15T09:30:00.001-07:00

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

2010-05-13T01:16:00.000-07:00

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

2010-05-05T05:08:00.000-07:00

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

2010-04-27T01:06:00.001-07:00

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

Debate on future on CAP launched

2010-04-16T05:45:00.001-07:00

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

2010-04-16T05:32:00.000-07:00

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

2010-04-12T06:20:00.001-07:00

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.