Wait a minute

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

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

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

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

Food security and CAP reform

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

New book recommendation

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

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

An exercise in decoding

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

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

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

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

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

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

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

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

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

More information on the meeting is at Council

Credit crunch hits organic food sales

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

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

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

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

Farm visit, USA

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

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

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

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

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

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

What does Doha round collapse mean for CAP reform?

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

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

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

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

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

UK edges towards food security policy

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

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

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

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

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

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

Biofuel targets in doubt

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

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

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

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

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

French press for EU summit on CAP

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

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

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

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

Thinking about food security

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

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

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

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

Has rural development money been wasted?

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

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

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

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

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

Sarko blames Mandy for referendum result

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

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

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

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

Animal welfare dilemmas

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

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

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

The food price 'crisis'

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

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

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

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

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

GM feed ban crisis

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

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

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

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

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

Back to the bad old ways

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

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

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

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

Rethinking Less Favoured Areas

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

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

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

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

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

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

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

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

Health check contains few surprises

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

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

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

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

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

Farm land price boom

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

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

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

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

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

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