US tariffs will hit EU agri-food sector

Professor Alan Matthews examines the likely impact on the EU agri-food sector of 25 per cent tariffs imposed by the United States: http://capreform.eu/trump-ii-tariffs-and-the-eu-agri-food-sector/

It's not good news for the sector which has an overall trading surplus with the US.   Some niche or more up market products may be able to withstand the resultant price hike, but products more to the commodity end of the spectrum will be hit.

The EU doesn't have many options.  The favoured one of retaliation is unlikely to help the sectors that will be most affected.

Farmers welcome EU shift of tone but want more money

Farmers' lobby COPA/COGECA has given a broad welcome to a new Commission document on the CAP, but argues that more funding is needed to realise the vision.

The Commission's statement on the roadmap is here: https://ec.europa.eu/commission/presscorner/detail/en/ip_25_530

The farmers state: 'Today, the European Commission unveiled a key communication, long trailed by Ursula von der Leyen, outlining the EU’s vision for agriculture and food policy. This roadmap represents a pragmatic reset based on relevant analysis and grounded observations and proposes an ambitious catalog of future work strands. However, it fails to address the elephant in the room: the future CAP budget and the resources needed to finance this package of measures.

In its assessment of the current situation, the Commission appears to have regained its bearings in agricultural policy and is now speaking a different language. The importance of agriculture—its role and vulnerabilities—within the current geopolitical context is now fully acknowledged. Commissioner Hansen’s approach rightly repositions agriculture as a key strategic asset and a pillar of European sovereignty. Farmers are also recognized as entrepreneurs and innovators who play a crucial role in addressing climate challenges, protecting the environment, supporting the bioeconomy, and contributing to society as a whole. The Commission has also correctly diagnosed the sector’s demographic and economic fragilities, bringing the issues of farm income, competitiveness, innovation, cooperation and generational renewal back to the fore.

Political will, starting with a focus on simplification, also forms part of the picture. We welcome the need for stricter alignment of production standards for imported goods, particularly concerning plant protection products and animal welfare based on stronger and more comprehensive impact assessments, which should be published prior to any major trade decisions. The principle of ‘no bans without viable alternatives’ for plant protection products is explicitly stated, as is the need for a renewed approach toward the livestock sector.

Yet despite these positive elements, today’s announcement misses a fundamental part of the equation. In the current context, it is impossible to ignore the ongoing debate over CAP financing in the next Multiannual Financial Framework (MFF). Last week, Copa Cogeca warned of the dangers of merging funds and establishing single budgetary national plans. However, today’s vision makes no mention of the CAP budget and references to the second pillar and its funding are simply absent from the final version of the communication. The complementarity between the EAGF delivering on support and the EAFRD facilitating multiannual measures and investment is crucial for the sector and must be maintained.

Let’s be clear: ambitions and proposals will amount to little without a robust CAP. One which supports active farmers - regardless the size - and is backed by an increased budget in the post-2027 MFF. This budget must include automatic corrections for inflation and the growing responsibilities placed on agriculture. Without this, Europe’s farming communities will face significant challenges, and the vision for the sector’s future risks becoming a hollow promise.

How do we get older farmers to exit in favour of younger ones?

Generational renewal in agriculture is a hot topic in Brussels (and in the UK in the context of the APR debate) and Alan Matthews summarises his views given in a recent submission to a Commission looking into the topic in Ireland: http://capreform.eu/addressing-generational-renewal-the-situation-in-ireland/

He concludes: 'allocating yet more funding to young farmer measures mainly provides support to those who have already succeeded in entering the farming profession. There is mixed evidence on the extent to which it actually allows or facilitates more young people to enter farming. Here the principal barrier is gaining access to land, and this requires the exit of older farmers. Without giving a clear financial incentive for earlier transfer, the generational imbalance between young and old farmers will hardly improve.'

Future pathways for the CAP

An important report on the next reform of the CAP has been produced for the European Parliament Agri Committee: https://www.europarl.europa.eu/RegData/etudes/STUD/2025/759316/CASP_STU(2025)759316_EN.pdf

The report notes: 'The European agri-food system is facing an increasing number of challenges. Most of these challenges were already present when the current CAP was discussed. Other challenges, such as global food security on the European continent and the autonomy of European agriculture, have been put back on the agenda due to the Covid-19 crisis, the war in Ukraine, world geopolitical tensions and agricultural protests.'

The report helpfully distinguishes five future pathways: Within the two “production” pathways (Pathways A and B), there is a second trade-off between Pathway A (Intensification and exports)based on price competitiveness and Pathway B (Support for all types of farms)which aims at maintaining productive capacity by supporting farm incomes for all types of farms Within the three “climate and environment pathways, Pathway C (Resource use efficiency through the optimisation of current production systems), contrasts with Pathways D and E, which require much more profound changes (land-sparing for Pathway D vs land-sharing/agro-ecology for Pathway E).

The report comments: 'The dominance of transnational companies in food value chains is high and increasing (Howard, 2016). Industrial concentration is very high in the global agricultural commodity market, agri-food industries and farm input suppliers(seeds, pesticides, farm equipment, etc.). Multinational firms have a strong incentive to lobby against measures at the EU border.'

The report also notes: 'The growth in the economic power of multinational companies gives them increasing power over political processes. Interest groups that are financially and politically powerful are able to discredit their rivals on policy decisions (see, for example, Oreskes and Conway, 2010). The EU and MSs should strengthen the rules on the integrity and transparency of lobbying to improve the trade policy-making process.'

The usual suspects continue to subsidise

The OECD Agricultural Policy Monitoring and Evaluation Outlook 2024 has just been published and provides a comprehensive analysis and global reference on government support to agriculture across 54 countries, which shows that total support to agriculture averaged USD 842 billion per year during the 2021-23 period.

Support remains concentrated in a few large economies, with China, the United States, India and the European Union representing 37%, 15%, 14% and 13% of the total respectively. Although public support for agriculture has declined since 2021 it remains near historic highs and is still not sufficiently directed at critical innovation, productivity and sustainability goals, according to a new report from the OECD.

In this context, the share of estimated support dedicated to general services such as innovation, biosecurity or infrastructure averaged only 12.6% of total support in 2021-23. While it has been fairly stable since 2020, this share is well below the 16% seen at the beginning of the 21st century. These services are key elements in countries’ efforts towards sustainable productivity growth – the ability to produce more with less while reducing demands on the environment.https://doi.org10.1787/74da57ed-en

Why Mercosur deal concerns EU farmers

The EU deal with Merocsur has not gone down well with European farmers and this analysis refers to some of their concerns as well as the drivers of the deal: https://ukandeu.ac.uk/eu-and-mercosur-bloc-breakthrough/?mc_cid=60623adc76&mc_eid=a47fa58ca7

New EU farm supremo sets out his stall

The EU’s new agriculture chief is pushing for more of the bloc’s generous subsidies to be doled out to low-income farmers rather than big agribusinesses. Christophe Hansen told the Financial Times that the seven-year €387bn Common Agricultural Policy (CAP) should no longer reward the biggest landowners and instead focus on small farms, as discussions get under way on the bloc’s finances for the next decade.

[This, then, is a move towards treating the CAP as a welfare payment, but it is not an efficient instrument for delivering such payments.   What about international competitiveness and efficiency?]

 “We all know that the CAP budget will not be higher,” he said. “There is a lot of pressure because we have a lot of political priorities in the European Union so we need to better target the support to those most in need.”

The new EU commissioner, who took office on December 1, said his reform of CAP would not amount to a “revolution” and would not move “entirely” away from hectare-based payments. But changing the allocation would constitute the most significant overhaul in the history of the 62-year-old subsidy programme, which represents a third of the bloc’s annual budget.

The largest farms in the bloc have traditionally received most of the funding, with an analysis by the Institute for European Environmental Policy, a Brussels-based think-tank, estimating about 80 per cent of the direct payments go to roughly 20 per cent of farms.   [My view is that this is a lazy application of the Pareto rule and the actual figure is lower].

 Nearly 6mn farmers and landowners received direct payments in 2022, according to the European Commission. Discussions around the next EU multi-annual budget, which is due to run from 2028, have shifted towards a much greater focus on defence spending in recent months in response to Russia’s invasion of Ukraine and Donald Trump’s return to the White House. The US president-elect has threatened to pull out of Nato if allies refuse to spend more on the military.

Any CAP reduction will be met with fierce resistance from farmers who took to the streets of Brussels and other European capitals last year to protest against stringent environmental regulations, red tape and unfair prices. European Commission president Ursula von der Leyen in September vowed to ensure farmers receive “fair and sufficient income” and preserve farming amid financial and environmental pressures. Hansen, a centre-right Luxembourgish politician, said the commission should encourage farmers to look at “alternative income” streams.   [Historically there has been a suspicion that farm commissioners from Luxembourg are susceptible to French pressure].

While “producing and selling a tomato” was good, “it makes you vulnerable because it’s your only income”, Hansen told the Pinl ‘Un. Farmers could grow crops for biofuels or use their land for solar panels and other renewable energy sources. Planting trees that could be monetised as carbon credits should also be considered, he said.   [Farmers in the UK have been diversifying for decades].

Part of the commission’s response to the protests was to water down environmental standards that farmers were required to meet in order to access CAP support, despite widespread outcry from green groups. Von der Leyen on Tuesday is set to put forward further measures aimed at helping farmers sell their products at a better price.

The proposals, if agreed by EU lawmakers and member states, will make written contracts between farmers and food companies mandatory and allow more co-operation between national authorities to manage cross-border disputes.

Hansen said he also intended to ease competition rules to promote products from young farmers and require greater transparency in retail pricing. “Big retailers use certain products to attract the consumers and they use the weak position of the farmers in the supply chain,” he said. Christel Delberghe, director-general of the retail industry body EuroCommerce, said introducing stricter pricing rules would result in “inflation. What else?”

[Farmers in the UK have certainly been turned into price takers by supermarkets, but changing the balance of power is not easy because consumers demand cheap food].