Monday, December 27, 2004

New book

Our new book deals with many of the issues dealt with on this page. For further information and a 10% discount on orders go to Edward Elgar

Sunday, December 19, 2004

New ag secretary likes his pork

George W. Bush's nominee for agriculture secretary, Governor Mike Johanns of Nebraska, is a man who liks his pork. Outgoing ag secretary Anne Veneman was unenthusiastic about the 2002 farm bill that gave generous subsidy increases to US farmers. Mr Johanns was a strong advocate for the legislation, leading the issue for the Western Governors' Association during the debate over the legislation. President Bush praised the bill when announcing the nomunation, which led to a 27 per cent increase in farm subsidies last year to over $16bn, as 'critical to the success of our farmers.'

The stance of Governor Johanns is not surprising when one considers that Nebraska, which is the fourth largest agriculture exporting group, was also the fourth most heavily subsidised farm state between 1995 and 2003. According to the Environmental Working Group, the state's farmers (particularly corn, soyabean and wheat growers) received more than $7.5bn in subsidies between 1995 and 2003.

Mr Johanns' appointment received warm support from farm lobbies. Keith Berry, the president of the National Pork Producers' Council, called him a 'top-notch agricultural leader' and praised his involvement in international trade issues.

Saturday, December 11, 2004

No Turkish delight

As the controversy over future Turkish membership of the EU grows, it is becoming increasingly evident that the burden that would be placed on the CAP would be considerable. German Christian Democrats and leading politicians in France are advocating a 'privileged partnership' for Turkey as an alternative to full membership.

The Commission has estimated the CAP cost of Turkish membership in 2025 (at 2004 prices) at €11.3bn. A new study by the University of Wageningen, which admittedly makes an unrealistic assumption about membership being possible by 2015, gives a much smaller figure of an extra €5bn on the annual bill for agricultural and rural support. Indeed, the study also makes a number of other assumptions that may not be fulfilled such as reform of the sugar regime, abolition of export subsidies and a 20% appreciation in the Turkish lira. However, the study also argues that Turkish membership would lock the EU into a long-term commitment to continue transferring resources to an underdeveloped agricultural sector.

The report predicts that massive pre-existing problems of poverty and unemployment in rural areas would be made much worse in the short term by the shock of competition with farmers in the rest of the EU. Turkey is seen as being in no position to implement the complex regulatory structure of the CAP. This is not just a problem of a lack of trained staff, but the dual nature of the Turkish economy in which much work is casual and not officially declared. Moreover, diseases endemic to the country would delay the integration of the country into the single market for animal products for many years. Food hygiene standards are also poor.

The issue of further enlargement is becoming an increasingly fraught one for the EU. Ukranian overtures have received short shrift because of geopolitical considerations. But exactly where does Europe stop? New member states may be unwilling to slam down the shutters. However, this page has serious concerns about the admission of Bulgaria and Romania, both in terms of the financial implications and administrative systems in those countries. Yet delaying their admission would be a big blow to their efforts to reinvigorate their economies. There are no easy answers, but further enlargements are going to increase the pressures on the CAP.

Thursday, December 09, 2004

New member states flex muscles on sugar reform

Although they are to receive full rather than phased in payments under the Commission's proposals to deal with the unreformed sugar regime, a number of new member states have been lining up to try and dilute the reform, perhaps giving a hint of the way in which EU agricultural politics is moving.

Hungary, Latvia, Lithuania and Slovenia have signed up to a letter sent to Commissioner Boel arguing that production must be kept intact across the whole EU. Finland, Greece, Ireland, Italy and Portugal are also signatories to a letter which effectively calls for a policy that would freeze the existing distribution of sugar production. However, the Czech Republic, Poland and Slovakia are also said to be sympathetic to this 'conservative' or effectively anti-reform position.

Ranged against them is a smaller group of reform states: the usual suspects (Denmark, Sweden and the UK) plus one new member state (Malta). The UK's stance is in spite of the fact that research suggests that a 25% cut in the UK's production quota could lead to a 54% fall in the area under sugar beet. Germany and the Netherlands have some sympathy with this position.

Finland could be bought off by special measures for its Less Favoured Areas. France has advocated a more geneous restructuring fund. This could be a way forward, as it would allow restructing to proceed, but with more generous side payments to those who lose out.

Commissioner Fischer Boel has warned that it is unrealistic to expect sugar production to continue in all member states. Meanwhile, the Commission's proposals are under fire on from Oxfam.

Proposals not so sweet for Global South

Oxfam has argued that the Commission's proposals take too little account of the needs of traditional sugar suppliers. Oxfam emphasises the rather flimsy nature of the Commission's proposals for ACP countries and India. They current benefit from access to the EU market at high guaranteed prices which would be cut under the Commission's proposals.

Oxfam argues that prices should be kept high for a time to permit restructuring in poorer countries such as Mozambique and Zambia to allow them to compete on the world market. Such countries suffer from dilapidated transport systems and other infrastructure problems. Quite how long it would take to rectify these problems is unclear, but Oxfam recommends shallower price cuts over a long period.

This proposal has drawn the fire of the European chocolate, biscuit and confectionery industry (CAOBISCO) who effectively argue that Oxfam want to have their cake and eat it. They argue that the Oxfam proposals would artificially stimulate investments directed at an already oversupplied European market.

Beet and biodiversity don't mix

Support for cutting beet production in Europe comes from the Worldwide Fund for Nature who argue that it may be responsible for more loss of biodiversity than any other crop. They argue that it leads to loss of natural habitats, intensive use of water, heavy use of agro-chemicals and discharge and run-off of polluted effluent.

Sunday, November 28, 2004

New spy satellites to keep tabs on farmers

The EU is to use new ultrasensitive spy satellites to ensure that farmers are complying with the new single area payments regime. Near earth satellites have been used for some time to detect false claims for arable aid payments or for olive grove subsidies in Italy. The new satellites will be used to ensure that farmers are keeping their land in good environmental and agricultural condition as required by the rules of the new support regime.

The new generation of satellites will provide 'very high resolution' observations that can distinguish features less than a metre across, ten times better than the previous generation of remote-sensing satellites. It will be possible to tell whether farmers are meeting environmental obligations such as maintaining hedges or leaving enough cultivated land to sustain biodiversity around field boundaries. The EC Joint Research Centre in Ispra, Italy, carried out trials of very high resolution monitoring on 15,000 sq km of land last year and 50,000 sq km this year. Next year it expects to roll out an operational programme covering 150,000 sq km, about ten per cent of the EU's total agricultural area.

Although ways of analysing the images by computer are being worked on, the human eye will still be relied on to scrutinise the images for the foreseeable future. Traditional on-the-spot checks by inspectors visiting farms will continue to supplement the satellite monitoring.

For a polity that sometimes claims that it seeks to counter US hegemony, it is somewhat ironic that the project is particularly reliant on the US Quickbird and Ikonos satellites. The whole operation draws attention to the transaction costs of maintaining even a somewhat simplified support regime. The attractions of paying off farmers with a bond scheme remain strong, but such a scheme would be unlikely to attract political support.

Tuesday, November 23, 2004

Budget problems may affect future of CAP

The main driver of CAP reform from the MacSharry reforms of 1992 onwards has been the need to adjust to adapt to a liberalising international trade regime that has embraced agriculture. In contrast, reforms in the 1980s were driven more by budgetary pressures and were thought to be more susceptible to 'fudged' solutions that fooled those who were not CAP insiders as the political pressures were endogenous rather than exogenous.

However, budgetary pressures may become more important once the 'financial discipline' mechanism comes into operation in 2007. It is difficult to estimate how much the overrun will be because of the assumptions one has to make. However, Agra Europe has suggested that a cut of 7 to 9 per cent every year in subsidies from 2007 could be necessary. This would be a bombshell for farmers and create a political storm in countries such as France.

Pressures on the budget are likely to be increased by the Farm Council not going as far as the Commission would want in terms of a radical reform of the sugar regime, in particular increasing the size of the proposed compensation payments for beet farmers. Moreover, the weakening of the dollar against the euro, which seems likely to persist in the medium term increases the financial pressures on the CAP. Export subsidies are still with us and a weakening of the dollar increases the amount of the export subsidy that has to fill the gap between EU indicative prices for key commodities and world prices that are normally denominated in dollars.

Agra Europe goes so far as to suggest that the cut in direct subsidy could be as much as 30 per cent, but this would be a worst case scenario as far as disruption is concerned. It is the case that some countries are arguing that the EU's budget contribution is too high and should be reduced from 1.14% of Gross National Income to 1%. If this happened it would slash the EU budget by nearly one eighth and reduce the total amount available for agriculture in 2006 from €44.47bn to €39.73bn. However, it is unlikely that the budget would be cut by so much, particularly given the need of the UK to preserve its special budgetary arrangements won by Mrs Thatcher.

What is potentially more of a problem is possible cost overruns as the result of the admission of Bulgaria and Romania with their large and inefficient agricultural sectors. This is an often ignored time bomb that is ticking away with any doubts likely to be swept away by the inexorable momentum of the enlargement process.

One possible consequence of budgetary problems might be an attempt to revive the notion of top slicing the subsidies received by larger scale farmers. Such an idea was advanced by the Commission in the Mid Term Review, but was knocked on the head by political opposition from Britain and Germany. However, reviving a scheme of this kind would at best offset the cost of admitting Bulgaria and Romania.

The next round of budgetary pressures may have a greater impact on a CAP that has substantially changed since the 1980s.

Monday, November 22, 2004

EU hit by blow on GIs

The EU has been hit by the news that a WTO dispute panel has made a ruling against aspects of its scheme for the protection of geographical indications (GIs). The significance of this decision goes beyond preserving the integrity of terms such as Feta cheese and Parma ham. In our recent book (Coleman, Grant and Josling) on Agriculture in the New Global Economy published by Edward Elgar, GIs were given a central place in what we described as the 'multifunctional' paradigm of the agricultural economy.

The production of quality, specialised products for sale in internal and external niche markets is an increasingly important part of the EU food economy that can help to sustain farm incomes in a more liberal trade environment. Supporters of multifunctionality see scope for the recognition of GIs as signs of quality that deserve to be protected and nurtured in many parts of the world. They see WTO action on GIs as an essential offset for permitting more liberalised trade of agricultural commodities.

However, countries such as Australia and the US see the system of GIs as an attempt to monopolise terms which they see as semi-generic such as 'champagne'. The US argues that the EU system discriminates against well-known US GIs such as Idaho potatoes and Florida orange juice. The EU insists that its system does not prevent the registration of GIs from third countries - although no one has ever bothered trying.

The WTO panel concluded that EU regulation 2081/92, which requires other WTO members to offer the same level of protection for GIs as that set out under EU law in order to receive protection for their marks in Europe, violates the WTO's national treatment rules.

Mine's a Bud

The finding could have implications for the long-standing battle between well-known US-based brewing firm Anheuser Busch and the Czech brewer Budjejovicky Budvar for the rights to the 'Budweiser' and 'Bud' beer brand names. Budweis is the former German name for Ceske Budejovice where Budvar is based. When the Czech Republic joined the EU it secured GI registration for three names and is arguing in the court that it can use these names in translation

Perhaps wisely, the European Court of Justice has refused to get caught up in the row, ruling that it was up to the Finnish courts to resolve a legal fight in that country about whether the Czech firm could use the 'Budweiser' name.

CAP funds not correctly spent again

For the tenth year running the European Court of Auditors has felt unable to give a clear assurance that EU funds across the board were spent properly, although it did see some signs of improvement in relation to the CAP. The year being covered was 2002 which was the last year before enlargement.

The Commission's system of 'clawback' to recover misspent CAP funds after the event came in for particularly harsh criticism by the auditors. Only 17% of these funds have actually been recovered since 1971 and 10% have been written off as unrecoverable. Recovery of €2.31bn is left 'pending'. This evidence of systematic failures in EU procedures is just the kind of ammunition that proponents of the whole integration process need. The Commission points the finger at slow judicial and administrative procedures in member states, but this kind of 'blame game' is not going to solve the problem.

The auditors believe that the outgoing Prodi Commision has laid the basis for better financial control in the EU. What remains unclear is whether these new structures have altered behaviour and management culture. The Court of Auditors noted, 'There is still room for progress as regards agricultural spending in its entirety in order to rectify the significant shortcomings observed in the supervisory systems and controls.'

The Court found that arable payments were less prone to error or deliberate fraud than animal premiums Animals are, after all, less susceptible to satellite surveillance of the kind that one set of fields for which aim was being claimed was located in the North Atlantic. The phoney herd of cows allegedly kept on the 5th floor of an office block in Rome was, however, eventually exposed as a fraud. In fact some of the worst problems were in relation to southern products such as the tobacco, cotton and olive oil regimes along with export refunds and rural development. The three southern product regimes have now been reformed.

Serious underspending on programmes is also a problem that thwarts effective policy delivery. Pre-accession aid to enlargement states was a particular area of difficulty. Payments under the SAPARD instrument, designed to familiarise new member states with rural development programmes, had reached only 15% of available funds by the end of 2003. However, the Commission pointed out that early payments were made early in 2004.

Monday, November 15, 2004

Cauliflower farmers go on rampage

French cauliflower farmers have gone on the rampage after the EU pulled back from a plan to support them when prices fell below a trigger level. Hundreds of tonnes of cauliflowers have been dumped in Cancale in Britanny and two police officers were held for several hours by growers in a cooperative near Lannion. The protesters complain that they are facing unfair competition from new member states, especially Poland.

The Commission had been planning to take its own decision on the matter after the Farm Council was deadlocked on the rescue plan with no qualified majority for or against the proposal. The Commission argued that cauliflower production is characterised by wide fluctuations in supply depending on the weather, but that is true of many agricultural products and the real reason for action was French pressure.

However, the Commission as a whole threw out the plan for €2.5m of support a year. The EU's Management Committee for Fresh Fruit and Vegetables had been sharply divided on the issue, while EU Budget Commissioner Michaele Schreyer prevented the Commission from passing the proposal without discussion. Some Commissioners pointed out that giving the aid might be seen as a reversion to its bad old ways, handing old-fashioned market support to ailing sectors at a time when the budget as a whole is under pressure.

One possible future use for cauliflowers is as a source of bio-degradable plastics which could be used for surfboards. As a fashion item they are filling up landfills in Cornwall which is also a cauliflower growing area.

'I could have done better' says Fischler

Franz Fischler returns to his native heath
As outgoing farm commissioner Franz Fischler goes home to his native Tyrol, he has stated that he 'could have done better' in reforming the CAP. Nevertheless, he considers, with some justification, that the CAP was 'fundamentally redrawn to adapt it to the politics, economics and public mood of the new century. Could we have done better? Yes, but we cannot forget that "politics is the art of the possible"'. Fischler said that he had tried to be a change agent because that was in the long-term interests of farmers. He emphasised that he did not share the view held by some representatives that the interests of farmers were better served by preserving the status quo.

The wily Austrian has always had clear strategic goals in mind and has pursued them with considerable tactical guile. He has known when to stand firm and when to compromise. There are those he say that he should have pursued the radical option of 'double decoupling' meaning that farm payments should no longer be attached to the land. A bond scheme that would give farmers the funds for diversification or a retirement income is an attractive option, but it is uncertain how many would use it change their way of life while if the bonds were sold, the income could go to financial institutions. Logical from a market perspective, perhaps, but not good politics.

Sunday, October 31, 2004

Not Boeled over

Although the immediate crisis over the approval of the Commission by the European Parliament has been defused by the decision of controversial Italian commissioner, Rocco Buttiglione, to stand down, this has not removed the shadow hanging over the nominee for agriculture commissioner, Mariann Fischer Boel. Press reports identified her as a controversial member of Mr Barosso's team who might have to be reshuffled.

Her troubles date from an indifferent performance in front of the European Parliament's agriculture committee. She seemed to be nervous and subdued. In general the hearing was characterised by bland answers as the commissioner designate failed to get to grips with a series of targeted and specific questions fired at her by MEPs. Fischer Boel was understandably reluctant to box herself in by taking a clear stance on controversial issues. However, as a consequence, she was attacked by the Parliament for a lack of 'rigour' in defending the CAP.

The three hour cross-examination was not without its bizarre moments. Dutch Green MEP Kartika Liotard whipped out a picture of a pig being castrated without anaesthetic to press home a point on animal welfare. In response, Mrs Fischer Boel declared that she was 'not a specialist on pigs', but thought there must be rules about pig castration somewhere.

She was at her most spirited when attempts were made to revive accusations about conflicts of interest given that her husband is a farmer. French MEP Jean Claude Martinez laid into her with an attack on her impartiality, demanding to know how much money her family drew down in EU subsidies. She responded, 'I've never concealed that I'm married to a farmer and I've never considered that as a disadvantage for the post.'

The Commission earlier decided that there was no conflict of interest with her farming assets in Denmark, but she faced further criticism when the Danish newspaper
Politiken claimed that she failed to divulge details of her husband's financial investment in a farm in Russia. It was also revealed that, as farm minister, she had failed to declare to the Danish parliament that she had shares in Danisco, large sugar producer in Denmark. Fischer Boel sold the estimated €13,000 worth of shares just before she declared her financial interests to the Commission.

The European Parliament Committee's judgement on her performance effectively damned her with faint praise. The committee's chair wrote to the Parliament's president to say that overall she could do an 'adequate' job. However, she would have to fight 'more actively to defend the interests of European farmers.' Some of us might think that her principal duty is to European taxpayers and consumers, or to the environment and the food processing industry, rather than to protect the interests of farmers.

In a profile of Fischer Boel, European Voice has revived an awkward incident in 2003. Ivar Hansen, the married chairman of the Danish parliament, died from a heart attack in the early hours while visiting Fischer Boel at her apartment in Copenhagen. It sparked rumours in the Danish press that the two were having an affair and Fischer Boel was forced to issue a press release in which she spoke of a 'very close' relationship. At least it's the first time, after years of overweight males in the job, that a farm commissioner has been associated with a hint of tabloid scandal.

Franz Fischler was such an effective farm commissioner that he was always going to be a hard act to follow and one can understand why Fischer Boel would want to play safe until she was in the job. Meanwhile, the delay in approving the Commission has meant that Fischler has had to postpone a well earned holiday and stay on in a caretaker role.

Saturday, October 30, 2004

Welcome to this blog

This is my new home for commentary on the Common Agricultural Policy of the EU. All the news and analysis as before. Wyn Grant.