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.