Monday, March 19, 2007

Abolish CAP subsidies

An interesting new blog on this theme here (and a good debate going on in the comments section):

Saturday, March 17, 2007

New market develops in farm subsidies

Given that milk quota has been actively traded in the UK, producing so-called 'sofa milkers', it should come as no surprise that Single Farm Payments are now being bought and sold. Agricultural brokers WebbPaton did fifteen deals in one day recently. The market has been described as 'ferocious' with rights to subsidies 'flying off the shelf'. There's an element of risk, but an investor could receive one-third of the original investment back each year.

When the single farm payment was set up, farmers were given the right to trade subsidy entitlements between themselves which makes sense as it allows individual farmers to adjust their own businesses in the light of their assessment of market conditions. Farmers started trading among themselves, but the profitability brought in a wider range of investors. Open auctions are being held, while other investors are buying rights to subsidies over the telephone through brokers or on internet sites. You can find out more at WebbPaton's web site: Entitlement

You have to be classified as a farmer to receive subsidies, but you only need hold a lease on a minimum of 1.7 acres for ten months of the year and never have to visit it. Scottish landowners are now renting out tracts of rocky highland for as little as £5 an acre per year.

The market that has developed does enable farmers to raise funds to retire or to invest in their business. But that could have been achieved by converting subsidies into a marketable interest bearing bond which is what many analysts advocated.

So, goodbye then, President Chirac

The announcement that he will be stepping down as French President by Jacques Chirac reminds us that for a long time France has had a head of state and government who has also seen himself as Minister of Agriculture. Two of his last public appearances were at the Paris agricultural show and a European summit in Brussels, the site of his many battles in defence of French farming subsidies. Chirac owns a cheteau in the Massif Central which is one of the poorest and most sparsely populated rural areas of France.

The Financial Times commented, 'His near-umbilical attachment to the country's farmers throughout his career, which included a spell as agriculture minister, means he can at least count on them to be saddened that the Chirac era is coming to an end.'

Whether any of his possible replacements will take a different view of the French national interest remains to be seen.

Thursday, March 15, 2007

Three options for the future of the CAP

The chief economist of the CLA, Allan Buckwell, has been an academic and has worked for the Commission as well as for the landowners' organisation, so what he has to say on the future of the CAP is worth listening to.

He recently outlined three scenarios for the future of the CAP. The first was to defend the status quo and argue for the biggest possible ongoing payments to farmers based on their contribution towards enhancing the environment. He expected this to be the strategy adopted by COPA, the European farmers' organisation. But (and these are my words) it is well known that COPA is something of a political dinosaur that has lost the CAP plot. Environmental groups are not going to be taken in by a continuation of existing subsidies by other means.

A second option was to advocate a more integrated rural policy, with a much bigger share of aid devoted to correcting market failures to stimulate a more diversified rural economy. Buckwell was, of course, one of the architects of the EU's shift towards a rural policy, although it suffered a severe setback with the 2006 budget settlement which actually cut back Pillar 2 funding for rural development. Its success would also depend on profitable commodity prices and national governments matching EU contributions towards rural development.

A third option would be to ditch the CAP and create what Buckwell has provisionally entitled a European Food and Environment Security Policy. Its objective would be to enable the production of socially optimal quantities of high quality food, energy, biodiversity, landscape and so on.

The problem would be, who decides what is 'socially optimal'? If it's not the market, it's the government, influenced by the farm lobbies, and that is what got us where we are - which is not a good place to start from.

EU loses patience over Indian wine tariffs

The EU has finally lost its patience over India's import restrictions on wine and has filed a complaint with the Disputes Settlement Mechanism of the WTO which has been joined by the US.

Farm commissioner Marian Fischer Boel raised the issue on her recent visit to India. She said, 'These products are not staples and the European exporters have a legitimate interest in being able to supply the Indian market. Could we not leave it up to Indian consumers to decide when to buy domestically produced wines and spirits, and when to buy something else?'

The Indian wine industry claims that a reduction in tariffs would 'destroy' the emerging wine industry with a wave of cheap imports. Indian wine makers would prefer a staged reduction in duties, favouring higher quality imports.

An Indian red at, say, 950 rupees (£11.10) a bottle, can be a third of the cost of an Australian shiraz. The Indian Government's stance on import duties means that foreign access to the £930m alcoholic drinks market, growing at nearly 30 per cent a year, is severely curtailed. While India's basic import duties on wine and spirits are 100 per cent and 150 per cent respectively, federal and state taxes can push tariffs as high as 264 per cent and 550 per cent.

The EU has a fair chance of success at the WTO disputes settlement panel which has ruled against Japan, South Kore and Chile over discriminatory spirits taxation regimes. Getting into the Indian market could help drain the European wine lake and taking on a foreign country is a welcome distraction from attempts to reform the EU wine regime which are meeting substantial resistance, most recently from the European Parliament.

Sunday, March 04, 2007

'Suspended pessimism' remains Doha mood

Bilateral discussions have continued between the key participants in the Doha Round farm trade talks, most recently in London, but although clarification of the issues and what might be possible continues, there has been little real progress. Key participants in Geneva have described the overall mood as one of 'suspended pessimism'.

One change is that India has now got more involved in the series of conversations that have hitherto primarily involved the EU, US and Brazil. They had stood aside from the intense meetings between the key players that led to the resumption of negotiations agreed at the World Economic Forum in Davos.

However, India's role so far is not seen as particularly helpful. Susan Schwab, the US trade representative, said that progress with the Europeans and Brazilians was not matched by a willingness by Delhi to make concessions.

India has been taking a hard line on the 'sensitive products' exemption. This is also an area of concern for the EU as a means of protecting its most marginal farmers. But if too many concessions are allowed, a coach and horses would be driven through the agreement.

India is also being insistent about the 'special safeguard mechanism' which would permit developing countries to block sudden surges of imports from particular agricultural products. NGO critics have long argued that 'no agreement is better than a bad agreement', but there is a point beyond which the same argument could be made from a free trade perspective.

No one really knows what the outcome will be, but I would put the chances of a successful agreement at less than fifty per cent. But then there were many times in the Uruguay Round when the position looked hopeless.

Biofuels may push up beer prices

I was giving a presentation on the CAP during this week and I was asked if ending it would threaten food security in Europe. My reply was that no one was advocating dismantling the CAP overnight, so any adjustments would be phased in, but that the real challenge to food security came from the rapid expansion of growing crops as biofuels. A structural shift is going on in farm markets.

An illustration of this is what is happening to the price of barley which is used for beer, whisky and animal feed. Strong demand for biofuel feedstocks is encouraging farmers to plant these crops instead of grains such as barley. The price of barley has soared in the past week. Futures prices for European malting barley have risen more than €230 a tonne since last May and by a third on the Winnipeg Commodity Exchange over the same period. Admittedly, other factors such as the Australian drought and heavy rains in Europe have affected barley prices.

The US Departent of Agriculture estimates that global barley production will reach 138m tonnes this year, level with 2006, but 10 per cent down on 2005. Global demand has risen two per cent, the fourth year in the last five in which demand has exceeded supply. Global stockpiles have shrunk by a third in two years. The US, which in the 1980s was a leading exporter of barley, is now a net importer.

One consequence could be a long-term rise in the price of beer. Barley and hops account for 7-8 per cent of brewing costs.