Monday, February 25, 2008

The milk quotas mess

As the debate goes on in the EU about whether milk quotas can be increased by 2 per cent as part of the soft landing when they are eventually abolished in 2015, it is an opportunity to reflect how milk quotas have affected the UK dairy industry.

They were introduced in 1984 to ease the severe budgetary crisis brought about by the structural surplus of milk in Europe. They worked in terms of limiting production growth and coping with the budgetary crisis, but they brought a lot of unintended (or intended) problems in their wake.

The basic problem is that milk quotas ossify structures. Some member states do permit trading of milk quotas within their boundaries, but despite the existence of an internal market, they cannot be traded across national borders. Hence, it is difficult to transfer production from less efficient producers to the more efficient or from less efficient regions to the more efficient.

Of course, some politicians welcome this as a means of enabling farming to survive in these areas. French politicians proudly proclaim that quotas are the reason that milk is still produced in every corner of France. In many areas of Europe only the quota system can guarantee prices high enough to keep farmers in business.

But all this comes at a price. Europe's share of world dairy markets has been falling. Third country markets for dairy products are being captured by more efficient producers in North and South America.

Dairy farmers like them, of course. Their arrival gave them a windfall capital gain and a retirement pot that can be worth as much as €1m.

There was a bare qualified majority in the Special Committee on Agriculture for the quota increase. Germany with a Bavarian farm minister is against, as are Austria, Finland (where there are quite a lot of dairy farmers) and Malta (where there are very few). France would like to delay, but the change will probably be go through and a small step will have been taken towards a more market oriented system.

Sunday, February 24, 2008

Cameron bangs food security drum

The popularity of the new rhetoric of food security is shown by its adoption by British Conservative Party leader, Dave Cameron, in address to the 100th anniversary conference of the National Farmers' Union. He revealed that he is himself a NFU member, although presumably one of the 'green welly' variety.

The job of the Leader of the Opposition is to question government policy and one can't blame him for jumping on any convenient bandwagon that comes on. Food security gave a coherent theme to a speech that was otherwise trying to push every possible button. Raising the spectre of a return to food rationing is a good way of dramatising some of the current changes in global food supply.

It's a bit harder to tease out from the speech what his remedies are. What he does make clear is that he is against a return to protectionism and trade barriers and to production linked subsdidies.

He seems to think that British farmers could produce more food for the domestic consumer if the burden of regulation was reduced. Standards in Britain are claimed to be more onerous than elsewhere in the EU. So, it is argued, one needs regulation that is based on outcomes, not processes, and on trust. What this seems to mean is more self-regulation and reliance on peer pressures with penalties only for the tiny minority of farmers who abuse trust.

All fine in principle, but how does this square with his emphasis on failings in animal health regulation at the beginning of his speech? Of course, the NFU is now blaming 'hobby farmers' for the second wave of the foot-and-mouth outbreak in Surrey last September. Smallholders have hit back by claiming that they often spend more on proper prevention practices than do commercial farmers, while others have argued that hobby farmers should not be demonised.

In time Dave Cameron may come to learn that the politics of farming brings you few votes and a lot of grief.

Friday, February 15, 2008

Fischler speaks out

Alpine farmer and CAP reformer Franz Fischler

I have recently been working with others on an edited collection to be brought out from the Centre for Policy Studies in Brussels which re-visits the Fischler reforms of the CAP. The discussions held in relation to the book, which involved some people who knew Fischler's work well, confirmed my view that he was someone who combined strategic vision with a wily use of tactics and an understanding of which political buttons to push when.

Now the former farm supremo has provided a rare interview to Agra Focus. One of the intresting points he makes that two much is made of the difference between the two pillars: 'They are man-made and we should not make an icon of these structures.' What is important is that the money goes to the right recipients.

Fischler clearly thinks that it doesn't and he considers that rural development funding gives 'too much emphasis ... to agriculture, and not enough recognition of the countryside as a whole, including the non-agricultural population.' He also thinks that co-funding of the Single Farm Payment will come back on the agenda, thereby removing one of the main differences between the first and second pillars.

Fischler thinks that there will be 'start-up problems' with the co-decision process in the European Parliament, for example in terms of potential conflicts between the Agriculture and Budget committees. If these problems cannot be overcome, there is a high risk of delay to all reforms. He thinks that in the longer run the driving force behind EU reform packages will be the budget.

With the disapperance of the traditional intervention mechanisms, Fischelr revives the argument about the need for new forms and mechanisms to cover price volatility such as private-public partnerships in insurance systems or even concepts linked to futures markets.

He raises the issue of concentration in the retail sector, suggesting that an international competion regulator is needed, perhaps the WTO. However, this would seem to lie outside its remit. Moreover, competition authorities have not had much success in tackling this issue at the domestic level.

Sunday, February 03, 2008

Our farmers need handouts insist Scots

Scotland's rural affairs minister Richard Lochhead said he will be pulling out all the stops to ensure the UK government is in no doubt of Scotland's desire to maintain support for farmers and crofters. Scotland will take a tough line over the issue, even if its policies diverge from those of the UK Government.

Mr Lochhead insisted that there was an ongoing need to support Scottish agriculture, especially livestock. Scotland was not happy to move away from support mechanisms at the same pace as the UK. Scotland has a strong EU representation through its Brussels office and a dissident voice could prove embarrassing for the UK in its efforts to reform the CAP.

There is a genuine issue about how Scotland can deliver environmental benefits without viable farm businesses. There is a substantial issue about remote, small-scale farming in the Highlands and Islands. However, a proper European rural policy could help Scotland more than the current CAP.