Saturday, May 31, 2008

Rethinking Less Favoured Areas

The Less Favoured Areas directive is one of the few examples of British influence on the design of the CAP. It was originally conceived as the Mountain Areas Directive with France pressing for a definition that would have excluded Britain's hills and uplands. But the British emphasis on latitude rather than altitude won the day in 1975. Other member states saw the Less Favoured Areas directive as a good route to justify more cash for their farmers and by 1995 56 per cent of the utilised area of the EU was designated as less favoured. In Scotland, 85 per cent of the farmed area has LFA status.

Not surprisingly, the Commission thinks that too many farmers get rewarded under the directive. As part of the 2005 reform of rural development policy, it tried to remove all socio-economic considerations from the delineation of the LFAs and to cut the rates of payment. But this was fiercely resisted by many member states and the issue was 'parked'.

Now the Commission has come up with fresh proposals for a new LFA system by the end of 2008. A consultation suggests only four options:

Option 1. Maintain the status quo linking LFAs to areas of natural handicap, but excluding socio-economic criteria. This option is effectively dimissed by the Commission as failing to meet Courts of Aufitors criticisms, but farming unions are saying it is the only one that is acceptable, but even then consideration must be given to socio-economc criteria.

Option 2. Set certain 'common criteria' for LFAs relating to natural handicaps, such as temperature, soil drainage and slope.

Option 3. As Option 2, but with each farm assessed for its environmental contribution.

Option 4. As Option 3, but with payments further limited to High Nature Value farmland.

COPA has expressed the hope that because the issue is so complex it will get bogged down in the decision-making process. However, the time has surely come to take a long, hard look at these arrangements and to see whether they deliver realistic objectives.

Saturday, May 24, 2008

Health check contains few surprises

The CAP Health Check proposals have been trailed and leaked so extensively that the package contained few suprises. As Gareth Morgan, the head of agriculture policy at RSPB commented, 'The CAP is long past its use-by date and the Commission should be creating a policy fit for 21st century challenges.'

A few points are worth picking out. A new definition of 'farmer' is to be introduced to prevent companies with marginal farming interests from claiming subsidy. It will be interesting to see how 'mud on the boots' is translated into Community legal jargon.

The idea of capping payments has been dropped as anticipated. However, there will be higher compulsory modulation levels for larger farms: an extra 3 per cent for farms receiving €100,000 a year, 6 per cent for those receiving more than €200,000 and 9 per cent for those receiving more than €300,000. Predictably, this hasn't gone down too well in Britain.

The so-called Article 68 measures are a concern given that they are intended to buy off French opposition. These will allow member states to skim another 10 per cent off Single Farm Payments to pay for certain strategic programmes. The chances are that some countries will use this money for targeted, production-linked subsidies rather than environmental programmes.

On the positive side, the money could be used for crop insurance schemes and animal disease programmes. But it is also available to help milk, sheep and beef producers in disadvantaged regions like France's Massif Central. As a French farmer was saying on television earlier this week without such help there would be no sheep left in France. Would this be a national catastrophe?

Sunday, May 18, 2008

Farm land price boom

The cost of agricultural holdings across the EU has risen to record levels. However, this is not entirely good news for farmers. It makes it even harder for those who do not inherit to enter the industry, while only farmers wanting to retire can cash in. Tenant farmers face higher prices making life more difficult for them.

Several funds have been set up to buy farmland, particularly in the UK where prices have risen 40 per cent over the last year. Manchester-based group Braemar had to close a fund it launched after two weeks. Higher commodity prices have also attracted institutional investors such as Blackrock and Schroeder.

Good quality arable land in the UK is fetching £6,000-£8,500 an acre in many parts of the country. Buyers from Denmark and Ireland have been piling into the UK for several years. Some estimates suggest that as many as 30 to 40 per cent of buyers in the eastern countries of England are coming from overseas.

Land prices fell between 1997 and 2003 in the UK after the BSE and foot and mouth crises. The price could rise to £8,000 - £10,000 an acre, close to the price in parts of Denmark, but industry experts predict that it will rise more slowly from now. One factor who has been 'lifestyle buyers' who run farms as hobbies rather than businesses, while field sports are a factor in purchases within reach of London.

There are considerable variations in land prices across the EU. In Lithuania a hectare of agricultural land cost €734 in 2006 compared with €164,340 in Luxembourg, the most expensive country. In Poland the average price rose 60 per cent between 2003 and 2006. Foreigners cannot buy land in Poland until 2016 but it is easy for investors to set up a local company to bypass the rules.

In France land is about €6,000 a hectare because it must be offered first to young local farmers. However, land prices are still 50 per cent up on 2003.

Germany backs 'European preference'

Germany has signalled its support for France's 'European preference' programme, possibly reflecting a mood in Germany which is critical of business and market liberalism. Horst Seehofer, Germany's farm minister, has said that China, India and the US should be forced to adopt higher environmental and health standards if they want to export to the EU. Poorer developing countries would not be affected.

British Chancellor Alastair Darling has claimed that the CAP is exacerbating the world food crisis. He is calling for the dismantling of the CAP, claiming it is costing consumers in Europe billions of pounds a year in higher food bills, while hurting farmers in the developing world.

Mr Seehofer dismissed Alastair Darling's arguments as 'complete rubbish'. We can rely on a lively debate, if not a very constructive or productive one.

Saturday, May 17, 2008

Richest farmers benefit from CAP funding

An approximate 80:20 Pareto rule continues to apply to the funding of EU farmers from the CAP. Roughly 82 per cent of CAP farms receiving direct payments in 2006 received less than €5000 whilst just 23,000 of the 7.33 million farms claiming aid received more than €100,000.

The Czech Republic heads the proportion of farms receiving more than €100,000 at 3.5 per cent followed by the UK with 2.9 per cent and Slovakia with 1.9 per cent. In total 84.5% of CAP funds went to just 17.9 per cent of farms.

Thursday, May 15, 2008

Loss of pesticides threatens EU food production

European arable cropping could be made uneconomic if proposed EU legislation to reform pesticides approvals is passed, a group of leading European scientists and researchers have warned. Drawn from seven countries, they issued a 'Declaration of Ljubljana' warning that the sustainability of European farming was at risk.

The ongoing EU re-registration process has already eliminated 530 out of 952 existing products, but the revision of that legislation could go much further. When the European Parliament discussed an EU Commission proposal for the revision of 91/414 in October 2007, they added criteria that would potentially remove 70 to 85 per cent of the remaining active substances.

I have some personal knowledge of this subject as I am on a stakeholders committee concerned with the implementation strategy of the Pesticides Safety Directorate. At a recent meeting, there was a discussion of the fact that we were now down to two actives to deal with carrot fly and one of those is not entirely desirable in terms of its impact on watercourses.

Pesticides are toxic and they need stringent regulation, which they receive. However, there has to be a balance in terms of food security, the availability of fruit and vegetables in particular at affordable prices and the desirability of a healthy and balanced diet. New detection methods can pick up miniscule residues which pose no threat to health. Indeed, where there are problems, they tend to be with produce imported from outside the EU.

Biopesticides can make a contribution, particularly in protected crops: See our RELU research project page Biopesticides . Despite what advocates claim, all our food needs cannot be met economically through organic production (which in any case uses so-called 'traditional compounds'). Synthetic pesticides are a precious resource that need to be used sparingly within a philosophy of integrated pest management. But we couldn't do without them.

Sunday, May 11, 2008

EU rejects French call to limit food imports

France and the European Commission have clashed over the future of farming with the European Commission dismissing French calls to curtail food imports as self-defeating and backward-looking. 'Autarky is not the future. We are not aiming at a closed market where we are self-sufficient,' a spokesman for farm commissioner Mariann Fischer Boel stated.

French farm minister Michel Barnier favours domestic production and requiring imports to match EU welfare needs - moves the spokesman said would invite retaliation: 'It is not in our interests to become a fortress. If we erect new barriers, so will our trade partners,' he said. 'We are a major trader in agricultural products. We are the biggest exporter and importer of farm products in the world. What we believe in is trade. We are seeing increasing exports of our high-quality food products.'

In 2007, the EU exported €75bn of produce and imported €77.3bn. France's trade surplus with non-EU members was €8.3bn.

New protectionism

Imports had to meet basic health and safety standards, said Ms Ficsher Boel's spolesman, adding 'That does not mean we can impose on our trading partners to put in place exactly the same legislation we have.'

However, French proposals on 'European preference' that are expected to be circulated to agriculture ministers next month were gaining support. 'There is a growing feeling it is only fair and reasonable that imports are subjected to the same technical standards as our own producers,' an EU official said. The point is, of course, that it would be difficult for developing countries to meet these standards, and for many of them agricultural exports offer the best route to prosperity which would then enable them to import more manufactured goods.

EU farmers complain that their costs are rising because of increased environmental and animal welfare rules that the rest of the world do not have to meet. After a recent vocal campaign by cattle farmers, the Commission restricted imports of beef from Brazil, where foot-and-mouth disease is rampant.

The Barnier interview

The present debate was started by an interview with Michel Barnier in the Financial Times. He recommended that Africa and Latin America should adopt their own version of the CAP which would be the first time a policy disaster has been exported. However, Mr Barnier believes that the developing world should form self-sufficient regional blocs with a redirection of development aid.

Mr Barnier claimed, 'What we are now witnessing in the world is the consequence of too much free-market liberalism. We can't leave feeding people to the mercy of the market. We need a public policy, a means of stabilisation and intervention.'

This reveals the fundamental difference between British and French perspectives. Britain has a history of liberalism, France one of state intervention and protectionism. From a British perspective, the market is an effective way of transmitting consumer preferences through the price mechanism. The market should be able to supply food like any commodity. The only qualification is the effect that weather fluctuations have on production. But this does not justify an elaborate apparatus of subsidy and protection, rather the development of new and innovative mechanisms for offsetting risk.

Predictably, Mr Barnier criticised the WTO, stating that he was 'not sure' that it was 'the right place to discuss the relationship between food and agriculture.' He noted that the agriculture budget would be 37 per cent of the EU's budget, down from 81 per cent in 1985. However, that is still a considerable multiple of the sector's contribution, even if one adds in food processing which uses some imported ingredients anyway.

Farmers are already responding to high prices and strong demand for grain. According to the US Department of Agriculture, the world will produce a record 656m tonnes of wheat in the year starting in July, up 8.2 per cent on the previous year. However, this may not be enough to restore a comfortable supply buffer to the world market given that global wheat stocks have shrunk to their lowest level since 1978.

However, the report did project that global soyabean stocks would decline. There has been a large increase in US land devoted to soyabean production, but global demand is rising even faster. Moreover, corn (maize) output is expected to fall 7.3 per cent this year while demand for ethanol use is expected to rise by one-third. Ethanol will eat up 33 per cent of next year's US corn harvest, up from 22.9 per cent in 2007-8. All this suggests continuing upward pressure on prices.