Tuesday, June 24, 2008

Has rural development money been wasted?

This is the question posed by Professor Harald von Witzke, Chair for International Agricultural Trade and Development at Berlin's Humboldt University, in the latest of the Agra Focus series of interviews on the future of agricultural policy.

He argues that a lot of white elephants are being financed with 2nd pillar money because there is more money available than good projects. In particular, some job creation projects are not creating the jobs.

He considers that it would be better to shift money into research and development than rural development policy. Of the increase in production between 1961 and 2000, only 22 per cent was due to an increase in land area. The remaining 78 per cent was due to improvements in yields. That is why increasing productivity remains the key.

He points out that the justification for direct payments to farmers keeps shifting. Initially, he thought they were made in order to compensate farmers for quality regulations they have to observe that competitors outside the EU don't have to observe and that they are being compensated for the production of public goods.

However, he had not seen any analysis that suggested that the amount of public goods and the competitive disadvantage for farmers is as high as €400 a hectare. Farm payments should be reduced to a reasonable level that reflected the public goods being produced by agriculture and represent some compensation for the competitive disadvantage for quality regulations in the EU.

Sunday, June 22, 2008

Sarko blames Mandy for referendum result

French president Nicolas Sarkozy has blamed trade commissioner Peter Mandelson's stance on trade for the Irish referendum result. Sarkozy said, 'A child dies of starvation every 30 seconds and the Commission wanted to reduce European agricultural production by 21 per cent during World Trade Organisation talks. This was frankly counter productive.'

Apart from the fact that the Commission has never suggested a specific cut in production, which is beyond its control, only cuts in tariffs and subsidies, developing countries would be able to raise their standard of living if they had a more commercial agriculture which had better access to world markets.

Peter Mandelson hit back, saying'Any suggestion that Europe can turn its back on open trade or reverse globalisation is a dead end for the people of Europe.' He added, 'Europe cannot possibly feed the rest of the world but Europe can help the rest of the world to feed itself by reforming its trade-distoring agricultural policies.'

This does not bode well for the French presidency, although the likely delay to implementation of the Lisbon treaty would also postpone the introduction of co-decision to the CAP - which could make reform more difficult.

Wednesday, June 18, 2008

Animal welfare dilemmas

One of the advances made when Franz Fischler was farm commissioner was to recognise farm animals as sentient beings rather than agricultural products. This provided a basis for treating animal welfare as one of the planks of multifunctionality. However, a vet who is an animal welfare expert suggested in a talk (under Chatham House rules) that I attended that this could face a challenge under WTO rules at some point in the future.

She noted that most intensive, behaviourally restrictive systems had been or were being phased out – battery chickens, veal crates, sow tethers (the latter only in the UK). Things like veal crates were very obvious system which coud readily be understood by the interested public. The animal welfare problems we were running into now are more complex to do with breeds and genotypes of animals and whether they are fit for the systems they are in. Things like stocking density, length of journey, consciousness after being stunned were easy to measure. Which genotype was going to fit into a production system was more complex.

Of course there can be important differences between member states. The ban on sow tethering in the UK resulted from private members' legislation and did not apply in Denmark. Consumers in the UK seemed to be generally unaware of this difference in production methods. The UK pig industry was on its knees and got little reward for its more animal welfare friendly systems.

Friday, June 13, 2008

The food price 'crisis'

An analysis of the factors underlying the recent increase in food prices is provided in a Commission document: Prices

The document notes that the largest increases in agricultural prices are observed in the wheat and rice markets, where the two major causes commonly used in the press to explain the recent price increases - demand for biofuels and increased demand in China/India - have had the mallest impact. For rice and wheat, supply side factors - both in terms of unfavourable climate conditions and lower yield growth - are the main causes.

In the cases of maize and soya, however, strong demand for biofuels and increasing imports in China explain most of the price rises. The failure of wheat and rice production to respond to increased market demand is in contrast to development in the maize sector.

Slow yield growth, most notably for wheat, has been an important factor. Combined with short term weather factors, world stocks have fallen to significantly low levels, stimulating the sharp increase in prices. Maize and soybean markets have been mainly driven by a strong growth in global demand - mainly for increased meat consumption (through feed use) and to a lesser extent for biofuels use. In 2007, the Australian drought, high temperatures in central and eastern Europe, and a cold spring in Ukraine and Russia substantially reduced harvests.

The failure of agricultural output to keep pace with demand growth, the Commission says, is likely to be linked globally to lack of public research in agriculture - notably in seed improvement, as well as to the rise in production cists and the decline in farming profitability (until recently) in developed countries. Environmental legislation in some countries, particularly in Europe, is also said to be likely to be hampering production increases.

Sunday, June 08, 2008

GM feed ban crisis

A row over the banning of GM feed by British supermarkets raises wider issues about how far new technology can be used to solve problems of world food shortage. There have been calls for a second 'green revolution', but the first green revolution was based on intensive use of fertilisers and irrigation. Fertilisers are rocketing in price while irrigation is a less environmentally friendly option in a time of climate change.

The next technological revolution is likely to involve GM crops, but they face intense resistance in Northern Europe with the concerns of consumers fanned by environmental groups. This applies as much to imports as to local production. The phrase 'Frankenstein foods' has lodged itself in consumers' minds.

Spiralling food prices are placing supermarkets under pressure from farmers' leaders to put poultry fed with genetically modified products back on the shelves. The English National Farmers' Union has held talks with the product managers of all the major supermarkets to explain that shortages of non-GM soyabeans - the key protien source for poultry - was making it both extremely expensive and increasingly difficult to source the GM-free products demanded by retailers.

There is no sign yet that the campaign has forced a change in policy. Supermarkets are very jealous of their green image which they see as giving them an edge over competitors, particular in value added markets where price is not the only differntiator. Sainsbury's have sad that they are investigating 'potential sustainable solutions.' Two of the greenest supermarkets, Marks and Spencer and Waitrose, have said that they will not change their policy.

As the world's biggest exporters have devoted more land to GM crops, the cost of unmodified soyabeans is rising. British farmers are currently paying around £276 per tonne for GM soya and £293/t for non-GM. With the US, the world's biggest producer, now 95 per cent GM, the UK has looked to Brazil for a GM-free alternative. But Brazil, the world's second biggest soya exporter, is expected to increase GM plantings from 54 per cent of its total crop to 65 per cent next year and 80 per cent over the next decade.

Thursday, June 05, 2008

Back to the bad old ways

In a paper I gave in Norwich last week, I rather optimistically expressed the view that even if the current 'food crisis' shored up existing protectionism and subsidies in the European Union, we would not see a reversion to old, discredited policy instruments. One such instrument I had in mind was intervention buying which created a risk free market for farmers and produced the notorious grain and butter mountains.

I may have spoken too soon. The latest edition of Food Ethics produced by the estimable Food Ethics Council is devoted entirely to the 'food crisis', although quite what the food crisis is remains undefined. However, the editorial calls for 'rebuilding public stocks, which provide an important buffer against price volatility.'

Inevitably, Moses gets brought into one of the articles. Another article calls for 'public stocks .. to be re-established, with planning for local, national and regional roles. Such stocks provide an important buffer against price spikes and food insecurity.' Of course, they also provide a buffer between consumers and producers because the price mechanism cannot function as a transmitter of information. The writer does admit that they are expensive and there is 'lost theoretical market efficiency'.

That lost efficiency is not theoretical in the abstract sense of the word, it has real implications for whether we make optimal use of scarce resources.