Wednesday, April 29, 2009

Blanket subsidies to continue after 2020

Pillar 1 subsidies are likely to continue after 2020, forecast Professor Allan Buckwell, the Policy Director of the Country Land and Business Association, in an interesting talk at the President's Seminar of the Royal Agricultural Society of England (RASE) in London yesterday.

He emphasised that agriculture should be able to look after itself. What it needed was imagination and drive, having the ideas about what customers want and having the energy and determination to see it through.

There was a possibility of big change in the next CAP reforms comparable to what happened in 1992 and 2000. However, he was concerned that we might not take the opportunity.

Trade liberalisation was in suspense. There was a real debate about going on about the extent to which we believed in international trade. Countries in Asia might think that the solution to their food security was to buy up land and rights to farm in Africa.

The 20th century trend in agriculture was for prices to fall in real terms, despite the growth in world population and income. However, this downward trend had slowed in the last twenty prices. Now we were in an era of more volatile prices. But if scarcity did produce systematically higher prices, what did that mean for policy? More support for farmers or less? It was hardly likely to lead to more support.

In seven out of the last eleven years farm income without support payments in the UK would be negative and even when positive was miniscule. The rapid removal of farm support would require structural adjustments.

Farmers thought that Pillar 2 was too bureaucratic and inaccessible to many farmers. For governments the administrative costs were high, there was the requirement for co-funding and the issue of whether benefits were discernible.

The status quo position on the Single Farm Payment was to cut, but how far and how fast. There was a wide distribution of payments among member states - Greece with its cotton and tobacco subsidies at one end with high payments and new member states like Latvia at the other. The distribution per beneficiary was even broader, although here the Czech Republic, Slovakia and the UK came out on top.

Would there be more uniform payments? What is the purpose of the payments? France favoured a basic husbandry payment. Which features of Pillar 2 could be dropped?

Putting the case for a food and environmental security policy, Professor Buckwell asked who is against food and environmental security? Who disputes that these are threatened? Europe faced the task of feeding its own population and possibly others as well.

The key point in food security was long-run production capacity - not letting good land to be built on or go under salt water. Knowledge and skills and research and development were also of key importance. One had to achieve food security as the key goal but without avoidable environmental degradation.

€53 billion (the CLA's estimate of the total cost of the policy) was not an obscene amount to be spending. He was not saying that the current policy was right, but any policy would need a significant budget.

Agricultural economist Sir John Marsh intervened from the floor to point out that subsidies kept resources in use which were les than optimal. We needed to be specific about what it was were were trying to create. CAP was originally created because of what seemed to be a fairly straightforward relationship between food availability and consumption. It then became a social policy because there were farmers with low incomes. Environmental aspects was too broad a term. The measurement of value to the public as a whole was less well defined.

There was an interesting exchange between Professor Buckwell and Martin Haworth of the NFU revealing 'differences of emphasis' between the two organisations. Haworth quetsioned whether both food and environmental security were under threat. He didn't agree that there was environmental degradation as things were getting better.

He disagreed with Allan Buckwell's suggestion that one should work with green organisations. It was dangerous to form an alliance with environmental organisations as this involved accepting that agricultural production was part of the environmental problem. In the set aside debate, environmental oganisations had convinced themselves that the only solution was to de-intensify agriculture in the form of set aside.

Haworth told Buckwell, 'What you are proposing is quite a dangerous way forward and not one we would support. We support the current architecture of pillar 1 and 2.'

Sunday, April 26, 2009

Changes proposed for LFA payments

The European Commission has unveiled proposals to make changes in the way in which Less Favoured Area (LFA) payments are made. A policy review was set in train following criticism by the European Court of Auditors in 2003 (these things take time) that some countries were abusing the definition of 'less favoured'. This particularly applied to so-called 'intermediate' areas.

In its Communication the Commission suggests that payments should be made in future on the basis of 'biophysical' rather than socio-economic criteria. The Commission's view is that future payments should be based on soils, drainage, climate and terrain rather than socio-economic disadvantage to satisfy the public that the money is being well spent.

The proposals have caused alarm in Scotland where 83 per cent of the land area is deemed intermediate LFA and attracts funding of about £61m a year into livestock farming into this areas. Wales also has 80 per cent of its land area designated as LFA.

Wednesday, April 22, 2009

CAP bonanza for big Irish dairy companies

Figures obtained through a freedom of information request to the Irish Department of Agriculture show that the country's top dairy companies did well in securing CAP money in the form of export refunds and intervention aid.

It was actually Greencore, which owns Irish Sugar, that topped the recipient's list with restructuring funds that amounted to a cool €84m.

However, the Irish Dairy Board received €6.5m, followed by Kerry Ingredients with €5.1m. In third place was the company behind Baileys cream liqueur, R & A Bailey, owned by the drinks giant Diageo, which received €2.9m. It is believed that most of the payments were for export refunds, but that the IDB received money for limited butter intervention in 2008.

Given that dairy markets were relatively strong in 2008, these payments are well down on the levels of 2007 and earlier years. Given the widespread current use of export refunds, the 2009 figures are likely to be significantly higher.

In all cases the companies have defended the payments, claiming that they were a mechanism used to support the milk price to farmers. However, it is unlikely that all the money reached farmers.

Sunday, April 19, 2009

Australia re-thinks drought subsidy

Even in an irrigation district, conditions in Australia can be dry

Australia is re-thinking its subsidy to drought hit farmers. This has a wider relevance, both in terms of how one adapts agricultural policy to climate change and how a subsidy can grow almost unnoticed. Australia has pursued a policy of eliminating agricultural subsidies, other than in investment in knowledge and R and D which most commentators would support.

The drought income supplement was an exception and it is mainly that subsidy which has pushed Australia's PSE up to a (still low) 7 per cent. What was once a 1 in 20 experience is now more likely to be 1 in 5 calling in question the notion of 'exceptional circumstances'. This is no surprise as work by Linda Botterill at ANU showed that it was difficult to come up with an objective definition of drought and the definition used is largely a socially constructed one.

In an interview with Agra Focus top Australian agricultural civil servant Stephen Hunter discussed the challenges that his country is facing in relation to climate change. He noted that Australia has always tended to have a higher variability in climate than most countries. However, the available evidence on the impact of climate change suggests that the south of the continent will become much drier with a higher variability in climate and the north will face increased rainfall. He commented, 'We have always had droughts. It's just that Climate Change is making it more likely.'

Flood irrigation is a less common sight now

On a visit to the irrigation district around Griffith, NSW a few years ago I was surprised at the amount of rice, a water intensive crop, that was being grown. But Hunter reveals in the interview that this has fallen drastically in recent years to as little as 2 to 5 per cent of normal levels. On farm, there has been a marked move away from flood iririgation and towards drip irrigation rather than sprays. One major lesson for Southern Europe in particular is the desirability of having a system of water trading in place so that it can be used at its highest value.

Hunter admits that there are limits to the extent to which the commercial market can provide multi peril crop insurance. The approach being used is to equip farmers to understand their local climate better and to outline management changes they might make to respond better to those conditions, e.g., low tillage farming to deal with soil problems.

Another interesting arrangement which allows market smoothing without distorting interventions is the Farm Management Deposit Scheme. This allows farmers to even out their income by putting into deposit surplus funds in a good year that will help them in less good years. What is distinctive about the scheme is that it is attached to tax incentives.

Australia often has some interesting policy lessons. Anyone who is interested in what I learnt on my recent visit about the management of cattle diseases can E mail me for a Power Point presentation.

Tuesday, April 14, 2009

Fischer Boel defends export subsidies

Farm commissioner Mariann Fischer Boel has reiterated the EU's commitment to phase out all export subsidies by 2013, but in the meantime has insisted on their use to defend EU market share. Responding to concerns that the dairy export refunds, reintroduced in January, mean 'dumping' cheap produce on developing countries, Fischer Boel said that the EU cannot risk losing its market share to other major exporters.

The return of the subsidies has been widely criticised by agricultural exporting countries such as Australia. But concern has also been expressed within the EU itself. Germany is known to have been concerned that the subsidies are creating a damaging dumping effect in some developing countries.

Fischer Boel explained that in countries such as the Dominican Republic, the impact of subsidised EU exports is not to directly harm domestic produce. These markets are in fact a battleground between the EU and other developed world exporters, she argued.

Of course the EU is not directly competing on the liquid milk market in these countries. However, I recall reading studies by Oxfam and Cafod relating to the Dominican Republic and Jamaica. Small local dairy farmers found that their market in local processing factories was driven out by skimmed milk powder from the EU.

Friday, April 10, 2009

Overdoing the gloom

I regard climate change as a major challenge. As it is a global public bad, it requires action by governments, individually, at EU level and globally. However, these actions will be insufficient if there is not an adequate response by business and by citizens.

In my view excessively gloomy predictions about climate change actually have a disempowering effect on citizens. They start to think it is all hopeless and they might as well continue with their existing environmentally unfriendly lifestyles.

Some of those putting forward these views have a broader agenda which is well served by taking an excessively pessimistic view of the prospects for climate change mitigation. (Adaptation is only now really starting to get on the EU agenda in a serious way).

This was the case with one of the speakers at the recent meeting of the Franco-British Council that I attended. I have so much material from this meeting that it is going to take some time for me to blog it all.

I thought that this particular speaker made some good points, but he undermined them through overstatement. He started by stating that we were just nine meals from anarchy because of our over reliance on retailers for buffer stocks. We do sometimes rely too much on leading supermarkets as a private governance mechanism, a subject which I am personally interested in. Indeed, I believe that Cobra, the civil contingencies unit in the Cabinet Office, has taken an interest in the subject of potential threats to food stocks.

The speaker argued that national food self-sufficiency was in long-term decline. The UK was increasingly reliant on imports when the ability of the rest of the world to provide for us was weakening. The fabric of biodiversity, nature's insurance plan against disaster, was wearing thin.

The speaker went on to argue that intensive farming defied ecological gravity. I think that this depends on how it is done. In arable farming, one needs the use of methods of Integrated Crop Management and Integrated Pest Management, subjects I have written on with my biological science colleagues. Livestock farming needs to observe animal welfare standards. All these objectives can, and are, being pursued through appropriate EU policies and it this dimension of the CAP that needs to be developed and strengthened.

The speaker argued that obesity is a climate change issue and that we need to consume less. The food crisis had been coopted to promote asymmetric market liberalisation and particular commercial agencies.

Where I did agree with the speaker was his emphasis on the importance of the planet's hydrological cycle. The proportion of the earth's surface subject to extreme drought had already increased from one to three per cent and could increase to one third by the end of the century [this is a worst case scenario in my view].

A person associated with DG Agri asked whether there was really a problem about generating a sufficient food supply. Yields had improved in the past. This commentator also defended biofuels, arguing that higher energy prices in the longer run would mean that they would be used without public policy.

The speaker asserted that biology must become before economics and politics. Scientists, however, were prone to pander to politicians. This is not my experience of working with natural scientists. It is not a question of biology coming before politics, but the insights of economics, political science, law, biological science and many other disciplines being brought together as in the RELU programme: RELU

A person from a farmers' organisation argued that the model of a richer country outbidding everyone else on the world market was not sustainable in the future.

The speaker concluded by celebrating the return of dirigiste politics and said that we could fundamentally re-engineer the economy as we did in the run up to the Second World War. The state rules ok!

For some of my work on ICM and IPM go to: Biologicals

On animal welfare: Livestock

Sunday, April 05, 2009

Re-education for Commission officials

On a visit to China a few years ago I met an elderly professor who had been sent with his students to the countryside during the Maoist period for 're-education' by the peasants. He struck a deal with the local peasants that allowed them to work on their books two days a week.

Now farm commissioner Mariann Fischer Boel, a large-scale farmer with her husband in Denmark, has decided that Commission officials in DG Agri need re-education. She considers that they are too detached from farmers and don't understand their problems.

The so-called Harvest Experience programme means that all agriculture staff will be sent to stay on farms from 2010. One goal is to encourage Commission officials to use simpler language.

It will be interesting to see where the farmer hosts are found from. I suspect that many of them will be drawn from farmer organisations and will have an axe to grind.

Historically, DG VI as it once was had a reputation of being particularly close to farmers. Its head official was always drawn from France and was usually close to large-scale French grain interests. Many of the officials were French and those Brits who worked there were usually Francophiles. One compensation was that it was said to have the best canteen in the Commission.

The Kinnock reforms ended the French domination at top level. Mind you, a lot of nonsense still comes out of DG Agri. A British academic was telling me about a talk given to students by one of its officials. He claimed that the livelihood of one person in five in Europe depended on the CAP. He worked this out by adding up those working in farming, those in food processing and those in input industries.

It was pointed out to him that it would be possible to have a healthy and competitive food sector in Europe without subsidy and protection.

Saturday, April 04, 2009

The French official view

At the meeting of the Franco-British Council I attended last Monday, it was interesting to hear the current French official view expressed by a senior French person.

A food security theme was heavily emphasised with the food riots being invoked, it being argued that the health and well being of one billion people was threatened. Reference was made to the challenge presented by volatile prices. It was argued that food was a strategic asset and that we had lost sight of this in recent decades.

European policy ensured the food security of half a billion Europeans. Far from being a fortress, the EU was the world's leading importer from the developing world.
It was claimed that we had now reformed the CAP. This may be true, but it has not been transformed and many of its undesirable features remain in place.

It was argued that we should move away from the old stereotypical arguments about productionism versus environmentalism or markets versus self-sufficiency. We must produce more in a more sustainable way.