Sunday, January 31, 2010

Too much focus on environment

Conservative shadow minister Lord Taylor has said that there has been strong a focus on environmental considerations in agricultural policy. He said, 'If we want a very productive agriculture we want to re-focus the attention that's been diverted away from farming itself.'

It has been apparent for some time that a Conservative government would adopt a more productionist approach to farm policy, but that has always been foreshadowed by the recent Defra strategy paper which was substantially influenced by the growing influence of the food security discourse.

This comes at a time when a new study by WWF-UK and the Food Climate Research Network estimates the food we eat accounts for 30 per cent of the UK's carbon footprint. Previous official estimates had been below 20 per cent. However, these figures take into account emissions generated overseas. It is estimated that more than half of greenhouse gas emissions are accounted for by livestock farming.

What we do not want are ill thought out responses of the 'Meat Free Monday' type which have been criticised by careful analysts like Tom MacMillan of the Food Ethics Research Council. Too hasty a lurch in that direction could have implications for animal welfare.

New ideas from Scotland

The interim report of the Scottish Government's Pack Inquiry has called for direct support to Scottish farmers to continue beyond 2013. You can find out more here:

No surprises there, but the report also proposes a new top-up find which would be financed by money taken out of the direct payment budget. This could be used to support measures such as fuel efficiency, renewable energy and animal health schemes (an area where Scotland has often been ahead of the curve).

Former auctioneer Brian Pack commented, 'Much more consultation and research is needed, but the idea is that a top-up fund would be used to back outcome and transformational change. It could be the new contract between producers and Scottish society and give the Scottish public the sort of efficient and sustainable agriculture they want to see.'

This is an interesting and innovative idea which deserves further consideration.

Wednesday, January 27, 2010

It all kicks off in Greece

Greece's financial troubles may be hitting the euro, but this has not deterred Greek farmers who have been in a ten day confrontation with their government as it desperately seeks to stabilise the budget. The farmers have marched through central Athens demanding an extra €1 billion in subsidies.

This is cloud cuckoo land politics but, quite frankly, anything is possible in Greece which has shamelessly misled the EU about the scale of its budget deficit. Greece is the worst kind of party state reminiscent of Italy in the past where politics is about granting favours and can verge very closely to behaviour that is corrupt.

One of the populist slogans is 'Give money to farmers not bankers', referring to the government's attempts to raise funds abroad to pay down its debt. The realities of the situation have been well summarised by Yannos Papantoniou, the former finance minister who took Greece into the euro: 'Deep structural refoms are needed to engineer first growth, then productivity increases. Since the state sector is inadequate and inefficient, the country needs to embrace privatisation and market liberalisation to get growth going again.'

They could start with the agricultural sector which, if it was smaller, might be able to cause less disruption. Farmers have been blocking 20 highway junctions across the country, including a blockade of the country's border with Bulgaria which has upset the fellow EU member state. One might think that, in an internal market, this came within the remit of the EU itself.

But I'm afraid it's old style farm politics in Greece and we shall see a lot of that as the EU and its member states include agriculture in the round of budget cuts.

Monday, January 11, 2010

The health check is over

The health check is now well and truly over so the CAP Health Check blog has been replaced by a new and more attractively designed site at Subsidies

They also have a film on You Tube about the work of their site: You Tube . This is interesting and well-made.

I suppose my view would be that if you are going to have subsidies, one has to be careful about cutting them off from large farmers who are arguably more efficient and certainly more internationally competitive. Of course, 'efficiency' is a contested concept and does not take account of negative environmental externalities, but what that implies is a proper Pillar 2 in the CAP and a new Pillar 3 to deal with climate change (or at least a substantial climate change dimension to Pillar 2).

Wednesday, January 06, 2010

The NFU perspective on the future of the CAP

Britain's National Farmers' Union is noted for its strategic, long-term view of agricultural issues. Its officials have a sophsiticated, well informed view of developments and it was therefore interesting to read an interview in the latest edition of Farmers Weekly with the NFU's head of economics and international affairs, Tom Hind. He was at one time acting head of the NFU's office in Brussels.

Not surprisingly, he takes the NFU line that farmers need to continue to receive the single farm payment (SFP) to give them a degree of income stability, especially faced with volatile markets. A basic tenet of agricultural economics is that markets for farm commodities are relatively unstable: to put it at its simplest, even with modern agronomy, the weather remains a factor which can disrupt such markets. If one accepts the view that farmers as a category require market stabilisation measures (which is not quite the same thing as income stabilisation), there is still room for a debate about whether the SFP is a particularly efficient or fair policy instrument, but it could be argued that we have to work with what we have.

In any event, he is confident that the long-term legitimacy of direct payments will be strengthened during the upcoming debate about the future of the CAP. He is emphatic that decision-makers in the UK 'must move away from ideologically entrenched positions, especially on phasing-out direct payments.' Not surprisingly, he is heartened by the declaration made by 22 EU governments in Paris in favour of a strong CAP. It's a document short on specifics, but it really represents a political commitment, rather than a set of policy recommendations.

It is interesting that he does fear some further renationalisation of the CAP which many member states pushed during the health check. He notes that in recent weeks several governments have resorted to state aids to give support to their farmers. He is correct to point out that such activities can lead to competitive distortions between member states and hence undermine the single market. What particularly concerns him is the possibility of national co-financing of direct aids. With justification, he fears that UK farmers would lost out as the Treasury would not be keen to top up direct support.

He does oppose direct payment schemes that used farm size or turnover for determining levels of support. He says that such criteria are 'woolly' and they are certainly difficult to interpret and apply in practice given the legal and other issues surrounding what constitutes 'a farm'. However, the real objection is that Britain is one of the countries that would lose out. If one is going to have farm subsidies, and one wants European agriculture to be competitive, should they be denied to the farmers best placed to compete on international markets?

Where I have particular sympathy with him is when he says that what is wanted is a policy focused on the market. This does not mean just decoupling, but also correcting market failures such as excessive retail power. Whether the EU can do much about this is another question. In large part it falls within the competition policy remit of member state governments, but they are often reluctant to rein in retailers who keep down inflation by delivering cheap food to voters, albeit by using contractual and other tactics that are arguably unfair and not in the long-run interests of an efficient and effective food chain.

Clearly someone like Tom Hind is looking at these issues with the needs of his members in mind: that is what he is paid to do. Most of us wouldn't start from where we are and a sudden withdrawal of subsidies could have substantial negative impacts on the agricultural economy.

Nevertheless, modern farmers are much more market oriented and are aware that they have to deliver products that the consumers want: hence the proliferation of farm shops and small-scale processing businesses serving niche markets with value added products. Hopefully, they can eventually be weaned off subsidies, particularly if competition policy is used to remove unfair practices.

Sunday, January 03, 2010

Hedge fund moves into agriculture

A leading New York-based hedge fund is moving into agriculture through a vehicle called the American Farmland Company. Optima has $6 billion funds under management. It plans to start its swoop by investing in arable land in Arizona and vineyards in California.

It has no European plans at present and the predominantly smaller nature of most farms in Europe may make it a less attractive location. Even though the US subsidises its farms, especially its larger ones, making farm investment even more attractive, the sheer complexity and the CAP and the uncertainties surrounding its future may be an off putting factor. In the States the initial plan envisages up to 15 farms with an average size of 500 acres, so the involvement is modest.

It is the longer-term strategy that is interesting. Dixon Boardman, Optima's chief executive, believes that economic recovery, continued population growth and increased incomes, especially in emerging markets, will create increasing demand for food. The diminishing availability of arable land, especially in China, is also seen as a key factor. In other words, a food security crisis leading to increasing prices is seen as being on the agenda.

Boardman argues that farmland is an asset class that has been overlooked by many investors. I am not so sure that is so true in the UK where interest has waxed and waned over the years with companies like Sentry Farming eventually pulling out of farm management. Boardman argues that in the US farmland has generated revenues exceeding 15 per cent per annum in the past five years, but part of that has been fed by the biofuels boom which is of questionable net environmental value. He also points out that the farming sector has low debt which is an attraction in the current crisis.

The sector produced a return of 31.7 per cent in America between June 2007 and June 2009, according to the National Farming Index. Over the same period the S&P 500 index declined 35.9 per cent.

Only a small proportion of American farmland, estimated to have a value of around $2 trillion, is owned by institutional investors. Boardman is confident that farmers will sell up: 'Farming is much more than a commercial choice than a lifestyle choice in America. A lot of these farmers are getting old and the next generation is not always interested in taking over these farms.'

In the UK farmland values in southern England have long been boosted by interest from the City. Sporting assets such as shooting and fishing are a key attraction, along with opportunities to stable and exercise horses. However, these activities may be undertaken alongside a commercially managed farming operation. There may be inheritance tax advantages in investing in farmland.

Friday, January 01, 2010

New Year Greetings

I had an interesting visit to Australia in February and March and met many people connected with agricultural policy. This llama on a property in Queensland did not seem too pleased to see me, probably having been told that there was about to be a CAP regime for camelids.

May I wish all readers a happy, prosperous and healthy new year. I would like to be also able to forecast that the momentum of CAP reform will be maintained, and that agricultural policy will increasingly be adapted to the needs of climate change mitigation and adaptation, but I am not optimistic on either point.