Tuesday, May 29, 2012

Olive oil crisis hits Southern Europe

Unwanted surpluses are a recurrent problem of the CAP. And now the troubled Southern European countries have been hit by a surplus of olive oil, driving down prices to uneconomic levels. Domestic consumption of the diet staple has fallen because of the economic crisis: in Greece and Italy it has fallen to 1995 levels and in Spain to 2002 levels. At the same time there has been a bumper crop in Spain. The price of premium extra virgin oive oil fell this month to $2,900 a tonne, the lowest since 2002 and down more than half from nearly $6,000 a tonne in 2005.

Spain, Italy and Greece account for some 70 per cent of the world's output. The crop is crucial for some of the poorest regions of Spain including Andalucia, where the unemployment rate was 33 per cent last quarter. Urged on by farmers' union Copa-Cogeca, the EU has started to pay companies to stockpile oil.

Intervention buying was one of the worst features of the old style CAP. It costs money to store the produce and often it deteriorates in quality over time. One then faces the problem of how to sell it without causing market disruption. In the past 'ageing' butter was sold to grateful consumers in the Soviet Union while skimmed milk powder was dumped on third world countries, driving local dairy farmers out of business. Such outlets are not available for olive oil.

Wednesday, May 23, 2012

Green confusion

Agra Europe reports that support has been building in recent weeks for the idea of member states being offered a menu of options for the ‘greening’ of the CAP post-2013, with a majority of member states backing the plan. But EU farm commissioner Dacian Ciolos took the opportunity at last week’s Farm Council meeting to speak out against taking this route, pushing instead for the principle of greening ‘equivalence’.

Ciolos argued that if member states were allowed to effectively pick and choose which environmental actions would be eligible for the ‘greening’ component of the new direct aid scheme, there woud be a risk of creating an unequal state of affairs across the bloc. Some actions which certain member states may deem appropriate for their particular situation may be more or less ‘beneficial’ to the environment than those implemented in others, for example. An alternative view would be that such an approach is compatible with the notion of subsidiarity.

The proposed menu option, which also drew the ire of environmental groups last week, goes against Ciolos’s ideal that 'quality and consistency' should apply across the EU27 when it comes to the next CAP. The three EU-wide measures that the Commission is proposing for the ‘greening’ elements of the direct payment scheme might also be seen as fitting better with the Commission’s push for 'simplification' of the CAP.

This disagreement between the Commission and member states highlights the fact that the EU farm sector is not as united as the Commission no doubt hoped it would be at this stage. But with 27 diverse member states with differing climates, farmland types and political systems around the table – and against the backdrop of one of the worst financial crises Europe has ever seen - the Commission will almost certainly need to show some flexibility. Or to put it another way, there will have to be another messy and incoherent compromise in order to secure agreement.

These greening proposals have always been ill thought through in my view and risk a lose-lose outcome of damaging farm businesses whilst not helping the environment.

Monday, May 21, 2012

Have farmers less to whinge about?

Sometimes I think that Farmers Weekly should be called Whingers Weekly. Often it's the weather - too hot, too cold, too dry, too wet. Admittedly, it is a challenge in the UK's variable climate. Then it's often prices (where dairy farmers have real concerns) or late payment of subsidies. After that it's vegetarians, defenders of the badger and opponents of GM crops (both of the latter two go way over the top on many occasions). Or it's retailer power, and that's where I have real sympathy with farmers. Let's hope the new supermarket ajudicator makes a difference.

Anyway the NFU has launched a new campaign to boost the image of British farming. Apparently the president is going to emulate the Jubilee by going up the Thames in a farm themed boat to the House of Commons: Farming

Last year farming was one of the most profitable industries in the UK, lifting aggregate net profits 25 per cent to £5.7bn. Measured against other sectors only mining and oil saw bigger growth according to UBS, the investment bank. Of course, farming can have bad years as well as good and not all sectors are doing well, but it does lead one to wonder whether such large blanket subsidies are needed.

As NFU presiden Peter Kendall points out, modern farms make a great deal of use of ICT and 'It's now a high-tech industry, not the way it was 10 years ago.' Pardaoxically, consumers may like a more bucolic image, but then they also want a ready supply of cheap food.

The good times may also be over before they beagn. Farming is fossil fuel intensive and in the long run prices are likely to rise in real terms despite the current dip. Farmers do, of course, pay a lower level of duty on 'red' diesel (sufficiently lower to lead to its occasional illegal use). Supplies of grain are rising which is likely to depress prices. Turmoil in the eurozone may hit exports and the rise in the value of the pound will reduce the amount received in subsidies. However, demand for food is likely to continue to rise, pushing up prices.

Saturday, May 19, 2012

Hollande appoints farm minister

One of the first appointments made by President Hollande’s prime minister Jean-Marie Ayrault was to make current MEP St├ęphane Le Foll the country’s new farm minister.

A close ally of Hollande, Le Foll’s appointment may prove to be an extremely shrewd move by the new French president as the Socialist MEP has been heavily involved in scrutinising the European Commission’s CAP reform proposals as part of the Parliament’s agriculture committee and is a substitute for the budget committee. I have seen Le Foll in action myself when I have given evidence to the agriculture committee and he is clearly very smart.

Le Foll has also authored a report calling for measures to help EU agriculture adapt to the effects of global warming. It is likely that he will push for a stronger ‘greening’ element at the CAP negotiating table, which will not please some British farmers, as well as a fairer distribution of aid among member states. Of course what is 'fair' is very much in the eye of the beholder.

Thursday, May 17, 2012

Backlash against open government

It's no real surprise that there has been a backlash against transparency and open government in the CAP and that the group at farmsubsidy.org who try to shine light in dark corners are facing greater difficulties following court cases: Transparency

Revealing details about payments to individual farm businesses discloses how much some large businesses and food processing firms are receiving from the taxpayer. The bigger you are, the more you get. Of course, it could be argued that the CAP is a very inefficient way of delivering income supplements and that if it is there to promote competitiveness, more is likely to go to bigger farms which tend to be more efficient (and also have a better record in areas like animal welfare).

If one was designing the policy again today, we wouldn't end up with what we've got. But we are constrained by starting from where we are in trying to make reforms.

Friday, May 11, 2012

Greening proposals watered down

Agra Europebroke the news last week that member states are demanding greater flexibility when it comes to the ‘greening’ elements of the proposals for the CAP post-2013.

It has now reported that the proposal for an alternative ‘menu’ with a range of options was said to have been warmly welcomed by a majority of states at a subsequent Special Committee on Agriculture meeting. This could mean that the European Commission’s much-vaunted plan to tie 30 per cent of direct payments to just three EU-wide ‘greening’ measures from 2014 is dead in the water.

As the influential CAP commentator Chris Horseman has argued, it could be said that by not making crystal clear the purpose of ‘greening’ the direct aid payments to farmers under Pillar 1, the EU’s decision-makers have allowed the more influential member states to grasp the nettle and shape a more politically-palatable proposal in its place.

Although the new menu proposal is almost certain to be more acceptable to member states, it is unlikely that they will allow for a more environmentally-sound policy than the original ‘greening’ measures put forward by the Commission and environmental groups such as Birdlife International have already made their feelings known, claiming it will mean 'Europe’s most environmentally harmful farmers to get away without changing anything.'

However, it is arguable that the original proposals were too inflexible and would simply create transaction costs without a favourable environmental outcome. It is not easy to devise cost effective policy instruments for agri-environmental policy that also avoid the 'additionality' problem, i.e., paying farmers for doing something they would have done anyway. Many farmers do see themselves as trustees of the land they own or rent on a long-term basis.

However in the UK the practice of taking on additional parcels of land away from the main farm to make it a commercially viable unit may not help this notion of stewardship.