Friday, December 13, 2013

Mind the gap

HSBC head of agriculture Allan Wilkinson has drawn attention to the gap between returns from the market and costs of production, particularly in livestock enterprises. For beef the cost of production is £3.20/kg liveweight compared with a market price of just £2.10 so that only 60-70 per cent of production costs are recovered from the market. It costs £2.30 to produce a live kilo of lamb while market prices are at £1.75-1/85 kg lw. Thus, only 75 per cent to 80 per cent of production costs are met by the market.

These are, of course, average production costs and Mr Wilkinson emphasised the gap between the best- and poorest-performing farm businesses. He warned that unless the gap between the cost of production and returns can be closed, the size of the red meat sector will fall further and the industry will continue to decline.

Once again these figures show how dependent important sectors of British agriculture are on CAP subsidies which are bound to decline in the long run.

Friday, December 06, 2013

What do we mean by food security?

Food security has been a dominant element in recent debates on agricultural policy, not least the recent discussions on CAP reform. But what do we actually understand by food security? There are a number of standard definitions out there, but in fact various actors interpret the term for their own purposes. An important article in Food Policy by Jeroen Candel, Gerard Breeman, Sabina Stiller and Catrien Termeer, identifies six different interpretations or 'framings'.

Not surprisingly, the productionist and environmental frames were dominant, accounting for nearly 70 per cent of uses. Anyone who has followed the CAP debate is familiar with the productionist frame. It is the stock in trade of those who advocate a 'business as usual', 'more of the same' CAP. As the authors note, it 'revolves around a story line that considers food security as one of the key goals of a future Common Agricultural Policy.' World food crises increase the salience of this frame.

The policy conclusion that is drawn is that the CAP should maintain 'a strong first pillar.' Agricultural production and productivity should be stimulated, 'and should be considered as a form of public goods provision, for which a financial compensation is justified.' [Needless to say, I think that this is a spurious argument, but it is certainly widely deployed].

Whilst the productionist frame is the dominant one, the environmental frame accounts for almost a third of all uses. This is of itself interesting as such a prominence would not have been achieved fifteen or twenty years ago and shows how the debate about the CAP has been 'greened'. The provision of environmental services is seen as an integral part of European food production and the emphasis is on long-term sustainability which cannot be achieved by the continuation of current policy.

Interestingly, the third most used frame is the regional one which shows how the notion of food security can be appropriated for a range of purposes. I see this as a very political frame in the sense of securing benefits for a particular set of actors. The argument here is to look after less developed regions which it is argued cannot produce at world market prices. Farmers in these regions perform an important function as caretakers of the countryside. The Scottish Highlands and Islands are a good example. Although a continuation of the CAP is supported, the present distribution of funds is seen as unfair.

The free trade frame argues that food security is best achieved by free trade. The development frame critiques the impact of the CAP on developing countries. The food sovereignty frame offers a radical critique of traditional conceptions of food security and focuses attention on people's right to food. Historically, notions of equity did feature in the debate in terms of closing the gap in the standard of living between rural and urban areas, but this framing covers both consumers and farmers and is underpinned by notions of global solidarity.

Interestingly, the European Commission uses multiple framings, invoking various frames simultaneously. My take would be that various interpretations of food security can be utilised to justify whatever line the Commission has chosen to take. The consequence, the authors argue, is that a clear vision of the relationship between the CAP and food security is lacking and policy makers may need to develop a more coherent vision [although I would add that CAP decision-making processes rarely facilitate clear strategic thinking].

Not only is this article a very useful, empirically based overview of how the term 'food security' has been used in policy debates, it also provokes thought about where we might go in the future.

Tuesday, December 03, 2013

Farmland attracts institutional investors

There is nothing new about farmland attracting institutional investors. There was a surge of interest in the 1970s when it was seen as an asset that would hold value in inflationary times. However, there is a new wave of interest. The UK's £14.9bn Pension Protection Fund has recently appointed a farmland manager. In the US, TIAA-CREF had built up a $4.4bn portfolio by July 2012, encompassing more than 800,000 acres across four continents.

What's the attraction? It gives exposure to commodity prices as well as the return from production. Demand for agricultural commodities is growing as developing countries become more prosperous while supply is constrained by such factors as the availability of land and an assured water supply. Investing capital in, for example, machinery or irrigation could drive up the value of the asset as well as returns.

The downside is that this is not a liquid asset. Investment has to be for the long term. Yields can be impacted by weather events, the uncertainty and magnitude of which could increase with climate change. There are also political risk issues associated with subsidies, trade regimes and tax structures.

What is required is specialist knowledge of the sector. It is important to focus investments in locations that have good soil quality, reasonable infrastructure and access to the markets where growth is occurring. Many investors have been attracted to Australia for those reasons.

There are also potential ethical problems. Swedwatch has criticised Sweden's national pension fund AP2 for a lack of transparency on its Brazilian farmland investments: Swedwatch . It suggests that there may be serious negative impacts on the environment and human rights. Common problems include high use of pesticides, poor working conditions and a loss of biodiversity.

Can Doha lite succeed?

As trade ministers gather in Bali the question is can a 'Doha lite' agreement be concluded to rescue something from the Doha Round of trade negotiations? Or will agreement once again be foiled by arguments over agriculture?

The developing world will still want the US and the EU to stop export subsidies for their farmers, although those paid out by the EU have shrunk away to a fraction of what they were: Export subsidies . Cotton farmers in Africa will still demand better access to the American market and a reduction in domestic subsidies. Sugar cane growers in Australia and Brazil also want better access for their products.

However, the real sticking point could be Indian insistence on rewriting the rules of the WTO on food security programmes. A 'peace clause' was agreed, intended to give another four years to negotiators to come up with new WTO rules for farm subsidies and the prices paid for staples bought as part of government programmes to supply food to the poor. 70 per cent of the Indian population is covered by such programmes which have recently been extended by legislation and there is a general election due next year. It now appears that India wants the clause to be permanent or at least apply until a final deal is concluded.