Choices on food policy

The House of Lords European Committee has published a report on Brexit: Food Prices and Availability: Food Prices

The report finds: 'If an agreement [with the EU] cannot be negotiated, Brexit is likely to result in an average tariff on food imports of 22%. While this would not equate to a 22% increase in food prices for consumers, there can be no doubt that prices paid at the checkout would rise. To counteract this the Government could cut tariffs on all food imports, EU and non-EU, but this would pose a serious risk of undermining UK food producers who could not compete on price.'

'At least as significant as tariffs are the non-tariff barriers that may result from Brexit. The Government remains confident that it can secure an agreement that would allow ‘frictionless’ imports of food from the EU to continue, but it is unclear how that would be possible outside of the customs union. Any such agreement would be likely to require the UK to mirror all EU standards and regulations; a condition the UK Government may find politically difficult to accept.'

'If no agreement is reached, and food imports from the EU are subject to the same customs and border checks as non-EU imports, the UK does not have the staff, IT systems or physical infrastructure to meet that increased demand. Any resulting delays could choke the UK’s ports and threaten the availability of some food products for UK consumers. The Government’s proposed alternative is to allow EU imports through with no, or very few, checks: this raises safety concerns as well as questions over how customs charges would be processed.'

'As well as securing a deal with the EU that will allow continued tariff-free, frictionless imports of food, the Government must also secure agreements with the non-EU countries from which the UK currently imports food as part of EU trade agreements. 40 such agreements are currently in place, covering 56 countries and accounting for more than 11% of UK food imports. The Government’s belief that most can be simply and easily ‘rolled over’ is not shared by those who have given evidence to previous EU Committee inquiries.'

The report concludes, 'The Government should develop a comprehensive food security policy for the UK. A long-term view is needed on whether to prioritise food standards or food prices, whether to reverse the UK’s declining self-sufficiency or increase imports. Other factors should include workforce shortages, priorities for investment, and bigger, global issues such as the impact of climate change on food production worldwide.'

Why lack of data affects food prices

One of the outcomes of the G20 food summit last week was an agreement to create a global database in an effort to better measure the level of supply, consumption and inventories of staple foods.

There is a justifiable view that insufficient information is contributing to volatilty in food markets. A price spike in 2007-8 was triggered by a fears of a shortage leading to bans on overseas sales and the hoarding of supplies. However, when better data became available, it was evident that fears of a shortage were misplace.

Outside the US little is known about the true state of supply, demand and inventories of staples. China, Russia and India are unwilling to share information with others about stocks in particular because they fear they could lose control over prices. Indeed, in China, such information is regarded as a state secret.

An earlier G8 initiative on oil markets is still struggling ten years after it was initiated. The agriculture market information system (Amis) has insufficient resources with the project based at the cash-strapped Food and Agriculture Organisation of the UN.

It's a good idea which should enable markets to work better but whether it can be really effective remains to be seen.

Sarko's regulation crusade makes modest progress

President Sarkozy of France has been on a crusade to regulate agricultural commodity markets and he made modest progress at a two-day G20 conference in Paris last week. France made food security and commodity regulation a centrepiece of its G20 presidency after the 2007-8 food crisis and the rise of more than a third in global food prices over the last year.

France was able to secure a diluted deal to recommend that G20 finance ministers tackle the regulation of financial commodities markets. The communiqué agreed at the end of the Paris summit echoes an earlier deal by finance ministers to study limiting the number of contracts speculators can hold.

However, some argue that commodity markets bring a much needed liquidity to the farm sector. Last week the World Bank took the rare step of encouraging developing countries to buy insurance in the derivatives market against sudden changes in food prices with a deal that would allow the nations to hedge some $4bn worth of commodities.

The World Bank has struck a deal with investment bank JPMorgan who would offer simplified hedging instruments to the private sectors of developing nations, including farming co-operatives and food processing companies. The World Bank would underwrte $200m in credit risks while JPMorgan will take on a similar amount. It is anticipated that other banks will join later. Some critics would, of course, just see this as evidence that the World Bank is hand in glove with global capitalism.

The real problem with the G20 summit is that it backed away from action on biofuels and export bans. The subsidised encouragement of biofuels has boosted food prices. Marie Brill of ActionAid said it was a shame that the G20 had ignored a clear recommendation in a commissioned report from international groups to remove subsidies and mandates for biofuels. There are, of course, powerful interests in the US in particular linked to biofuels which are seen as a means of underpinning American energy security.

On exports, a report from the World Bank and the UN's Food and Agriculture Organisation said that 'export subsidies by major food exporters had strong destabilising effects on international markets' and recommended that the G20 use them as a last resort.

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.'