Initial win for France

France has won the first round of the CAP budget negotiations with the Commission recommending that the farm budget should be frozen in real terms up to 2020, although additional provision would be made for the accession of Croatia and a €500m 'crisis intervention fund': Budget

Of course this is only the first stage in a long battle. The budget plans also assume a 5 per cent increase in the overall budget at a time of fiscal austerity and the UK has made it clear that it will oppose this increase. If it went ahead it would shrink the CAP share of the budget from 45 per cent to 38 per cent despite the total farm envelope being protected.

This budget recommendation might seem to confirm the view that French educated farm commissioner Dacian Ciolos is in the pocket of Paris. NFU president Peter Kendall recently criticised him for favouring a bucolic view of the countryside that promoted small, traditional farms (which are numerous in Romania) Mr Kendall said that Mr Ciolos had taken a 'Lark Rise to Candelford' view of agriculture which was old fashioned and shunned development.

There are concerns that the complexity of the changes proposed for the CAP and the delays which result from co-decision mean that any new package will not be brought into place by the target date of 1 January 2014. It might have to be delayed for one year.

It has become increasingly evident that the CAP in its current form will outlive me but I wonder if it will also outlive my granddaughter who starts secondary school in September.

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.

Threat to biodiversity funds

The RSPB and Defra are concerned about a potential threat to funds paid under Pillar 2 of the CAP to support biodiversity and wildlife schemes: Biodiversity

It would be very unfortunate to say the least if savings in the CAP budget were made by capping payments that compensate for the provision of positive externalities for which there is the strongest case for public subsidy.

The bulk of any reductions should come from the SFP, although the concern here is that an attempt will be made to penalise efficient and competitive farms by capping payments. MEPs have been urged to vote against these proposals: Capping

A risk management toolkit?

Farming as an activity is highly exposed to risk, in large part because of natural factors such as variable and unpredictable weather which are beyond the control of farmers even with modern agronomy and technology and a more knowledge intensive agriculture

As part of CAP reform the Commission has suggested the creation of a 'risk management toolkit' as part of the Rural Development Measures under Pollar 2. National governments of the member states might be given the option of choosing from a menu of options and receive co-financing from Brussels subject to an upper limit. One proposal is some kind of income safety net constructed in a way that is WTO compatible.

Stefan Tangermann is a highly respected agricultural economist who served as head of the agriculture and food division at OECD. He has produced an analytical paper on the subject of risk management and the future of the CAP: Risk management

Justifying farm subsidies

There's been an interesting debate in the pages of the New York Times Book Review about the work of Freidrich Hayek.

Peter Dreier, a political science professor in Los Angeles, wrote in to justify some forms of government intervention. However, even he had a few problems when he came to farm subsidies.

He argues that 'during the Depression, federal agricultural subsidies saved family farms and rural jobs.' Anyone taking a social market position would accept that you have to take exceptional measures in a recession. The problem is that temporary crisis subsidies become permanent and create a set of clients who are prepared to use time and resources to lobby in their defence.

Drier admits, 'Today, a vast majority of farm subsidies go to large agribusiness conglomerates that don't need them, rather than to small family farmers.' It's an interesting question whether marginal businesses should receive some general subsidy as distinct from rewards for positive externalities such as environmental goods.

He goes on to say, 'food stamps, an indirect subsidy to farmers, clearly improve the general welfare.' However, that is the trick. By wrapping up subsidies to the poor in the farm budget, the agricultural lobby is able to win the support of Democratic urban congress members who otherwise would have no interest in maintaining farm subsidies.

It looks like there is an appetite in the House of Representatives to cut them against the background of an out-of-control federal budget deficit but it will be interesting to see what the eventual outcome is.

By the way, if you haven't seen it already, I would recommend the 'Keynes and Hayek rap': Rap . There is also a Round 2 in which JMK and 'Freddie' go toe-to-toe on the current recession.

France uses E.coli scare to boost CAP

France's agriculture minister Bruno Le Maire has used the E.Coli outbreak in Germany to defend spending on the CAP. Pointing out that 17 people had died, he commented, 'I too would like us to be able to cut the budget [Really?], but we will have to explain to consumers that we will also have to cut back the sanitary controls that are partly paid for the common agricultural policy ... at a time when we are facing a big sanitary crisis.'

Mr Le Maire, who may become finance minister of Christine Lagarde goes to the IMF, called on member states to make a 'courageous and responsible decision' in negotiations over the budget for the CAP after 2013. In other words, minimal cuts.

This really is a presposterous and obnoxious piece of shroud waving. It would be perfectly possible to decide to maintain sanitary and phytosanitary spending whilst reducing the SFP.

Who compensates farmers and to what extent for the economic consequences of the E.coli scare remains to be seen. The amount available from the CAP has been topped up, but the question is how much cash strapped member state governments can afford, not least in Spain.

The German agriculture minister does not come out of this well. First, Germany went in to 'Club Med' mode, blaming it all on poor Spanish hygiene. Subsequently they have been unable to definitively identify the source of the outbreak.

MEPs side with Commission

MEPs on the Agriculture Committee have sided with the Commission over the question of scaling farm payments so that bigger farms receive less: Scaling .

Such an idea has always been unpalatable to Britain, Germany and the Czech Republic which have a disproportionate share of larger farms. It was rejected by the Farm Council earlier this year, but farm commissioner Dacian Ciolos has continued to favour it. It has never been clear how practical it is, given that a farming business could be constituted as single different legal entities.

The MEPs assumed that the farm budget will remain the same as it is now. The CAP has some stout defenders but in a time of austerity and with many competing uses for the available funds, it is difficult to see some cutback being avoided. The MEPs also favoured the 'greening' of the policy but it is often Pillar 2 schemes that suffer when the budget has to be cut.

Of course, cutting back payments to larger farms would give some headway in the budget, but not that much. Underlying all this is the perpetual muddle about what the priority ordering of CAP objectives is, but in practice fostering an efficient and competitive European agriculture (which is what most larger farms do) often loses out.

Disciplining agricultural support

The WTO may have rules in place to discipline domestic agricultural support, but in practice this is quite difficult given the propensity of countries to evade or fail to fully implement the rules given what they perceive as being their national interests. Three leading agricultural economists have produced a report on the subject which covers four developed countries (including the US, EU and Japan) and four developing countries (including India and China). It can be found here: Agricultural support

The report raises the question of the legitimacy of green box support which has been discussed on this page before. It notes that this has been treated as 'decoupled income support by the United States, the European Union, and China. There are large differences in the levels of such payments. The extent to which decoupled income support affects production remains uncertain but may be consequential. Limits might therefore be envisioned for this type of support to achieve a balanced set of future commitments.'

The EU has always taken the view that the SFP can be protected by putting it in the Green Box, but is always possible that this might be challenged in the WTO's Dispute Settlement Mechanism - although this would incur political costs for the country concerned.

Is a radical approach to CAP reform off the agenda?

In the latest issue of Eurochoices the editor John Davis suggests that 'Those who favour a more radical approach to policy development [in the CAP] may now be considered "outliers".' He notes that CAP reform has followed an evolutionary path, which is certainly the case, and that as a consequence the Producer Support Estimate (PSE) has been reduced from around 35 per cent in the late 1990s to about 24 per cent in 2009 which is close to the OECD average (although the US figure is 10 per cent).

Of course, in the absence of any radical impetus, we may not progress much further. Those who take a relatively radical position may help to produce compromise positions which still lead to real progress on reform.

It is interesting that elsewhere in the issue an article by David Harvey and Attila Jambor point out the flaws in the conception that Single Farm Payments should now be interpreted as payments for public goods.

They note, 'In fact, these payments derive from and largely reflect previous coupled and production related support. They are a supplement to production-related market returns, and are treated as such by farmers.' As for cross-compliance it is 'often regarded as an unnecessary and irritating condition attached to deserved support for commercial farming.'

Commission insists on transparency

The Commission has reacted to a court judgement on publishing details on farm subsidies by insisting on a commitment to transparency: Subsidies

While the judgement means that data cannot be published on 'natural persons' (individual farmers) the Commission's view is that it could and should be published about 'legal persons' (companies).

Given that many large farm businesses are constituted as companies, this could mean that taxpayers would still have access to data about the really big payouts. However, much depends on the follow up action taken by member states.

Defra no longer in charge of CAP reform

The NFU's policy director Martin Haworth thinks that UK policy on CAP reform is no longer being driven by DEFRA. Rather the Treasury and the Home Office is in charge. Their priority is seen as being to protect the British rebate rather than British agriculture. The NFU is fighting to ensure that any deal to protect the rebate does not come at the expense of agreeing to cuts in farm support.

The NFU has been forced to give up its opposition to any 'greening' of Pillar One support and has accepted that CAP reform is likely to impose further environmental conditions on subsidy payments. The emphasis now is on ensuring that any measures are fair and achievable.

The NFU clearly considers that its stance has been undermined by that of the Country Land and Business Association (CLA) which has advocated ranking environmental mesures alongside food security in importance. NFU president Peter Kendall has described the CLA's stance as a 'noose around our neck' in the negotiations. It had made it easier for policy makers to argue that subsidy payments should be shifted from food production to the environment.

What impact will co-decision have on CAP reform?

In an interetsing paper presented at the Agricultural Economics Society conference at Warwick University last week, Alan Greer and Tom Hind explored the possible impact of the introduction of the co-decision on CAP decision-making and reform prospects. They proceeded by setting out four scenarios:

Scenario 1 The 'conventional' view (often put forward in the media) in which the EP gains power at the expense of other institutions (assuming that there are significant points of difference).

There are two limiting factors on the ability of the EP to exercise power. First, as the lead committee ComAGRI has had very limited experience of co-decision and it has to develop positions that can command majority support across the Parliament. If its views are too close to those of the agricultural community (and the committee is more agriculturally focused than in the past), it could be challenged in the plenary, especially on environmental issues. Second, the Parliament has limited resources relative to the other institutions: the total staff of ComAGRI is around 15, plus three seconded researchers.

Scenario 2 The Council-EP axis in which the Council of Agriculture Ministers will use its expertise to work in close partnership with the EP to shape the legislation proposed by the Commission, weakening the latter. This depends on member states being able to work closely with national MEPs and the presenters argued (rightly in my view) that this scenario was not likely to develop in the next few years.

Scenario 3 The Commission-centric scenario in which the EP's resource void is filled by the Commission. The Commission would use its expertise and resources to work with the EP, using ithe role of arbitrator to facilitate agreement between the EP against the Council in order to shape the final outcome more closely to its preferences. The paper authors thought that this was the most likely scenario. The Commission had increased its displacement as a result of enlargement.

Scenario 4 'Co-indecision'. Co-decision might actually make decision-making more difficult. An average co-decision dossier takes 36 months to process. Some participants in the audience thought that this was the most likely scenario.

If that is the case, it does not bode well for reform. But any of the scenarios is likely to make the reform process more complex, slower and less radical.

'Greening' of CAP on its way

Both Defra and the NFU think that they have lost the battle to prevent the 'greening' of the CAP: Greening .

The NFU is concerned about the impact of the proposed measures on competitiveness, but it looks as if farmers will have to comply with environmental requirements to claim their Single Farm Payment. The NFU is consequently going to re-think its tactics on this aspect of the negotiations.

The NFU also thinks that delays in putting forward formal Commission proposals means that the start of the new policy will be delayed until January with the existing policy rolled over for one more year.

Farmers' fuel tax break under threat

The concession which provides farmers with 'red' diesel at a lower rate of duty are under threat. The diesel is coloured red so that checks can see if it is being used illegally off farm.

Draft plans by the European Commission say that current EU rules that allow member states to apply a zero rate of taxation on energy used for agricultural purposes should be repealed. The objective is to allow EU tax policy to contribute to 'green growth'.

The document argues that agriculture is one of the important sectors left out of the EU's Emissions Trading Scheme. The proposal says that a carbon tax of about £20/t should be introduced to bring agriculture in line with other sectors of the economy. It also calls for an energy consumption tax.

The news has been greeted with dismay by farming organisations at a time when oil prices have been rising. The duty rate on red diesel has increased nearly fourfold over the past decade. Farmers were paying an average of 63p a litre for red diesel in February, up from 46.9p in February 2010. This still compares very well with the price paid by hauliers and motorists.

Times have changed

As farm commissioner Franz Fischler pushed through a reform of the CAP against resistance from member states. However, in an interview with Agra Focus he indicates that in the changed environment of co-decision such a strategy is no longer feasible.

Asked whether the plans put forward by current Commissioner Dacian Ciolos went far enough, Fischler commented that the plans were rather vague and went on to say, 'I accept that under the new circumstances, under the way decisions will be made in the EU with the co-decision procedure, one cannot do what we have done in the past - that is to say come forward with a big surprise, a big reform, where everybody is against this reform at the beginning. This doesn't work anymore so one has to find a different approach and in principle I think the approach of Ciolos is the right one, but how far can you go?'

Fischler is a candidate for the post of director general of the UN Food and Agriculture Organization which is perhaps not as influential as it once was and needs a strong hand at the helm to revive it.

Complete Doha Round demand reform states

The prime ministers of the nine of the more reform oriented states have called on the EU to do it all it can to conclude the Doha Round in 2011 which they term a 'make or break year'. The letter, entitled Getting Europe Growing is signed by the leaders of the UK, the Netherlands, Sweden and Denmark, the leading lights of the traditional reform bloc. They are joined by the Baltic states, Poland and Finland. The absence of any southern member states is significant.

WTO trade rounds have been the most effective driver for reform of the CAP because they provide an exogenous pressure which helps to overcome internal obstacles. Manufacturing and service industry interests exert pressure when they see an agreement with benefits for them jeopradised by a failure to agree on agriculture. This is what happened in the concluding phase of the Uruguay Round.

Unfortunately for the hopes of reformers the political context has changed. The current administration in the US has not given a higher priority to trade policy and is preoccupied with coming up with a political deal that can provide an agreement on the budget. The political pressure for greater liberalisation that came in the past from agribusiness interests has weakened.

Even if the US and the EU could agree on the outlines of a deal they can no longer impose it on the other participants with some side payments. Emerging countries have become powerful players and while liberalisation suits Brazil's interests, India and China want to protect their peasant populations.

Plans to cap big farm subsidies lack support

Plans to limit subsidies paid to big farms under the Common Agricultural Policy have won insufficient support in the Council of Farm Ministers: Big farms

The farm commissioner thought that the proposals would be popular with taxpayers. Possibly so, but they have always been opposed by UK and Germany, the countries with the largest number of big farms.

The CAP is supposed to be, among other things, about the international competitiveness of EU agriculture, although in practice more attention is given to propping up marginal farmers. Large-scale farms tend to be more efficient and competitive, so if there are to be subsidies, they should receive them on the same basis as everyone else.

Setback for reform

Those wanting reform of the CAP have suffered a setback after 20 member states signed a declaration opposing radical reform of the policy: Reform . France was particularly pleased that Poland and Romania signed up given that accession states have been pressing for an eastward redistribution of funds.

The countries that refused to sign up were the reform camp of the UK, Denmark and Sweden; the three Baltic states (hardly big recipients of largesse); and Greece (which may have to do something with the current austerity package).

Although the UK acknowledged that the declaration was a setback in hopes for reform, budgetary pressures may yet have an impact on the final package.

Inside the CAP reform process

A major new analysis of the CAP reform process, An Inside View of the CAP Reform Process by Arlindo Cunha with Alan Swinbank has been published by Oxford University Press. Cunha was Portugal's Minister of Agriculture during the negotiation of the MacSharry reforms and was involved in the Fischler reforms as a member of the European Parliament. Swinbank is one of the UK's most distinguished agricultural economists and has written extensively on CAP reform.

The books explains how the 'old' CAP became no longer fit for purpose, deals with the structure and functioning of CAP decision-making, examines the 1992, 1999 and 2003 reform and also the Health Check and includes the results of a Delphi survey of some of the key players in the reform process.

The analysis suggests that the series of reforms 'was initiated by the Commission, with a particularly important role played by the commissioner, with the Commission playing its cards as an agenda setter at a time when internal and external forces were pressing for policy change.' There is much talk these days of the relative weakening of the Commission in the EU policy process and one wonders how far it will be able to play this kind of role in the future.

It is noted that the Commission has not been as successful in developing rural development as the second pillar of the CAP as Commissioner Fischler would have liked, but the decoupling of support has been relentlessly pursued. Of course, one might add that it has made the CAP more respectable.

However, much has not changed. It is noted that that the CAP still pre-empts a large share of the EU budget and that support is very unevenly spread both between and within member states. Larger farms receive higher payments and payments reflect past production structures.

Lords committee calls for radical CAP reform

The House of Lords EU Sub-Committee on Agriculture, Forestry and Fisheries has called for radical reform of the CAP: Lords . Direct payments should be phased out. The Committee welcomes proposals to 'green' Pillar 1.

The committee argues that innovation should be a central part of the whole reform agenda. This would unlock agricultural productivity which has been relatively static. High quality agricultural research and development, and its transfer to practitioners, are key to the future of EU agriculture. To boost funding, it should be possible to transfer money from the CAP to the research budget to fund Framework programmes.

The Committee calls for vastly improved farm advisory services so that farmers have better access to high quality impartial advice on possible innovative approaches. Unfortunately, publicly provided arrangements were dismantled a long time ago and it is difficult to see how they could be restored. Possibly private providers such as agronomists could undertake public policy work on a contract basis.

The report seems to reflect good sense, but there have been so many of these reports over the years and nothing much really seems to change as a result.

Financial speculation and volatile prices

There has been increasing discussion recently about the link between financial markets such as those dealing with futures and derivatives and volatlity in farm prices. The subject has been highly contested and there is no consensus view.

This viewed is shared in a leaked draft of a Commission communication which concludes that there is no conclusive evidence on the causality between activity in derivatives markets increased volatility & price increases in the underlying physical markets.

The draft version suggests unsurprisingly that agricultural commodity prices are expected to stay higher than their historical averages reversing their long-term downward trend, with producer margins increasingly squeezed due to higher costs.

Similarly price volatility is expected to remain high, although 'uncertainties with respect to its causes and duration persist'. Referring to the ‘CAP Towards 2020’, it notes that food security has been identified as one of the main drivers for future reform in EU policy, underlining that a 'strong agricultural sector is vital for the highly competitive food industry to remain an important part of the EU economy and trade and a major contributor to international markets'.

Commenting yesterday on a decision to defer its publication, the Commission spokesperson outlined that there is 'no doubt about the links between the physical & financial markets', but that there is a 'need for more time to look at the specifics at play between the financial markets and markets that are not closely regulated' such as Over-the-Counter (OTC) derivatives. The Commission now intends to 'refine the analysis' on the reasons why markets fluctuate and seek greater clarity on the interaction between speculation and markets.

It's all in the green box

The EU has done a good job of stuffing its CAP subsidies into the green box category which is supposedly free of distortions to international trade, this latest report from ICTSD shows: Green Box

Production-linked subsidies hit a new 'low' of €12.3bn, whereas green box subsidies such as the Single Farm Payment amounted to a new high of €62.6bn. That makes a total of €74.9bn and it is worth reflecting on the opportunity cost of that amount of spending.

As one comment on the report points out, what really distorts global trade are the EU's high tariff barriers, particularly in relation to so-called 'sensitive' products. Should the Doha Round resume, this is an area in which agreement will be needed.

Of course, there are questions about whether subsidies placed in the green box are really free of distortions to international trade and this could be tested in the quasi-judicial WTO dispute settlement mechanism at some point in the future.

The subsidies dilemma

A farmer writing to Farmers Weekly says of Caroline Spelman's support for phasing out the Single Farm Payment, 'Surely she must realise the subsidy keeps most farmers in business?'

The correctness of this view in the short term, for livestock farmers at any rate, was confirmed by HSBC's head of agriculture Allan Wilkinson who said that livestock and dairy enterprises are likely to be even more reliant on subsidy payments to make a profit this year.

He told Farmers Weekly that while arable producers will benefit from the dramatic upturn in commodity markets, relatively static meat and milk prices, combined with big increases in feed costs, will put margins for beef, sheep and dairy producers under significant pressure.

Part of the answer is, of course, not subsidies but the response of the individual farm business to admittedly difficult market conditions. Mr Wilkinson acknowledged that output and costs varied significantly and that top-performing producers and those who had managed to secure higher end prices or cheaper inputs would fare better.

He commented, 'It's clear that volatility is here to stay and the successful busineses will be those that devote more effort to marketing strategies, in conjunction with a continued focus on technical efficiency and lowering production costs.' In other words, farmers have to get smarter.

Subsidies may not help them to get smarter. With Simon Marsh of Harper Adams University College, Farmers Weekly is following the month-by-month progress of an upland suckler herd that's consistently performing in the top 1 per cent of all costed herds. Mr Marsh commented, 'For too long, the UK beef industry has relied on support payments and it has stifled incentive to strive for efficient production.'

I was recently talking to a journalist from an esteemed weekly who has written on the CAP. He commented that when prices were low, the French (as the main defenders of the CAP) said that subsidies were needed to boost farm incomes. When prices were high or volatile, they were needed to ensure food security. He once asked a French minister if there were then any conceivable market circumstances in which an argument could not be produced in favour of subsidies.

We do not start with a blank sheet of paper and a sudden withdrawal of subsidies would seriously disrupt the market. But we should be starting down that road. Many farmers would be happier getting their return from their market without all the transaction costs of filling in forms to claim subsidies and the hazard that you may be denied part or all of your entitlement because of an inadvertent error.

What is more the UK is facing up to £1bn of fines from the EU in large part because of incompetent handling of Single Farm Payments (some £664m appears to relate to Defra). This was described in 2009 by the Commons Public Accounts Committee as a 'singular example of comprehensively poor administration on a grand scale.' Britain has now joined Italy and Greece among the worse offenders on farm funding

Global farming food and future report out

An important report led by the Governnment's Chief Scientific Adviser, Sir John Beddington, setting out the challenges facing farming and food supply on a global basis is now available: Farming Future You can hear a Radio 4 discussion on the topic here: Beddington

This should provide a basis for a serious discussion about how agricultural productivity can be raised whilst coping with the challenge of climate change and other environmental considerations such as the maintenance of biodiversity.

Land is a finite resource, indeed its availability is diminishing because of urbanisation and the effects of climate change. Farming and food is very dependent on oil at various stages of the food chain, while the availability of water is an increasing constraint.

In the longer run support for the farming industry should not come through blanket subsidies but by, for example, ensuring that there is an adequate research structure that is oriented towards devising practical solutions towards the resolution of pressing problems.

Buoyant market for SFP entitlements

The market for SFP entitlements appears to be buoyant. Buyers far outnumber sellers which naturally tends to push up prices. George Paton of WebbPaton told Farmers Weekly that they had a requirement for 2400ha on their waiting list.

The confiscation of entitlements under tighter usage rules has had the effect of reducing the number of 'spare' entitlements. There are also more buyers about, some of them finally getting round to buying entitlements for land that missed out on the original allocation in 2005.

English flat-rate entitlements of €241/ha are currently worth around £205/ha, which is close to the level they can be expected to pay out in 2011, assuming exchange rates remain similar to current levels (when the pound fell against the euro it pushed up the value of payments received by farmers in sterling.) Entitlements for Severely Disadvantaged Areas and Moorland Areas are once again in particularly short supply and are fetching up to twice their annual face value.

Ideally one would not pay general subsidies of this kind to farmers at all. However, if one does have them, there is an argument for having a secondary market to re-allocate them more efficiently to those who think they need them most.

In a sense those who buy and sell in this market are taking a bet on the sterling/euro exchange rate. Of course, this not only affects the sterling value of the SFP, but also key input prices which have been rising substantially recently. 'Red' diesel for use on farms is taxed at a lower rate than diesel bought for normal domestic or business use, but its price has been pushed up substantially recently by rising world oil prices.

Ciolos lays it on the line

Dacian Ciolos has emerged as a more authoritative and decisive farm commissioner than many expected. Whether his line is the correct one is another matter. But the grumpy old man of British farming, Farmers Weekly correspondent David Richardson writes of his appearance at the Oxford Farming Conference, 'he had comprehensively mastered his brief and, when questioned, actually answered as fully and frankly as any politician I have known.'

The content of his message is perhaps less welcome. It's clear that he sees his job as being to change the CAP but also to defend its essential elements. I do, however, welcome the news that research and development may be included in pillar two. The food chain needs more publicy funded, applied research which can help to tackle pressing policy problems and on farm challenges. This has been cut back drastically over the years.

It is evident that the Commissioner thinks that part of the price of defending the CAP is capping subsidies to larger farmers. He is clearly influenced by his Romanian experience where it has been possible for farmers with very large farms (presumably in some cases former collective farms) to use the income from subsidies to start other businesses. This is evidently resented in Romania where there are also many small (and by European standards) relatively backward farms.

Ciolos argues that in some parts of Europe the choice is small farms or no agricultural activity at all. It may be that in some of these areas agricultural activity is not really viable and the land should be farmed as an ecological asset to maximise environmental benefits.

Ciolos argues that it's very difficult to explain how giving €2m to one individual or company is 'income support'. If the CAP really is income support, it's an inefficient way of delivering it.

What is continually overlooked with the CAP is the international competitiveness dimension which is supposed to form part of the policy. Large-scale farmers tend to farm to a high standard (including animal welfare standards), are highly competitive and also are often substantially involved in agri-environmental work.

If you cut off aid to them, you are penalising them for being more efficient. In any case there would be all sorts of legal problems over the definition of a farm business.

Ciolos evidently sees the CAP as more justifiable as a mechanism for the transfer of funds from taxpayers and consumers to marginal farmers. It is actually not an efficient way of helping them or the environment, it doesn't do much for food security (given that their output is low) and it doesn't help the EU food industry to become more competitive.

Spelman hits raw nerve with Ciolos

The speech by Defra secretary of state Caroline Spelman has clearly hit a raw nerve with farm commissioner Dacian Ciolos: Ciolos

In essence what Ciolos is saying is that this was a speech made for domestic consumption, but it will cut no ice in Europe. Depressingly, he is probably right, but the secretary of state was still right to set out her stall. She may be able to have some impact on the details of any deal, particularly when the budget dimension is brought into play.

Once again food shortages and volatile prices are in the news. If nothing else, this is a case for doing something about the high tariff barriers which surround the EU in the food area, particularly on so-called 'sensitive' products. If developing countries could get more access to developed markets, they would be incentivised to move towards more commercial agricultures which would feed more people both at home and abroad.

There are, of course, a lot of complex issues here and there are undoubtedly some areas of the world where improving semi-subsistence agriculture is the best way forward. But no one is going to become genuinely prosperous that way.

The big politics behind the CAP deal

Why was Dave Cameron willing to do a deal with France and Germany on CAP subsidies given that he is genuinely an Eurosceptic? This article (which was easy to miss as it came out on Boxing Day) explains the big politics behind the deal and opens with some amusing remarks about CAP subsidies: CAP deal

Call for fundamental CAP reform

In a major speech at the Oxford conference, secretary of state Caroline Spelman has called for a more ambitious approach to CAP reform and a fundamental change in the nature of the CAP: Spelman

She's talking the talk like former secretaries of state, but walking the walk is always more difficult. Only in very special circumstances has it been possible to build anything like a winning coalition for reform. Current thinking reinforces the trend towards protectionism she rightly criticises.

Has a grand deal been done?

The future of the Common Agricultural Policy depends on what is decided about the EU budget. And the broad shape of the EU budget is usually decided in grand deals between the leading countries of Europe. Indeed, in the past, the future of the CAP has effectively been decided over lunch between French and German ministers. However, in a larger EU, that is not as simple, although the Franco-German axis is still very strong.

However, this time it looks as if a grand deal may have been done between Britain, France and Germany. David Cameron has been quite an effective negotiator in Europe and for understandable reasons he wants the EU budget frozen in real terms. It's very difficult to inflict misery at home when there is apparent profligacy in Brussels (a lesson that the European Parliament seems slow to learn).

Britain is denying it, but essentially what seems to have been agreed is that Britain's budget rebate, won by Mrs Thatcher, will stay intact although the original justification for it has been undermined. In return France will be able to keep the CAP more or less unscathed. Germany has already sold the pass, as it usually does, by signing up to a joint declaration with France calling for a strong CAP.

Needless to say, the accession states, and in particular Poland, are furious. They want the budget to be maintained and subsidies to their farmers brought in line with the rest of Europe. To some extent that could be achieved within the current budget envelope, although farmers in other member states would lose out.

There is a lot of hard negotiation to come, but it may be, despite denials, that the basic outlines of a deal have been agreed. If that is so, it will be a disappointment, but not a surprise, for the CAP reform camp.

Alliances and stances over CAP reform

The process of CAP reform is always marked by informal alignments or alliances between member states and there seems to be something of a rapprochement between Britain and Poland: Poland

Both countries support a shift of spending from pillar one (direct payments to farmers) to pillar two (more public goods oriented). However, the UK wants pillar one to be phased out, while Poland wants an equal split between the two pillars.

The two countries agree in principle that subsidies for farmers in older member states and the accession states must be equalised, a key agenda item for East European countries. However, Britain doubts whether it will be possible to go as far as a flat rate.

However, in a different alignment, Austria is backing France and Germany in calls for a strong farm budget, but opposes Warsaw's idea of a fixed rate of subsidies. France is confident that its stance is gaining broad support and that the CAP budget can be retained at around the current level: France

Carry on intervening

Conservative MEP and spokesman for agriculture Richard Ashworth has called for the return of intervention purchasing in the CAP in the interests of food security. He told a conference at the Royal Agricultural College: 'It's absolutely vital to have some sort of instrument through which you can intervene in the market - a tool or lever the Commission can use in times of crisis'. The only 'tried and tested' way to do this was through intervention.

Historically, intervention purchasing was a highly distorting policy instrument which was why there was a shift of guarantee expenditure to Single Farm Payments. It gave farmers a risk free market for their produce at a price which generally exceeded the marginal cost of production. Hence, farmers were incentivised to over produce, depressing the market price. It also encouraged more intensive forms of farming which inflicted environmental damage.

I suppose the argument could be that food security demands that we produce more in Europe. Leaving aside the implications for other parts of the world that would like to export to Europe, intervention buying is a crude and imperfect mechanism to achieve this objective.

There is a case for intervention in times of crisis to prevent the market for a particular commodity collapsing completely with damaging effects on production in the longer term. But there is also a risk of temporary help in crisis being converted to a permanent subsidy. All such interventions must be for a clearly defined time period and limited in scope.

Interestingly, Mr Ashworth did admit that a recent analysis showed that only 18 per cent of CAP spending delivered value in the areas of jobs, growth and competitiveness. This would make the current CAP share of the EU budget difficult to defend and he thought it might well drop to around 37.5 per cent.

Why there is a case for county farms

The demographic profile of farmers in Europe, not least in Britain, is an ageing one. To some extent the figures may be misleading as younger members of a family may be involved in the farm enterprise, but as junior partners or salaried employees. Tensions between the generations are a recurrent theme in fictional programmes like The Archers. They happen in real life on farms, too.

Farming does need an influx of younger people who are not only more energetic but are open to new ideas and new ways of farming and have a recognition of the importance of dialogue with the consumer. Some older farmers have modified their views and taken new initiatives, but they are often more resitance to change and accustomed to a world in the task was maximising production with generous assistance from the taxpayer.

It is, however, very difficult to get into farming except through inheritance. Of course, you can be a farm manager and many go down that route. But ownership or even tenancy is more difficult. The entry price in terms of start up capital is too high a barrier for many.

That is why county farms have played an important role. They were originally provide for under the 1908 Smallholdings and Allotment Acts, although most of them were created between the two world wars to provide smallholding opportunities for landless agricultural workers and soldiers returning home from the war.

They are rented out by county councils and sometimes it is possible to progress from a smaller holding to a larger one and then eventually to your own farm. Of course, many farmers stay on the county council farm.

Many of them are not really large enough to support a family. Most of the county estates are made up of farms of around 100 acres, too small to compete with larger farms, but arguably too large for smallholding type enterprises serve the local market. In practice the tenant often relies on the farmer's partner (usually a woman) obtaining paid employment as, for example, a teacher or a nurse.

This week the full extent of the cuts being made to local government budgets will be made known, but it is evident that local authorities are going to taken a big, front loaded hit. Some county councils have already sold off their farms, e.g., Oxfordshire, while others such as Buckinghamshire and Somerset look like going down that route.

It's a way of paying down debts, but it potentially harms the structure of farming. When asked about the sale of county farms the leader of Somerset County Council argued, 'It's not our core business.' Maybe it isn't, but it is still arguably worthwhile business for rural county councils.

The case for these farms is made by Simon Fairlie in a special issue on Land in the latest edition of the excellent Food Ethics journal published by the Food Ethics Council. See: Food Ethics

I'm not sure I agree with Fairlie's argument that there is an opportunity for the revival of smallholdings to meet demand for local food. To me this seems like a reversion to the nostalgic idea of spade husbandry advocated by some Chartists in the early 19th century.

Semi-subsistence farming is not the way ahead for the Global South or developed countries, but there is a case for providing opportunities for motivated and innovative farmers to pursue farming as a career. The case for government intervention can be made on food security grounds.

The Commission stance

The final version of the Commission Communication on the CAP does not differ that much from the original leaked version. Some of the language has been watered down a bit, e.g., on the 'capping' of payments to large farms. Probably it is in there in the first place to give something that Britain and Germany will have to use up political capital on. It's an idea that has been around a long time, but is flawed in all sorts of ways.

The paper is a typical Commission compromise which pleases no one: reformers, farmers or environmentalists. However, no doubt the Commission would say that it offers a basis for an eventual settlement. In other words, EU politics is all about messy compromise and not about good policy. It's a realistic stance, but not a very politically attractive one if one hopes for visionary thinking from the EU (if anyone still does).

At the end of the day it is the discussions on the budget that will determine what sort of CAP we will have after 2013. It will probably somewhat greener; fairer in the distribution of income between member states; but still reliant on subsidy and protection.

NFU criticises Commission paper

The European Commission has now issued its Communication on the future of the CAP and the NFU has made a critical response. It argues that the Commisson's proposals may entrench inefficiency rather than boosting competitiveness. It thinks that the Commission may have tried to please too many audiences, possibly leading to a rather incoherent document:

'Today’s future of CAP Communication has identified the challenges that European agriculture and the EU Common Agricultural Policy face over the next ten years. However the measures proposed in the EU Commission’s document are unlikely to help farmers rise to these challenges, the NFU has argued today.

The paper, which sets out the direction of the next reform of the CAP due to take place after 2013, describes the context for the next reform and argues that European agriculture must address concerns about food security, the environment, climate change and the economic viability of fragile areas. While these challenges are accurate, the NFU believes that the measures suggested in the paper to considerably reshape direct payments may harm the competitiveness of farming, as well as undermine efforts to simplify the CAP and make it more comprehensible to taxpayers.

NFU President Peter Kendall said that while these ideas come at a very early stage of the reform process it was difficult to take a firm judgment on the document.

“While today’s paper is not without good intentions or ideas, it does not appear to present the best approach to reform for the post 2013 period,” said Mr Kendall. “The proposals outlined in the paper are understandably general and will require considerable clarification.

“The Communication does provide a fair assessment of the economic, environmental and societal challenges facing farming and I am pleased that it recognises the importance of Europe to global food security and of farming to the economy, society and the environment. I am also pleased to see that the Commission supports the maintenance of a common European approach to agricultural policy.

“However when we set out our policy on the CAP in May we argued that any reform must be driven by core principles; commonality, market orientation, competitiveness and simplicity. It is against these principles that the proposals should be measured. When I look at ideas such as a tiered approach to payments, capping of support with labour adjustment and a significant flexibility measure, I tend to see a recipe for complexity, distortion and a risk of undermining efforts to help farmers become less reliant on support.

“This is the key long-term strategic challenge; to get farmers to a place where they can depend on the market for their income.

“We also must recognise the budgetary and political pressure the CAP will be under - and use the resources wisely. My worry is that the Commission’s proposals may actually entrench support and inefficiency in European farming rather than boost competitiveness.

“I believe that the Commission should build on the progressive direction of previous reforms, developing the two-pillar structure for the CAP and ensuring that each instrument has a clear objective – putting competitive agriculture at its heart.

“The Communication rightly dwells on the future of direct payments which, as the largest component of CAP spending, are a focal point for the next reform. However the complicated ideas from today confuse the role of direct support which should be about underpinning the economics of farm production and helping farmers deal with higher costs and volatility rather than delivering environmental goods. This is the role of rural development policies and I’m really surprised to see the Commission omit any reference to agri-environment schemes.

“I fear that the Commission has fallen into the trap of trying to please as many people as possible, in order to justify the money it spends, rather than adopting a clear direction for European agriculture. It is rare that a clear policy pleases all of the people all of the time but I fear that what we have here will end up as a confused proposal that suits no-one.”

This blog will provide further analysis and comment in the coming days, but at first sight the paper does not seem to differ greatly from the draft version leaked last month.

Greece criticised for 'systematic' cheating

The EU Court of Auditors has criticised Greece for 'systematic' cheating. Athens was criticised for overpaying farmers by €866m (£747m) over several years, including submitting false claims for pasture land subsidies when aerial photographs 'clearly show a significant density of trees and rocks.'

Although aerial photo checks on CAP claims became mandatory in 2009, the system in Greece was not still not fully operational in December 2009. Spot checks revealed that money had been paid out for land with 'different locations, different uses, different shape and perimeter' from thosee claimed by Greek farmers.

The auditors found that 'In Greece the bulk of administrative cross checks ... is carried out under a procedure that leaves no audit trail.' They found that Greece systematically calculated single farm payments incorectly.

Specific sums to be recovered from Greece include:

•€ 210.9 million charged to Greece for poor LPIS-GIS and deficiencies in on-the spot controls in respect of claim year 2006 for area-aids expenditure, including area-based rural development measures;

•€ 54.7 million charged to Greece with regard to dried grapes for reductions in the minimum yield, plot specialisation, ineffective vineyard register and weaknesses in scheme management and control for the financial years 2003-2007;

•€ 50.16 million charged to Greece for failure to reduce aid payments for non respect of veterinary requirements regarding the maintenance of sheep registers, for deficiencies in on-the-spot and administrative checks and for absence of specific risk criteria for Less Favoured Area additional premium controls;

Aristos own a third of all land in England and Wales

Almost a third of all land in England and Wales is still owned by aristocrats who will receive substantial payments from the CAP. Wealthy people and their estates are thought to control about 20 million of the country's 60 million acres.

Research by Country Life found that 36,000 members of the Country Land and Business Association, whose members are mainly individuals and estates, collectively own half of all rural land in England and Wales.

The Forestry Commission is the country's biggest landowner, owning about 2.6m acres. It is followed by the National Trust which has 630,000 acres, while Defence Estates has 593,000 acres. Pension funds collectively control 550,000 acres.

Blow for farm policy reformers

CAP reformers have used the publication of detailed figures about who gets what under the farm policy to draw attention to the extent to which big companies and large-scale farmers are beneficiaries.

However, the drive for more transparency suffered a setback yesteday after the European Court of Justice ruled that publication of databases listing recipients of agricultural subsidies breached farmers' human rights. The ECJ struck down rules that make it compulsory for member states to identify all recipients of CAP money.

The court sided with German farmers behind the action. They argued that publishing the name, address and details of how much money an individual received on a website did not strike the right balance between promoting transparency and the beneficiary's right to privacy. Governments will no longer be able to list individual recipients of public money, but companies listing funds should still be listed.

Jack Thurston of farmsubsidy.org, who has campaigned for the information to be made readily available, argued that disclosure of information was an important check against fraud and abuse, a perennial problem with the CAP. He commented that the decision went 'against the tide of public opinion, which is for ever more transparency and more accountability.'

CAP budget may be cut less than expected

Reports are suggesting that the CAP budget may be cut less than expected: Budget

The Commission had at one time been talking of cuts of between 10 and 20 per cent and was seen as a potential ally by reform minded member states. However, these demands appear to have been watered down and a cut of a few billion euros may suffice.

Weimar triangle fails to work

Informal groupings of member states have played a key role in the evolution of the CAP at different times. e.g., the 'Aachen five' which tackled agrimonetary questions. Before the publication of the recent Franco-German position paper, it had been suggested that it might take the form of a 'Weimar triangle' of France, Germany and Poland. Indeed, Poland was in talks with France and Germany, but they went ahead and published their joint text before Poland finalised its position.

Now Poland has criticised the Franco-German position paper as an unsuccessful attempt to exert undue pressure on other member states. Polish minister Marek Sawicki described the paper as a 'very conservative one', only signalling slight modifications of the historical criteria for direct payments. It defended the interests of French and German farmers but not of those from other member states.

Frandce and Germany have made it clearer that shifting towards a flat rate payment which would suit accession states is not acceptable to them and a clear red line in the negotiations.

Fischler emphasises need for reform

Former EU farm commissioner Franz Ficshler has emphasised the need for continuing reform of the CAP: Fischler

It was Fischler who carried out the most thorough reform of the CAP. But he points out that a strong farm lobby could halt the forward momentum of reform. He also emphasises the need for investment in research and development.

The devil is in the detail

This post looks at some of the more detailed proposals in the leaked draft Commission communication on the future of the CAP.

The Commission believes that the CAP should be continue to be framed around two pillars. The idea of a third pillar focusing on climate change had been floated, but is evidently not being pursued.

The difference between the two pillars is seen as one of payment structure with Pillar 1 made up mainly of annual payments to farmers and Pillar 2 beuing multi-annual in nature. Is this the right distinction? Or should Pillar 1 be about the economics of agriculture production, while Pillar 2 focuses on 'additionality' with a particular emphasis on improving sustainability?

The rejection by commissioner Ciolos of a single flat payment is upheld, but it is not clear how the question of equity between member states will be addressed. This is likely to be one of the most difficult political issues in the negotiations given that there are wide discrepancies between member states. Those who don't get very much at the moment will want a bigger slice of the cake and those who have a big slice will want to hold on to it. The only concrete option presented is moving towards an arrangement whereby farmers in all member states would receive a minimum share of the EU-average level of direct payments (about €250/hectare).

It is proposed that there would be a cap on payments to large farms. This would have an impact on competitiveness, as large farms tend to be more efficient. It would also particularly hit Britain, Germany and the Czech Republic.

What makes it worse is a suggestion to link payments to employment levels. In other words, a farm that was employing labour inefficiently would receive more support. This would certainly undermine competitiveness, but then the document as a whole tends to give lip service to that concept.

The proposals as a whole also increase complexity when there is supposed to be a move towards simplification. They would increase transaction costs for farmers and the already substantial costs of operating the policy.

CAP reform paper leaked

A draft of the EU Commission's 'Communication' on the future of the CAP after 2013 has been leaked. It is scheduled for publication on 17 November. This post examines the overall objectives and directions for reform. A subsequent post will look at some of the more detailed proposals.

The paper sets out three challenges and objectives for agriculture, two of which are not very surprising: food security, leading to an objective of viable farm production; and environment and climate change, leading to an objective of sustainable management of natural resources. So far so good, although clearly a question remains about whether these are seen as equivalent objectives or there is some kind of hierarchy (and how one resolves tensions between them).

The puzzle is the third objective, territorial balance. It's a bit difficult to work out what means, but it seems to be moving in the direction of making the CAP a social policy. Many would argue that is what it has been all along, but it has never been spelt out as such, leading to all sorts of inefficiencies.

Under this heading, the Commission talks about economic (boosting the rural economy) and social (local traditions and social identity) objectives. There is reference to supporting rural employment (i.e., motherhood and apple pie), promoting diversification and 'allowing for structural diversity in farming systems' which could be a code phrase for tolerating inefficiency.

The whole notion is not easy to grasp and may be honed in the final version of the paper now that this kite has been flown. What seems to be going on here is a (probably mistaken) attempt to mould economic and social objectives into one. It also implies a policy that is more locally-led and flexible in its approach.

What could this lead to is all sorts of special pleading for subsidies of various kinds which satisfied local client groups. It also does not seem to fit to well with declarations about preventing the renationalisation of policy. Indeed, the paper reiterates the case for an EU-led policy rather than a national one.

The paper sets out three broad policy options:

1. Enhanced status quo: adjusting the current instruments and delivering a more equitable distribution direct payments. This is viewed within the Commission as a missed opportunity to make the CAP more legitimate.
2. More 'balanced targeted and sustinable support': a fairly significant adjustment of direct payments, especially 'greening' the first pillar. This would seem to be the Commission's preferred route.
3. Abolish all market and income support and focus delivery on public goods/climate change: essentially the British approach and dismissed pretty much out of hand.

One important dog fails to bark in the nighttime. The paper remains largely silent on the scale of the budget. It is decisions on the budget that will shape the next phase of the CAP.

The paper talks of the need to improve competitiveness, but there are no measures set out to achieve it, indeed some proposals (discussed in a later post) could have a damaging effect. One critic has remarked that, taken as a whole, the document is neither very common nor very agricultural. But nor does it particularly emphasise sustainability.

In other words, it's a bit of a mish mash. Why I am not surprised?

Comprehensive and authoritative review of CAP

Review of Arie Oskam, Gerrit Meester and Huib Silvis (eds),EU policy for agriculture, food and rural areas. Published by Wageningen Academic Publishers, ISBN: 978-90-8686-118-7, €40, $60.

This book offers a comprehensive, authoritative and up-to-date review of EU agriculture, food and rural policy. One of the things I liked about it was that it covered areas that are often neglected such as animal health and welfare policy and plant diseases policy that are likely to assume a growing importance in the coming years.

The book is divided into six sections. It starts with an overview and then turns to the context of EU policies, with particular emphasis on the differences in decision-making before and after the Lisbon Treaty. The third section looks at the policies in more detail including alternative options such as the bond scheme and the fourth is concerned with food policy including developments related to food quality and safety. The fifth part provides a well informed analysis of a wide range of aspects of rural policy. The book culminates with a section which looks at the role of the CAP in European integration more generally and possible future scenarios.

The book does not set out to provide a theoretical treatment of the CAP and in that sense it is accessible to the general reader. Although there is material in the book which would be of value to the specialist researcher, particularly in the area of rural policy, this is a book which could be used with students approaching the subject for the first time. Indeed, it has been developed in relation to courses taught at Wageningen Business School, although the price militates against it being used as a text.

Given that there is a foreword by Mariann Fischer Boel, one would not expect this to be a highly critical treatment, although she points out that she does not share all the views expressed by the authors. The chapter authors are certainly prepared to be critical of current policy.

In a concluding chapter, Cees Veerman states that we should be cautious with the agricultural production capacity in the EU in both a quantitative and qualitative sense. He points out, 'EU surpluses are not the ultimate answer to food shortages elsewhere in the world, as they have never been. The battle against hunger can only be won by strengthening rural development in poor countries and supporting the spending capacity of their populations, and by creating fair and open markets'.

This book is a very useful contribution to the literature on the CAP.

Lib Dems lack say in farm policy-making

Defra is just one of three government departments that does not include a Lib Dem minister. Moreover, all the ministers in the department have strong farming links, inclining them towards a productionist agenda.

Lib Dem farm spokesman Andrew George, the MP for West Cornwall and the Isles of Scilly, has criticised the Conservative stranglehold on posts. Differences have emerged on the proposed badger cull and the decision to abolish the Agricultural Wages Board.

Mr George has been trying to work with the Secretary of State, Caroline Spelman, to have some say about how budget cuts are made. However, he has admitted that he was 'not yet in the inner circle of Defra ministers'.

Most disagreements are likely to be over matters of domestic policy such as the two that arisen already, rather than attitudes towards the CAP where both parties share a relatively liberal, market oriented stance. However, the Lib Dems are particularly attuned to the concerns of smaller farmers from whom they receive electoral support.

Livestock farmers rely on subsidies

With crop prices rising worldwide, arable farmers should be in for a good spell, although individual returns will depend on how they have sold their crops forward. However, many medium-sized livestock businesses still rely on subsidy payments to make a profit according to farm busienss consultant Andersons.

Latest results from its notional Meadow Farm model, which is typical of many mixed farming businesses, suggest that while better market returns are expected to lead to an improvement in margins in 2010/11, the farm will only achieve a surplus once single payment and agri-environment receipts are included. The farm, like many others, has been hit by higher feed, straw and forage costs, which havepushed this season's variable costs up by almost 14 per cent on 2009/10.

Profitability of Andersons' hypothetical dairy farm - Fresian Farm - was also tight, although the situation had improved following recent milk price increases. The 150-cow unit was predicted to make a small 0.7p/litre margin from production in 2010/11, despite cost of production increasing by 0.6p/litre. With the single payment and ELS money added in, that surplus was boosted to more than 3p/litre.

Dairy processors Robert Wiseman have issued a warning that their profits could fall by about a third. They are major suppliers of milk to supermarkets. Tesco have increased the price they pay to farmers by a little over 1p a litre.

Cur farm aid to one third of budget

The CAP should be cut to about a third of the EU budget rather than well over 40 per cent as at present, according to budget commissioner Janusz Lewandowski: Budget . This would then give more headway for spending on research and innovation.

The target is a realistic one, but Lewandowski admitted that the CAP was defended by a strong lobby. The budget negotiations would probablly be the toughest ever.

France will be a stalwart defender of CAP funding and it has many allies but it is interesting to speculate how much French political capital will be depleted by the row over the expulsion of Roma.

France gets biggest share of CAP budget

No great surprise but France got the largest share of CAP spending among member states in the 2009 financial year. France received €9.87bn, 17 per cent of the total budget of €56.781bn. Spain took second place with €7.26bn, followed by Germany on €6.9bn, Italy on €6.08bn and the UK on €4.04bn.

Poland headed the accession states on €3.72bn, followed by Greece on €3.05bn and Romania in €2.1bn (70 per cent from Pillar 2). Malta was bottom of the pile with €14.88m, most of it from Pillar 2 funds. The combined payments to the Baltic states of Estonia, Latvia and Lithuania amounted to €324m. The importance of the CAP to Ireland was illustrated by its receipts of €1,655.55m.

Budget DG warns of big CAP cuts

A spokesman for the Budget DG has warned of big cuts in the CAP budget given the financial situation of the EU: Cuts

The CAP share of the EU budget is already expected to decline from 45 per cent to 39 per cent by 2013, but it may need to be cut back even further.

Of course, such declarations of intent by the Budget DG are always heard ahead of new financial negotiations. In practice, the politics of interrelationships between member states often prevails so that the cuts are less extensive than anticipated.

Ideas from the NFU

After a long delay, I am returning to the NFU paper on 'The CAP after 2013', this time looking at some of their policy ideas. What guides their thinking is something I would agree with, the need 'to facilitate the creation of fairer and better functioning agricultural markets so that ultimately farmers can become less reliant on public support'.

There is no doubt that power has moved down the food chain to retailers to an extent that there is an imbalance in the market. The NFU note that 'most supply contracts are one-sided, conferring significant and undue power to purchasers.' The challenge is how to tackle this monopsony and the NFU suggests a legally enforceable code of conduct that would prevent abusive practices such as slotting fees. This is fine in principle, but the devil is in the detail given the complex distribution of responsibility between the EU and member states.

The NFU also suggests that more work should be undertaken on agricultural futures markets, including the prospects for their extension to a wider range of agricultural sectors. As they point out 'their availability is sparse in many sectors, which inhibits long-term price discovery.'

The NFU also draws attention to the need for more spending on applied science so that the sector can produce more but do so sustainably so that there is les impact on the environment. They suggest that the CAP could play a complementary role in supporting research and development, perhaps through a third pillar. The research infrastucture is an area where government has a legitimate and important role and it has been sadly neglected in recent years.

What is more open to question is the suggestion that Second Pillar programmes should be redefined to focus on agricultural rather than rural development. They are correct in arguing that 'There is a danger in seeing Pillar Two as a dumping ground for policy aspirations in different areas without providing the necessary funding'. However, the future of rural economies should be diversified and not overly dependent on agriculture.

Taken as a whole, the paper is a balanced contribution to the debate which has a number of constructive suggestions to make, although there is too great an emphasis on subsidies and protection for my taste.

Insurance back on the agenda

European farm commissioner Dacian Ciolos is considering plans for a publicly-funded insurance scheme for farmers' incomes. His view is that it is needed to give a minimum income to farmers after the disapperance of most market support mechanisms.

An alternative view would be that either these farmers would be better off exiting the industry or they should be funded by income support schemes for the least well off, although admittedly these vary substantially as they are a member state matter.

Economists tend to favour insurance schemes and consider that not enough has been done to promote them in the debate in the UK about cost and responsibility sharing in animal health. The difficulty in practice is that the pool is not big enough or lucrative enough to interest insurance companies.

You are then back to state subsidies, albeit delivered by a possibly more efficient policy instrument. EU farmers' group Copa-Cogeca states that average incomes in agriculture were about 50 per cent less than those in other sectors, with two-thirds of farmers' income coming from direct payments from the CAP.

An original objective of the CAP was to narrow the gap between urban and rural incomes and this has never been achieved as far as farmers are concerned. This suggests that for some people farming is simply not a viable activity, at least as a full-time occupation. If one considers that one needs people to remain in remoter areas, a subsidy should be paid specifically for that.

What one really wants is a more diverse rural economy and in the UK, and I suspect elesewhere, the absence of rural broadbrand or a service that is slow (as on the Isles of Scilly) is a real constraint.

A friend runs an agriculturally related consultancy business in a rural area. Recently her provider said that it could no longer offer a broadband service. There are mechanisms to complain, but it will all take too long. She is going to have to move. Action on infrastructure of this kind would help rural areas more than additional payments to farmers.

Scottish Government cracks down on sofa farmers

The Scottish Government is planning to crack down on so-called 'sofa' or 'slipper' farmers who use barren hillsides to claim Single Farm Payments. This proposal follows the short-term recommendations of the Pack Inquiry into Future Support for Agriculture in Scotland.

The proposals do not require EU approval and could be put in place by January. Minimum stocking rates would be established and farms that fell below them would find an inspector calling. They would then have 60 days to put things right. The Scottish NFU endorsed the plan as the best way forward.

It is also hoped that Scotland will secure a devolved animal health budget by next April which should help a number of innovations in policy that the Scottish Government has been pursuing in this area. Their policy experiments could provide lessons for the rest of the UK, although the fact that the UK is a single epidemiological unit poses some challenges.

Productionist move at Defra

Rural development programmes should place more emphasis on competitive agriculture and less on environmental considerations, according to new farm minister Jim Paice:
Rural development

In some respects this may be seen as a return to a MAFF-style productionism at Defra, even if the name of the department has not (yet) changed. However, it is often forgotten that there are three dimensions to sustainability: economic, social and environmental. What the balance should be between these is a matter for debate.

The biggest challenge facing Defra is the budget cuts that are going to hit it given the ring fencing of the NHS and lower than average cuts that are likely in defence and education. If it wasn't for coalition politics, one might wonder why Energy and Climate Change needs to be a separate ministry.

Disclosure of subsidies may end

Transparency in the CAP may be reduced with a ruling which suggests that EU rules which require member states to publish details of payments to individual farmers may be invalid. An opinion by an ECJ Advocate General is often indicative of the view that the Court itself may take. German farmers had challenged the rules on the grounds that they were an invasion of their privacy.

Advocate General Elinor Sharpston said that the rules were disproportionate and that there were discrepancies in the reasons the European Commission and the European Council had given for needing the legislation. The assumption that farmers consented to disclosure when they applied for subsidies was also open to question on the grounds of whether it was explicit enough.

Reform advocates have used the information to draw attention to the very large sums of money paid under the CAP to big landowners or to food processing companies making use of export subsdies. Farmers' organisations argued that members of the public often confused Single Farm Payments with profits.

How many members of the public have been interested is open to question. The information is not that readily digestible and is not equally available for all member states (in the UK it can be found on the Defra web site). However, when I have looked at information relating to farms in areas I am familiar with (admittedly not a representative sample) I have been surprised by how relatively low the payments have been. They would be higher, however, in areas like East Anglia and Lincolnshire.

Depending on the nature of the final ECJ ruling, the Commission may have to redraft the rules rather than scrap them altogether.

What's wrong with the CAP

A polemical attack on the CAP using data from farmsubsidy.org which nevertheless admits that the chances of real reform are slim: CAP

CAP consultation draws a big crowd

The consultation on the future of the CAP has been so popular that the deadline has been extended: Deadline

3,700 responses have been received, although that is not so many when one considers the size of the EU. I also wonder how many of them were from ordinary citizens or consumers and how many from special interests that derive benefits from the policy?

I am rather sceptical about such consultations as I think that they rarely change the minds of decision-makers who pick out those responses that suit their thinking. But I wouldn't want to discourage anyone from responding.

How the NFU sees the challenges

After some delay, I am returning to the NFU paper on 'The CAP after 2013.' I would agree with their basic definition of the challenges facing farming: 'Put simply, farmers across the world will be required to produce considerably more food, from finite and precious resources, amid a changing climate and at the same time impacting less on the environment.'

The NFU specifies the benefits of the CAP in the following terms:
1. European consumers expect food that is produced to exacting environmental and welfare standards. These lead to higher regulatory costs which do not always apply to third country imports. The CAP is a form of compensation for these costs.
2. The CAP plays a key role in the EU's long-term food security.
3. There is a territorial cohesion role in terms of allowing farming activity to be spread throughout the EU. It also underpins rural employment [only in some, generally more remote locations in my view].
4. The policy helps to ensure that agricultural production is environmentally sustainable and helps to maintain some of our most important landscapes and environments. [This is essentially an argument for the second pillar].

But perhaps the real point is that 'Fundamentally, the CAP helps to address the failure of agricultural markets to develop fair and profitable returns to farmers.' What constitutes a 'fair' return is a moot point, but in my view farmers have experienced what I would regard as anti-competitive behaviour by supermarkets, especially in the UK. The solutions, however, reside in more effective use of competition policy (more on this in a later post].

Arguments (1) and (2) are really those that underpin the SFP. However, the actual costs imposed on (1) fall far short of present SFP payments. (2) is more difficult to quantify, particular given the uncertainties associated with climate change, but there are grounds for taking an 'insurance' payment against this.

Without the SFP, many farms would cease production. This would probably hit public benefits more than food production given that it is the most marginal farms that would cease production. What this points to (in the absence of an acceptable bond scheme) is a SFP at a reduced rate.

The French perspective: the new French food law

Recently I had the opportunity to talk to some French agriculture and food policy advisers. This was very informative in the sense of understanding where we differ. The French stance on these matters is a product of their own values which in turn reflect their historical development. One has to understand their stance, even if one does not agree with it.

One topic was the new French law on the 'modernisation' of agriculture which I understand has reached the Senate. I think our understanding of modernisation is somewhat different from the French one. There appear to be three broad objectives: creating a public policy for food; stabilising and re-regulating the agricultural market; and ensuring food security.

Apparently, there is a view in France that there is need to combat new food behaviours. From an English perspective, I would say that this was no concern of the Government, but again this reflects the difference between a liberal and an étatiste tradition.

France was once the country of the one hour lunch: indeed it was not unknown for some lunches to extend more than hour and be washed down with more than a glass of 'vin ordinaire'. However, the view is that France has moved away from having a fixed eating time and young people are turning to fast food. This is thought to be not good for public health, but above all it is believed that restoring traditional behaviour would open the market for agricultural products.

France would also like to strengthen corporatist associations of producers, but admits this would require competition law changes at EU level. A somewhat more sensible idea is to seek longer-term contracts between farmers and the hypermarkets.

However, some of the goals sound a little strange to English ears. Preserving the food heritage is one. Now, whilst I do not share the English middle class love affair with France, I would admit there is something special about a Parisian café. But does this require government intervention?

The policy also seeks to rely on educated citizens, that is educated about food and that objective would certainly resonate with many in England. However, the notion of keeping competitive enterprises on all parts of the territory is a less comfortable one, even if one admits that many parts of France are thinly populated and at risk of depopulation. (Whether depopulation is necessarily a bad thing is itself an interesting question).

A British participant in our discussions argued that the structure of dirigisme facilitated collusion and was essentially anti-competitive. Were the objectives coherent and did they try to cut across the expressed preferences of the French people? The attempt to stabilise might be an attempt to immoblise.

Not surprisingly, this was seen as a rather polemical point on the French side. They explained, that their policy was not economically rational, but was a [normative] choice. The production of food had a very strong public good component and belonged to public policy. However, it was admitted that French consumers had a very limited role in food policy formation.

More from our discussions at a later date.

Ag econ folks give it large to SFP

The intention of the European Commission to retain the SFP as the centre piece of the CAP after 2013 is a fundamental error according to leading agricultural economists. In a paper by David Harvey and colleagues to the Agricultural Economics Society conference in Edinburgh, it was argued that direct farm payments should be phased out.

The very idea of general direct payments was said to be unjustifiable. Payments should be reoriented from payments that are still historically linked to production-based payments and towards the guarantee of food supplies, rural economic development and protection of the environment.

The ag ecnomists argue that the overall agricultural policy problem for the EU is the preoccupation with farm incomes which dates back to the formation of the CAP in the 1950s. The bulk of an expanding budget is still spent on that objective. Despite this expenditure, average farm incomes remain below the national average income in almost all member states (which, of course, could be seized on as an argument for not making things worse by removing farm support). The economists argue that whatever governments do, they are not going to substantially improve the incomes of the less efficient and marginal farm holders.

The economists note that these payments were originally meant to be transitional. Of course, following Mancur Olson, the politics of subsidies which have concentrated effects but diffuse costs means that they are often converted from temporary to permanent payments.

Harvey revives the idea of a bond scheme to buy out these payments as first suggested by Professor John Marsh more than twenty years ago and subsequently developed by Alan Swinbank and his colleagues. Uncertainty for farmers would be reduced and they would have time to adjust to liberalised markets.

I have always found such a scheme attractive in principle, but the Commission view is that it is not compatible with cross-compliance.

Cows account for 4 per cent of greenhouse gases

The urgent need for a stronger climate change dimension to the CAP is emphasised by a report from the Food and Agriculture Organisation (FAO) which is a UN agnecy. If one takes account of everything from nomadic herds to processing plants, milk production accounts for 2.7 per cent of global greenhouse gas emissions. This rises to 4 per cent when meat processed from the dairy industry is added in.

Methane contributes most to the global warming impact of milk, accounting for 54 per cent of emissions. Nitrous oxide accounts for 27 per cent of emissions in developing countrues and 38 per cent in developing countries.

You can find the full report here: FAO

Spel(l)ing it out

New Defra supremo Caroline Spelman went down well at her first Farm Council as she has a fluent command of French and German which facilitated informal discussions with ministers. She has built up informal links with German agriculture minister Isle Aigner on the issue of lighter regulation and is planning a bilateral meeting with French minister Bruno le Maire.

She is taking a relatively reformist stance on CAP, noting that there are four constituencies to be satisfied. She told Farmers Weekly 'Farmers need a good deal from CAP reform. So, too, do consumers, taxpayers and the environment. It is a four-pronged approach to how we reform the CAP.'

Rumours have been circulating that Defra will be abolished or rebadged and substantially restructured. However, the minister said: 'I am not a huge fan of big structural change. In my experience, messing around with structures can end up costing money as well as saving money. It is not my top priority.'

Reading the farming press one gets the sense that farmers have realised that it is not bonanza time, particularly given the fiscal constraints. Cost and responsibility sharing on animal health is still very much on the agenda and the commitment on a bovine TB cull is very qualified.

All four Defra ministers have strong farming connections which is how the Conservatives tend to recruit their ministers and there are no Lib Dems in the department, somewhat surprising given their rural focus. However, this is not necessarily a MAFF (Ministry of Agriculture) in all but name. As far as CAP reform is concerned, the personnel may have changed, but British interests in value for money have not. Indeed, they are likely to be emphasised even more.

Investors pile into farmland

As Britain's Con-Lib government threatens a big hike in capital gains tax, investors are piling into farms despite the fact that a typical yield on capital in the sector is only 2 per cent (although that is more than you would receive from many deposit accounts).

According to Strutt and Parker farmland in the UK has risen in price from an average of £5,260 per acre at the beginning of the year to £6,233 this month, an increase of 18 per cent. Prices have already topped those achieved when the market peak in 2006, but annual growth of about 5 to 6 per cent until 2015 is still expected.

Farmland has always been seen as a safe haven at a time of economic volatility, a kind of gold with cashflow. There are also capital gains and tax benefits. Agricultural property relief means that all of the land, as well as a portion of the farmhouse, is exempt from inheritance tax after two years, provided the owner farms the land or has a farming contract in place based on shared profit. You can also offset farm losses against other income.

The problem is that it is difficult to get a foothold in farming unless you inherit or become a farm manager. Tenancies don't come up that often and local authority estates which were a traditional entry route are being sold off. In any case, many of these units were not viable without an off farm income, although that is also true of many owned and tenanted farms.

The farm population is an ageing one and the industry needs younger people to come in other than through the inheritance route, valuable though that is in providing a sense of 'trusteeship' of the land. When my nephew takes over from his dad, he will be the eighth generation to farm in a very beautiful part of Cymru, although three formerly separate farms have now been combined into one big property.

Lobbying links

Questions are being raised in some quarters about links Defra secretary of state Carloline Spelman has had with the lobbying industry. Of course, it is not unknown for politicians in opposition to have such links or to undertake business roles and Defra has made it clear that everything will be done in compliance with the ministerial code. Read more here: Lobbying

Productionist emphasis at Defra

The productionist emphasis at Defra continues with junior ministerial appointments: Defra . Jim Paice, the Minister of State, was substantially involved in the Young Farmers' movement and has been connected with farming all his life. The 'Pussy', Richard Benyon, is MP for Newbury and is stated to be a local farmer. (As it so happens, I had lunch in the constituency on Sunday and my enquiries suggest that he is more a country landowner than a farmer, not that there is anything wrong that: they often tend to have stronger conservationist instincts).

However, Lord Taylor of Holbeach has not become the Lords minister as expected, the post going to Lord Henley.

The ministerial team would thus be an all Conservative one. However, I am uncertain what is happening to the fisheries portfolio and there were rumours that this was destined to be occupied by the Lib Dem MP for the west of Cornwall and the Scilly Isles, Andrew George.

Sweet appointment at Defra

Caroline Spelman is the new secretary of state for Environment, Food and Rural Affairs. As it so happens, I was with some Defra civil servants yesterday and they were intrigued about what the outcome might be.

Nick Herbert was the shadow spokesperson, but I was not greatly impressed by some of his comments: indeed, I even thought of writing to him and offering some advice! There was speculation that a Lib Dem might get the post and it has been suggested that one of the junior posts in the department will go to the Lib Dems.

Caroline Spelman has a background with big sugar. She worked for the British Sugar Corporation and held the sugar commodities post at NFU. She also worked for the International Federation of Beet Growers in Paris. I have had some dealings with big sugar myself and I know they are serious players.

Her appointment will no doubt be welcomed by the barley barons in East Anglia and the NFU. Farmers felt that Defra until Labour had become the Department for the Elimination of Farming and Rural Activity. I do think that there are some issues on which they have legitimate grievances, for example the failures of the Rural Payments Agency and policy paralysis on bovine TB.

Nevertheless, I would appeal to the new ministerial team not to shift policy too far in a productionist direction and neglect environmental considerations. A good record on the environment is ultimately important for the relationship between the farmer and the consumer.

I know that many individual farmers undertake excellent initiatives on conservation and environmental protection. The typical farmer still has a real dedication to his calling and sees himself or herself as a 'trustee' of their farm. This is not always sufficiently acknowledged. But it does need a supportive policy framework to sustain it.

NFU sets out ideas on CAP debate

The National Farmers' Union has published a major policy document setting out their ideas on the future of the CAP: NFU

The NFU has been working on this policy statement for some time and as one would expect it is a strategically oriented and sophisticated analysis. Clearly it takes account of the perspectives of farmers, but it is also politically realistic in terms of what can be achieved.

I don't agree with everything that is contained in the document, but it also contains a number of sensible and well thought through suggestions that provide a positive contribution to what is a very important debate.

As time allows over the next few weeks, I will through the document highlighting some of the major elements of the analysis provided and suggesting points of agreement and difference.