Subisdising oil seed rape

The threatened reduction of oil seed rape subsidies for biofuel from 10 per cent to 5 per cent is concerning some farmers who say that it will no longer make economic sense to grow the crop. Of course, one might ask whether such a market distorting subsidy was sensible in the first place which is why the UK and other member states such as the Netherlands would like to see it reduced.

However, for farmers on heavy land in particular oil seed rape has great advantages as a break crop. There aren't that many alternatives. Peas are very sensitive to weather conditions, particularly rain, and the returns on sugar beet are not that good.

Oil seed rape is also favoured by beekeepers as it flowers early in the season and produces plenty of pollen.

Why farmers have to hedge currency risk

One hundred years ago in 1913 the weather was also warm for the time of year with people claiming that it was too hot to play football. It all ended in a big thunderstorm here in the Midlands. According to a Farmers Weekly poll, the overwhelming majority of farmers still think they have been hit by the weather last winter and the wet and cold spring, the second in a row. I have been growing tomatoes in my greenhouse for over thirty years and this is the worst year I can remember (and, of course, I don't get a SFP!). In these circumstances subsidy payments become more important to farmers to maintain their cash flow.

Along with the uncertainties of the weather, farmers also have to face currency risk. Indeed, some of them follow the forex market as keenly as they keep an eye on the weather. The recent rally by sterling is not good news for farmers as September 30th is the day when their farm subsidies are translated from euros into pounds. (From next year it will be calculated as an average for the month). The pound has gone up by about two per cent since May when they submitted their claims.

A growing number of farmers are resorting to hedging their currency risk. According to Alick Jones, agriculture policy director at Lloyds TSB, about a third of their clients in receipt of the single farm payment hedge their currency risk. However, the Royal Society for the Protection of Birds, which receives £1m in subsidies as a big landowner, doesn't follow this practice.

It was interesting to read in yesterday's Financial Times report on this topic that on one 450-acre livestock farm in Anglesey, the single farm payment of about £30,000 represents about 40 per cent of profits. In the long run, such a dependence on subsidies cannot be healthy, as many farmers themselves recognise, but for now they are an integral part of the business model.

Farm subsidies up again across the world

A long-term trend towards a decline in farm support was reversed in 2012 according to the Organisation for Economic Cooperation and Development (OECD): OECD Report

This is perhaps a surprising development, given that government budgets are under pressure and farm subsidies offer a possible, although well-defended target. However, the OECD noted a particular trend towards increasing support in countries that emphasise self-sufficiency and they think that this has a poor relationship with food security.

This is a concern as self-sufficiency has been raised again recently in the UK debate by the NFU. Admittedly, there has been a decline in self-sufficiency in indigenous food between 1984 (95 per cent) and 2012 (76 per cent). (When foods from non-temperate climates are added in, the figure drops to 62 per cent). One might ask what the relevance of this is given that the UK operates within the CAP, but if the UK was to leave the EU this kind of discourse might become more relevant.

Admittedly, the overall increase in subsidies was 1 per cent, but that masked some sharp increases in emerging countries: 4 percentage points in China to 17 per cent of total income; 6 percentage points in Indonesia to 21 per cent; and 4 percentage points in Kazakhstan to 15 per cent. Norway provided the largest level of farm support with a 63 per cent share, up four percentage points. Switzerland, Japan and Korea were all over the 50 per cent of farmers' income level.

Farm support in the EU was consistent with the general trend, rising from 18 per cent to 19 per cent of farm incomes.

The search for a British baked bean

I spent an enjoyable afternoon at the Warwick Crops Centre (formerly Warwick HRI) Open Day at Wellesbourne yesterday. In part this was because of the opportunity to catch up with former research collaborators (and hopefully future ones), but there were also many interesting exhibits and a good crowd in attendance. My overall impression was that the Crops Centre is now in a more stable position than it was and able to make a real contribution to the need for applied research in agriculture that is of value to farmers and growers.

I was particularly interested in the exhibit of growing haricot beans. Baked beans are a staple of the British diet and they are very nutritious, although possibly they could be prepared and cooked in more interesting ways than being doused in tomato sauce (having said that, I do eat them in that format). At one time production was centred in Michigan, but we now mainly import them from Canada.

They are difficult to grow in the UK because they are sensitive to cold. Some twenty years ago work was done on a British variety of 'navy' bean (I'm not sure where the terminology comes from) but then the funding ran out. However, with a new emphasis on food security, BBSRC has come up with some funding for the work to continue.

Two types of bean were being grown, one that is disease resistant and one that is cold resistant. One of the varieties was white rather than the usual colour which would require some re-education of consumers. The hope is to combine these to produce a bean that is both cold and disease resistant which could then be grown in the UK. How economic this would be, even with an improved variety, is an open question. The plants seemed to be smaller than their counterparts in Canada.

Nevertheless, it is an excellent example of applied research and you can read more here: Baked beans

Can Scottish farmers be weaned off subsidies?

One of the claims being made in the Scottish independence referendum debate is that if Scotland had a seat at the negotiating table, its farmers would get much more way in the way of CAP subsidies. But is such a dependence on subsidies desirable when English farmers are being urged to orient themselves towards the market? This provocative piece from a New Zealander suggests that it can become tantamount to an addiction: Subsidies

Of course, as the writer recognises, farming in the remoter parts of Scotland faces special challenges, but these are better tackled under the umbrella of a rural development/remote areas policy rather than through blanket subsidies. Moreover, the treatment of the Highlands and Islands has not been ungenerous, particularly when compared with England's isolated Scilly Isles, a subject I have been tackling in a series of articles for Scilly Now and Then. The magazine's website is here: Isles of Scilly

China's new line on corn imports could affect world market

Changes in supply and demand patterns for food in China can have important implications for world markets. Even a small increase in Chinese imports can influence world markets in which there is a tight balance between supply and demand, as well as offering new export opportunities for farmers. Many of these decisions are politically determined and there appears to be a significant change in the line of the central authorities on corn (maize) imports recently.

Since 2001 when China lowered its import barriers, a policy of self-sufficiency has been followed in relation to corn, rice and wheat with imports kept to a minimum. In contrast the soyabean market was opened up to imports to release land for the key staples. China has become the world's largest importer of the oilseed, representing 75 per cent of global seaborne trade.

Last year China's agriculture minister Han Changfu said that corn 'should not become the second soyabean.' Recently, he has modified his line, saying that corn imports would have to increase gradually to meet demand for animal feed which in turn reflects growing prosperity and higher levels of meat consumption. It appears that China envisages importing 20-30m tonnes of corn a year, the lower figure representing 10 per cent of consumption. While China's grain output is at record levels, there are evident strains with urbanisation using up farmland and problems with water supplies.

China does not want to be solely dependent on the US and is encouraging exports from Argentina and the Ukraine.

Finance for farmers

Back in the 1990s I was involved in a research project led by Will Coleman from Canada which looked at how farmers got their finance. I interviewed all the clearing banks in Britain and Ireland, plus a specialist institution called the Agricultural Mortgage Corporation which was set up by government in the 1920s but by then was being absorbed into the private sector.

The general pattern was for banks to have a specialist agricultural manager at head office who, with local managers, kept in touch with the farming community. Farmers were seen as a very safe bet. They rarely defaulted and, even if they did, you ultimately had the land as an asset, although banks were very reluctant to foreclose. In many ways it was a very traditional form of banking. A relative who is a farmer was tipped off by his bank manager about a suitable farm to buy to diversify his business.

There's still plenty of need for finance for land and capital equipment. Those who inherit a farm sometimes have to buy out siblings. They may also want to buy additional areas of land to secure economies of scale. Finance is important if agriculture is to meet the challenge of increasing and more sophisticated demand and relatively finite supply, particularly of land suitable for farming. Food production will need to rise by at least 60 per cent by 2050 to feed a rapidly growing world population that is increasingly able to demand more resource intensive foods such as meat which create additional demand for animal feed.

However, since the financial crisis banks have been cutting their loan books, while the price of land continues to rise, stimulated by the availability of subsidies, good long-term demand for food, tax breaks and, in parts of the UK, the dual use of farms for sporting purposes. However, new types of finance provider are emerging like Aquila Capital of Hamburg.

Aquila actually buys equity stakes in a farm which could be as much as 70 per cent. However, they claim that it works more like a debt. They receive a guaranteed 3 per cent a year, although there might be circumstances in which the farmer had to borrow to meet this requirement, increasing the debt burden. The farmer receives the next tranche of income and the remainder is split 70-30 in Aquila's favour. It is envisaged that such investments will yield pre-tax, post-free returns of 5-7 per cent a year which are attractive in current circumstances. Savings accounts are typically paying less than 2 per cent and relatively few companies pay dividends above 5 per cent (and may not be able to sustain them). 4 per cent would be a good return on an income fund, although you should be able to get over 5 per cent from a peer lender, depending on how much risk you might be able to take.

Whether it is a good deal for farmers is an interesting question, but needs must. Aquila also claim that after 15 years or so farmers will have accumulated enough capital to buy them out.

The capping controversy

A full and very informative blog post here, although the English is a little stilted in places: Capping

I would just make a couple of points. First, it is always possible that businesses could be split into distinct legal entities to avoid the rules. Second, the last paragraph of the post points out that many wealthy estates benefit from large CAP subsidies.

However, this brings us back to the question of what the CAP is for. If its main objective is to help poor or marginal farmers, it is an inefficient means of doing so. (Actually, there are probably at least two objectives here, one an income distribution objective and one a rural landscapes/depopulation objective).

If one, however, one thinks that the CAP should be helping European farms and food processors to be globally competitive, larger farms are, in general, more efficient (and often more environmentally conscious and aware of animal welfare needs).

Devolution and agriculture

Devolution raises some tricky issues about who can do what and this interesting and informative blog post looks at a dispute involving the Welsh Assembly Government and the Westminster government that has gone to the UK Supreme Court: Devolution

Getting agreement on CAP is near impossible

Reflecting on the outcome of the CAP negotiations, NFU president Peter Kendall is critical of the decision-making process, saying that it is near impossible to reach agreement: Kendall. He makes a good point, but how could one start to change it, given the range of interests and institutions that have a stake in the way decisions are made?

A paradigm shift in CAP?

Gwilym Jones of the European Commission set out a vigorous defence of the CAP reforms at the Westminster Food and Nutrition Forum in London last week. He claimed that they represented a paradigm shift which would re-link farmers and citizens. It put farmers in greater control of their day-to-day economic choices.

Jones claimed that the greening measures were a game changer. They offered measures which protected soil, water and biodiversity (interestingly there was no reference to climate change.

One positive feature that Jones did draw attention to was that all payments to farms would be published, stating 'we have nothing to hide.' It remains to be seen what this move towards transparency means in practice and how accessible and reliable the data turns out to be.

Jones insisted that farming is different, asking what other industry faced exceptional weather events.

Chris Horseman of Agra Europe asked why decoupling had been put into reverse. Jones disagreed that this was the case, arguing that some sectors worked with very severe conditions, for example mountain areas. But this has always been the case and does not justify an extension of coupling.

CAP reform a dress rehearsal?

The CAP reform could simply be a dress rehearsal for a further reform, suggested David Baldock of the Institute for European Environmental Policy at a seminar of the Westminster Food and Nutrition Forum in London last week. The reform could serve as a means of showing which issues we had to get serious about. The reform had been a rush, it didn't have a finished feel about it. This was a widespread perception in Europe. What was needed was a credible mid-term review.

What was good about the reform was that the public goods idea survived in the CAP. It also couldn't be a one size fits all policy. On the downside, there had been a loss of the commitment to transparency and simplicity. There was a theoretical possibility of reverse modulation.

On the greening measures, it was quite difficult to see what was going to change on permanent pastures. The Ecological Focus Areas had changed greatly from original proposal. The idea covered much less than had been originally envisaged. Cross-compliance entailed a softening of the regime in some directions. Protecting carbon rich soils, the most innovative idea, had been lost.

The last Mid-Term Review was in the Fischler reforms and, as Baldock noted, the then Commissioner had created a platform and had worked to create relationships with heads of government and ministers. My question would be whether anyone around today possesses Fischler's adroit skills.

Challenges remain for Lithuanian presidency

EU agriculture ministers will meet in Brussels for the first time under the Lithuanian Presidency on Monday (July 15) and for the first time since an agreement on most aspects of CAP reform for 2014-2020 was reached by the EU institutions, reports Agra Europe. Vilnius began work on July 1, after being passed the torch by Dublin, who garnered wide praise after largely concluding the CAP reform package. But the Lithuanian Presidency, in it’s maiden term in the position, will have to oversee certain parts of the reform that were still up for debate when the deal was reached last month.

As part of their mandate, the new presidency will need to seek progress on the remaining issues left out of the reform agreement, which include the ‘degressivity’ proposal, co-financing and rural development. They will need to seek a compromise with Parliament, which is irked by the Council’s resistance to negotiate on the positions taken by heads of government on the 2014-2020 ‘multiannual financial framework’ (MFF). MEPs maintain that it is their legal right to have an equal say under the Lisbon Treaty.

Lithuania continues to affirm that member states will not be willing to re-open negotiations on CAP reform with respect to the recently approved budget. Monday’s meeting of EU agriculture leaders should shed some light on what, if anything, the Council is willing to do to appease MEPs, Agra Europe predicts.

What is the CAP for?

I give my views here: What is the CAP for? The editor has put in some helpful links.

Why no capping?

George Monibot complains in The Guardian about the absence of capping or degressivity in the CAP reform deal: Monibot

The reason Britain and Germany opposed these proposals is that they have a lot of large farmers and agreeing to capping would disadvantage them and cut national receipts from the CAP. The more fundamental issue is whether the CAP is there to support the global competitiveness of EU agriculture or is meant to be a social policy for marginal farmers.

EU backs away from commodity speculation controls

It look as if the EU is going to back away from imposing limits on commodity speculation. Of course, not all commodities are agricultural, but according to consultancy ETFGI there are 111 agriculture-focused products with €2.8bn of assets. Within exchange traded funds about 30 per cent or $55.5bn of these assets include agricultural investments, according to data from Somo, the centre for research on multinational corporations.

Critics argue that current trading practices help to boost food price volatility. There is no proof that this is the case, but many believe that excessive trading in derivatives can accelerate bubbles and create heavy price peaks which disadvantage the individual consumer. The US has already adopted position limits for a number of core commodity futures and option contracts, including corn (maize) and wheat.

NGOs had been hoping that position limits would be imposed on commodities speculation under the EU's revised Markets in Financial Instruments Directive (Mifid II). Such limits would restrict the activities of fund management companies that continue to engage in soft commodity trading, a number having pulled out earlier in the year. Reputational damage was a major motive for quitting speculative trading.

However, the European Council wants to allow individual member states to set their own position limits. Christine Haigh of the World Development Movement argues that this would pit member states against each other in a race to the bottom. The UK and France are thought to be the most likely to put lenient position limits in place to allow current trading practice to continue as normal.

The Commission and Parliament continue to favour Europe-wide rules, so it remains to be seen what emerges from the trilogue process with a final decision expected by March 2014.

CAP reform deal struck

A deal has been struck in the trilogue process on CAP reform: Done deal. It has been made possible by passing some of the thorniest issues on to heads of government. There has also been a considerable watering down of the original greening proposals which were supposed to be the motif of this particular reform. The National Trust criticised the deal as a backward step: National Trust

NFU president Peter Kendall argued that the deal granted individual countries too much flexibility. It would result in a CAP that was less common, less market-oriented and more complicated. Of course, one of his concerns is that within England the Government will go for more market oriented policies while subsidies are enhanced elsewhere, leading to the absence of a level playing field.

One colleague said that she would now have to change her lecture on the CAP. She won't have to change that much.

Progress made on CAP reform deal

As is so often the case, these things go down to the wire, but it looks as if real progress is being made at last on a CAP reform deal. European Union farm ministers reached a revised negotiating position as the clock struck midnight on Tuesday, raising hopes that a new common agricultural policy will be agreed on Wednesday as talks moved to Brussels, reports Reuters.

'We now have a clear updated mandate ... There's lots of momentum here,' said Irish farm minister and Council chair Simon Coveney following two days of negotiations in Luxembourg.

However, Coveney admitted 'There are some difficult issues to resolve. I am not predicting it is going to be easy. It is not.' Issues that still need to be resolved include the deadline for abolishing EU sugar production quotas, which are blamed for pushing up domestic prices and limiting European sugar exports.

A key sticking point in talks could also be who makes the key decisions on issues such as market intervention, with the European Parliament wanting an increased role, something which ministers have been reluctant to accept. Coveney said no member state voted against the revised mandate, but Britain and Germany abstained on the European Parliament issue. Co-decision has already made it more difficult to achieve agreement.

Parallels between Thai rice policy and the CAP

This interesting article by a former PhD student of mine looks at rice policy in Thailand and sees certain parallels with the CAP: Thai rice policy

CAP reform process hits new snags

Despite the relatively optimistic mood at the recent 'informal' Farm Council in Dublin, the CAP reform process has hit new snags which suggest that a deal may not be reached under the Irish presidency.It appears that a resolution to the EU’s CAP reform process could be delayed further beyond the end-of-June target date, after the European Parliament threatened to veto any deal over member states’ refusal to budge on certain issues, reports Agra Europe.

Parliament agriculture committee chair Paolo De Castro this week slammed the European Council for its approach to the recent ‘trilogue’ discussions on the issue, claiming their approach goes against the "spirit" of the Lisbon Treaty, which granted MEPs equal say on farm policy under the ‘Ordinary Legislative Procedure’. MEPs want to reach a deal by the end of June – when the Irish Presidency ends and the Lithuanian Presidency begins – but this will not happen unless all subjects are up for negotiation and the Parliament's views are heard, De Castro stressed in an impassioned speech this week.

De Castro is just the latest agriculture official to express his public frustration at the drawn out negotiations on CAP reform and perhaps calls into question the suitability of the co-decision procedure in reaching an agreement on this policy, something which has concerned me for some time.

Enhanced co-decision making has been defended as injecting greater legitimacy into the EU institutions, as directly elected MEPs should in theory increase the democratic input of European citizens, and thereby lead to improved legislation. But then according to one recent poll, over 50 per cent of British voters do not know they elect members of the European Parliament. In any case the process appears to have been the victim of growing euroscepticism across the bloc, as well as the austerity agendas of certain member states.

The CAP reform process appears to have hit a brick wall and unless there is a dramatic breakthrough at the ‘trilogue’ talks in the next couple of weeks, the Luxembourg Farm Council on June 24/25 – when it was hoped a CAP reform agreement would finally be signed, sealed and delivered – could turn into a damp squib. Some member states have said they may not even bother to turn up.