The UK Government produced a good critique of the CAP as part of its efforts to secure further reform in the EU budget negotitations. Unfortunately, it had little impact on the outcome. As The Economist has commented, 'Despite the promised review in 2098, the deal puts off any further serious reform of the CAP until 2013.'
Nevertheless, the key arguments are worth reproducing. The paper makes the key point that the reforms that have taken place so far are only partial for three main reasons:
1. A mass of market intervention and support measures remain in place
2. High tariffs, production quotas, set-aside, export subsidies (albeit now to be phased out by 2013), intervention purchase and other mechanisms distort markets
3. To many options remain for member states to continue with coupled direct production-linked payment schemes, albeit reduced in scale
The paper sees the capitalisation of subsidy and support values into the price of land as a major obstacle to change. Much of the money paid out doesn't benefit farmers because of capitalisation of land values and the charges of suppliers of other inputs. In France, for example, where much of the land is owned by non-farmers, the actual value of susbidies remaining with farmers is as low as 20 per cent of the original payment.
The paper also has a welcomed pop at the much repeated and rarely criticised argument about the environmental impact of 'food miles'. Research commissioned by Defra shows that the transport of imported agricultural produce by sea accounts for only 1.5 per cent of the total external costs associated with food transport to and within the UK. This is mainly because fewer long journeys of large ships replace many short journeys by HGVs. One might add that much of the global warming effect results from trips made by car to out-of-town supermarkets.
The paper argues that the challenge for the EU is to ensure that agriculture is treated no differently from other sectors of the economy. This is where there is a fundamental division between the UK and its opponents who argue that the CAP produces food security benefits, high quality food, preserves cherished landscape and maintains the fabric of rural society.
There is, perhaps, a tension here with the UK government's stated objective of an agriculture that is 'socially responsive to the needs of local communities.' That is where rural development policy comes in, but it has taken a hit under the budget agreement.
Tuesday, December 27, 2005
Wednesday, December 07, 2005
Big farms still take biggest share of the loot
A small handful of big farms received a big proportion of EU direct aid payments under the old CAP regime according to recently released Commisson figures. Of the €27.2 billion in subsidies paid out to some 5.2 million EU farmers in 2002, over €1 billion was handed out to just 1,140 large farms. And each of these fortunate recipients received over €500,000 each.
Germany had the highest number of farms receiving payments of over €0.5 million each with 960 farmers receiving €0.9 billion between them. This reflects the survival in private hands of what were big collective farms in the former East Germany. At the other end of the scale, well over half the farms receiving CAP aid in 2002 (some 2.9 million) received annual aid cheques of less than €1,250. Of these farms, 2.3 million were situtaed in either Italy, Greece or Spain.
The largest overall recipient of direct aid continued to be France which received €6.9 billion in 2002. Of this amount, €2.6 million was shared out between fewer than ten of the biggest farms. It is sometimes forgotten that France is not a land of peasants or even medium-sized family farms, but has some very big agribusinesses.
We have heard of a new webiste that aims to give detailed information about the recipients of EU farms subsidies. Visit Subsidies .
Germany had the highest number of farms receiving payments of over €0.5 million each with 960 farmers receiving €0.9 billion between them. This reflects the survival in private hands of what were big collective farms in the former East Germany. At the other end of the scale, well over half the farms receiving CAP aid in 2002 (some 2.9 million) received annual aid cheques of less than €1,250. Of these farms, 2.3 million were situtaed in either Italy, Greece or Spain.
The largest overall recipient of direct aid continued to be France which received €6.9 billion in 2002. Of this amount, €2.6 million was shared out between fewer than ten of the biggest farms. It is sometimes forgotten that France is not a land of peasants or even medium-sized family farms, but has some very big agribusinesses.
We have heard of a new webiste that aims to give detailed information about the recipients of EU farms subsidies. Visit Subsidies .
Thursday, November 24, 2005
Sweeteners lead to sugar deal
In a rare success for the UK presidency, EU farm ministers have agreed to a reformed sugar regime to operate from next July. Sufficient sweeteners had to be offered to the most vociferous opponents to get them to accept a deal, although one had to be reached before too long given the WTO deadline of next May and the fact that the regime itself would expire in the summer.
Ministers agreed to a slight cut in the depth of the price cut, and to an increase in the rate of compensation. The European Commission and ministers compromised on a 36% cut in the price of sugar (a relative marginal reduction in the original figure of 39%), and a 4.2% increase in compensation for farmers. They will thus now receive compensation covering 64.2% of the loss incurred by the price cut. There is a also a more generous compensation scheme for inefficient European sugar producers who will be forced to halt production because of the price drop. Extra compensation will be given to farmers in countries that give up 50 per cent of their production, a move that will principally benefit Italy and Spain.
Finland benefits from a special deal that allows beet farmers in one of the least competitive sugar producer countries in Europe a special aid of €350m so they can continue supplying he one remaining beet producer in the country. Why not import sugar from elsewhere which is what mostly happens anyway.
However, these side payments should not distract attention from a substantial reduction in the guaranteed price. In other words, a deal has been struck that will not bust the budget or fail to curb uneconomic production in the sector.
The new compromise proposal – the second to be tabled at this week's EU farm Council – offers significant sweeteners for various countries, in particular Italy, one of the most vociferous opponents of the reform. Poland, Latvia and Greece still refused to endorse the compromise. The producer price for sugar will be reduced in four stages, with a cumulative reduction over four years of 20%, 25%, 30% and 36%.
The deal has come under criticism from both third world NGOs and industrial suger users. Some development experts suggested that the EU had been forced to offer more compensation to inefficient European farmers at the expense of their more vulnerable sugar cane rivals. 'Developing countries have been sacrificed in order for Europe to reach a deal', said Luis Morago, head of Oxfam International in Brussels.
The UK Industrial Sugar Users Group deplored last-minute concessions that would still leave the EU price about double that in the rest of the world. 'This deal takes the easy way out by simply dumping increased compensation costs on consumers and industrial users.' In fact the EU internal reference price will be €404 per tonne, about 40 per cent above the current spot price. Moreover, the world price could rise if uneconomic EU production is withdrawn and bioethanol actually takes off in a significant way.
For all the criticism, the deal was probably as good as could be obtained given the opposition and will bolster the EU's position in world trade talks.
Ministers agreed to a slight cut in the depth of the price cut, and to an increase in the rate of compensation. The European Commission and ministers compromised on a 36% cut in the price of sugar (a relative marginal reduction in the original figure of 39%), and a 4.2% increase in compensation for farmers. They will thus now receive compensation covering 64.2% of the loss incurred by the price cut. There is a also a more generous compensation scheme for inefficient European sugar producers who will be forced to halt production because of the price drop. Extra compensation will be given to farmers in countries that give up 50 per cent of their production, a move that will principally benefit Italy and Spain.
Finland benefits from a special deal that allows beet farmers in one of the least competitive sugar producer countries in Europe a special aid of €350m so they can continue supplying he one remaining beet producer in the country. Why not import sugar from elsewhere which is what mostly happens anyway.
However, these side payments should not distract attention from a substantial reduction in the guaranteed price. In other words, a deal has been struck that will not bust the budget or fail to curb uneconomic production in the sector.
The new compromise proposal – the second to be tabled at this week's EU farm Council – offers significant sweeteners for various countries, in particular Italy, one of the most vociferous opponents of the reform. Poland, Latvia and Greece still refused to endorse the compromise. The producer price for sugar will be reduced in four stages, with a cumulative reduction over four years of 20%, 25%, 30% and 36%.
The deal has come under criticism from both third world NGOs and industrial suger users. Some development experts suggested that the EU had been forced to offer more compensation to inefficient European farmers at the expense of their more vulnerable sugar cane rivals. 'Developing countries have been sacrificed in order for Europe to reach a deal', said Luis Morago, head of Oxfam International in Brussels.
The UK Industrial Sugar Users Group deplored last-minute concessions that would still leave the EU price about double that in the rest of the world. 'This deal takes the easy way out by simply dumping increased compensation costs on consumers and industrial users.' In fact the EU internal reference price will be €404 per tonne, about 40 per cent above the current spot price. Moreover, the world price could rise if uneconomic EU production is withdrawn and bioethanol actually takes off in a significant way.
For all the criticism, the deal was probably as good as could be obtained given the opposition and will bolster the EU's position in world trade talks.
Tuesday, November 15, 2005
Changing shape of budget
The CAP budget for agricultural markets and the SFP has been scaled back to a mere €43,280 million in 2006, or €51,051 million when one adds in rural development. However, it is the composition of the budget that is in some ways more interesting. Of course, by far the greater part these days goes on direct aids to farmers (€34,817m).
If one looks at the market support budget, the largest budget line is now for fruit and vegetables at €1,544m, followed by €1,494m for the wine lake and €1376m for sugar. 'Textile plants', effectively cotton subsidies, come fourth at €969m: these are, of course, very controversial in the current WTO talks in terms of their impact on poor West African countries.
Milk products and cereals, once the biggest items, now come 5th and 6th respectively, although it should be remembered that payments now largely take the form of direct aids.
If one looks at the market support budget, the largest budget line is now for fruit and vegetables at €1,544m, followed by €1,494m for the wine lake and €1376m for sugar. 'Textile plants', effectively cotton subsidies, come fourth at €969m: these are, of course, very controversial in the current WTO talks in terms of their impact on poor West African countries.
Milk products and cereals, once the biggest items, now come 5th and 6th respectively, although it should be remembered that payments now largely take the form of direct aids.
DG Agri has a French head again
For a long time, DG-Agri was known as a French fiefdom with a French head of the bureaucracy, many French and Francophone staff and even a canteen that was supposed to serve the best food in the Commission! For some time now DG Agri has had a Spanish head, but on 1 January he will be replaced one of his deputies, French national Jean-Luc Demarty.
However, this may not be a sign of a return to old style agricultural politics. An alternative view is that it reflects the decreased significance of DG Agri with the real power over the future of Europe's farmers now in the hands of DG Trade. Indeed, Le Figaro has claimed that Paris lobbied without success to get a French head of trade - the job has gone to Irishman David O'Sullivan.
However, this may not be a sign of a return to old style agricultural politics. An alternative view is that it reflects the decreased significance of DG Agri with the real power over the future of Europe's farmers now in the hands of DG Trade. Indeed, Le Figaro has claimed that Paris lobbied without success to get a French head of trade - the job has gone to Irishman David O'Sullivan.
Sunday, November 06, 2005
Where does the CAP cash go?
In a letter to European Voice CAP campaigner Terry Wynn MEP points out that little information is made available on who gets the large sums of money spent on CAP. Only Denmark, the UK, Estonia, Sweden and Slovenia (now joined by Belgium) make the information available.
When it is made available, it is quite revealing. Wynn points out that UK figures show that Lincolnshire receives three times more in agricultural subsidies than the north-west of England combined and has only a third of the number of farms. He points out that there is no disclosure of where the money goes in France despite the fact that it receives a quarter of CAP expenditure.
The Belgian payment agency, BIRB, has now posted details of the recepients of CAP money. At the top of the list is the sugar refinery in Tienen which received €91.9 million in 2004. At the bottom is the Sacred Heart pyschiatric hospital in Ypres which received €148.70.
There was considerable political resistance to the publication of the information. The agriculture minister in the federal government is Sabine Laruelle, a Walloon Liberal, who happens to be a former president of the Walloon farmers' union. She said she would not release names and amounts and that what was happening 'leads only to a witch hunt', pointing out that 'People focus on examples such as the Queen of England.'
Meanwhile, Yves Leterme, the Christian Democrat head of the Flemish regional government complained about efforts by commissioners Fischer Boel and Slim Kallas (audit and anti-fraud) to get national governments to disclose who gets what from the CAP regime. Leterme said that if the Commissioners were minded to make statements 'which intrude against our constitutional rights to the protection of privacy, then they had better keep their mouths shut.' However, Belgian prime minister Guy Verhofstadt decided in favour of disclosure.
This is public money and EU citizens are entitled to know where it is going. Publication may also serve as a deterrent to fraud which remains a persistent problem in the CAP.
When it is made available, it is quite revealing. Wynn points out that UK figures show that Lincolnshire receives three times more in agricultural subsidies than the north-west of England combined and has only a third of the number of farms. He points out that there is no disclosure of where the money goes in France despite the fact that it receives a quarter of CAP expenditure.
The Belgian payment agency, BIRB, has now posted details of the recepients of CAP money. At the top of the list is the sugar refinery in Tienen which received €91.9 million in 2004. At the bottom is the Sacred Heart pyschiatric hospital in Ypres which received €148.70.
There was considerable political resistance to the publication of the information. The agriculture minister in the federal government is Sabine Laruelle, a Walloon Liberal, who happens to be a former president of the Walloon farmers' union. She said she would not release names and amounts and that what was happening 'leads only to a witch hunt', pointing out that 'People focus on examples such as the Queen of England.'
Meanwhile, Yves Leterme, the Christian Democrat head of the Flemish regional government complained about efforts by commissioners Fischer Boel and Slim Kallas (audit and anti-fraud) to get national governments to disclose who gets what from the CAP regime. Leterme said that if the Commissioners were minded to make statements 'which intrude against our constitutional rights to the protection of privacy, then they had better keep their mouths shut.' However, Belgian prime minister Guy Verhofstadt decided in favour of disclosure.
This is public money and EU citizens are entitled to know where it is going. Publication may also serve as a deterrent to fraud which remains a persistent problem in the CAP.
Tuesday, November 01, 2005
Group opposed to sugar reform grows
Poland has joined the eleven countries led by Spain who are opposed to the Commission's proposals for reform of the sugar regime. Just four of the opposing countries - Greece, Italy, Poland and Spain - would be enough to block reform under the qualified majority system.
This latest development is causing concern in the Commission and the UK presidency. The WTO has declared the current regime illegal and the current regulation expires next June which would lead to chaos if nothing is put in its place.
The Commission has to think of some way of buying off opposition without rendering the whole reform pointless. The opposing states are calling for smaller price cuts over a longer period with more compensation and it is difficult to see how this can be squared with the WTO judgement or the EU budget.
It might be possible to include the option of partial decoupling for states such as Italy who feel they are worst hit by the price reduction, although it is questionable whether keeping small Italian sugar producers in business is compatible with the spirit of the reform. Certainly national compensation envelopes for sugar producers are still under consideration, but the sweetener would have to be significant.
A further complicating factor is that the opposition countries are suggesting that cuts should be applied initially just to regions with a surplus of production. If one interprets that as countries with B quotas, leading sugar producers would be hit, notably France and Germany where up to 20 per cent of overall production quotas are B quotas.
So this is all about winners and losers rather than a rational reform strategy that would be helpful for the EU as a whole. As June approaches, no doubt some sort of reform, with more side payments, will be devised.
This latest development is causing concern in the Commission and the UK presidency. The WTO has declared the current regime illegal and the current regulation expires next June which would lead to chaos if nothing is put in its place.
The Commission has to think of some way of buying off opposition without rendering the whole reform pointless. The opposing states are calling for smaller price cuts over a longer period with more compensation and it is difficult to see how this can be squared with the WTO judgement or the EU budget.
It might be possible to include the option of partial decoupling for states such as Italy who feel they are worst hit by the price reduction, although it is questionable whether keeping small Italian sugar producers in business is compatible with the spirit of the reform. Certainly national compensation envelopes for sugar producers are still under consideration, but the sweetener would have to be significant.
A further complicating factor is that the opposition countries are suggesting that cuts should be applied initially just to regions with a surplus of production. If one interprets that as countries with B quotas, leading sugar producers would be hit, notably France and Germany where up to 20 per cent of overall production quotas are B quotas.
So this is all about winners and losers rather than a rational reform strategy that would be helpful for the EU as a whole. As June approaches, no doubt some sort of reform, with more side payments, will be devised.
Bulgaria, Romania accession in trouble
Preparations for integration into the CAP remain 'areas of serious concern' for both Bulgaria and Romania just fourteen months away from their planned accession to the EU. To those who say cynically 'we have been here before', noting that outstanding problems when ten member states joined were glossed over, two points need to be borne in mind:
1. The EU is a much less confident and ferbile state following the effective failure of the Constitution
2. The problems with Bulgaria and Romania are more serious than those in the earlier wave of East European entrants.
Food safety is a major area of concern, with the Commission noting deficiencies in both countries in terms of animal disease control and regulations relating to BSE. Romania has made a little more progress in some areas, but both countries have failed to make progress in setting up an Integrated Administration and Control System.
The tone of the Commission report suggests that the warnings issued may be more than the usual routine pleas to get a move on. The situation is to be reviewed in April/May of next year when the postponement of accession by one year may be recommended.
1. The EU is a much less confident and ferbile state following the effective failure of the Constitution
2. The problems with Bulgaria and Romania are more serious than those in the earlier wave of East European entrants.
Food safety is a major area of concern, with the Commission noting deficiencies in both countries in terms of animal disease control and regulations relating to BSE. Romania has made a little more progress in some areas, but both countries have failed to make progress in setting up an Integrated Administration and Control System.
The tone of the Commission report suggests that the warnings issued may be more than the usual routine pleas to get a move on. The situation is to be reviewed in April/May of next year when the postponement of accession by one year may be recommended.
Sunday, October 30, 2005
French play food securirty card
Peter Mandelson is caught between a rock and a hard place in trying to reach agreement in the Doha Round agricultural trade negotiations. On the one hand, he has to move towards the negotiating demands of the US (and the G-20). On the other, he has to avoid annoying France so much that it derails the whole negotiation and hence the Doha Round. The EU has now made a new set of concessions, but they may be too little for the US and too much for France.
France has wheeled out their finance minister, Thierry Breton, to defend the CAP in an interview in the Financial Times. This is a smart move as he is an avowed moderniser who formed his own software company in 1981, before running a science park and then taking charge of high tech groups Bull, Thompson and France Telecom.
But he insists that the CAP is essential for Europe's future and must not be sacrificed at the altar of the WTO. He challenges Tony Blair's description of the CAP as 'spending of the past', describing it as a modern, forward-looking policy, essential for safeguarding the security of Europe's food chain.
He claims that Europe has developed one of the best - and safest - agricultural systems in the world. 'There is no magic here: we have decided to put our money together to build this infrastructure.' He argues that anyone who thinks agriculture is a market like any other is 'old-fashioned', as they ignore growing risks to food security.
He seems to think that the growing world population poses a problem in terms of producing enough food, although this is partly a question of what limits are placed on the introduction of new technology. It is also the case that in the west people are consuming more food than is good for their health or at least food of the wrong kind.
It is the case that agricultural markets have their own special features ('cobweb cycles' etc.) and this is why one does need some stabilisation mechanisms, although these might be provided more efficiently by state guaranteed insurance arrangements rather than by subsidies.
Breton argues that we must protect food security 'at all costs' otherwise 'we will have new food catastrophes, or even pandemics.' The link between averting avian flu and subsidising marginal farmers is quite a tenuous one. In the UK, people have tried to use the threat of terrorism to wave the food security card, but have never been able to demonstrate exactly what the threat to the food chain is.
If subsidies were removed overnight, many European farmers would go out of business to the extent that world food prices would rise. There is a case for replacing subsidies by some kind of bond scheme with a finite life.
However, there is a case for providing some help for farmers for the positive externalities they provide (such as cherished landscapes), while there is a rural development case for providing help to remoter regions (which is not to say that depopulation is necessarily always a bad thing).
What is difficult to justify is spending nearly half the European budget and over €40 billions a year on the CAP and rural development. The opportunity cost is considerable at a time when Europe faces major challenges in world markets and needs more spending on research and development and innovation.
The French insistence on defending the CAP may not only derail the Doha negotiations, it may even eventually place the whole European project - or least its viability - in jeopardy.
France has wheeled out their finance minister, Thierry Breton, to defend the CAP in an interview in the Financial Times. This is a smart move as he is an avowed moderniser who formed his own software company in 1981, before running a science park and then taking charge of high tech groups Bull, Thompson and France Telecom.
But he insists that the CAP is essential for Europe's future and must not be sacrificed at the altar of the WTO. He challenges Tony Blair's description of the CAP as 'spending of the past', describing it as a modern, forward-looking policy, essential for safeguarding the security of Europe's food chain.
He claims that Europe has developed one of the best - and safest - agricultural systems in the world. 'There is no magic here: we have decided to put our money together to build this infrastructure.' He argues that anyone who thinks agriculture is a market like any other is 'old-fashioned', as they ignore growing risks to food security.
He seems to think that the growing world population poses a problem in terms of producing enough food, although this is partly a question of what limits are placed on the introduction of new technology. It is also the case that in the west people are consuming more food than is good for their health or at least food of the wrong kind.
It is the case that agricultural markets have their own special features ('cobweb cycles' etc.) and this is why one does need some stabilisation mechanisms, although these might be provided more efficiently by state guaranteed insurance arrangements rather than by subsidies.
Breton argues that we must protect food security 'at all costs' otherwise 'we will have new food catastrophes, or even pandemics.' The link between averting avian flu and subsidising marginal farmers is quite a tenuous one. In the UK, people have tried to use the threat of terrorism to wave the food security card, but have never been able to demonstrate exactly what the threat to the food chain is.
If subsidies were removed overnight, many European farmers would go out of business to the extent that world food prices would rise. There is a case for replacing subsidies by some kind of bond scheme with a finite life.
However, there is a case for providing some help for farmers for the positive externalities they provide (such as cherished landscapes), while there is a rural development case for providing help to remoter regions (which is not to say that depopulation is necessarily always a bad thing).
What is difficult to justify is spending nearly half the European budget and over €40 billions a year on the CAP and rural development. The opportunity cost is considerable at a time when Europe faces major challenges in world markets and needs more spending on research and development and innovation.
The French insistence on defending the CAP may not only derail the Doha negotiations, it may even eventually place the whole European project - or least its viability - in jeopardy.
Thursday, October 20, 2005
Half speed ahead in Doha Round
It's half speed ahead in the Doha Round agricultural trade negotiations after the US and EU tabled new offers, following by a compromise paper by the G-20 which was in part an attempt to reconcile their internal differences.
The US put the EU on the spot with a new offer on domestic subsidies which was launched with a fanfare with a Financial Times article by US Trade Representative Rob Portman. The offer was not quite as generous as it seemed as it would allow the controversial counter cyclical payments initiated by the US in the 2002 Farm Act to continue, but their size would be limited to a maximum $5 billion a year, compared with $7.6 billion at the moment.
This was enough to alarm Senator Saxby Chambliss, chairman of the US Senate's agriculture committee who sent a letter to US ag secretary Mike Johanns telling him not to sell out the store and in particular to do nothing that would lower the level of farm spending in the US. The Bush Administration would like nothing more than to cut the level of farm spending as one means of dealing with the huge US budget deficit.
The EU has also had its internal problems with France, backed by thirteen other member states, trying to limit the room for manoeuvre of trade commissioner Peter Mandelson to an extent that would have probably derailed the Hong Kong ministerial. However, the French were beaten back at an emergency meeting of the Council of foreign ministers, in itself an unusual event. However, the French remain hot under the collar under the issue and will no doubt cause more trouble as they did in the Uruguay Round.
The real sticking point remains tariffs with the EU calling for a maximum 50 per cent cut on the highest tariffs compared with a 90 per cent figure advocated by the US. As Agra Europe has commented, a 90 per cent cut would mean that the EU butter intervention price would have to be slashed by 25 per cent which would be a heavy blow for Europe's troubled dairy industry. However, the US points out that the current EU offer would lead to an average cut in European farm tariffs of 24.5 per cent, less than the 36 per cent average agreed in the Uruguay Round.
The US wants 'sensitive' products to be limited to 1 per cent of tariff lines, with the EU asking for up to 8 per cent. This would offer protection for around 160 EU tariff lines. Remember, for 'sensitive' read 'politically sensitive'.
The real horse trading is beginning, but there is still a long way to go before agreement is reached.
The US put the EU on the spot with a new offer on domestic subsidies which was launched with a fanfare with a Financial Times article by US Trade Representative Rob Portman. The offer was not quite as generous as it seemed as it would allow the controversial counter cyclical payments initiated by the US in the 2002 Farm Act to continue, but their size would be limited to a maximum $5 billion a year, compared with $7.6 billion at the moment.
This was enough to alarm Senator Saxby Chambliss, chairman of the US Senate's agriculture committee who sent a letter to US ag secretary Mike Johanns telling him not to sell out the store and in particular to do nothing that would lower the level of farm spending in the US. The Bush Administration would like nothing more than to cut the level of farm spending as one means of dealing with the huge US budget deficit.
The EU has also had its internal problems with France, backed by thirteen other member states, trying to limit the room for manoeuvre of trade commissioner Peter Mandelson to an extent that would have probably derailed the Hong Kong ministerial. However, the French were beaten back at an emergency meeting of the Council of foreign ministers, in itself an unusual event. However, the French remain hot under the collar under the issue and will no doubt cause more trouble as they did in the Uruguay Round.
The real sticking point remains tariffs with the EU calling for a maximum 50 per cent cut on the highest tariffs compared with a 90 per cent figure advocated by the US. As Agra Europe has commented, a 90 per cent cut would mean that the EU butter intervention price would have to be slashed by 25 per cent which would be a heavy blow for Europe's troubled dairy industry. However, the US points out that the current EU offer would lead to an average cut in European farm tariffs of 24.5 per cent, less than the 36 per cent average agreed in the Uruguay Round.
The US wants 'sensitive' products to be limited to 1 per cent of tariff lines, with the EU asking for up to 8 per cent. This would offer protection for around 160 EU tariff lines. Remember, for 'sensitive' read 'politically sensitive'.
The real horse trading is beginning, but there is still a long way to go before agreement is reached.
Monday, October 17, 2005
Non-GM costs to rise, claims report
European food producers will face significantly higher costs over the next three years if staunch opposition to using GM ingredients continues, a study commissioned by Agricultural Biotechnology Europe (who have a particular stance) suggests. Up to now the cost of Europe's anti-GM stance has been minimal as the greater cost of producing non-GM ingredients has been pushed down the supply chain.
This will change, it is claimed, as the availability of guaranteed non-GM ingredients declines and the premium on non-GM supplies rises. A particular problem is the availability of non-GM soyabeans. Soyabeans are used in producing a wide range of processed foods (even biscuits) and over half the soyabeans planted across the globe are now GM. Brazil, the primary supplier of non-GM soya products to the EU, has now formally approved the planting of transgenic soyabean seeds (although they were already grown illegally) so the percentage is likely to grow.
The existing differential between GM and non-GM could double in the next one to three years. For example, producers of broiler feed are likely to find that the premium over transgenic varieties for soya meal and soya oil will rise from between 10 per cent and 13 per cent to as much as 25 per cent. Margarine producers, 70 per cent of whom currently support non-GM policies, would see a rise of 16 per cent over three years or €85m annually.
There is some dispute about whether GM crops are as cheap to produce as their supporters claim, so these figures may be exaggerated. Retailers and processors face a dilemma as consumers are resistant to GM ingredients but also resistant to price rises.
GM-free zone ruled illegal
The European Court of First Instance has ruled that Upper Austria is not allowed to declare itself a 'non-genetically modified' zone. The ban had been originally rejected by the Commission on the grounds that there was no scientific evidence to support it. This is the first time that the Court has ruled on a general regional prohibition of GM crops although there are many other areas in Europe that proclaim themselves to be GM free. The Commission stated that the decision was a clear pronouncement that the free movement of goods within the EU had to be respected, but Upper Austria is likely to fight on.
WTO panel ruling delayed
The WTO dispute panel ruling on the EU's alleged moratorium for new genetically modified products has been put off until after the WTO's Hong Kong ministerial in December. The cover story is scheduling reasons, but it is clearly an attempt to prevent this conflict spilling over into already difficult negotiations.
This will change, it is claimed, as the availability of guaranteed non-GM ingredients declines and the premium on non-GM supplies rises. A particular problem is the availability of non-GM soyabeans. Soyabeans are used in producing a wide range of processed foods (even biscuits) and over half the soyabeans planted across the globe are now GM. Brazil, the primary supplier of non-GM soya products to the EU, has now formally approved the planting of transgenic soyabean seeds (although they were already grown illegally) so the percentage is likely to grow.
The existing differential between GM and non-GM could double in the next one to three years. For example, producers of broiler feed are likely to find that the premium over transgenic varieties for soya meal and soya oil will rise from between 10 per cent and 13 per cent to as much as 25 per cent. Margarine producers, 70 per cent of whom currently support non-GM policies, would see a rise of 16 per cent over three years or €85m annually.
There is some dispute about whether GM crops are as cheap to produce as their supporters claim, so these figures may be exaggerated. Retailers and processors face a dilemma as consumers are resistant to GM ingredients but also resistant to price rises.
GM-free zone ruled illegal
The European Court of First Instance has ruled that Upper Austria is not allowed to declare itself a 'non-genetically modified' zone. The ban had been originally rejected by the Commission on the grounds that there was no scientific evidence to support it. This is the first time that the Court has ruled on a general regional prohibition of GM crops although there are many other areas in Europe that proclaim themselves to be GM free. The Commission stated that the decision was a clear pronouncement that the free movement of goods within the EU had to be respected, but Upper Austria is likely to fight on.
WTO panel ruling delayed
The WTO dispute panel ruling on the EU's alleged moratorium for new genetically modified products has been put off until after the WTO's Hong Kong ministerial in December. The cover story is scheduling reasons, but it is clearly an attempt to prevent this conflict spilling over into already difficult negotiations.
Wednesday, October 12, 2005
Back to the old days in Germany?
Once upon a time the typical German agriculture minister was a member of the CSU from Bavaria. Of course, sometimes the minister came from another Land and was a member of the FPD or the CDU. But wherever they came from, the ministers were male, had close ties to the agriculture industry and evidently enjoyed good food and beer. Those from Bavaria were particularly attuned to the concerns of the relatively small-scale, often part-time and potentially marginal farmers of this distinctive southern and Catholic part of Germany.
All this was shaken up an urban German Green woman, Renate Kunast, took over a changed farm portfolio that paid greater attention to food safety, food quality and consumer concerns. Organic farming was viewed with particular favour. Whether she made as great a difference as was initially hoped (or feared) remains an open question. It does seem, however, that the changed portfolio title with its emphasis on consumer affairs will be kept.
Now the CSU is back in the agriculture portfolio in Angela Merkel's Grand Coalition. Ministerial responsibilities have not yet been finalised, but the man tipped by the media to be Germany's new farm minister is the CDU/CSU's former deputy leader, Horst Seehofer.
German agricultural wire service Agrimanager describes Seehofer as a 'controversial health expert,' who has previously been responsible for agricultural matters in his party, but 'has not yet gained real standing in this sector'.
In other words, the former health minister looks like a bit of a wild card at first sight, someone with a base in his party, but not necessarily linked into the traditional farm policy networks. So it may not be back to business as usual.
Our Munich correspondent comments, 'You are right to suggest that Seehofer is not the traditional CSU guy. He resigned from his role as deputy leader of the CDU/CSU in Parliament in 2004 because he disagreed with the party's policy, in other words he resigned on the basis of his convictions.'
'What would be far more worrying from my perspective would be alternative being discussed at the moment, Michael Glos, who is known not least for calling Fischer and Trittin "eco-stalinists"'. And he is very traditional.'
All this was shaken up an urban German Green woman, Renate Kunast, took over a changed farm portfolio that paid greater attention to food safety, food quality and consumer concerns. Organic farming was viewed with particular favour. Whether she made as great a difference as was initially hoped (or feared) remains an open question. It does seem, however, that the changed portfolio title with its emphasis on consumer affairs will be kept.
Now the CSU is back in the agriculture portfolio in Angela Merkel's Grand Coalition. Ministerial responsibilities have not yet been finalised, but the man tipped by the media to be Germany's new farm minister is the CDU/CSU's former deputy leader, Horst Seehofer.
German agricultural wire service Agrimanager describes Seehofer as a 'controversial health expert,' who has previously been responsible for agricultural matters in his party, but 'has not yet gained real standing in this sector'.
In other words, the former health minister looks like a bit of a wild card at first sight, someone with a base in his party, but not necessarily linked into the traditional farm policy networks. So it may not be back to business as usual.
Our Munich correspondent comments, 'You are right to suggest that Seehofer is not the traditional CSU guy. He resigned from his role as deputy leader of the CDU/CSU in Parliament in 2004 because he disagreed with the party's policy, in other words he resigned on the basis of his convictions.'
'What would be far more worrying from my perspective would be alternative being discussed at the moment, Michael Glos, who is known not least for calling Fischer and Trittin "eco-stalinists"'. And he is very traditional.'
Could Parliament block sugar reform?
Because there is no co-decision on CAP 'guarantee' expenditure matters, something that would have been tackled by the failed EU treaty, the role of the European Parliament in farm reform is usually relatively limited compared to other areas of EU policy.
However, the Parliament may be in a position to block progress on the sugar reform, enabling it to extract further concessions from the Commission. The Council cannot legally adopt CAP legislation until the MEPs have delivered an opinion on the proposal - but there is no obligation to take their views into account. One mechanism that the Parliament does have to protest over proposals it opposes is to delay delivery of the necessary opinion, or to threaten not to deliver it all.
Commissioner Fischer Boel has responded to the Commission's rapporteur on the sugar reform dossier, Jean-Claude Fruteau. She has ruled out one main demand, a compensation level to sugar beet farmers increased from 60% to 80%. Her view is that it is in line with what has been offered in other reformed sectors and any more would be too generous.
She was, however, prepared to take a look again at the proposed sugar restructuring fund which Fruteau described as ungenerous. She also tried to reassure MEPs that the lower internal EU price for sugar would give third countries less incentive to engage in fraud through so-called triangular imports. This is where countries re-export imported sugar claiming that it is their own produce. She stated that if a particular country failed to observe the rules, or if sugar imports were causing serious disturbance to the EU market (shades of the recent Mandelson intervention on Chinese textiles), the EU reserved the right to withdraw tariff preferences.
Fischer Boel and the UK presidency stress that a decision on sugar reform is needed in possible, both to help farmers make their planting plans for next year and also to prevent a row about sugar derailing the agricultural talks at the Hong Kong WTO ministerial in December.
However, the Parliament may be in a position to block progress on the sugar reform, enabling it to extract further concessions from the Commission. The Council cannot legally adopt CAP legislation until the MEPs have delivered an opinion on the proposal - but there is no obligation to take their views into account. One mechanism that the Parliament does have to protest over proposals it opposes is to delay delivery of the necessary opinion, or to threaten not to deliver it all.
Commissioner Fischer Boel has responded to the Commission's rapporteur on the sugar reform dossier, Jean-Claude Fruteau. She has ruled out one main demand, a compensation level to sugar beet farmers increased from 60% to 80%. Her view is that it is in line with what has been offered in other reformed sectors and any more would be too generous.
She was, however, prepared to take a look again at the proposed sugar restructuring fund which Fruteau described as ungenerous. She also tried to reassure MEPs that the lower internal EU price for sugar would give third countries less incentive to engage in fraud through so-called triangular imports. This is where countries re-export imported sugar claiming that it is their own produce. She stated that if a particular country failed to observe the rules, or if sugar imports were causing serious disturbance to the EU market (shades of the recent Mandelson intervention on Chinese textiles), the EU reserved the right to withdraw tariff preferences.
Fischer Boel and the UK presidency stress that a decision on sugar reform is needed in possible, both to help farmers make their planting plans for next year and also to prevent a row about sugar derailing the agricultural talks at the Hong Kong WTO ministerial in December.
Monday, October 10, 2005
Turkey and the CAP
Turkish accession to the European Union would pose formidable problems for the CAP. These arise from the very large numbers of people employed on the land in Turkey, often engaged in very low value added forms of agriculture. 30 per cent of the population in Turkey is engaged in agriculture compared with only 5 per cent in the EU-25. If Turkey was to join the EU today it would more than double the agricultural population, adding 7.2 million people to the current 6.9 million.
Agriculture has an 11.5 per cent share of GDP in Turkey, compared with 1.9 per cent in the EU-15. Some 40 per cent of the population live in rural areas. Agricultural exports are 11.2 per cent of total exports compared with 3.9 per cent in the EU-15. Labour productivity in agriculture is low. Gross Value Added per person is agriculture is one-eighth of the average EU-15 level. Average income per employed household member in Turkish agriculture is less than 40 per cent of the level for non-agricultural workers.
Agriculture does, however, have a dual structure with commercial farms and export-oriented chains for individual products co-existing with subsistence or semi-subsistence farming. The average farm size is six hectares compared to the EU average of 13 hectares. In terms of value, fruit, vegetables and cereals are the most important farm products. Fruit and vegetable production alone accounts for 43 per cent of total output, compared with only 15 per cent in the EU. They also represent over half of Turkey’s agricultural exports. The livestock sector is much less competitive and badly in need of structural modernisation. The country already ranks as Europe’s largest fruit grower, behind Italy and Spain. Turkey occupies a strong position in relation to individual speciality crops. It is the second largest producer of hazelnuts in the world and is a competitive producer of peas, lentils and olive oil.
There are major animal health problems in Turkey. In the veterinary area, major efforts would have to be made to improve conditions and in particular controls on the eastern border. Some highly infectious animal diseases that have virtually disappeared in western and northern Europe remain endemic in Turkey. For example, outbreaks of foot and mouth disease have occurred in virtually every year since 1996. Turkey is also prone to outbreaks of anthrax and brucellosis. Food hygiene standards are poor.
Turkey lacks an adequate infrastructure of trained staff to implement the various rules and regulations that accompany CAP membership, although it is the case that farm policies are even more interventionist than those of the CAP. Yet levels of support are lower with a PSE in Turkey of 26 per cent compared with 37 per cent in the EU-15.
Rural development policy in Turkey is focused on large-scale investments in areas such as irrigation. Major dam projects are being undertaken in south-east Anatolia and should increase the farmland area benefiting from irrigation facilities by some twenty per cent. Structural policy would be a new concept for Turkey, however.
Agricultural policy has often been driven by vote seeking in rural areas and farmers’ organisations have been weakly developed. Nevertheless, the Agriculture Reform Implementation Project (ARIP) of 2001-5 represents a new direction in agricultural policy and aims to bring Turkey more in line with the EU. Price support has been reduced, subsidies have been removed and a direct income support for farmers similar to that now used in the EU has been introduced. This is not, however, fully decoupled as it is based on flat-rate payments per hectare, capped at 50 hectares. Most products, however, still enjoy high levels of trade protection, reflected in a considerable agricultural trade surplus. Attempts to reform the state-controlled Agricultural Sales Co-operatives have made little progress.
Calculations of the impact on the EU budget of Turkish membership vary according to the basis for the estimates made. Most estimates are based on the assumption of Turkish membership by 2015 which many analysts regard as unrealistically early. Assumptions also have to be made about the progress on further CAP reform by 2015.
The Commission’s own figure estimates the cost to the agriculture budget in 2015 at 2004 prices would be around €11.3bn, a larger sum than that taken up by the ten new entrants to the EU in 2004. Economists at Wageningen Univeristy have come up with a lower estimate of €5.2bn, made up of €3.6bn for market measures and direct aid and €1.6bn for rural development expenditure. However, this depends on a number of assumptions that include reform of the EU sugar regime, abolition of EU export refunds and a 20 per cent appreciation of the Turkish lira. There would also need to be 2 per cent annual decreases in EU income transfers from 2006 and further WTO tariff cuts after the completion of the Doha Round. Agra Europe estimates that the accession of Turkey and Croatia would add around €60 billion at the end of the next budgetary perspectives period or an estimated 19 per cent addition to an estimated 2013 expenditure level of €51.2bn for the EU-27, pushing the CAP spending total to around €60 bilion. In broad terms it seems realistic to expect an increase of over 20 per cent in the current CAP budget following Turkish membership.
Turkish membership would lock the EU into a long-term commitment to transferring resources to a largely backward agrarian economy. Indeed, in the short run, the shock of competition with the EU would exacerbate pre-existing problems of poverty.
Modernisation through skill transfer would be limited by the fact that 18 per cent of the agricultural workforce is illiterate. If employment in farming was to be reduced to a level nearer to its share of national output, a working paper by the Centre for European Reform estimates that it would be necessary to take eight million families out of agriculture.
There is a real danger that Turkish membership would embed a CAP dominated by redistributive policies that maintain inefficient forms of agricultural production. Admittedly, the prospect of Turkish membership could provide a new reform stimulus, but such pressures tend to have uneven effects.
Turkish accession is largely driven by 'big picture' political considerations, particularly for the UK, with the question of the CAP being left to negotiations with the hope that it will be all right on accession night. However, failure to arrive at a satisfactory deal would certainly delay entry and might halt it altogether given the lack of enthusiasm among many European states.
Agriculture has an 11.5 per cent share of GDP in Turkey, compared with 1.9 per cent in the EU-15. Some 40 per cent of the population live in rural areas. Agricultural exports are 11.2 per cent of total exports compared with 3.9 per cent in the EU-15. Labour productivity in agriculture is low. Gross Value Added per person is agriculture is one-eighth of the average EU-15 level. Average income per employed household member in Turkish agriculture is less than 40 per cent of the level for non-agricultural workers.
Agriculture does, however, have a dual structure with commercial farms and export-oriented chains for individual products co-existing with subsistence or semi-subsistence farming. The average farm size is six hectares compared to the EU average of 13 hectares. In terms of value, fruit, vegetables and cereals are the most important farm products. Fruit and vegetable production alone accounts for 43 per cent of total output, compared with only 15 per cent in the EU. They also represent over half of Turkey’s agricultural exports. The livestock sector is much less competitive and badly in need of structural modernisation. The country already ranks as Europe’s largest fruit grower, behind Italy and Spain. Turkey occupies a strong position in relation to individual speciality crops. It is the second largest producer of hazelnuts in the world and is a competitive producer of peas, lentils and olive oil.
There are major animal health problems in Turkey. In the veterinary area, major efforts would have to be made to improve conditions and in particular controls on the eastern border. Some highly infectious animal diseases that have virtually disappeared in western and northern Europe remain endemic in Turkey. For example, outbreaks of foot and mouth disease have occurred in virtually every year since 1996. Turkey is also prone to outbreaks of anthrax and brucellosis. Food hygiene standards are poor.
Turkey lacks an adequate infrastructure of trained staff to implement the various rules and regulations that accompany CAP membership, although it is the case that farm policies are even more interventionist than those of the CAP. Yet levels of support are lower with a PSE in Turkey of 26 per cent compared with 37 per cent in the EU-15.
Rural development policy in Turkey is focused on large-scale investments in areas such as irrigation. Major dam projects are being undertaken in south-east Anatolia and should increase the farmland area benefiting from irrigation facilities by some twenty per cent. Structural policy would be a new concept for Turkey, however.
Agricultural policy has often been driven by vote seeking in rural areas and farmers’ organisations have been weakly developed. Nevertheless, the Agriculture Reform Implementation Project (ARIP) of 2001-5 represents a new direction in agricultural policy and aims to bring Turkey more in line with the EU. Price support has been reduced, subsidies have been removed and a direct income support for farmers similar to that now used in the EU has been introduced. This is not, however, fully decoupled as it is based on flat-rate payments per hectare, capped at 50 hectares. Most products, however, still enjoy high levels of trade protection, reflected in a considerable agricultural trade surplus. Attempts to reform the state-controlled Agricultural Sales Co-operatives have made little progress.
Calculations of the impact on the EU budget of Turkish membership vary according to the basis for the estimates made. Most estimates are based on the assumption of Turkish membership by 2015 which many analysts regard as unrealistically early. Assumptions also have to be made about the progress on further CAP reform by 2015.
The Commission’s own figure estimates the cost to the agriculture budget in 2015 at 2004 prices would be around €11.3bn, a larger sum than that taken up by the ten new entrants to the EU in 2004. Economists at Wageningen Univeristy have come up with a lower estimate of €5.2bn, made up of €3.6bn for market measures and direct aid and €1.6bn for rural development expenditure. However, this depends on a number of assumptions that include reform of the EU sugar regime, abolition of EU export refunds and a 20 per cent appreciation of the Turkish lira. There would also need to be 2 per cent annual decreases in EU income transfers from 2006 and further WTO tariff cuts after the completion of the Doha Round. Agra Europe estimates that the accession of Turkey and Croatia would add around €60 billion at the end of the next budgetary perspectives period or an estimated 19 per cent addition to an estimated 2013 expenditure level of €51.2bn for the EU-27, pushing the CAP spending total to around €60 bilion. In broad terms it seems realistic to expect an increase of over 20 per cent in the current CAP budget following Turkish membership.
Turkish membership would lock the EU into a long-term commitment to transferring resources to a largely backward agrarian economy. Indeed, in the short run, the shock of competition with the EU would exacerbate pre-existing problems of poverty.
Modernisation through skill transfer would be limited by the fact that 18 per cent of the agricultural workforce is illiterate. If employment in farming was to be reduced to a level nearer to its share of national output, a working paper by the Centre for European Reform estimates that it would be necessary to take eight million families out of agriculture.
There is a real danger that Turkish membership would embed a CAP dominated by redistributive policies that maintain inefficient forms of agricultural production. Admittedly, the prospect of Turkish membership could provide a new reform stimulus, but such pressures tend to have uneven effects.
Turkish accession is largely driven by 'big picture' political considerations, particularly for the UK, with the question of the CAP being left to negotiations with the hope that it will be all right on accession night. However, failure to arrive at a satisfactory deal would certainly delay entry and might halt it altogether given the lack of enthusiasm among many European states.
Sunday, October 09, 2005
Sugar row could hit WTO talks
The decision by the EU to dump nearly two million tonnes of sugar on the world market (technically 'declassification' of quota sugar) despite a WTO ruling that such sales were illegal could have an impact on the Doha Round trade talks.
A statement by Brazil said (in rather convoluted syntax): 'It is unavoidable to note the negative signal the EC sends to WTO negotiators less than three months before the ministerial conference in Hong Kong by taking this decision on declassification. Hardly any of us could find a more deleterious way to express the gap between words and deeds.' The declassification is up to ten times as big as in previous years and the Brazilians claim that it could push the world price down by six per cent. The problem the Commission faces is that there are already nearly a million tonnes of surplus sugar stored across Europe at the Commission's expense.
The EU claims that since no deadline has yet been set to bring its sugar regime in compliance with the WTO ruling, it can get rid of its surplus in the meantime. An abitrator has been appointed to determine a reasonable length of time for the EU to comply and is due to report by late October. The delay between ruling and implementation means that complainats Brazil, Thailand and Australia are unlikely to be able to obtain legal redress against the EU for its decision to offload surplus sugar.
If the arbitrator does side with the complainants, this will be the first time that a major WTO member has failed to respect its commitments (in terms of export subsidies). Will the WTO be able to effectively discipline one of its most powerful members?
One lump or two? The state of the reform debate
There are signs of an emerging consensus. Member states that are hard hit such as Hungary, Ireland and Italy continue to complain about their fate, but really they are following the traditional EU tactic of getting some side payments in return for their agreement.
As Agra Europe recently commented, the Commission faces the unenviable task of negotiating 'the downsizing of a hugely bloated EU sugar market while somehow keeping on the right side of WTO law and avoiding causing too many bankruptcies among sugar producers and refiners in Europe and around the world ... Having created a monstrous regime which flew in the face of all principles of economic rationality, its creators knew all too well that the monster would bite back if anyone tried to interfere with it.'
The Commission suggested at a recent meeting of the Special Committee on Agriculture that new member states could receive a Separate Sugar Payment (SSP) as compensation for price cuts. The argument made for this payment is that farmers there have no track record of entitlements before accession in 2004. Latvia and Lithuania have been particularly concerned that the compensation for beet growers in the sugar proposal could go to landowners rather than the beet farmers.
Parliament's draft report unhelpful
The rapporteur on the sugar reform dossier in the European Parliament (Jean-Claude Fruteau) has come up with an unhelpful set of proposals in his draft report. They would both undermine the reform and penalise developing countries as well as hitting the EU budget.
The report suggests that the reduction in the reference price for sugar should be 25 per cent over three years not 39 per cent over two years as the Commission has proposed. It is difficult to see how such a scaled down reduction could permit the EU to meet its WTO commitments.
The report also suggests that the Commission should offer 80 per cent compensation for income losses incurred by EU sugar beet growers, a one third increase in the 60 per cent currently on the table. The idea that farmers in the new member states could receive their compensation on a per hectare basis is, however, compatible with the Commission's recent proposal discussed above and one wonders if a version of it might be used in the EU-15.
The report also proposes delaying the full implementation of the Everything But Arms agreement for six years until 2015. Imports of sugar from these developing countries could be controlled through a transitional period. Quotas would remain in place until 2015 but import duties would be gradually decreased. A so-called 'safeguard' clause would limit net exports by EBA countries to the difference between the sugar produced and the consumption level of each country.
The sugar lobby was earlier successful in delaying EBA implementation until 2009. Any further delay would be opposed by Global South groups like Oxfam.
A statement by Brazil said (in rather convoluted syntax): 'It is unavoidable to note the negative signal the EC sends to WTO negotiators less than three months before the ministerial conference in Hong Kong by taking this decision on declassification. Hardly any of us could find a more deleterious way to express the gap between words and deeds.' The declassification is up to ten times as big as in previous years and the Brazilians claim that it could push the world price down by six per cent. The problem the Commission faces is that there are already nearly a million tonnes of surplus sugar stored across Europe at the Commission's expense.
The EU claims that since no deadline has yet been set to bring its sugar regime in compliance with the WTO ruling, it can get rid of its surplus in the meantime. An abitrator has been appointed to determine a reasonable length of time for the EU to comply and is due to report by late October. The delay between ruling and implementation means that complainats Brazil, Thailand and Australia are unlikely to be able to obtain legal redress against the EU for its decision to offload surplus sugar.
If the arbitrator does side with the complainants, this will be the first time that a major WTO member has failed to respect its commitments (in terms of export subsidies). Will the WTO be able to effectively discipline one of its most powerful members?
One lump or two? The state of the reform debate
There are signs of an emerging consensus. Member states that are hard hit such as Hungary, Ireland and Italy continue to complain about their fate, but really they are following the traditional EU tactic of getting some side payments in return for their agreement.
As Agra Europe recently commented, the Commission faces the unenviable task of negotiating 'the downsizing of a hugely bloated EU sugar market while somehow keeping on the right side of WTO law and avoiding causing too many bankruptcies among sugar producers and refiners in Europe and around the world ... Having created a monstrous regime which flew in the face of all principles of economic rationality, its creators knew all too well that the monster would bite back if anyone tried to interfere with it.'
The Commission suggested at a recent meeting of the Special Committee on Agriculture that new member states could receive a Separate Sugar Payment (SSP) as compensation for price cuts. The argument made for this payment is that farmers there have no track record of entitlements before accession in 2004. Latvia and Lithuania have been particularly concerned that the compensation for beet growers in the sugar proposal could go to landowners rather than the beet farmers.
Parliament's draft report unhelpful
The rapporteur on the sugar reform dossier in the European Parliament (Jean-Claude Fruteau) has come up with an unhelpful set of proposals in his draft report. They would both undermine the reform and penalise developing countries as well as hitting the EU budget.
The report suggests that the reduction in the reference price for sugar should be 25 per cent over three years not 39 per cent over two years as the Commission has proposed. It is difficult to see how such a scaled down reduction could permit the EU to meet its WTO commitments.
The report also suggests that the Commission should offer 80 per cent compensation for income losses incurred by EU sugar beet growers, a one third increase in the 60 per cent currently on the table. The idea that farmers in the new member states could receive their compensation on a per hectare basis is, however, compatible with the Commission's recent proposal discussed above and one wonders if a version of it might be used in the EU-15.
The report also proposes delaying the full implementation of the Everything But Arms agreement for six years until 2015. Imports of sugar from these developing countries could be controlled through a transitional period. Quotas would remain in place until 2015 but import duties would be gradually decreased. A so-called 'safeguard' clause would limit net exports by EBA countries to the difference between the sugar produced and the consumption level of each country.
The sugar lobby was earlier successful in delaying EBA implementation until 2009. Any further delay would be opposed by Global South groups like Oxfam.
Thursday, October 06, 2005
Grain mountain fears grow
The grain sector is the EU commodity regime where reform is supposed to have been effective, bringing EU prices close to world levels. Why, then, are the amounts of grain in intervention stores growing? This trend reminds us of the susceptibility of the CAP to euro-dollar exchange rates and the potential for increasing output in the new member states of Eastern Europe.
Although some parts of the EU were badly hit by severe midsummer droughts, seen by some as both a symptom of and a contributor to global warming, this year's harvest is well above the average level for the past five years, even if it is 10 per cent down on last year's record. Internationally, harvests have been good and prices have suffered as a result.
Against the background of the Doha Round trade talks, and already under criticism for releasing sugar on to the world market, the EU is likely to be careful about subsidised exports. This means that the grain mountain will start to grow again. If the dollar appreciates, of course, some of the pressure could be eased as this would automatically move the world price of grain closer to the EU level, but this doesn't seem too likely. But there are longer term factors at work.
The Commission sets a lot of store by the reimposition of compulsory ten per cent set aside in 2004, but farmers simply farm the remaining area more intensively, often setting aside the least desirable land (as happens on the farm nearest to me).
However, the larger problem is the prospect of increases in yield in Eastern Europe as productivity improves. Severe weather conditions in the main sowing and growing periods hit production by around ten per cent in the new member states this year.
The scope for gains in productivity is shown by the fact that wheat yields in the Czech Republic, Hungary, Poland and Slovakia are currently around 3.8 tonnes/hectare, only just over half the EU-15 figure of 7.3 tonnes a hectare. In the worst case scenario, intervention stocks could be 20 million tonnes in 2010 rather than the 3 million tonnes anticipated by the Commission. Reform of the grain regime could come back on the agenda.
Although some parts of the EU were badly hit by severe midsummer droughts, seen by some as both a symptom of and a contributor to global warming, this year's harvest is well above the average level for the past five years, even if it is 10 per cent down on last year's record. Internationally, harvests have been good and prices have suffered as a result.
Against the background of the Doha Round trade talks, and already under criticism for releasing sugar on to the world market, the EU is likely to be careful about subsidised exports. This means that the grain mountain will start to grow again. If the dollar appreciates, of course, some of the pressure could be eased as this would automatically move the world price of grain closer to the EU level, but this doesn't seem too likely. But there are longer term factors at work.
The Commission sets a lot of store by the reimposition of compulsory ten per cent set aside in 2004, but farmers simply farm the remaining area more intensively, often setting aside the least desirable land (as happens on the farm nearest to me).
However, the larger problem is the prospect of increases in yield in Eastern Europe as productivity improves. Severe weather conditions in the main sowing and growing periods hit production by around ten per cent in the new member states this year.
The scope for gains in productivity is shown by the fact that wheat yields in the Czech Republic, Hungary, Poland and Slovakia are currently around 3.8 tonnes/hectare, only just over half the EU-15 figure of 7.3 tonnes a hectare. In the worst case scenario, intervention stocks could be 20 million tonnes in 2010 rather than the 3 million tonnes anticipated by the Commission. Reform of the grain regime could come back on the agenda.
Swiss to reform farm support
Switzerland is one of just five countries in the world with Producer Subsidy Equivalents calculated by the OECD at over the 60 per cent level. But now the Swiss Government has set out measures to make sharp cuts in support and liberalise markets. The government is planning to make significant expenditure cuts in a number of product sectors, abolish export subsidies, reduce tariffs on feed grain and switch from market support to direct aid payments, thus following the model of the EU.
The leader of the Swiss Farmers' Union, Jacques Bourgeois [sic] complained, 'Farms will face average income reductions of 20 per cent. This is totally unreasonable as farm incomes are already more than 40 per cent below those in other branches of industry.' However, the government is determined to promote the trend towards fewer, larger farms. One wonders about the future of those high alpine farms that so delight tourists to Switzerland.
The leader of the Swiss Farmers' Union, Jacques Bourgeois [sic] complained, 'Farms will face average income reductions of 20 per cent. This is totally unreasonable as farm incomes are already more than 40 per cent below those in other branches of industry.' However, the government is determined to promote the trend towards fewer, larger farms. One wonders about the future of those high alpine farms that so delight tourists to Switzerland.
Monday, October 03, 2005
Ahern draws return fire
Irish prime minister Bertie Ahern set out his stall in the defence of the CAP in the Financial Times last week but drew return fire from two of Europe's leading agricultural economists.
The Irish prime minister claimed that the CAP objectives set out in the Treaty of Rome were 'still valid today', although some think that circumstances in Europe are rather different today.
He then used the oft resorted to argument that we have to give the 'radical' 2003 reforms a chance to work. 'Farmers, like other business people, need a reasonable degree of stability in the policy environment in which they operate.' Well, they have had decades of handouts from European taxpayers and no one has seriously suggested a Kiwi style overnight abolition of the CAP.
He then goes on to argue that we shouldn't display our hand before the Doha Round talks in Hong Kong, which is reasonable enough. He then gets out the food security card, claiming that 'Europe's food supplies could, once again, become vulnerable.' He has the good sense not to mention terrorists, but even if extremists did manage to get to sea and blow up one or two ships carrying food, the impact would be negligible on overall supply.
We come to the crux of his real concerns when he starts to talk about damage to Europe's rural fabric and one hears echoes of de Valera's famous 1940s speech about Irish maidens dancing at crossroads etc. There is a serious point here, but what is needed is a vigorous and well designed rural development policy.
Ahern gets himself into trouble with his claims that there is 'a broad comparability of support' between the EU and the US. The OECD's Stefan Tangermann delivered a magisterial rebuke in a letter to the pink 'un, stating 'some numbers quoted are not exact.' (Put less politely, they are wrong). The former Gottingen professor points out that in the US in 2003 farm support stood at 15 per cent of receipts compared with 36 per cent in the EU.
Tangermann is constrained by the rules of an international organisation, but Reading University's Alan Swinbank was blunter. He notes that Ahern fails to point out that the decoupled subsidies are 'linked to lamd, enriching the land owner, and that they are based on area farmed, chiefly benefiting larger businesses rather than small, marginal farms'.
Swinbank points out that the October 2002 European Council meeting suggested 'that a ceiling would be set on CAP expenditure, not that a spending entitlement would be established.' The nub of his case is that the CAP 'is an imposition on the EU taxpayer crowding out other policy initiatives and creating winners and losers among member states. Mr Ahern overlooks the economic (and political) costs that a failed CAP imposes on the EU. Resources could be better deploted in other activities (providing genuine environmental benefits, and development in rural areas, for example).
The call for further reform will not go away. But the UK does not have sufficient political support to push it forward, despite Tony Blair's recent comment that his big regret about all the reforms he had undertaken was that they had not been radical enough.
The Irish prime minister claimed that the CAP objectives set out in the Treaty of Rome were 'still valid today', although some think that circumstances in Europe are rather different today.
He then used the oft resorted to argument that we have to give the 'radical' 2003 reforms a chance to work. 'Farmers, like other business people, need a reasonable degree of stability in the policy environment in which they operate.' Well, they have had decades of handouts from European taxpayers and no one has seriously suggested a Kiwi style overnight abolition of the CAP.
He then goes on to argue that we shouldn't display our hand before the Doha Round talks in Hong Kong, which is reasonable enough. He then gets out the food security card, claiming that 'Europe's food supplies could, once again, become vulnerable.' He has the good sense not to mention terrorists, but even if extremists did manage to get to sea and blow up one or two ships carrying food, the impact would be negligible on overall supply.
We come to the crux of his real concerns when he starts to talk about damage to Europe's rural fabric and one hears echoes of de Valera's famous 1940s speech about Irish maidens dancing at crossroads etc. There is a serious point here, but what is needed is a vigorous and well designed rural development policy.
Ahern gets himself into trouble with his claims that there is 'a broad comparability of support' between the EU and the US. The OECD's Stefan Tangermann delivered a magisterial rebuke in a letter to the pink 'un, stating 'some numbers quoted are not exact.' (Put less politely, they are wrong). The former Gottingen professor points out that in the US in 2003 farm support stood at 15 per cent of receipts compared with 36 per cent in the EU.
Tangermann is constrained by the rules of an international organisation, but Reading University's Alan Swinbank was blunter. He notes that Ahern fails to point out that the decoupled subsidies are 'linked to lamd, enriching the land owner, and that they are based on area farmed, chiefly benefiting larger businesses rather than small, marginal farms'.
Swinbank points out that the October 2002 European Council meeting suggested 'that a ceiling would be set on CAP expenditure, not that a spending entitlement would be established.' The nub of his case is that the CAP 'is an imposition on the EU taxpayer crowding out other policy initiatives and creating winners and losers among member states. Mr Ahern overlooks the economic (and political) costs that a failed CAP imposes on the EU. Resources could be better deploted in other activities (providing genuine environmental benefits, and development in rural areas, for example).
The call for further reform will not go away. But the UK does not have sufficient political support to push it forward, despite Tony Blair's recent comment that his big regret about all the reforms he had undertaken was that they had not been radical enough.
Sunday, October 02, 2005
Mary Coughlan, Ireland's farm minister
At a time when Irish prime minister Bertie Ahern has been defending the CAP in the Financial Times and getting it large from Professors Swinbank and Tangermann in return, it's a good time to take a look at Ireland's farm minister, Mary Coughlan.
There was a time when you had to have three qualifications to be a farm minister: you had to be a farmer, or at least an employee of a farmers' organisation or agricultural bureaucracy; you had to be a man; and you had to be overweight, to demonstrate that you had played your part in reducing the CAP surplus.
Mary Coughlan does, admittedly, come from a very rural constituency, Donegal South West. She was elected to the Dail for Fianna Fail shortly after graduating in politics and sociology from University College, Dublin in 1987. This rapid rise may have been helped by the fact that her father was a politician. Married with two young children, she became a minister of state in 2001. But the move from minister of social and family affairs to replace the long-serving Joe Walsh as farm minister in 2004 was something of a surprise.
She clearly represents modern, successful Ireland, with a reputation as having a sharp mind and an affable personality. Unfortunately she is a defender of traditional CAP policies. She wants the EU to be cautious in the Doha Round negotiations and she is disappointed by the UK's call for further reform of the CAP. 'I think it's unfair. A commitment was given in 2002 that funding would be fixed for 10 years. Tony Blair must keep his promise.'
Ireland has generally been a staunch ally of France on CAP reform and the matter is of such importance to the Republic that it is the prime minister who has to be wheeled out to explain why further reform is inappropriate.
Tuesday, September 27, 2005
CAP still takes nearly half of the budget
Defenders of the CAP in its present form are always asking why another reform is needed. Last year agriculture and rural development allocations accounted for 47.5% (€43.6 billion) of the EU budget, admittedly down from 54.1% (€44.4 billion) in 2003.
France was once more the largest recipient of agricultural largesse, followed by Spain, Germany and Italy. New member state Poland appeared in fifteenth position.
Could a better use be found or at least some of this €43.6 billion? I and many others think so.
France was once more the largest recipient of agricultural largesse, followed by Spain, Germany and Italy. New member state Poland appeared in fifteenth position.
Could a better use be found or at least some of this €43.6 billion? I and many others think so.
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