Do check out the new CAP Health Check blog at: Health Check
It will be gathering items from a number of CAP blogs, including this one, and there is also a very useful News Harvester service on relevant topics.
Wednesday, February 28, 2007
EU's share of global milk production falling
The EU's share of global milk production is falling as a result of the quota system according to Rabobank dairy specialist Mark Voorbegen. Addressing a seminar addressed by Dairy UK, he said that the EU had a 27 per cent share of the global market in 2005, down from the 1995 level of 31 per cent. By 2015 it is forecast to fall to 25 per cent (although by then quotas may have been abolished).
Termination of the EU quota system would become crucial for the long-term global supply/demand balance. Milk volumes in the EU-15 would remain stable in aggregate terms but with some relocation to more favourable areas. There would be a moderate growth in supplies in the accession states.
The UK had a good scale of farming and a good structure but Voorbegen had doubts about its export capabilities and whether it could bring a higher volume of milk into the EU. Just like farmers in Australia and New Zealand, farmers would have to adjust to more milk price volatility in the future.
Rudolf Schmidt, dairy farmer adviser for the German Farmers Union, said that the main challenge in Germany to a competitive dairy industry was from the biofuel industry. An overdependency on subsidies for biofuel 'could drive milk production away.'
Around ten per cent of the German agricultural area, some 1.6 million hectares, are already accounted for by biofuel crops. Moreover, bioenergy was making feed for dairy farmers more expensive.
Just as well they haven't heard the half jocular suggestion that cows should pay a climate change levy for the amount of methane they produce (which has far bigger impacts on global warming per capita than carbon dioxide).
Termination of the EU quota system would become crucial for the long-term global supply/demand balance. Milk volumes in the EU-15 would remain stable in aggregate terms but with some relocation to more favourable areas. There would be a moderate growth in supplies in the accession states.
The UK had a good scale of farming and a good structure but Voorbegen had doubts about its export capabilities and whether it could bring a higher volume of milk into the EU. Just like farmers in Australia and New Zealand, farmers would have to adjust to more milk price volatility in the future.
Rudolf Schmidt, dairy farmer adviser for the German Farmers Union, said that the main challenge in Germany to a competitive dairy industry was from the biofuel industry. An overdependency on subsidies for biofuel 'could drive milk production away.'
Around ten per cent of the German agricultural area, some 1.6 million hectares, are already accounted for by biofuel crops. Moreover, bioenergy was making feed for dairy farmers more expensive.
Just as well they haven't heard the half jocular suggestion that cows should pay a climate change levy for the amount of methane they produce (which has far bigger impacts on global warming per capita than carbon dioxide).
Friday, February 16, 2007
Experts look at the past and the future
Commission officials and leading experts on the CAP met under the auspices of the European Network of Agriciultural and Rural Policy Research Institutes (ENARPRI), The Centre for European Policy Studies (CEPS) and the University of Leuven (KUL) in Brussels on Thursday to discuss the past and the future of the CAP. The interesting discussion was conducted on Chatham House terms, but some flavour of it can be given here.
Biofuels
There was concern about an unthinking rush to replace foods crops by biofuels. One view expressed was that they were a disaster with an incredible increase in the surface area covered in the United States. The missing US exports were equivalent to those of Australia and Canada combined. They used a lot of water which was a more precious resource than oil.
Another speaker drew attention to the number of bills before the US Congress on the ethanol issue. It was seen as nothing to do with farm output but with energy independence, although a cynic might also see a link with the early primary in Iowa.
The mandates (obligations) were a recipe for rent seeking and represented bad policy.
The future balance of the CAP
There was some interest in the development of a policy that emphasised food and environmental security policy. Whilst this was not endorsed by all participants, there was a recognition that a spatially diffuse, multi-dimensional environmental challenge was being managed by fragmented private managers. The key market failure was environmental: climate change.
There was concern about the delay to rural policy implied by the effective halt in transfers from Pillar 1 to Pillar 2. Less was now being spent on Pillar 2 than before the budget discussions. The view was expressed that Eastern Europe had little interest in rural policy because it didn't have co-funding money. More generally, member states wanted to re-nationalise the CAP.
The health check was taking shape. It was a tidying up, a simplification. There was a long check list involving a move away from partial decoupling and getting rid of set aside, but none of it was fundamental. The budget review was much more important, coupled with the renewed discussion on the constitution. Quite a few people wanted to cut the CAP budget.
The easiest way of saving money in agriculture would be to cap big farmers which would also make it easier to defend the CAP. It was somewhat alarming to hear one respected presenter claim that the CAP had been steered towards acceptability and respectability by reform.
The Commission view
Invariably on these occasions I lock horns when the Commission and this happened when I suggested that there were limits to the radicalism of the reform which left 46 per cent of the EU budget spent on the CAP. The response was that this was a strange way of addressing this, given that the EU had a tiny budget. CAP spending accounted for one per cent of public expenditure in the whole of Europe. Farmers made up five per cent of employment, ten per cent of the population lived in rural areas and 47 per cent of the European land surface was farmed.
On that logic if, say, small shopkeepers are three per cent of the EU population, they should get three per cent of the budget in handouts. Farming is meant to be a commercial activity. If it is producing positive externalities, it should be rewarded for that, but the delivery of those outputs needs to be clear and demonstrable.
The producer perspective
The producer perspective on this is interesting. They fear paying twice for the Doha Round (although no one would forecast whether there would be a successful conclusion or not). They also see the single payment as 'nominal' and eroded by inflation (which is a strange way of looking at some of the sums paid out). It is also seen by farmers as a transitional payment which will eventually disappear. However, most of those in the meeting thought that market payments would persist after 2013 and even after 2020. The CAP is a resilient beast.
Biofuels
There was concern about an unthinking rush to replace foods crops by biofuels. One view expressed was that they were a disaster with an incredible increase in the surface area covered in the United States. The missing US exports were equivalent to those of Australia and Canada combined. They used a lot of water which was a more precious resource than oil.
Another speaker drew attention to the number of bills before the US Congress on the ethanol issue. It was seen as nothing to do with farm output but with energy independence, although a cynic might also see a link with the early primary in Iowa.
The mandates (obligations) were a recipe for rent seeking and represented bad policy.
The future balance of the CAP
There was some interest in the development of a policy that emphasised food and environmental security policy. Whilst this was not endorsed by all participants, there was a recognition that a spatially diffuse, multi-dimensional environmental challenge was being managed by fragmented private managers. The key market failure was environmental: climate change.
There was concern about the delay to rural policy implied by the effective halt in transfers from Pillar 1 to Pillar 2. Less was now being spent on Pillar 2 than before the budget discussions. The view was expressed that Eastern Europe had little interest in rural policy because it didn't have co-funding money. More generally, member states wanted to re-nationalise the CAP.
The health check was taking shape. It was a tidying up, a simplification. There was a long check list involving a move away from partial decoupling and getting rid of set aside, but none of it was fundamental. The budget review was much more important, coupled with the renewed discussion on the constitution. Quite a few people wanted to cut the CAP budget.
The easiest way of saving money in agriculture would be to cap big farmers which would also make it easier to defend the CAP. It was somewhat alarming to hear one respected presenter claim that the CAP had been steered towards acceptability and respectability by reform.
The Commission view
Invariably on these occasions I lock horns when the Commission and this happened when I suggested that there were limits to the radicalism of the reform which left 46 per cent of the EU budget spent on the CAP. The response was that this was a strange way of addressing this, given that the EU had a tiny budget. CAP spending accounted for one per cent of public expenditure in the whole of Europe. Farmers made up five per cent of employment, ten per cent of the population lived in rural areas and 47 per cent of the European land surface was farmed.
On that logic if, say, small shopkeepers are three per cent of the EU population, they should get three per cent of the budget in handouts. Farming is meant to be a commercial activity. If it is producing positive externalities, it should be rewarded for that, but the delivery of those outputs needs to be clear and demonstrable.
The producer perspective
The producer perspective on this is interesting. They fear paying twice for the Doha Round (although no one would forecast whether there would be a successful conclusion or not). They also see the single payment as 'nominal' and eroded by inflation (which is a strange way of looking at some of the sums paid out). It is also seen by farmers as a transitional payment which will eventually disappear. However, most of those in the meeting thought that market payments would persist after 2013 and even after 2020. The CAP is a resilient beast.
Saturday, February 10, 2007
Farm Bill may not do the trick
The US Farm Bill published last week may not offer enough to revitalise the Doha Round trade talks where the scale of US domestic support for agriculture is one of the outstanding issues. Indeed, given that the bill is likely to be watered down by the Congress and the Senate, prospects are even less good than they might at first appear.
Ag Secretary Mike Johanns stopped short of an EU-style decoupling of domestic support from production. The bill is likely to cost around $10bn less than over the next five years than was spent under the 2002 farm bill. However, USDA admitted that the proposals would cost approximately $5bn more than the projected spending if the 2002 farm bill had been extended over the 2007-12 period. The administration heralded the proposed bill as one that directed subsidies away from the traditional commodity group recipients including rice, corn, cottn and wheat and towards conservation and rural development programmes. Johanns admitted that the proposals represented an evolution of the 2002 bill rather than a radical break from it.
The headline totals do not go beyond the cut in annual allowable trade-distorting farm subsidies that the Bush administration has already informally offered in the Doha round. The controversial counter cyclical payments scheme which compensates farmers when prices are low is to be adjusted but the changes are incremental.
There will be strict limits on subsidy payments to the biggest and richest farmers. The existing subsidy payment limit per individual of $360,000 is retained, but new rules will seek to clamp down on the practice of artificially dividing up large holdings in order to get around the rule. There is also a $7.6bn increase in conservation funding with the focus on improving enviromental quality.
Ag Secretary Mike Johanns stopped short of an EU-style decoupling of domestic support from production. The bill is likely to cost around $10bn less than over the next five years than was spent under the 2002 farm bill. However, USDA admitted that the proposals would cost approximately $5bn more than the projected spending if the 2002 farm bill had been extended over the 2007-12 period. The administration heralded the proposed bill as one that directed subsidies away from the traditional commodity group recipients including rice, corn, cottn and wheat and towards conservation and rural development programmes. Johanns admitted that the proposals represented an evolution of the 2002 bill rather than a radical break from it.
The headline totals do not go beyond the cut in annual allowable trade-distorting farm subsidies that the Bush administration has already informally offered in the Doha round. The controversial counter cyclical payments scheme which compensates farmers when prices are low is to be adjusted but the changes are incremental.
There will be strict limits on subsidy payments to the biggest and richest farmers. The existing subsidy payment limit per individual of $360,000 is retained, but new rules will seek to clamp down on the practice of artificially dividing up large holdings in order to get around the rule. There is also a $7.6bn increase in conservation funding with the focus on improving enviromental quality.
Sunday, January 28, 2007
Farm trade deal faces many hurdles
Talks on the resumption of the stalled Doha Round took place in the margins of the World Economic Forum at Davos, Switzerland during the past week, but many hurdles remain to be overcome before an acceptable farm trade deal can be sketched out. Such negotiations are necessarily complex, even arcane, but the essential elements are as follows:
1. Can the EU and US reach an accommodation of their mutual differences? Probably yes, with the EU willing to give some ground on market access and the US willing to concede on domestic subsidies. The notion of 'sensitive' products also gives room for fudges and compromise.
2. Can they sell such a deal to their own constituencies? Much more difficult. In the US, there is a Democratic, more protectionist Congress. Attempts have been made by the White House to square the Colin Peterson, the influential chairman of the House Agriculture Committee, but they may not work, particularly in terms of the renewal of trade protection authority. In Europe, France has presidential and parliamentary elections coming up and already thinks the EU has gone too far in its concessions. The poor state of Franco-German relations leaves Angela Merkel little scope to broker a deal.
3. Can the leading developing countries be brought along? This remains a major difficulty, although Brazil and India have been trying to broker a common position. The real problem is between the US and the emerging countries. The Americans want substantial access to their consumer markets. They are looking for any agreement on farm trade to be offset by reciprocal concessions by Brazil and India on lowering barriers to trade in industrial goods and services. This remains politically difficult.
The recent talks have sought to grapple with the core issues, but the political difficulties remain considerable and there is not much time.
1. Can the EU and US reach an accommodation of their mutual differences? Probably yes, with the EU willing to give some ground on market access and the US willing to concede on domestic subsidies. The notion of 'sensitive' products also gives room for fudges and compromise.
2. Can they sell such a deal to their own constituencies? Much more difficult. In the US, there is a Democratic, more protectionist Congress. Attempts have been made by the White House to square the Colin Peterson, the influential chairman of the House Agriculture Committee, but they may not work, particularly in terms of the renewal of trade protection authority. In Europe, France has presidential and parliamentary elections coming up and already thinks the EU has gone too far in its concessions. The poor state of Franco-German relations leaves Angela Merkel little scope to broker a deal.
3. Can the leading developing countries be brought along? This remains a major difficulty, although Brazil and India have been trying to broker a common position. The real problem is between the US and the emerging countries. The Americans want substantial access to their consumer markets. They are looking for any agreement on farm trade to be offset by reciprocal concessions by Brazil and India on lowering barriers to trade in industrial goods and services. This remains politically difficult.
The recent talks have sought to grapple with the core issues, but the political difficulties remain considerable and there is not much time.
Sunday, January 14, 2007
Top level push on Doha Round may not work
An attempt by President Bush and Commission President Barosso to re-start the stalled Doha Round trade talks may not succeed in the face of rising protectionist sentiment in the new Congress and intransigence over subsidies in the EU. Meeting in Washington last week the two leaders instructed their chief trade negotiators to come forward with a deal 'as soon as possible'. Talks involving the EU, US, Brazil and India are likely to take place in the margins of the World Economic Forum in Davos, Switzerland at the end of January.
However, a top level steer may not be enough to overcome the gap between the two sides. The EU does not appear to be willing to offer any flexibility on market access beyond the average 51 per cent on farm tariffs already suggested and the US is not willing to give ground either on its demands on tariffs or on domestic subsidies. The subject of sensitive products which would be exempted from cuts also remains a difficult one, although potentially amenable to compromise.
France has meanwhile declared itself shocked by an interview that farm commissioner Fischer Boel gave to the Financial Times making the not unreasinable point that the CAP faced substantial cuts after 2013. Although this is hardly a relevation, French farm minister Dominique Busserau, no doubt without an eye on electoral manoeuvrings in France, called her suggestion 'an insult to the social model to which European citizens are profoundly and legitimately attached.' Whether they are so profoundly attached to subsidies to prosperous farmers is open to question.
Nevertheless, he defended the CAP as the 'cornerstone' of the EU and said that 0.5 per cent of the bloc's GDP was a small price to pay for food security. He got short shrift from Fischer Boel who sent a robust reply declaring 'It is no insult to the future of ariculture to say right now that the anount of funding dedicated to it will probably not remain at the current level. It would be irresponsible not to make preparations for this.'
However, a top level steer may not be enough to overcome the gap between the two sides. The EU does not appear to be willing to offer any flexibility on market access beyond the average 51 per cent on farm tariffs already suggested and the US is not willing to give ground either on its demands on tariffs or on domestic subsidies. The subject of sensitive products which would be exempted from cuts also remains a difficult one, although potentially amenable to compromise.
France has meanwhile declared itself shocked by an interview that farm commissioner Fischer Boel gave to the Financial Times making the not unreasinable point that the CAP faced substantial cuts after 2013. Although this is hardly a relevation, French farm minister Dominique Busserau, no doubt without an eye on electoral manoeuvrings in France, called her suggestion 'an insult to the social model to which European citizens are profoundly and legitimately attached.' Whether they are so profoundly attached to subsidies to prosperous farmers is open to question.
Nevertheless, he defended the CAP as the 'cornerstone' of the EU and said that 0.5 per cent of the bloc's GDP was a small price to pay for food security. He got short shrift from Fischer Boel who sent a robust reply declaring 'It is no insult to the future of ariculture to say right now that the anount of funding dedicated to it will probably not remain at the current level. It would be irresponsible not to make preparations for this.'
Sunday, January 07, 2007
Phase out subsidies by 2020 says Miliband
Britain's Defra secretary told the Oxford Farming Conference is committed to a system by 2020 where 'public funds are only used for public goods, in particular environmental benefits.' This would mean the effective end of Pillar 1 and of restraints on trade. 'I see an inevitable process of trade liberalisation, with huge pressure on subsidies and restraints on trade.' Contrary to the views of the farm commissioner, the 2008 CAP health check should be used to pursue a 'further fundamental reform'.
Conservative leader Dave Cameron also called for further reform of the CAP. Exporst subidies should be phased out. 'We also need to start to shift the costs of the CAP onto the countries that spend the most by phasing in compulsory co-financing.'
Mary Coughlan
Irish farm minister Mary Coughlan made the case for providing a reasonable degree of policy stability, arguing that one could not introduce major policy reforms every three or four years. She declared her support for the 'continuation of market supports and direct payments. EU production should be protected from cheap imports', the corollary of which is that EU consumers cannot benefit from them.
She declared, 'The average farm size in the EU could not provide a living for a family at present world prices.' But this is the key question: should public funds be used to sustain commercial enterprises that are not viable, unless they are providing public goods.
Conservative leader Dave Cameron also called for further reform of the CAP. Exporst subidies should be phased out. 'We also need to start to shift the costs of the CAP onto the countries that spend the most by phasing in compulsory co-financing.'
Mary Coughlan
Irish farm minister Mary Coughlan made the case for providing a reasonable degree of policy stability, arguing that one could not introduce major policy reforms every three or four years. She declared her support for the 'continuation of market supports and direct payments. EU production should be protected from cheap imports', the corollary of which is that EU consumers cannot benefit from them.
She declared, 'The average farm size in the EU could not provide a living for a family at present world prices.' But this is the key question: should public funds be used to sustain commercial enterprises that are not viable, unless they are providing public goods.
Saturday, December 23, 2006
Seasonal greetings to our readers
This picture of a somewhat post modernist Christmas tree that I took in Vilnius, Lithuania recently is suitably bleak for a CAP blog
It's been a pretty mixed year for those of us who would like to see a reformed Common Rural Policy delivering real economic benefits to deprived areas in the countryside and promoting environmental goals. The Pillar 2 budget is much smaller than we would have hoped for.
The Doha Round is suspended and it is uncertain whether an agreement can be reached. The EU may then pull back from its commitment to phase out export subsidies which would deliver real benefits to farmers in the Global South. It would also remove what has been the most powerful pressure for CAP reform. In the States, it looks as if we are going to get another Farm Bill that will ensure that most of the benefits go to corporate farmers growing particular commodities.
Some hope that the new transparency about who gets what from the CAP will exert pressure for reform as the public becomes aware that most of the money goes to large-scale commercial farmers. However, Britain and Germany are likely to resist any cap on subsidies. Public pressure on these matters tend to not to be maintained and is confused by the complexity of the CAP and misleading public messages.
In this respect it was alarming to see the BBC's respected environmental correspondent, Sarah Mukherjee, for whom I have a great deal of time, making a broadcast on Radio 5 recently which contained a number of basic errors about the dairy sector and appeared to be an unquestioning acceptance of a NFU press release. The dairy sector in the UK does have real problems, but the broadcast gave a soft treatment to the retailers and their market power.
Our friends at the farmsubsidy.org network are organising a conference on transparency in the CAP in Budapest at the end of January which unfortunately conflicts with other commitments that I have. However, it looks very interesting and further information can be found here:
Budapest
Sunday, December 17, 2006
Sustainable farming and food
The highly regarded Food Ethics Council has published an interesting and well informed paper on 'Sustainable Farming and Food'. You can download it at: Sustainable . There is also an oppprtunity to participate in an online discussion on the paper.
I'm not sure that I agree with all the paper, as I think that at one point it does fall into a protectionist trap set by the industry. When time allows I will publish a summary and some comments here. In the meantime, readers of this blog may wish to take a look at the publication themselves.
I'm not sure that I agree with all the paper, as I think that at one point it does fall into a protectionist trap set by the industry. When time allows I will publish a summary and some comments here. In the meantime, readers of this blog may wish to take a look at the publication themselves.
Tuesday, November 28, 2006
Parliament throws out modulation plan
The European Parliament has thrown out a plan agreed at the 2005 summit of EU heads of government to allow the transfer of funds from Pillar 1 expenditure on farm subidies to Pillar 2 rural development to be increased up to a maximum of 20 per cent. Only the UK was planning to use the full amount, given that it receives low levels of rural development funding and wants to find money for its ambitious agri-environmental schemes. The Parliament can only delay the eventual decision, as it is not part of the co-decision procedure.
The motion was carried by 599 votes to 64. The Parliament believes that such a high rate of voluntary modulation would jeopardise subsidies to farmers and would also repersent a further step towards renationalisation of the CAP with farmers in different member states receiving differing amounts of cash. The Commission itself would prefer a higher rate of compulsory modulation to a range of voluntary rates.
Because of the summit deal the EU will receive on average 30 per cent less funding for rural development between 2007-13 compared with the current funding period. The Commission asked for €88.75m but this was cut by more than 20 per cent to €69.76m. This will be partly offeset by compulsory modulation, but this was intended to provide additional funds for rural development, not offset cuts made in a budget deal.
Spending more money on rural development compared with traditional farm subsidies is seen as a way of building a more diversified, dynamic and yet environmentally friendly rural economy in Europe.
The motion was carried by 599 votes to 64. The Parliament believes that such a high rate of voluntary modulation would jeopardise subsidies to farmers and would also repersent a further step towards renationalisation of the CAP with farmers in different member states receiving differing amounts of cash. The Commission itself would prefer a higher rate of compulsory modulation to a range of voluntary rates.
Because of the summit deal the EU will receive on average 30 per cent less funding for rural development between 2007-13 compared with the current funding period. The Commission asked for €88.75m but this was cut by more than 20 per cent to €69.76m. This will be partly offeset by compulsory modulation, but this was intended to provide additional funds for rural development, not offset cuts made in a budget deal.
Spending more money on rural development compared with traditional farm subsidies is seen as a way of building a more diversified, dynamic and yet environmentally friendly rural economy in Europe.
Monday, November 27, 2006
UK to become net milk importer?
Two separate respected sources, Sir Stuart Hampson and Kite Consulting, have claimed that the UK could become a net milk importer within a few years. Such a story is manna to the supporters of farm subsidies on food security grounds. It also has a good populist feel, allowing papers to run stories about British tea being drunk with French milk if they so wish. But what is the substance behind these claims?
Sir Stuart Hampson, having just finished his year long stint as chair of the respected Royal Agricultural Society of England, argued that the UK could become a net importer of milk within five years if small dairy farmers continued to be forced out of business.
Sir Stuart made his remarks as Defra released figures showing that England lost on average one dairy farm a day in 2005. He argued that supermarkets had a responsibility to pay a 'fair' price for milk, pointing out that up market Waitrose (part of the John Lewis Partnership of which Sir Stuart is chairman) paid a 3p premium to all farmers.
He commented, 'The price paid to the farner is too low, it is not meeting the cost of he farming. I am trying to draw attention that this is a market that has a fair price. [I am not quite sure what such a price is other than a market clearing price]. The decline in incomes of dairy farmers does give me cause for concern.'
Kite Consulting's Milk Forecasts report warned that the UK is heading for its largest ever under quota position. The report's co-author John Allen said, 'The exodus from the dairy industry is running at 7% and accelerating. In the next three years one in five dairy farmers will quit.' With annual demand at 12.6bn litres if the decline continues supply will be as low as 12.68bn by 2011. That meant that by November of that year, when supply is seasonally at its lowest, the UK could see a real milk shortage.
The government and the processing industry hit back
The government was quick to point out that of the 13bn litres produced annually, only 7bn litres went into fresh milk. Robert Wiseman Dairies said the problem for the milk industry was not that it was producing too little milk, but that it was producing too much. 'Unfortunately the volume of milk produced by the dairy farming sector in the UK is such that three in every 10 litres is having to be sold in commodity markets.'
Arla chief executive Tim Smith said that importing liquid milk was unlikely. 'Anyone contemplating importing milk is committing financial suicide. The eye-watering costs of transporting milk from abroad make it unviable. The market price will be adjusted as we near the balance of supply and demand. But it is all down to market forces. We are still in a position of over supply.'
An overview
We should remember that this sector still receives substantial CAP subsidies, even if they are reducing. There is also a distinction between the number of farms going out of production and the volume of production. If smaller (and often unavoidably less efficient) farms mainly go out of production, the effect on volume will be muted, indeed other producers may expand if the price is sufficiently attractive. Of course, a decline in the industry in, say, western England could have landscape and social effects, but that is another matter.
The price UK dairy farmers receive is the lowest in Europe and this in part no doubt reflects the market power of retailers, but that same market power has led to falling food prices and hence a positive effect on the overall level of inflation. Dairy farmers sometimes claim that they are making a loss, but this may be after labour costs (mostly those of the family) have been paid out of the business.
There is no doubt that dairy farming is a particularly demanding type of farming and the rewards are not that great for smaller enterprises. But whatever is done we should not increase the level of subsidy. Production would have to fall a long way before fresh milk supplies are threatened.
Sir Stuart Hampson, having just finished his year long stint as chair of the respected Royal Agricultural Society of England, argued that the UK could become a net importer of milk within five years if small dairy farmers continued to be forced out of business.
Sir Stuart made his remarks as Defra released figures showing that England lost on average one dairy farm a day in 2005. He argued that supermarkets had a responsibility to pay a 'fair' price for milk, pointing out that up market Waitrose (part of the John Lewis Partnership of which Sir Stuart is chairman) paid a 3p premium to all farmers.
He commented, 'The price paid to the farner is too low, it is not meeting the cost of he farming. I am trying to draw attention that this is a market that has a fair price. [I am not quite sure what such a price is other than a market clearing price]. The decline in incomes of dairy farmers does give me cause for concern.'
Kite Consulting's Milk Forecasts report warned that the UK is heading for its largest ever under quota position. The report's co-author John Allen said, 'The exodus from the dairy industry is running at 7% and accelerating. In the next three years one in five dairy farmers will quit.' With annual demand at 12.6bn litres if the decline continues supply will be as low as 12.68bn by 2011. That meant that by November of that year, when supply is seasonally at its lowest, the UK could see a real milk shortage.
The government and the processing industry hit back
The government was quick to point out that of the 13bn litres produced annually, only 7bn litres went into fresh milk. Robert Wiseman Dairies said the problem for the milk industry was not that it was producing too little milk, but that it was producing too much. 'Unfortunately the volume of milk produced by the dairy farming sector in the UK is such that three in every 10 litres is having to be sold in commodity markets.'
Arla chief executive Tim Smith said that importing liquid milk was unlikely. 'Anyone contemplating importing milk is committing financial suicide. The eye-watering costs of transporting milk from abroad make it unviable. The market price will be adjusted as we near the balance of supply and demand. But it is all down to market forces. We are still in a position of over supply.'
An overview
We should remember that this sector still receives substantial CAP subsidies, even if they are reducing. There is also a distinction between the number of farms going out of production and the volume of production. If smaller (and often unavoidably less efficient) farms mainly go out of production, the effect on volume will be muted, indeed other producers may expand if the price is sufficiently attractive. Of course, a decline in the industry in, say, western England could have landscape and social effects, but that is another matter.
The price UK dairy farmers receive is the lowest in Europe and this in part no doubt reflects the market power of retailers, but that same market power has led to falling food prices and hence a positive effect on the overall level of inflation. Dairy farmers sometimes claim that they are making a loss, but this may be after labour costs (mostly those of the family) have been paid out of the business.
There is no doubt that dairy farming is a particularly demanding type of farming and the rewards are not that great for smaller enterprises. But whatever is done we should not increase the level of subsidy. Production would have to fall a long way before fresh milk supplies are threatened.
Sunday, November 19, 2006
New world wines continue their challenge
Santiago, Chile. Yestredya I visited a vineyard here in Chile´s central valley not far from Santiago. This vineyard was founded in 1880 and is currently producing 19 million litres a year. I have seen similar operations in Australia, although not on this scale.
A German in the party asked about the concept of terroir which is very much emphasised by European wine producers giving a wine its distinctiveness. However, this was clearly of no importance in Chile. As in Australia (now suffering from a glut of wine), Chilean vineyards produced drinkable and affordable wines for the world market. They then keep the best wines for themselves, as in Australia. At a reception at the presidential palace in Santiago, I had one of the best reds I have ever drunk.
There is no appellation system in Chile, only reserve wines finished in oak barrels and other wines. The New World wine countries have eight years to come up with a system, but this is proving difficult.
Our guide was less emphatic than those in Australia about the merits of screw top bottles or synthetic corks but pointed out that the rising price of natural cork meant that it could cost as much as the wine.
As the discussions about the reform of the European wine regime meander on, there is no sign here in Chile that the marketing challenge they present to European producers is going to diminish.
A German in the party asked about the concept of terroir which is very much emphasised by European wine producers giving a wine its distinctiveness. However, this was clearly of no importance in Chile. As in Australia (now suffering from a glut of wine), Chilean vineyards produced drinkable and affordable wines for the world market. They then keep the best wines for themselves, as in Australia. At a reception at the presidential palace in Santiago, I had one of the best reds I have ever drunk.
There is no appellation system in Chile, only reserve wines finished in oak barrels and other wines. The New World wine countries have eight years to come up with a system, but this is proving difficult.
Our guide was less emphatic than those in Australia about the merits of screw top bottles or synthetic corks but pointed out that the rising price of natural cork meant that it could cost as much as the wine.
As the discussions about the reform of the European wine regime meander on, there is no sign here in Chile that the marketing challenge they present to European producers is going to diminish.
Thursday, November 09, 2006
US election results not good for trade
Whatever other benefits they bring, the US election results are not good news for agricultural trade. Protectionist sentiment in the Congress has undoubtedly been strengthened and Trade Promotion Authority is likely to be renewed. This makes a Doha Round settlement less likely, removing a key pressure for CAP reform.
The next chair of the agriculture committee in the House is likely to be Minnesota congressman Collin Peterson. His constituency has a strong representation of corn and sugar beet farmers, two crops that have the most to lose under changes to the farm bill backed by agriculture secretary Mike Johanns. He is likely to oppose efforts to change American's generous farm subsidies, thereby weakening incentives for the EU to give ground.
The next chair of the agriculture committee in the House is likely to be Minnesota congressman Collin Peterson. His constituency has a strong representation of corn and sugar beet farmers, two crops that have the most to lose under changes to the farm bill backed by agriculture secretary Mike Johanns. He is likely to oppose efforts to change American's generous farm subsidies, thereby weakening incentives for the EU to give ground.
Monday, October 30, 2006
Too many errors in CAP payments
In its annual report on the EU's farm accounts in 2005, the Court of Auditors 'found that CAP expenditure [€48.466 billion last year] was still affected by a material level of error which is not detected or prevented bt the supervisory and control systems.' It noted 'weak internal controls for the majority of EU expenditure, both within member states, and at the Commission, and a high incidence of errors in the underlying transactions.'
Greece was singled out as the worst offender. The Court declared that the quality of inspections in Greece was low and that the reporting of results was unreliable. Farmers' unions are responsible in Greece for inputting all data into the computer system, and can make changes whenever they want - without the changes being recorded. Not surprisingly, instances of farmers exaggerating the size of their land are not uncommon.
All of the olive oil subsidies examined in southern countries were found to contain either an overpayment and/or one of more formal errors. This led the Court to ask whether the Geographical Information System, the system of aerial photographs used to verify the existence of olive tree parcels was doing its job.
The Commission got quite humpy about the Court's findings complaining about its 'focus on finding individual errors in small smaples of transactions.' The Commission noted with apparent pride that it had clawed back €2.17 billion in ineligible payments in 2005. So that's all right then.
Greece was singled out as the worst offender. The Court declared that the quality of inspections in Greece was low and that the reporting of results was unreliable. Farmers' unions are responsible in Greece for inputting all data into the computer system, and can make changes whenever they want - without the changes being recorded. Not surprisingly, instances of farmers exaggerating the size of their land are not uncommon.
All of the olive oil subsidies examined in southern countries were found to contain either an overpayment and/or one of more formal errors. This led the Court to ask whether the Geographical Information System, the system of aerial photographs used to verify the existence of olive tree parcels was doing its job.
The Commission got quite humpy about the Court's findings complaining about its 'focus on finding individual errors in small smaples of transactions.' The Commission noted with apparent pride that it had clawed back €2.17 billion in ineligible payments in 2005. So that's all right then.
Gloomy prognosis on Doha Round
Recent conventional wisdom has been that the Doha Round talks will get under way once the US elections are out of the way with a window of opportunity between then and the spring. After then it would be too late to get an agreement through Congress using trade promotion authority (once known as fast track) although a few months' extension might be possible.
However, the chair of the agriculture negotiations, Crawford Falconer, has now said that he thinks the Doha Round will fail. He still thinks that both the US and the EU have room within their negotiating mandates to improve their offers on reducing farm support, but he suggested that the political will was missing on both sides. There was still the possibility of finding 'an outcome that would work and one that would make a difference', but time was running out.
Falconer's intervention could be a ploy to encourage a focus on the issues and to offset overly optimistic pronouncements by politicians. Nevertheless, it is easy to fall into the comforting belief that, as happened in the Uruguay Round, it will be 'all right on the night'. This time it may not be and the consequences for agricultural trade and further policy reform would be serious.
However, the chair of the agriculture negotiations, Crawford Falconer, has now said that he thinks the Doha Round will fail. He still thinks that both the US and the EU have room within their negotiating mandates to improve their offers on reducing farm support, but he suggested that the political will was missing on both sides. There was still the possibility of finding 'an outcome that would work and one that would make a difference', but time was running out.
Falconer's intervention could be a ploy to encourage a focus on the issues and to offset overly optimistic pronouncements by politicians. Nevertheless, it is easy to fall into the comforting belief that, as happened in the Uruguay Round, it will be 'all right on the night'. This time it may not be and the consequences for agricultural trade and further policy reform would be serious.
Thursday, October 26, 2006
Green box does distort trade, claims Indian study
A report commissioned by the Indian Department of Commerce and carried out by UNCTAD's Indian team challenges the EU's argument that decoupled aid payments have only a minimal trade distorting effect. According to the researchers' model, EU farm exports would fall by a massive 45 per cent if Green Box subsidies were removed and production would fall by close to 6 per cent.
The EU, US and Canada would all see exports decline by upwards of 40 per cent in the absence of Green Box payments, while Swiss and Japanese exports would fall by over 60 per cent. However, most developing countries would see exports increase by around 20 per cent.
The Green Box issue remains open within the suspended Doha Round negotiations. However, given the EU's attachment to its decoupled Single Farm Payment system, the bulk of which falls into the Green Box, it is unlikely that any Doha Round settlement will lead to changes in the Green Box. However, there could be provision for further discussion of what can legitimately be placed in the box, putting a time bomb under the whole CAP.
The EU, US and Canada would all see exports decline by upwards of 40 per cent in the absence of Green Box payments, while Swiss and Japanese exports would fall by over 60 per cent. However, most developing countries would see exports increase by around 20 per cent.
The Green Box issue remains open within the suspended Doha Round negotiations. However, given the EU's attachment to its decoupled Single Farm Payment system, the bulk of which falls into the Green Box, it is unlikely that any Doha Round settlement will lead to changes in the Green Box. However, there could be provision for further discussion of what can legitimately be placed in the box, putting a time bomb under the whole CAP.
Subsidy data to be made public
EU citizens in all member states should soon be able to find out who gets what in terms of farm subsidies, following a decision by Coreper. This may help to create further public pressure for CAP reform.
Ambassadors agreed 'in principle' to open national farm accounts to public scrutiny. However, the decision requires agreement from the European Parliament which hopefully can be obtained by the end of November. It remains unclear whether the Commission or member states will be responsible for publishing the subsidy data, the Commission being reluctant to take responsibility for publishing information it cannot verify.
France is continuing to demand that no subsidy disclosures are made before 2009 when the presidential elections will be safely out of the way. Jack Thuston from the transparency campaign farmsubsidy.org commented, 'It's great news that European governments are endorsing transparency. But it is quite wrong that we should be kept in the dark until 2009, as the French government is reported to be insisting upon. It now falls to elected Members of the European Parliament to stand up for the rights of those they represent. European citizens have a right to know who gets what from the EU and why. Secrecy is bad for European civil society and bad for the reputation of European institutions.'
Even if the public do become indignant at the size of the handouts given to already prosperous farmers, fundamental reform is likely to encounter continying resistance from the Commission. Commissioner Mariann Fischer Boel has dismissed Defra's reform document as 'incoherent' with 'a complete lack of analysis behind this paper' in an appearance before the House of Commons Environment, Food and Rural Affairs select committee. When I appeared before the committee, I argued that the paper was a strong one, but the problem was the lack of a political strategy to put it into effect.
Fischer Boel insisted, however, that many farmers would be unable to survive without the direct payments scheme and would start to abandon their land with adverse environmental consequences.
Visit farmsubsidy.org at Subsidies
Ambassadors agreed 'in principle' to open national farm accounts to public scrutiny. However, the decision requires agreement from the European Parliament which hopefully can be obtained by the end of November. It remains unclear whether the Commission or member states will be responsible for publishing the subsidy data, the Commission being reluctant to take responsibility for publishing information it cannot verify.
France is continuing to demand that no subsidy disclosures are made before 2009 when the presidential elections will be safely out of the way. Jack Thuston from the transparency campaign farmsubsidy.org commented, 'It's great news that European governments are endorsing transparency. But it is quite wrong that we should be kept in the dark until 2009, as the French government is reported to be insisting upon. It now falls to elected Members of the European Parliament to stand up for the rights of those they represent. European citizens have a right to know who gets what from the EU and why. Secrecy is bad for European civil society and bad for the reputation of European institutions.'
Even if the public do become indignant at the size of the handouts given to already prosperous farmers, fundamental reform is likely to encounter continying resistance from the Commission. Commissioner Mariann Fischer Boel has dismissed Defra's reform document as 'incoherent' with 'a complete lack of analysis behind this paper' in an appearance before the House of Commons Environment, Food and Rural Affairs select committee. When I appeared before the committee, I argued that the paper was a strong one, but the problem was the lack of a political strategy to put it into effect.
Fischer Boel insisted, however, that many farmers would be unable to survive without the direct payments scheme and would start to abandon their land with adverse environmental consequences.
Visit farmsubsidy.org at Subsidies
Estonians to pay €35 a head sugar stockpile fine
Estonia will have to pay in full the €46 million fine imposed by the EU for stockpiling sugar in the months before accession in 2004, farm commissioner Mariann Fischer Boel has insisted. The fine amounts to the equivalent of about €35 per person.
Estonia has contested the fine at the European Court of Justice, arguing that a large part of the sugar surplus of 91,464 tonnes have been hoarded by private households in preparation for a national frenzy of jam making. Making jam and syrup at home is a common practice in the Baltic state.
Estonia has contested the fine at the European Court of Justice, arguing that a large part of the sugar surplus of 91,464 tonnes have been hoarded by private households in preparation for a national frenzy of jam making. Making jam and syrup at home is a common practice in the Baltic state.
Tuesday, October 24, 2006
Sweden tops new CAP transparency index
On the day when the European Court of Auditors has for the twelfth year running refused sign off the European Union’s annual budget because of concerns about fraud and poor controls, farmsubsidy.org is launching a new Common Agricultural Policy transparency index. The index is based on a comprehensive scorecard that rates all member states according to whether they have released data on who gets what from the EU’s Common Agricultural Policy (CAP). Sweden tops the index with a score of 95%, followed by Denmark (91%) and Slovenia (87%). So far twelve EU member states have released data to farmsubsidy.org.
Criticising poor controls in the EU budget, the Court of Auditors said that 'Beneficiaries — farmers, local authorities, project managers — claim more than they have the right to claim'. Most of the problems occur with payments made by member states not by Brussels, because 76% of EU payments are delegated to member states.
Jack Thurston, co-founder of farmsubsidy.org said:
'Transparency is a guard against fraud and maladministration and a way of reconnecting citizens with their governments. Transparency leads to more legimate and effective policy-making. We hope this scorecard will be used to praise the few EU member states who have embraced transparency and shame the many who continue to hide farm subsidies behind a veil of secrecy. All European citizens pay for farm subsidies, they should have a right to know who gets what - and why.'
Read the CAP Transparency Index report:
Transparency
Criticising poor controls in the EU budget, the Court of Auditors said that 'Beneficiaries — farmers, local authorities, project managers — claim more than they have the right to claim'. Most of the problems occur with payments made by member states not by Brussels, because 76% of EU payments are delegated to member states.
Jack Thurston, co-founder of farmsubsidy.org said:
'Transparency is a guard against fraud and maladministration and a way of reconnecting citizens with their governments. Transparency leads to more legimate and effective policy-making. We hope this scorecard will be used to praise the few EU member states who have embraced transparency and shame the many who continue to hide farm subsidies behind a veil of secrecy. All European citizens pay for farm subsidies, they should have a right to know who gets what - and why.'
Read the CAP Transparency Index report:
Transparency
Monday, October 16, 2006
Are CAP's natural predators awakening?
Farm subsidies campaigner Jack Thurston who runs the excellent website on farm subsidies has responded to the story below on the 'health check' on the CAP: 'As well as payment limits, the health check may also include a minimum farm size to qualify for any payments, i.e. a 'franchise'. The single farm payment has seen a big increase in the number of claimants, often it costs more for the government to administer the payments than the payments are worth. A lower limit on payments was specifically mentioned by Fischer Boel at a public meeting on 17 July 2006 in Brussels. See:
Report
Jack Thurston continues, 'It is currently not clear how the CAP health check will fit in with the review of the EU budget that is scheduled for 2009. What is certain is that we are in an era of fiscal restraint in the EU, so any new money for new projects will have to be found from within existing budgets, highlighting in sharp relief the "opportunity cost" of the CAP. The natural predators for the CAP may finally be awakening.'
Since Jack wrote these notes, Commission Fischer Boel clarified that she will not accept budget cuts to the CAP as part of the general EU budget review in 2009, but admitted that the same guarantees could not be made after 2013.
She also said that 'These are busy days in the kitchen - lots of pots are boiling at the same time. Rather than keeping the door to the kitchen sealed I have decidd at an early stage to give an impression of what is boiling under our lids.' A look at cross compliance was first of the menu, followed by the consequences of partial decoupling and the choice of model for implementing the SPS.
Hardly an inviting or daring menu and some of us would like to see the kitchen closed in its soup kitchen role for farmers.
Report
Jack Thurston continues, 'It is currently not clear how the CAP health check will fit in with the review of the EU budget that is scheduled for 2009. What is certain is that we are in an era of fiscal restraint in the EU, so any new money for new projects will have to be found from within existing budgets, highlighting in sharp relief the "opportunity cost" of the CAP. The natural predators for the CAP may finally be awakening.'
Since Jack wrote these notes, Commission Fischer Boel clarified that she will not accept budget cuts to the CAP as part of the general EU budget review in 2009, but admitted that the same guarantees could not be made after 2013.
She also said that 'These are busy days in the kitchen - lots of pots are boiling at the same time. Rather than keeping the door to the kitchen sealed I have decidd at an early stage to give an impression of what is boiling under our lids.' A look at cross compliance was first of the menu, followed by the consequences of partial decoupling and the choice of model for implementing the SPS.
Hardly an inviting or daring menu and some of us would like to see the kitchen closed in its soup kitchen role for farmers.
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