Global food prices face a new surge. In Chicago wheat and rice prices for delivery in March 2008 have jumped to an all-time high, soyabean prices are at a 34-year high and corn prices at a 11-year peak. The agricultural commodities price rises are the result of high demand, poor harvests and low stockpiles of food.
Food prices in the UK are more than 5 per cent higher than a year ago. Bread prices have jumped 11.6 per cent over the last year, double the increase for cake or biscuits. Butter and eggs are about a third more expensive than last November, milk prices are 16.6 per cent higher and cheese is up 8.8 per cent.
Eurozone food price inflation was up to 4.3 per cent in November. It was one of the main reasons for the jump in the zone's annual inflation rate from 2.6 per cent in October to 3.1 per cent, the highest level in six years. In the US, annual food price inflation of 4.8 per cent in November combined to a rise in the inflation rate to 4.3 per cent.
Deeper long-term economic influences are likely to have more influence on the future supply and demand of major food commodities and therefore on medium to lomg-term price levels, than the current boom in biofuel production. This is the main conclusion of a new report from the International Food Policy Institute: Food . One might add, however, that biofuel demand is more susceptible to the effects of policy initiatives, in particular over generous subsidies and tax reliefs.
The report points out that while overall world economic growth is likely to remain in the 4 per cent a year average range, growth in the developing countries with expanding food demand is expected to average 6 per cent a year well into the next decade. IFPRI points out that of the world's most food insecure countries, which have the greatest propensity to import food, twenty-two had average annual growth rates ranging from 5 per cent to 16 per cent between 2004 and 2006.
What IFPRI characterises as 'diet globalisation' is also a major long-term demand changing factor. More affluent city-dwelling Asian consumers are increasingly seeking non-traditional foods. This is leading to reduced rice consumption and increased consumption of wheat and wheat-based products, temperate-zone vegetables and dairy products - and increases in demand for animal feeds for the livestock producing many of these foods.
One by-product of rising food prices is that import tariffs for agricultural commodities, in paricular cereals, vegetable oils and rice, are being slashed in an effort by developed and developing countries to cushion their local markets against rising food inflation. On the other hand, export tariffs have been raised by several key exporting countries such as Argentina in an attempt to keep local markets well supplied.
Given that the rise in food prices is not likely to be a short-term phenomenon, one might question why the commercial aspects of farming continue to require subsidy.
Sunday, December 23, 2007
Thursday, December 20, 2007
Wine reform watered down
EU farm ministers have agreed a reform package for the wine sector that dilutes the package proposed by Commissioner Fischer Boel. Pressure from France and Italy means that fewer vineyards will be scrapped and the surplus of low quality wine will continue to be distilled for industrial use over a four year period.
The Commission's plan to outlaw chapitalisation (using sugar or must to add sweetness to alcohol) has been scrapped and it will still be allowed in those statements where it is already legal. This proposal was opposed by Austria, Germany and Hungary. One consequence is that subsidies will have to be prolonged to producers in the southern states which use must as the grape juice is more expensive.
Traditionalists will also be pleased that an overall harmonisation of labelling practices throughout the EU as planned by the Commission will not take place. However, winemakers not using geographical indications and designations of origin will in future be allowed to indicate their wines' grape variety and vintage on the label.
In this connection, UK Labour MEP Brian Simpson commented, 'This is the battle for the £6 bottle. There is too much snobbery about wine, which has caused the resistance.'
Much of the annual €1.3bn EU wine budget, about half of which buys up unwated wine, will be put into national envelopes for member state governments to use in promotion and restructuring.
Putting a brave face on the deal, Commissioner Fischer Boel admitted, 'We didn't get everything we wanted, but we have ended up with a well-balanced agreement.' In other words, the wine producing states have exerted effective pressure to defend their interests.
The underlying problem is that traditional growers like France and Italy have been consuming a third less of their own crop. Where consumption is growing in countries like Britain and Sweden, it is often being driven by 'New World' wines which are perceived to offer better value.
Whether the EU wine lake can be drained in five years as is hoped remains to be seen. Much will depend on effective implementation at member state level.
The Commission's plan to outlaw chapitalisation (using sugar or must to add sweetness to alcohol) has been scrapped and it will still be allowed in those statements where it is already legal. This proposal was opposed by Austria, Germany and Hungary. One consequence is that subsidies will have to be prolonged to producers in the southern states which use must as the grape juice is more expensive.
Traditionalists will also be pleased that an overall harmonisation of labelling practices throughout the EU as planned by the Commission will not take place. However, winemakers not using geographical indications and designations of origin will in future be allowed to indicate their wines' grape variety and vintage on the label.
In this connection, UK Labour MEP Brian Simpson commented, 'This is the battle for the £6 bottle. There is too much snobbery about wine, which has caused the resistance.'
Much of the annual €1.3bn EU wine budget, about half of which buys up unwated wine, will be put into national envelopes for member state governments to use in promotion and restructuring.
Putting a brave face on the deal, Commissioner Fischer Boel admitted, 'We didn't get everything we wanted, but we have ended up with a well-balanced agreement.' In other words, the wine producing states have exerted effective pressure to defend their interests.
The underlying problem is that traditional growers like France and Italy have been consuming a third less of their own crop. Where consumption is growing in countries like Britain and Sweden, it is often being driven by 'New World' wines which are perceived to offer better value.
Whether the EU wine lake can be drained in five years as is hoped remains to be seen. Much will depend on effective implementation at member state level.
Monday, December 17, 2007
Join the CAP health check debate
You can do so at: Debate . Jack Thurston of farmsubsidy.org starts off with a critique of the shortcomings of the Health Check, but gets slagged off later for 2nd rate left-wing journalism! Inevitably, those with axes to grind are there whether ideological (GM) or particular (suckler cows in N.Ireland). There is also a plaintive plea for more information in Bulgarian.
I suppose that my view of these exercises is that they give the semblance of participation while the real decisions are taken elsewhere. As a debate, it is very difficult to get people to move from their fixed positions.
Launching the debate, Fischer Boel once again showed her susceptibility to food security discourses. Referring to an 'atmopshere of anxiety' surrounding the markets, she said: 'Renewed awareness of the importance of food is a good thing. We should never be complacent about supplying life's basic necessities.'
Given that farmers (other than livestock farmers) are now getting a better return from the market, one might think that now was a good time to substantially reduce subsidies.
In her presentation to the European Parliament Agriculture Committee, Fischer Boel seemed to go further than the Communication itself, for example by clearly indicating her preference for a longer-term shift towards a flat rate Single Farm Payment or for ending the 45€/ha. energy crop premium.
I suppose that my view of these exercises is that they give the semblance of participation while the real decisions are taken elsewhere. As a debate, it is very difficult to get people to move from their fixed positions.
Launching the debate, Fischer Boel once again showed her susceptibility to food security discourses. Referring to an 'atmopshere of anxiety' surrounding the markets, she said: 'Renewed awareness of the importance of food is a good thing. We should never be complacent about supplying life's basic necessities.'
Given that farmers (other than livestock farmers) are now getting a better return from the market, one might think that now was a good time to substantially reduce subsidies.
In her presentation to the European Parliament Agriculture Committee, Fischer Boel seemed to go further than the Communication itself, for example by clearly indicating her preference for a longer-term shift towards a flat rate Single Farm Payment or for ending the 45€/ha. energy crop premium.
Tuesday, December 04, 2007
Meat: facing the dilemmas
The excellent Food Ethics published by the Food Ethics Council has devoted its latest issue to this theme. You can read excerpts online at: Meat
There are a lot of issues related to increasing meat consumption: climate change; health issues; water scarcity and biodiversity loss from clearing forests to make way for pasture and feed production; and animal welfare, which is certainly not a luxury we can no longer afford. The FAO calculates that livestock account for 18 per cent of total anthropogenic greenhouse gas emissions. Cows and sheep burp a lot releasing methane, which has a global warming potency 21 times greater than CO2.
In his introduction to the edition, Tom MacMillan suggests that 'the challenge is not only to eat less but also to eat better meat - produced in more humane and environmentally sound production systems yielding a better quality product.' Henry Buller reports in the issue from his innovative 'Eating Biodiversity' project on this theme.
I have not yet read all the articles, but what strikes me is that although there are plenty of references to the FAO and some to the OECD and WTO, the EU and the CAP are conspicuous by their absence. Surely the EU should be contributing to this debate and developing proactive policies that bring together a number of related objectives in different spheres of policy? Or is that too much to hope for?
There are a lot of issues related to increasing meat consumption: climate change; health issues; water scarcity and biodiversity loss from clearing forests to make way for pasture and feed production; and animal welfare, which is certainly not a luxury we can no longer afford. The FAO calculates that livestock account for 18 per cent of total anthropogenic greenhouse gas emissions. Cows and sheep burp a lot releasing methane, which has a global warming potency 21 times greater than CO2.
In his introduction to the edition, Tom MacMillan suggests that 'the challenge is not only to eat less but also to eat better meat - produced in more humane and environmentally sound production systems yielding a better quality product.' Henry Buller reports in the issue from his innovative 'Eating Biodiversity' project on this theme.
I have not yet read all the articles, but what strikes me is that although there are plenty of references to the FAO and some to the OECD and WTO, the EU and the CAP are conspicuous by their absence. Surely the EU should be contributing to this debate and developing proactive policies that bring together a number of related objectives in different spheres of policy? Or is that too much to hope for?
Thursday, November 22, 2007
Health Check Attacks Peripheral Ills
It is difficult to say anything new about the CAP Health Check proposals because they have been leaked so extensively. What they amount to is finding a patient who has a number of chronic long-term illnesses which require radical treatment, but then proposing to concentrate attention on the patient's toothache and Athlete's Foot.
The proposed capping of payments to large farms is intended to increase the popularity of the policy by reducing transfers from taxpayers to those who are already propserous. It thus would enable the Commission to portray the policy as one that primarily helps small, marginal or peripheral farmers, albeit in a very inefficient fashion. The issue of why there should be subsidies at all for commercial aspects of farming activity is thereby evaded.
The industry's protectionist subsidy seeking mindset has not actually helped it. It has diverted attention from the needs of the customer and the opportunities presented by higher value added products. A recent example is to be found in efforts to get more Government purchases of food sourced from Britain. Presumably more is not being so sourced because of price/quality problems. Why not identify and tackle those problems?
I never expected much from the Health Check. But there is a need to aim for a more radical reform of policy in the run up to 2013.
The proposed capping of payments to large farms is intended to increase the popularity of the policy by reducing transfers from taxpayers to those who are already propserous. It thus would enable the Commission to portray the policy as one that primarily helps small, marginal or peripheral farmers, albeit in a very inefficient fashion. The issue of why there should be subsidies at all for commercial aspects of farming activity is thereby evaded.
The industry's protectionist subsidy seeking mindset has not actually helped it. It has diverted attention from the needs of the customer and the opportunities presented by higher value added products. A recent example is to be found in efforts to get more Government purchases of food sourced from Britain. Presumably more is not being so sourced because of price/quality problems. Why not identify and tackle those problems?
I never expected much from the Health Check. But there is a need to aim for a more radical reform of policy in the run up to 2013.
Sunday, November 18, 2007
EU warns Romania on farm payments
Romania has been told to tighten controls in its farm payment systems or face a severe cut in it subsdies next year from the EU. The European Commission said that independent auditors Deloitte had found 'major deficiencies in the software module designed to ensure that payments are made correctly.'
The Commission said that Romania could lose about €180m in subsidies next yar if it failed to correct problems in its software systems. It delivered the warning amid persistent complaints from some of the EU's western European members that Romania was not fully prepared for the challenges of EU membership when it became a member last January.
The financial stakes are high because Romania is due to recive €443m in direct payments next year, part of a grand total of €4.3bn between now and the end of 2013. Agriculture accounts for about 40 per cent of employment.
The Commission said that Romania could lose about €180m in subsidies next yar if it failed to correct problems in its software systems. It delivered the warning amid persistent complaints from some of the EU's western European members that Romania was not fully prepared for the challenges of EU membership when it became a member last January.
The financial stakes are high because Romania is due to recive €443m in direct payments next year, part of a grand total of €4.3bn between now and the end of 2013. Agriculture accounts for about 40 per cent of employment.
Sunday, November 11, 2007
New Farm Bill 'offers no reform at all'
At one time in the 1990s it seemed as if the USA might lead the way in reducing farm subsidies. Not any more. A new version of the US Farm Bill, just approved by the Senate's Agriculture Committee, has been attacked by acting US farm secretary, Chuck Conner. The long-awaited Senate version of the Bill, which follows one from the House of Representatives in August, provides plenty of goodies for American farmers for the next five years. For example, there would be a permanent $5bn 'disaster' fund.
Mr Conner said bluntly that the draft Bill offered 'no reform at all'. The lack of a meaningful cap on payments would allow millionaires to continue to participate in farm programmes. Just how widespread this practice is has been illustrated by our friends at CAP Health Check by superimposing the number of beneficiaries on a Google map of New York City. Other wealthy areas in cities like Los Angeles also contain their fair share of sofa farmers.
It's a story all too familiar in Europe: take away money from taxpayers and consumers on average incomes or less and give to wealthy landowners.
Mr Conner said bluntly that the draft Bill offered 'no reform at all'. The lack of a meaningful cap on payments would allow millionaires to continue to participate in farm programmes. Just how widespread this practice is has been illustrated by our friends at CAP Health Check by superimposing the number of beneficiaries on a Google map of New York City. Other wealthy areas in cities like Los Angeles also contain their fair share of sofa farmers.
It's a story all too familiar in Europe: take away money from taxpayers and consumers on average incomes or less and give to wealthy landowners.
Thursday, November 01, 2007
CAP still takes up nearly 47 per cent of budget
The CAP still took 46.7 per cent of overall allocated EU expenditure in 2006, compared to 46.2 per cent in 2005, according to figures released by the European Commission. However, this represents a decrease on the 49 per cent figure in 2003. It also accounted for 0.44 per cent of GNI.
The ten accession states received 9 per cent of overall CAP funding including 27.4 per cent of the Rural Development Budget. France remains the individual member state with the largest share of spending but this was down from 20.7 per cent in 2005 and 21.6 per cent in 2004.
68.4 per cent of the money was spent on direct aids, roughly half of which went on the SPS in the EU-15. Spending on export refunds and intervention dropped to just 5 per cent and 1.5 per cent of the CAP budget respectively.
Five member states (Austria, France, Ireland, Portugal and Spain) are net beneficiaries of the CAP budget, as are virtually all new member states (Malta got only €9.4m in agricultural spending). Their share of spending will increase in the coming years with the phasing in of the SFP.
More details at: Finances
The ten accession states received 9 per cent of overall CAP funding including 27.4 per cent of the Rural Development Budget. France remains the individual member state with the largest share of spending but this was down from 20.7 per cent in 2005 and 21.6 per cent in 2004.
68.4 per cent of the money was spent on direct aids, roughly half of which went on the SPS in the EU-15. Spending on export refunds and intervention dropped to just 5 per cent and 1.5 per cent of the CAP budget respectively.
Five member states (Austria, France, Ireland, Portugal and Spain) are net beneficiaries of the CAP budget, as are virtually all new member states (Malta got only €9.4m in agricultural spending). Their share of spending will increase in the coming years with the phasing in of the SFP.
More details at: Finances
Sunday, October 28, 2007
Productionists bang the food security drum
It has been evident for some time that those who would want to see a switch away from a greater emphasis on environmental issues in relation to agriculture and a restoration of a productionist orientation have seen food security as one of their best cards.
In part this is because food supplies are getting tighter. Supply has been affected by growing demand for biofuels and other non-food crops. Demand is being stimulated by a growing and more prosperous world population.
So could 'the UK run short of food in the future' as is argued by regular Farmers Weekly contributor Hugh Brown (who combines farming with working full time for Capital Radio). This shows a not unsurprising lack of faith in the price mechanism for a farmer.
If the supply-demand balance alters, prices will go up and this will encourage more production. Of course, the land supply is not infinite, but there is plenty of land in the world, not least in the Global South, that is not being farmed as efficiently as it could be (without having an adverse environmental impact). Of course, climate change is a big uncertainty, but this shows why it should be a priority in decisions about farm policy.
Brown concentrates a lot on his fire at Defra, and it is certainly a department that has had its problems. From a farming perspective, of course, it no longer acts as the voice of the farmer in the way that MAFF did, but that was one of the reasons for setting up Defra with a new mission.
Brown argues, 'If we do start to go short of food and need to start planning seriously about how we feed the nation, it would be somewhat of a contradiction to have the same department both try to encourage the growing of food, while the other part of the department is trying to nail down environmental regulation, potentially curtailing food production.'
His solution is to give the food part of Defra its own department, presumably a Ministry of Food Security, so that 'it might be able to work more effectively in planning ahead.' The shadow of Stalinist five year plans dies hard in some areas of farming. That is not to say that we shouldn't continue to fund work that is concerned with diseases and pests that affect plants and livestock and hence undermine production.
However, given the challenge of climate change, not to mention various pollution issues, farming needs to be guided by an effective environmental policy, but also one that provides farmers with incentives for maximising environmental benefits.
In part this is because food supplies are getting tighter. Supply has been affected by growing demand for biofuels and other non-food crops. Demand is being stimulated by a growing and more prosperous world population.
So could 'the UK run short of food in the future' as is argued by regular Farmers Weekly contributor Hugh Brown (who combines farming with working full time for Capital Radio). This shows a not unsurprising lack of faith in the price mechanism for a farmer.
If the supply-demand balance alters, prices will go up and this will encourage more production. Of course, the land supply is not infinite, but there is plenty of land in the world, not least in the Global South, that is not being farmed as efficiently as it could be (without having an adverse environmental impact). Of course, climate change is a big uncertainty, but this shows why it should be a priority in decisions about farm policy.
Brown concentrates a lot on his fire at Defra, and it is certainly a department that has had its problems. From a farming perspective, of course, it no longer acts as the voice of the farmer in the way that MAFF did, but that was one of the reasons for setting up Defra with a new mission.
Brown argues, 'If we do start to go short of food and need to start planning seriously about how we feed the nation, it would be somewhat of a contradiction to have the same department both try to encourage the growing of food, while the other part of the department is trying to nail down environmental regulation, potentially curtailing food production.'
His solution is to give the food part of Defra its own department, presumably a Ministry of Food Security, so that 'it might be able to work more effectively in planning ahead.' The shadow of Stalinist five year plans dies hard in some areas of farming. That is not to say that we shouldn't continue to fund work that is concerned with diseases and pests that affect plants and livestock and hence undermine production.
However, given the challenge of climate change, not to mention various pollution issues, farming needs to be guided by an effective environmental policy, but also one that provides farmers with incentives for maximising environmental benefits.
Wednesday, October 17, 2007
Fischer Boel rebuffs twitchers
EU agriculture commissioner Mariann Fischer Boel has rebuffed claims by the Royal Society for the Protection of Birds (RSPB) that the time has come for a new CAP. The suggestion is made in a report launched by the RSPB and its associated global organisation Birdlife International: New challenges, new CAP
RSPB head of agriculture Gareth Morgan had the temerity to suggest that the CAP needs a far greater environmental element to retain its current budget: 'That means scrapping subsidies and, instead, rewarding farmers for measures to help tackle climate change, reverse widlife declines and improve water quality.'
But Fischer Boel was having none of it. She insisted that much of what the organisations were asking for was already being delivered by the CAP: 'You say you want a new CAP ... today's CAP has a huge number of "new" elements compared with a few years ago.' Of course there are significant new elements, but whether that amounts to a new policy is another matter altogether.
Fischer Boel went on to explain that the forthcoming 'health check' would provide scope for further refinement. But refinement is just what it is. As contributors to the CAP HealthCheck blog have pointed out, an opportunity is being missed to do some fundamental thinking about the objectives of the CAP and how they can be delivered. See: Health Check
RSPB head of agriculture Gareth Morgan had the temerity to suggest that the CAP needs a far greater environmental element to retain its current budget: 'That means scrapping subsidies and, instead, rewarding farmers for measures to help tackle climate change, reverse widlife declines and improve water quality.'
But Fischer Boel was having none of it. She insisted that much of what the organisations were asking for was already being delivered by the CAP: 'You say you want a new CAP ... today's CAP has a huge number of "new" elements compared with a few years ago.' Of course there are significant new elements, but whether that amounts to a new policy is another matter altogether.
Fischer Boel went on to explain that the forthcoming 'health check' would provide scope for further refinement. But refinement is just what it is. As contributors to the CAP HealthCheck blog have pointed out, an opportunity is being missed to do some fundamental thinking about the objectives of the CAP and how they can be delivered. See: Health Check
Sunday, October 14, 2007
Capital gains tax hit on farmers is not good news
Why should anyone who wants to see a more modern agriculture in Britain be concerned about the fact that the measures announced by the Chancellor in the pre-Budget report impose a greater tax burden on farmers?
Because it may discourage farmers from selling up. That is an important mechanism for restructuring farms to permit greater efficiency. It also allows new capital and younger managers with new ideas to come into the industry. Even if average age statistics can be misleading, there are still many farmers who started farming when maximising production with the help of subsidies was the favoured policy.
Farmers have been hit particularly hard by the Chancellor's scrapping of indexation allowances. This reduces taxable gains on assets held long term. It has had the effect of making tax free the first 105 per cent of gains on farmland held since at least 1982, leaving only gains above that amount subject to capital gains tax.
Farm prices have been buoyed by a number of factors. The availability of substantial subsidies has been one factor, but farms within easy reach of London have often been purchased for lifestyle and/or sporting reasons. The recent hike in crop prices also makes arable farms a more attractive investment.
Some farmers who have been thinking of selling up may now try and do so before April, but that may entail some discounting as purchasers will be well aware of the tax penalties attached to a delayed sale.
Because it may discourage farmers from selling up. That is an important mechanism for restructuring farms to permit greater efficiency. It also allows new capital and younger managers with new ideas to come into the industry. Even if average age statistics can be misleading, there are still many farmers who started farming when maximising production with the help of subsidies was the favoured policy.
Farmers have been hit particularly hard by the Chancellor's scrapping of indexation allowances. This reduces taxable gains on assets held long term. It has had the effect of making tax free the first 105 per cent of gains on farmland held since at least 1982, leaving only gains above that amount subject to capital gains tax.
Farm prices have been buoyed by a number of factors. The availability of substantial subsidies has been one factor, but farms within easy reach of London have often been purchased for lifestyle and/or sporting reasons. The recent hike in crop prices also makes arable farms a more attractive investment.
Some farmers who have been thinking of selling up may now try and do so before April, but that may entail some discounting as purchasers will be well aware of the tax penalties attached to a delayed sale.
Wednesday, October 10, 2007
The environmental impact of ending set aside
Idling land resources through set aside never made a lot of economic sense and was largely a way of dealing with over production encouraged by the old style CAP. However, many environmentalists felt that set aside encouraged biodiversity.
This was particularly the case for the Royal Society for the Protection of Birds (RSPB) which with over a million members, largely urban gardeners whose bird identification skills are sketchy, is a very influential conservationist group in the UK. Defra policy is strongly influenced by the RSPB which has framed the agenda in terms of, for example, using farmland bird populations as an indicator of environmental stress, although they may not the best measure.
The RSPB view, as expressed by head of conservation Sue Armstrong Brown, is that 'One of the strengths of set-aside was simply that there was lots of it. It made the whole countryside more varied and wildlife loves variety.' The NFU, in contrast, argues that it is a blunt policy instrument and that only a small part of set aside ever had great environmental value.
Defra secretary Hilary Benn has stepped in to warn farmers to look after habitats and bird numbers after set aside has gone, or face new regulations to compel them to do so. He announced an immediate programme of environmental monitoring of farmland.
In fact, as Don Curry has pointed out, this is an English policy manifestation of a mich wider debate. As commodity prices have risen, global tensions between the use of land for food, fuel and the creation of environmental benefits have increased. There are no easy answers, but a debate is needed.
This was particularly the case for the Royal Society for the Protection of Birds (RSPB) which with over a million members, largely urban gardeners whose bird identification skills are sketchy, is a very influential conservationist group in the UK. Defra policy is strongly influenced by the RSPB which has framed the agenda in terms of, for example, using farmland bird populations as an indicator of environmental stress, although they may not the best measure.
The RSPB view, as expressed by head of conservation Sue Armstrong Brown, is that 'One of the strengths of set-aside was simply that there was lots of it. It made the whole countryside more varied and wildlife loves variety.' The NFU, in contrast, argues that it is a blunt policy instrument and that only a small part of set aside ever had great environmental value.
Defra secretary Hilary Benn has stepped in to warn farmers to look after habitats and bird numbers after set aside has gone, or face new regulations to compel them to do so. He announced an immediate programme of environmental monitoring of farmland.
In fact, as Don Curry has pointed out, this is an English policy manifestation of a mich wider debate. As commodity prices have risen, global tensions between the use of land for food, fuel and the creation of environmental benefits have increased. There are no easy answers, but a debate is needed.
Monday, October 01, 2007
Capping SFPS is on the agenda again
Leaks from Brussels suggest that capping Single Farm Payments is on the agenda for the forthcoming Health Check. This was mooted at the time of the last reform and defeated by opposition from Britain and Germany who would have lost out the most.
The last set of proposals envisaged an overall ceiling, but this time reductions would be tapered to make them more palatable. There would be a 10 per cent reduction on payments about €100,000, 25 per cent off payments above €200,000 and 45 per cent off payments above €300,000. As an additional incentive, money saved by the 'capping' would stay in a member state and be added on to its national envelope for targeted receipts.
There would also be a lower limit on payments to save the transaction costs of payments to owners of horse paddocks or hobby farms. These tend to gum up the payments system and are not supporting anything that resembles a commercial farming activity.
Reducing payments to large-scale farmers, some of them members of Europe's royal and aristocratic families, would seem to be a no brainer. In a sense, however, it is penalising the more economically efficient farmers who are often better suited to compete in an international market. That being so, perhaps they should not have subsidies at all, but then no farmer should be receiving non-specific subsidies (other than a pay off in the form of a bond).
There is also a difficult technical problem. How does one define what constitutes a farm? Ownership of large estates could be subdivided among different companies. Lawyers have always been adept at spotting new loopholes in the CAP and they could be the real beneficiaries of these proposals. However, I doubt whether they would go through in the form suggested.
The last set of proposals envisaged an overall ceiling, but this time reductions would be tapered to make them more palatable. There would be a 10 per cent reduction on payments about €100,000, 25 per cent off payments above €200,000 and 45 per cent off payments above €300,000. As an additional incentive, money saved by the 'capping' would stay in a member state and be added on to its national envelope for targeted receipts.
There would also be a lower limit on payments to save the transaction costs of payments to owners of horse paddocks or hobby farms. These tend to gum up the payments system and are not supporting anything that resembles a commercial farming activity.
Reducing payments to large-scale farmers, some of them members of Europe's royal and aristocratic families, would seem to be a no brainer. In a sense, however, it is penalising the more economically efficient farmers who are often better suited to compete in an international market. That being so, perhaps they should not have subsidies at all, but then no farmer should be receiving non-specific subsidies (other than a pay off in the form of a bond).
There is also a difficult technical problem. How does one define what constitutes a farm? Ownership of large estates could be subdivided among different companies. Lawyers have always been adept at spotting new loopholes in the CAP and they could be the real beneficiaries of these proposals. However, I doubt whether they would go through in the form suggested.
Tuesday, September 25, 2007
EU fails to respond to booming global dairy market
The EU has largely failed to respond to a booming global dairy market. Milk deliveries actually fell by 1.5 per cent in 2006 despite an increase in quotas. All sorts of explanations are being trotted out such as the threat of high super-levy penalties and even the expiry of the transitional period in the A10 countries (this allowed for domestic marketing not to comply fully with EU criteria).
An alternative explanation is that the quota regime has ossified the structure of the dairy industry in the EU, holding back the more efficient and protecting more marginal farmers (which indeed is one of its intentions). Quota can be transferred in some countries (the rules differ), but despite the existence of an internal market, it cannot be transferred across national borders. The consequence is that the EU's dairy processing industry has been handicapped in responding to new opportunities on the world market.
What is driving these opportunities? The key factor is increased demand from the emerging economies. As people become more affluent, they consume more products that make use of milk. The increased demand for milk powders, for so long the sump of the industry, illustrates the fact that the major force underlying the price boom is increased demand for processed food ingredients.
Moreover, as demand expanded particularly in fast-growing Asian economies, exportable supplies were limited by drought in Australia and strong domestic consumption in the US and EU. The EU market is likely to be dominated by the expanding demand for cheese. Projections by the European Commission suggest that EU-27 cheese production is likely to increase by a total of 10 per cent during the 2005-13 period and will be likely to use nearly 85 per cent of the additional increase in milk expected to be delivered ober this period.
Can the price boom last? The OECD is relatively optimistic. Even though current exceptionally high prices are unlikely to be sustained, it is confident in its 2007 Agricultural Markets Report that milk powder and dairy product prices are likely to stay at relatively high levels at least until the middle of the next decade. Over the 2007-16 period it expects prices to remain at about US $50 to $100 per 100 kg (milk equivalent) higher as compared with the previous decade.
Compared to the level of average prices in nominal terms over the period 2001-5, world butter prices are preducted to increase the most, rising by 42 per cent. It wasn't so long ago that 'ageing' butter was being sold off from EU intervention stores to grateful Soviet consumers, a trade that made the intermediaries a lot of money. Skimmed milk powder prices are expected to rise by 33 per cent.
Much of the new output needed to meet demand will not come from the OECD area where production is expected to remain relatively stable, with the main production gains coming in Oceania and the United States. The OECD expects India, China and Pakistan to account for more than 50 per cent of the likely global milk production gains.
The one caveat is the quetion of economic growth. If economic growth continues at the rate predicted by the OECD, an average of 4 per cent for Asia, South America and Africa, then increased consumption and high prices will persist. Any faltering in growth would leave large quantities of milk from developing country producers looking for a market which would have a big knock on effect on the EU.
Why are British dairy farmers still in trouble? For historical reasons relating to imports from the British Commonwealth, the UK market is still dependent to a larger extent than elsewhere on the liquid market. This is still very price sensitive in the sense that supermarkets in practice treat milk as a 'loss leader' (whatever they might say to the contrary). However, they have been increasing prices to farmers recently, although input costs have also been going up.
Quotas are to be phased out, not before time, as they made it difficult for new entrants, despite special schemes in a number of countries. The UK in particular had insufficient quota to meet all its potential production needs. A freer market should benefit both producers and consumers.
An alternative explanation is that the quota regime has ossified the structure of the dairy industry in the EU, holding back the more efficient and protecting more marginal farmers (which indeed is one of its intentions). Quota can be transferred in some countries (the rules differ), but despite the existence of an internal market, it cannot be transferred across national borders. The consequence is that the EU's dairy processing industry has been handicapped in responding to new opportunities on the world market.
What is driving these opportunities? The key factor is increased demand from the emerging economies. As people become more affluent, they consume more products that make use of milk. The increased demand for milk powders, for so long the sump of the industry, illustrates the fact that the major force underlying the price boom is increased demand for processed food ingredients.
Moreover, as demand expanded particularly in fast-growing Asian economies, exportable supplies were limited by drought in Australia and strong domestic consumption in the US and EU. The EU market is likely to be dominated by the expanding demand for cheese. Projections by the European Commission suggest that EU-27 cheese production is likely to increase by a total of 10 per cent during the 2005-13 period and will be likely to use nearly 85 per cent of the additional increase in milk expected to be delivered ober this period.
Can the price boom last? The OECD is relatively optimistic. Even though current exceptionally high prices are unlikely to be sustained, it is confident in its 2007 Agricultural Markets Report that milk powder and dairy product prices are likely to stay at relatively high levels at least until the middle of the next decade. Over the 2007-16 period it expects prices to remain at about US $50 to $100 per 100 kg (milk equivalent) higher as compared with the previous decade.
Compared to the level of average prices in nominal terms over the period 2001-5, world butter prices are preducted to increase the most, rising by 42 per cent. It wasn't so long ago that 'ageing' butter was being sold off from EU intervention stores to grateful Soviet consumers, a trade that made the intermediaries a lot of money. Skimmed milk powder prices are expected to rise by 33 per cent.
Much of the new output needed to meet demand will not come from the OECD area where production is expected to remain relatively stable, with the main production gains coming in Oceania and the United States. The OECD expects India, China and Pakistan to account for more than 50 per cent of the likely global milk production gains.
The one caveat is the quetion of economic growth. If economic growth continues at the rate predicted by the OECD, an average of 4 per cent for Asia, South America and Africa, then increased consumption and high prices will persist. Any faltering in growth would leave large quantities of milk from developing country producers looking for a market which would have a big knock on effect on the EU.
Why are British dairy farmers still in trouble? For historical reasons relating to imports from the British Commonwealth, the UK market is still dependent to a larger extent than elsewhere on the liquid market. This is still very price sensitive in the sense that supermarkets in practice treat milk as a 'loss leader' (whatever they might say to the contrary). However, they have been increasing prices to farmers recently, although input costs have also been going up.
Quotas are to be phased out, not before time, as they made it difficult for new entrants, despite special schemes in a number of countries. The UK in particular had insufficient quota to meet all its potential production needs. A freer market should benefit both producers and consumers.
Sunday, September 23, 2007
Fischer Boel seduced by food security rhetoric
Experts on agricultural policy are often asked why the 'farm lobby' has been so successful although, of course, at EU level its influence has declined over time. In part this has been because it has been losing the debate and has often shown insufficient flexibility in responding to new framings of issues.
Nevertheless, one should never understimate the ability of producer interests to use new concerns to their advantage. In the past, for example, British farmers used concerns about the balance of payments to justify the subsidies they received. Food security concerns were significant during the formation of the CAP with recent experiences of food shortages in the minds of decision-makers. These concerns were reinforced by arguments about what might happen if the Cold War got a bit hotter.
With world supply and demand being tighter than it has been for some time, farming journalists and others have been trying to propel food security back on to the EU policy agenda. They appear to have scored at least a partial hit with farm commissioner Mariann Fischer Boel.
She said that Europe was producing enough to meet its own needs but had to keep one eye on growing demand around the world and discuss the question of 'food security'. 'It is obvious that the whole discussion on energy security started when suddenly the Russians cut off the pipelines. And it is obvious that we would want to think about food security. We can discuss buffer stocks just as you have for oil today.' EU rules require countries to keep three months' supply of oil in storage.
The analogy with energy security is an imperfect one as there is no one country with a pipeline of food on which Europe depends that it can turn off to great effect (although the moratorium on exports being operated by Russia and the Ukraine has had an impact on world prices).
Let's hope that just when we thought that intervention buying was fading away, it won't be rejuvenated as 'buffer stocks'. One of the greatest weaknesses of the CAP was always the creation of a risk free market through the purchase of surpluses by government agencies.
Nevertheless, one should never understimate the ability of producer interests to use new concerns to their advantage. In the past, for example, British farmers used concerns about the balance of payments to justify the subsidies they received. Food security concerns were significant during the formation of the CAP with recent experiences of food shortages in the minds of decision-makers. These concerns were reinforced by arguments about what might happen if the Cold War got a bit hotter.
With world supply and demand being tighter than it has been for some time, farming journalists and others have been trying to propel food security back on to the EU policy agenda. They appear to have scored at least a partial hit with farm commissioner Mariann Fischer Boel.
She said that Europe was producing enough to meet its own needs but had to keep one eye on growing demand around the world and discuss the question of 'food security'. 'It is obvious that the whole discussion on energy security started when suddenly the Russians cut off the pipelines. And it is obvious that we would want to think about food security. We can discuss buffer stocks just as you have for oil today.' EU rules require countries to keep three months' supply of oil in storage.
The analogy with energy security is an imperfect one as there is no one country with a pipeline of food on which Europe depends that it can turn off to great effect (although the moratorium on exports being operated by Russia and the Ukraine has had an impact on world prices).
Let's hope that just when we thought that intervention buying was fading away, it won't be rejuvenated as 'buffer stocks'. One of the greatest weaknesses of the CAP was always the creation of a risk free market through the purchase of surpluses by government agencies.
Saturday, September 15, 2007
Giant energy plants to transform UK countryside
The British countryside will be transformed through the planting of tall energy crops, the BA Festival of Science in York heard yesterday. Fields planted with miscanthus (or elephant) grass, 3-4 metres high, will look like Caribbean sugar-cane plantations.
The Rural and Economy Land Use programme (RELU) estimates that 15-20 per cent of Britain's agricultural land may have to be devoted to growing biofuels to meet international obligations to reduce carbon emissions and improve energy security. [The writer is a grant holder in the RELU programme].
The two main candidate crops are willow coppice, harvested every three years, and miscanthus, a fast-growing Asian grass harvested annually in late winter or spring. Farmers would grow those on poor quality arable land, said Anglea Karp of Rothamsted Research, RELU energy crops coordinator. 'The impact on agricultural land and food production is a big concern,' she said. 'Because the energy crops recycle their own nutrients and do not need fertilisers, they will not need to be planted on the best agricultural land.'
RELU has attempted to assess the public acceptability of a landscape dominated by giant energy crops. They conducted a survey using photographs of existing miscanthus and willow plantations. Surprisingly, two-thirds said they would not mind the triffids growing within sight of their home, although this figure fell when participants were told that more local power stations would be needed to produce energy from their crops.
Environmental surveys are particularly suspect because people feel a need to give the 'correct' green answer. When it comes to behaviour, NIMBY attitudes come to the surface.
Nevertheless, RELU supremo Philip Lowe seized the occasion to urge the government to 'take a more strategic approach to land use in rural areas.' The well connected Newcastle University professor said the government needed a strategic vision for balancing the growing pressures on home-grown food supplies with the need to grow energy crops.
The good professor turned words into action when he bought bananas as a healthy energy boost for the participants waiting for my panel at York.
The Rural and Economy Land Use programme (RELU) estimates that 15-20 per cent of Britain's agricultural land may have to be devoted to growing biofuels to meet international obligations to reduce carbon emissions and improve energy security. [The writer is a grant holder in the RELU programme].
The two main candidate crops are willow coppice, harvested every three years, and miscanthus, a fast-growing Asian grass harvested annually in late winter or spring. Farmers would grow those on poor quality arable land, said Anglea Karp of Rothamsted Research, RELU energy crops coordinator. 'The impact on agricultural land and food production is a big concern,' she said. 'Because the energy crops recycle their own nutrients and do not need fertilisers, they will not need to be planted on the best agricultural land.'
RELU has attempted to assess the public acceptability of a landscape dominated by giant energy crops. They conducted a survey using photographs of existing miscanthus and willow plantations. Surprisingly, two-thirds said they would not mind the triffids growing within sight of their home, although this figure fell when participants were told that more local power stations would be needed to produce energy from their crops.
Environmental surveys are particularly suspect because people feel a need to give the 'correct' green answer. When it comes to behaviour, NIMBY attitudes come to the surface.
Nevertheless, RELU supremo Philip Lowe seized the occasion to urge the government to 'take a more strategic approach to land use in rural areas.' The well connected Newcastle University professor said the government needed a strategic vision for balancing the growing pressures on home-grown food supplies with the need to grow energy crops.
The good professor turned words into action when he bought bananas as a healthy energy boost for the participants waiting for my panel at York.
Sarko changes French stance on CAP
Observers like Jack Thurston have picked up signs of a change in the French stance on the CAP for some time. But now President Nicholas Sarkozy has promised to initiate a fundamental debate about its purpose next year when France takes over the EU's rotating presidency. Using words never used by a French president before to a farming audience, he told farmers at a cattle fair near Rennes that they had to learn to make a living from market prices rather than subsidies.
It's a change from the days when Jacques Chirac was de facto farm minister, but before we get too excited a reading of his speech suggests that he envisages the continuation of subsidies by other but more legitimate and acceptable means.
He framed a partly free market message with a demand for more EU wide protection for a sector he described as 'an essential pillar' of the French economy. The EU should set a goal of 'stabilising markets' in agricultural goods, one that, of course, it has had since the Treaty of Rome. It would do this by re-establishing the principle of 'community preference', although he did not spell out what this would mean in practice.
He said that a reformed CAP would need to meet four objectives: ensure food security for Europe (groan); contribute to a growing global demand for food; preserve rural economies and landscapes; and help combat climate change.
It's a change from the days when Jacques Chirac was de facto farm minister, but before we get too excited a reading of his speech suggests that he envisages the continuation of subsidies by other but more legitimate and acceptable means.
He framed a partly free market message with a demand for more EU wide protection for a sector he described as 'an essential pillar' of the French economy. The EU should set a goal of 'stabilising markets' in agricultural goods, one that, of course, it has had since the Treaty of Rome. It would do this by re-establishing the principle of 'community preference', although he did not spell out what this would mean in practice.
He said that a reformed CAP would need to meet four objectives: ensure food security for Europe (groan); contribute to a growing global demand for food; preserve rural economies and landscapes; and help combat climate change.
OECD blasts biofuel subsidies
Governments need to scrap subsidies for biofuels as the current rush to support alternative energy sources will lead to surging food prices and the potential destruction of natural habitats, argues the OECD in a report leaked this week. The OECD argues that politicians are rigging the market in favour of an untried technology that will have only limited impact on climate change. [The writer is a member of the BBSRC Biofuels Panel but the views expressed here are entirely his own].
The survey says that biofuel would cut energy-related emissions by 3 per cent at most. The study estimates the US alone spends $7bn a year helping make ethanol, with each tonne of carbon dioxide avoided costing more than $500. In the EU it can be almost ten times as much.
There could also be negative environmental externalities. The report states, 'As long as environmental values are not adeuately priced in the market, there will be powerful incentives to replace natural eco-systems such as forests, wetlands and pasture with dedicated bio-energy crops.'
The survey puts a question mark over the EU's plan to derive 10 per cent of transport fuel from plants by 2020. It says money saved from subsidies phasing out should fund research into so-called second generation fuels, which are being developed to use waste products.
Not surprisingly, the NFU has sought to play down the impact on food prices. Their energy and climate change adviser Jonathan Scarlock said, 'The current high prices of commodities are more down to harvest problems in key exporting countries rather than the relatively small proportion going into biofuel production.' While the price of cereals may have doubled this year, the impact on the retail price of food is likely to be about 5 per cent. However, bread prices in the UK have already gone up more than that.
There is a certain amount of triumphalism among farmers' spokespersons at the moment about the fact that the era of cheap food is over. They point out that the proportion of income spent on food in advanced countries has fallen dramatically.
That's so, but many families with young children are on very tight budgets and with fuel prices going up and nursery fees high have little room to absorb food price increases. They may trade down in product quality. Also, supermarkets operating in a competitive environment will try to hold back prices.
The survey says that biofuel would cut energy-related emissions by 3 per cent at most. The study estimates the US alone spends $7bn a year helping make ethanol, with each tonne of carbon dioxide avoided costing more than $500. In the EU it can be almost ten times as much.
There could also be negative environmental externalities. The report states, 'As long as environmental values are not adeuately priced in the market, there will be powerful incentives to replace natural eco-systems such as forests, wetlands and pasture with dedicated bio-energy crops.'
The survey puts a question mark over the EU's plan to derive 10 per cent of transport fuel from plants by 2020. It says money saved from subsidies phasing out should fund research into so-called second generation fuels, which are being developed to use waste products.
Not surprisingly, the NFU has sought to play down the impact on food prices. Their energy and climate change adviser Jonathan Scarlock said, 'The current high prices of commodities are more down to harvest problems in key exporting countries rather than the relatively small proportion going into biofuel production.' While the price of cereals may have doubled this year, the impact on the retail price of food is likely to be about 5 per cent. However, bread prices in the UK have already gone up more than that.
There is a certain amount of triumphalism among farmers' spokespersons at the moment about the fact that the era of cheap food is over. They point out that the proportion of income spent on food in advanced countries has fallen dramatically.
That's so, but many families with young children are on very tight budgets and with fuel prices going up and nursery fees high have little room to absorb food price increases. They may trade down in product quality. Also, supermarkets operating in a competitive environment will try to hold back prices.
Tuesday, September 04, 2007
Special issue of Food Ethics
The autumn issue of Food Ethics focuses on EU farm policy. I wrote an introductory article and there are a number of interesting articles by academics and practitioners including Jack Thurston on where the subsidies go. You can read a sample of the material at Food Ethics
Monday, August 20, 2007
EU farmers need to save water
European agriculture should face the same 'user pays' principle as other EU consumers of water in the coming year in order to address the growing problem of water scarcity, according to a Commission Communication. The report by the Environment DG recognises that at least 20 per cent and maybe 40 per cent of water is wasted in the EU.
Climate change is likely to make drought a more frequent problem. Presenting the report Environment Commissioner Stavros Dinas pointed out that agriculture accounts for more water use than any other sector and as much as two-thirds in Southern Europe.
Supporting studies show that potential water savings resulting from improvements in the conveyance efficiency of irrigation systems range between 10 and 25 per cent of their withdrawals. Water savings resulting from improving application efficiency can range between 10 and 60 per cent of water use. Additional water savings can be expected from changes in irrigation practices (30 per cent), use of more drought-resistant crops (up to 50 per cent) or reuse of treated sewage effluent (10 per cent).
The potential water savings in the irrigation sector would amount to 43 per cent of the current agricultural volumes absorbed.
Climate change is likely to make drought a more frequent problem. Presenting the report Environment Commissioner Stavros Dinas pointed out that agriculture accounts for more water use than any other sector and as much as two-thirds in Southern Europe.
Supporting studies show that potential water savings resulting from improvements in the conveyance efficiency of irrigation systems range between 10 and 25 per cent of their withdrawals. Water savings resulting from improving application efficiency can range between 10 and 60 per cent of water use. Additional water savings can be expected from changes in irrigation practices (30 per cent), use of more drought-resistant crops (up to 50 per cent) or reuse of treated sewage effluent (10 per cent).
The potential water savings in the irrigation sector would amount to 43 per cent of the current agricultural volumes absorbed.
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