It was the recession of the 1930s that ushered in agricultural protectionism and subsidies, not least in the United States. Now the European Union has reverted to two of its old favourite policy instruments: intervention buying and export subsidies in the dairy sector just when we thought we had seen the last of them. Stocks of butter disappeared completely in 2007.
Faced with a drastic drop in dairy prices, the EU is to buy 30,000 tons of butter at a guaranteed price. Over three times as much skimmed milk powder is to be purchased - 109,000 tons. In addition, export subsidies will be given to skimmed milk powder, butter, butter oil and cheese. These subsidies are, of course, particularly damaging to developing countries where they undermine the viability of local farmers. As Oxfam has pointed out, once the EU starts using them, other countries may follow suit.
Officials argue that, by historical standards, the amount being bought is more of a butter molehill than a mountain. In 1986, the EU bought 1.23 million tons of unwanted butter. However, farm organisations have argued that more intervention may be required. The fall of the rouble has dented one important export market. The price of a ton of skimmed milk powder has roughly halved since the summer of 2007.
As far as other intervention stocks are concerned, the EU has 717,810 tons of cereals in the grain mountain and 41,422 tons of sugar, while the wine lake has 2.3m hectolitres of wine in it.
Let's hope it's not back to the future.
Friday, January 23, 2009
Thursday, January 08, 2009
Defra wants set aside back
The UK rural affairs ministry, Defra, is to press for the reintroduction of compulsory set aside, most likely at a range of 2 to 4 per cent. The motivation is that the department failed to reach all its biodiversity targets in 2008 and Royal Society for the Protection of Birds (RSPB) figures showed that farmland bird numbers were in decline.
A link could be made between set-aside and the Entry Level Stewardship Scheme (ELS). One proposal under consideration is to allow farmers to include set aside in the ELS area of a farm. Farmers who are in the scheme would then effectively receive payments for their set aside.
The NFU has argued for set aside to remain at zero per cent, predictably citing food security grounds. A more subtle argument is that it is a very blunt policy instrument, not just for restraining production, but also for achieving biodiversity targets.
The key point here is the reliance on farmland bird populations as a measure of environmental stress. That certainly reflects the agenda setting power of the RSPB, but it is not necessarily the best measure. Moreover, even if one targets farmland bird population, set aside is a crude way of maintaining their numbers.
A link could be made between set-aside and the Entry Level Stewardship Scheme (ELS). One proposal under consideration is to allow farmers to include set aside in the ELS area of a farm. Farmers who are in the scheme would then effectively receive payments for their set aside.
The NFU has argued for set aside to remain at zero per cent, predictably citing food security grounds. A more subtle argument is that it is a very blunt policy instrument, not just for restraining production, but also for achieving biodiversity targets.
The key point here is the reliance on farmland bird populations as a measure of environmental stress. That certainly reflects the agenda setting power of the RSPB, but it is not necessarily the best measure. Moreover, even if one targets farmland bird population, set aside is a crude way of maintaining their numbers.
Budget pressure on CAP
With the Health Check out of the way, it looks as if the medium-term future of the CAP is going to be strongly influenced by discussions of how the EU budget should be spent. This always raises the awkward question of the opportunity cost of spending large sums of money on subsidising farmers.
One external study has concluded that the CAP could just as well be paid from national budgets as the EU budget in terms of its European added-value. (For the study go here: Budget This study seems to have influenced the viewpoint of EU Budget Commissioner Dalia Grybauskaité. She told Agra Focus that there will be massive poltical pressure for the EU to concentrate its policy spending after 2013 on areas where there is a genuine added-value at EU level, e.g., a common policy on energy or climate change.
The Commissioner described 1st pillar CAP funding as 'generally the largest and most costly EU policy which, under each reform has got more and more expensive and less and less efficient'. She also questioned whether agriculture policy is still a 'common policy'. When the EU was created there were questions of hunger. But that has changed and 'we are now fighting with over production and with price crises for food and agricultural products'.
Another argument for co-funding - which already happens in the new member states - is the casual attitude she has witnessed from some member states to various EU-funded projects - as demonstrated by poor controls and the likely increase in sums received under the 'clearance of accounts' procedure. As soon as national/regional funds are involved, the relevant authorities are more focussed and responsible for an efficient use of public money, she argued.
One external study has concluded that the CAP could just as well be paid from national budgets as the EU budget in terms of its European added-value. (For the study go here: Budget This study seems to have influenced the viewpoint of EU Budget Commissioner Dalia Grybauskaité. She told Agra Focus that there will be massive poltical pressure for the EU to concentrate its policy spending after 2013 on areas where there is a genuine added-value at EU level, e.g., a common policy on energy or climate change.
The Commissioner described 1st pillar CAP funding as 'generally the largest and most costly EU policy which, under each reform has got more and more expensive and less and less efficient'. She also questioned whether agriculture policy is still a 'common policy'. When the EU was created there were questions of hunger. But that has changed and 'we are now fighting with over production and with price crises for food and agricultural products'.
Another argument for co-funding - which already happens in the new member states - is the casual attitude she has witnessed from some member states to various EU-funded projects - as demonstrated by poor controls and the likely increase in sums received under the 'clearance of accounts' procedure. As soon as national/regional funds are involved, the relevant authorities are more focussed and responsible for an efficient use of public money, she argued.
Monday, December 15, 2008
Dairy quota row highlights industry divisions
Commissioner Mariann Fischer Boel's proposal for five annual dairy quota increases of 1 per cent each, adopted unchanged by farm ministers, is under attack from two sides. The Commission believes that this is a sure sign that it has negotiated a fair middle path through a morass of conflicting objectives. A less charitable interpretation would be that the needs of an internationally competitive industry have been partially sacrificed to those of marginal farmers with political clout.
What is at stake here is a deeoply divided industry. Parts of the European milk sector, largely found in Northern Europe (although also in Italy's Po Valley) is an efficient, hi tech branch of the food industry that is well capable of competing on the international market and has a strong export orientation. But there are also a lot of marginal dairy farmers who are conservative in outlook and manage to 'get by' economically with the help of political protection. This is given to them by groupings like the CSU in Bavaria.
Member states in the north and west of Europe, especially the UK and Denmark, have criticised the Health Check accord as a missed opportunity to set the EU dairy industry on the road to a prosperous and expansionist future. Member states to the south and east have lamented the prospect of more milk coming on to the market at a time when dairy farmers' incomes are coming under sustained pressure.
Kirsten Holm Svendsen, policy director of the Danish Dairy Board, commented, 'Restricting milk production in Europe will only generate higher support volumes from non-European dairy nations. Thus, by refusing to liberalise dairy production, the EU gives up the expanding European dairy market to the Brazilians.'
The Danes are also concerned that the new support mechanisms available to dairy producers under 'Article 68' of the Single Farm Payment regulation will allow member states to effectively re-introduce coupled support of the dairy sector, with a consequent distorting impact on competition.
The possibility of creating a new coupled dairy cow premium from 2010 is regarded as a negotiating victory for Austria. Outgoing Austrian farm minister Josef Proll said that the biennial reviews of the milk market would allow the Commission to put the planned quota increases in hold if there were to be any risk of exceptional market disturbances - or even to cut quotas. Thus, even modest steps in the direction of market liberalisation could be threatened.
What is at stake here is a deeoply divided industry. Parts of the European milk sector, largely found in Northern Europe (although also in Italy's Po Valley) is an efficient, hi tech branch of the food industry that is well capable of competing on the international market and has a strong export orientation. But there are also a lot of marginal dairy farmers who are conservative in outlook and manage to 'get by' economically with the help of political protection. This is given to them by groupings like the CSU in Bavaria.
Member states in the north and west of Europe, especially the UK and Denmark, have criticised the Health Check accord as a missed opportunity to set the EU dairy industry on the road to a prosperous and expansionist future. Member states to the south and east have lamented the prospect of more milk coming on to the market at a time when dairy farmers' incomes are coming under sustained pressure.
Kirsten Holm Svendsen, policy director of the Danish Dairy Board, commented, 'Restricting milk production in Europe will only generate higher support volumes from non-European dairy nations. Thus, by refusing to liberalise dairy production, the EU gives up the expanding European dairy market to the Brazilians.'
The Danes are also concerned that the new support mechanisms available to dairy producers under 'Article 68' of the Single Farm Payment regulation will allow member states to effectively re-introduce coupled support of the dairy sector, with a consequent distorting impact on competition.
The possibility of creating a new coupled dairy cow premium from 2010 is regarded as a negotiating victory for Austria. Outgoing Austrian farm minister Josef Proll said that the biennial reviews of the milk market would allow the Commission to put the planned quota increases in hold if there were to be any risk of exceptional market disturbances - or even to cut quotas. Thus, even modest steps in the direction of market liberalisation could be threatened.
Wednesday, December 10, 2008
Auditors roast cross-compliance policy
The European Court of Auditors has published a strong critique of the way that cross-compliance policy, a key element in the reformed CAP, is executed by the Commission and the member states.
The Court carried out an audit in 2008 of the cross-compliance policy at the Commission and in seven Member States representing the diversity of agriculture across Europe. In the report which it recently adopted, the Court concludes that the objectives of this policy have not been defined in a specific, measurable, relevant, and realistic way, and that at farm level many obligations are still only for form’s sake and therefore have little chance of leading to the expected changes, whether reducing the size of payments or modifying farming practices.
More precisely, the Court finds that:
the Member States have not translated all the cross-compliance standards into obligations applicable at farm level.
monitoring whether these obligations are being respected is weak and in some cases non-existent. One of the reasons for this is that the checks are largely carried out during the summer months and a significant number of obligations relating to agricultural practices which occur during other seasons and cannot therefore be properly checked.
the minimal reduction in direct payments seen to date stems both from monitoring weaknesses and an inadequate system of sanctions. For example, the audit found no breach of cross-compliance after carrying out 11 633 checks of the Birds Directive and 14 896 checks of the Habitats Directive over two years in four Member States.
the introduction of cross-compliance has weakened key elements of the control and sanction system for rural development. In addition, the separation between cross-compliance and agri-environmental measures is not always clear.
the data sent by the Member States to the Commission are unreliable and overestimate both the rate of monitoring of farmers and the farmers’ compliance rates. The Commission’s system for monitoring these data is incomplete and suffers in particular from the absence of performance indicators and baseline levels.
Overall, the Court considers that cross-compliance is a vital element of the CAP but concludes that it is not effective as currently managed by the Commission and implemented by the Member States. It states, 'If the public authorities wish cross-compliance to achieve its full effect, they must define specific and measurable objectives which can be translated into obligations that are controllable at farm level. The Court therefore recommends that the applicable rules should be simplified, clarified and prioritised.'
The Court carried out an audit in 2008 of the cross-compliance policy at the Commission and in seven Member States representing the diversity of agriculture across Europe. In the report which it recently adopted, the Court concludes that the objectives of this policy have not been defined in a specific, measurable, relevant, and realistic way, and that at farm level many obligations are still only for form’s sake and therefore have little chance of leading to the expected changes, whether reducing the size of payments or modifying farming practices.
More precisely, the Court finds that:
the Member States have not translated all the cross-compliance standards into obligations applicable at farm level.
monitoring whether these obligations are being respected is weak and in some cases non-existent. One of the reasons for this is that the checks are largely carried out during the summer months and a significant number of obligations relating to agricultural practices which occur during other seasons and cannot therefore be properly checked.
the minimal reduction in direct payments seen to date stems both from monitoring weaknesses and an inadequate system of sanctions. For example, the audit found no breach of cross-compliance after carrying out 11 633 checks of the Birds Directive and 14 896 checks of the Habitats Directive over two years in four Member States.
the introduction of cross-compliance has weakened key elements of the control and sanction system for rural development. In addition, the separation between cross-compliance and agri-environmental measures is not always clear.
the data sent by the Member States to the Commission are unreliable and overestimate both the rate of monitoring of farmers and the farmers’ compliance rates. The Commission’s system for monitoring these data is incomplete and suffers in particular from the absence of performance indicators and baseline levels.
Overall, the Court considers that cross-compliance is a vital element of the CAP but concludes that it is not effective as currently managed by the Commission and implemented by the Member States. It states, 'If the public authorities wish cross-compliance to achieve its full effect, they must define specific and measurable objectives which can be translated into obligations that are controllable at farm level. The Court therefore recommends that the applicable rules should be simplified, clarified and prioritised.'
Tuesday, December 09, 2008
The Estonian vision
A charming young Estonian woman greeted me at the European Parliament yesterday when I went to give evidence to the Agriculture and Rural Development Committee (of which more in due course). Of broader significance Estonia is orobably the only new member state with a clear concept of how the CAP should evolve. This is outlined in an Agra Focus interview with farm minister Helir-Valdor Seeder.
Estonia's view is that reform has not gone far enough and believes that we need a significantly reformed CAP. Seeder's view is that 'the system of direct aid today is innovative in its form ... but in practice it is the factual continuation of the 1992 MacSharry reform where farmers were compensated for the internal market price drop.' He argues there should be a continuing base payment to farmers to compensate for the EU standards they are obliged to follow.
However, more payments should be targeted. He sees the future in terms of a Common Rural Policy which should be open to entrepreneurs in rural areas, but 'should not be a cartel for the farmers club.'
He argues that price volatility requires a single intervention mechanism that would enable the EU to offset the negative effects of extreme temporary price drops. However, why not deal with this through some kind of insurance mechanism that had EU backing? It would be less market distoring.
Estonia's view is that reform has not gone far enough and believes that we need a significantly reformed CAP. Seeder's view is that 'the system of direct aid today is innovative in its form ... but in practice it is the factual continuation of the 1992 MacSharry reform where farmers were compensated for the internal market price drop.' He argues there should be a continuing base payment to farmers to compensate for the EU standards they are obliged to follow.
However, more payments should be targeted. He sees the future in terms of a Common Rural Policy which should be open to entrepreneurs in rural areas, but 'should not be a cartel for the farmers club.'
He argues that price volatility requires a single intervention mechanism that would enable the EU to offset the negative effects of extreme temporary price drops. However, why not deal with this through some kind of insurance mechanism that had EU backing? It would be less market distoring.
Tuesday, December 02, 2008
More bids to grub up vineyards than expected
The scale of bids to permanently dig up vineyards under the first year of the grubbing-up scheme set up under the wine reform has surprised the Commission. They have been obliged to reduce each application by 54.1 per cent as a result. Bids across the EU for just under 160,000 hectares have been reduced to just over 73,000. The total budget for the first year of the grubbing up scheme was €464m.
The applications cover 4.2 per cent of the European Union wine area. but as mich as 12.7 per cent in Cyprus and 8.9 per cent in Spain. These countries perhaps have relatively high proportions of lower quality wines while Cyprus is a recent entrant to the EU and will have not been able to take advantage of earlier schemes. 91 per cent of the funds have been allocated to Spain, Italy and France.
Europe continues to face a challenge from the new wine producers of Australia, Chile, New Zealand and South Africa, particularly in relation to medium quality 'drinkable' wines.
The applications cover 4.2 per cent of the European Union wine area. but as mich as 12.7 per cent in Cyprus and 8.9 per cent in Spain. These countries perhaps have relatively high proportions of lower quality wines while Cyprus is a recent entrant to the EU and will have not been able to take advantage of earlier schemes. 91 per cent of the funds have been allocated to Spain, Italy and France.
Europe continues to face a challenge from the new wine producers of Australia, Chile, New Zealand and South Africa, particularly in relation to medium quality 'drinkable' wines.
Friday, November 21, 2008
CAP Health Check deal
An outline of the compromise deal brokered by the French presidency to complete the CAP health check can be found here: Euractiv . There is also extensive coverage on the CAP Health Check blog that we work with: see Health Check. Even if the name of the blog eventually changes, the need for its campaigning stance remains.
Further progress has been made in the direction of strengthening Pillar 2 payments which emphasise environmental protection. Indeed, this move has upset the NFU: NFU . However, this is not a fundamental reform of the CAP, but nor was it meant to be. For that we will have to wait at least until 2013.
In any case with economic crisis hitting Europe the attentions of its leaders is focused elsewhere. Industrial policy is making a comeback, particularly in France and Italy. In so far as payments to bail out firms in difficulty become fashionable once again, aid to farmers looks less exceptional and less open to criticism. A quote from Silvio Berlusconi about says it all: 'State aid, which until yesterday was considered a sin, is now absolutely essential.' So much for the internal market.
Industrial policy was, of course, as big a disaster as farm policy: it just didn't last as long. The least efficient firms went out of business eventually and those that were left were able to compete in normal economic conditions.
We will provide more analysis over the coming weeks.
Further progress has been made in the direction of strengthening Pillar 2 payments which emphasise environmental protection. Indeed, this move has upset the NFU: NFU . However, this is not a fundamental reform of the CAP, but nor was it meant to be. For that we will have to wait at least until 2013.
In any case with economic crisis hitting Europe the attentions of its leaders is focused elsewhere. Industrial policy is making a comeback, particularly in France and Italy. In so far as payments to bail out firms in difficulty become fashionable once again, aid to farmers looks less exceptional and less open to criticism. A quote from Silvio Berlusconi about says it all: 'State aid, which until yesterday was considered a sin, is now absolutely essential.' So much for the internal market.
Industrial policy was, of course, as big a disaster as farm policy: it just didn't last as long. The least efficient firms went out of business eventually and those that were left were able to compete in normal economic conditions.
We will provide more analysis over the coming weeks.
Monday, November 17, 2008
The methane menace and hamburgers
A paper on the contribution to climate change of livestock methane emissions has found that the problem is likely to get worse as global demand for meat and dairy products increases. Dr Andy Thorpe, an economist at Portsmouth University, found that a single herd of 200 cows can produce annual emissions of methane roughly equivalent in energy terms to driving a family car 180,000 km.
Whereas carbon dioxide emissions have increased 31 per cent over the past 250 years, methane, which has a higher warming potential and a longer atmosphere lifetime than carbon dioxide has increased by 149 per cent over that time. Dr Thorpe commented that 'Methane emission growth ... has been increasing exponentially in the developing world due to a rise in incomes leading to an increased demand for meat and the "hamburger connection" where developing countries make a lucrative profit supplying meat to developed countries.'
Attempts to curb animal methane emissions have included feeding grazing animals on cottonseed and alfalfa, using food additives, and vacinnating animals with drugs, but it is not clear if they will work on a large scale. A reduction in the amount of livestock kept for meat and milk would only put pressure on other food sources, such as cereals.
Animal methane emissions from developing countries have increased to 75 per cent of the global total, with India and Brazil in the lead. It is thought that atmospheric methane is responsible for one-fifth of the global warming since 1750.
Cows, sheep, goats and camels have an additional stomach and produce large amounts of methane as they digest their food. A dairy cow in New Zealand will typically produce around 80kg of methane a year, just through burping.
The policy pressures this produces is shown by complaints from the Irish Dairy Industries Association that the Republic's commitment to reduce greenhouse gas emissions is piling further economic pressure on the country's beleaguered dairy industry. It was argued that because Ireland's greenhouse gas emissions (GHG)were closely linked to methane from cattle, a 20 per cent cut in GHG emissions would result in a 20 per cent cut in Ireland's dairy herd.
The association complained that there is no international standard for measurement of emissions from enetric fermentation in cattle. The background to these concerns is a sharp drop in prices from 40 cents a litre in 2007 to around 24 now.
Vegetarians would no doubt argue that the GHG emissions of cattle reinforce the case for not eating meat. In practice, it is difficult to see how the problem can be tackled given that the livestock sector is under heavy economic pressure.
Whereas carbon dioxide emissions have increased 31 per cent over the past 250 years, methane, which has a higher warming potential and a longer atmosphere lifetime than carbon dioxide has increased by 149 per cent over that time. Dr Thorpe commented that 'Methane emission growth ... has been increasing exponentially in the developing world due to a rise in incomes leading to an increased demand for meat and the "hamburger connection" where developing countries make a lucrative profit supplying meat to developed countries.'
Attempts to curb animal methane emissions have included feeding grazing animals on cottonseed and alfalfa, using food additives, and vacinnating animals with drugs, but it is not clear if they will work on a large scale. A reduction in the amount of livestock kept for meat and milk would only put pressure on other food sources, such as cereals.
Animal methane emissions from developing countries have increased to 75 per cent of the global total, with India and Brazil in the lead. It is thought that atmospheric methane is responsible for one-fifth of the global warming since 1750.
Cows, sheep, goats and camels have an additional stomach and produce large amounts of methane as they digest their food. A dairy cow in New Zealand will typically produce around 80kg of methane a year, just through burping.
The policy pressures this produces is shown by complaints from the Irish Dairy Industries Association that the Republic's commitment to reduce greenhouse gas emissions is piling further economic pressure on the country's beleaguered dairy industry. It was argued that because Ireland's greenhouse gas emissions (GHG)were closely linked to methane from cattle, a 20 per cent cut in GHG emissions would result in a 20 per cent cut in Ireland's dairy herd.
The association complained that there is no international standard for measurement of emissions from enetric fermentation in cattle. The background to these concerns is a sharp drop in prices from 40 cents a litre in 2007 to around 24 now.
Vegetarians would no doubt argue that the GHG emissions of cattle reinforce the case for not eating meat. In practice, it is difficult to see how the problem can be tackled given that the livestock sector is under heavy economic pressure.
Wednesday, November 12, 2008
Auditors' report makes for sobering reading
The very complexity of the CAP opens it to scams of various kinds. These may not be fraudulent in the criminal sense of the term (although such instances have occurred) but they do represent a use of loopholes to divert public money to line the pockets of individuals.
In this respect the report from the EU Court of Auditors for 2007 makes for sobering reading. The EU spent 51 billion euros in 2007 on agriculture and natural resources of which all but 2 per cent was on agriculture and rural development. The Court's press release states, 'the estimated overall error rate is still material. [Translated out of bureaucratic code, a lot of public money is being wasted]. Rural development, with its often complex rules, accounts for a disproportionately large part of this error rate.'
Of 196 transactions examined, 61 were affected by error and some two-thirds of the errors (40) were classified as 'serious'. In its response, the Commission finds reassurance in the fact 'that the most likely overall error rate is not significantly different from last year's'. So that's all right then.
Once again olive oil in Southern Europe is a particular culprit. In its 2006 report, the Court pointed out that in Greece, Spain and Italy the olive cultivation data were neither complete not reliable. 'These weaknesses persist in Italy and Greece, where four out of five transactions audited contained errors, some of which led to significant overpayments.'
Significant overpayments were found in relation to nuts and dried grapes in Spain and Greece. In one case in Spain a farmer appeared to have far fewer sheep than the number that had been claimed for.
Northern European states were far from blameless. In relation to the Single Payments Scheme which now accounts for 55 per cent of all payments, 'in England the four entitlements audited were erroneously calculated mainly due to failure to take account of changes in land parcels; while these errors did not have a significant impact on the 2007 payments since England applies the "dynamic" model, these initial entitlements, unless corrected, will result in significant over/underpayments in future years.'
In England the same parcel of land can be claimed by two 'farmers' under different area related and EU schemes. In nine out of 12 on-the-spot visits to 'new beneficiaries' of EU direct aid, 'the area declared for SPS was not eligible in whole or in part either because it was not in good agricultural condition, its main use was not agricultural or the beneficiary was not eligible because he did not carry out any agricultural activity on the land.' [This is sometimes referred to as 'sofa farming']
More generally, the Court states that 'the administrative controls in England do not provide assurance that EU aid is paid out correctly. England [does] not avail of the option to use aerial or spatial orthoimagery'. As the Commission points out in its response, this is not legally required, but it is still good practice.
Portugal has paid out €3.5m on 'balido' land. This land is usually public land of very poor pasture and mainly covered by bushes and trees. In Greece quantities of rice were missing from public storage.
In nine out of 13 agri-environmental schemes audited in France and Ireland farmers had not met the eligibility conditions. Even the Commission admitted that many of these errors had 'an important financial impact' in relation to records about nitrate reduction. The Commission also conceded that it was following up with French authorities the lack of an adequate audit trail in relation to interest rate subsidies.
One is left with the impression that public funds will contunue to be misallocated or wasted.
In this respect the report from the EU Court of Auditors for 2007 makes for sobering reading. The EU spent 51 billion euros in 2007 on agriculture and natural resources of which all but 2 per cent was on agriculture and rural development. The Court's press release states, 'the estimated overall error rate is still material. [Translated out of bureaucratic code, a lot of public money is being wasted]. Rural development, with its often complex rules, accounts for a disproportionately large part of this error rate.'
Of 196 transactions examined, 61 were affected by error and some two-thirds of the errors (40) were classified as 'serious'. In its response, the Commission finds reassurance in the fact 'that the most likely overall error rate is not significantly different from last year's'. So that's all right then.
Once again olive oil in Southern Europe is a particular culprit. In its 2006 report, the Court pointed out that in Greece, Spain and Italy the olive cultivation data were neither complete not reliable. 'These weaknesses persist in Italy and Greece, where four out of five transactions audited contained errors, some of which led to significant overpayments.'
Significant overpayments were found in relation to nuts and dried grapes in Spain and Greece. In one case in Spain a farmer appeared to have far fewer sheep than the number that had been claimed for.
Northern European states were far from blameless. In relation to the Single Payments Scheme which now accounts for 55 per cent of all payments, 'in England the four entitlements audited were erroneously calculated mainly due to failure to take account of changes in land parcels; while these errors did not have a significant impact on the 2007 payments since England applies the "dynamic" model, these initial entitlements, unless corrected, will result in significant over/underpayments in future years.'
In England the same parcel of land can be claimed by two 'farmers' under different area related and EU schemes. In nine out of 12 on-the-spot visits to 'new beneficiaries' of EU direct aid, 'the area declared for SPS was not eligible in whole or in part either because it was not in good agricultural condition, its main use was not agricultural or the beneficiary was not eligible because he did not carry out any agricultural activity on the land.' [This is sometimes referred to as 'sofa farming']
More generally, the Court states that 'the administrative controls in England do not provide assurance that EU aid is paid out correctly. England [does] not avail of the option to use aerial or spatial orthoimagery'. As the Commission points out in its response, this is not legally required, but it is still good practice.
Portugal has paid out €3.5m on 'balido' land. This land is usually public land of very poor pasture and mainly covered by bushes and trees. In Greece quantities of rice were missing from public storage.
In nine out of 13 agri-environmental schemes audited in France and Ireland farmers had not met the eligibility conditions. Even the Commission admitted that many of these errors had 'an important financial impact' in relation to records about nitrate reduction. The Commission also conceded that it was following up with French authorities the lack of an adequate audit trail in relation to interest rate subsidies.
One is left with the impression that public funds will contunue to be misallocated or wasted.
Sunday, November 09, 2008
Farmers and the credit crunch
Over ten years ago I was involved in an international project on farm finance as part of which I interviewed the agricultural finance specialists in all the banks in Britain and Ireland. One thing that came across was that banks competed to lend to farmers because it was seen as a lucrative market with very secure assets.
Figures from the Bank of England show that agricultural borrowing in the UK is at an all time high, £11bn at the end of September, compared with £9.94bn at the end of 1997. The debt burden was, however, offset by an increase in farm incomes. According to Defra, the average income was about £48,000 in 2007-8, about 40 per cent higher than the previous year, owing largely to higher prices for cereals and milk.
The falling exchange rate may also benefit farmers, given that subsidies are denominated in euros (the notorious 'green pound' which was one of the most complex aspects of the CAP is no longer with us). The estimated €3.8bn (£3.1bn) in subsidies this year should be worth more. Sterling's weakness may make exports more attractive. In 2006, the last year for which figures are available, the UK exported £10.5bn of farm products.
Agricultural land is still fetching historically high prices, giving farmers an equity cushion. Borrowing is much lower than in other sectors. The total value of farming assets in the UK is estimated at around £150bn, giving a gearing ratio of less than 10 per cent, far less than the rates other industries have come to see as normal.
Figures from the Bank of England show that agricultural borrowing in the UK is at an all time high, £11bn at the end of September, compared with £9.94bn at the end of 1997. The debt burden was, however, offset by an increase in farm incomes. According to Defra, the average income was about £48,000 in 2007-8, about 40 per cent higher than the previous year, owing largely to higher prices for cereals and milk.
The falling exchange rate may also benefit farmers, given that subsidies are denominated in euros (the notorious 'green pound' which was one of the most complex aspects of the CAP is no longer with us). The estimated €3.8bn (£3.1bn) in subsidies this year should be worth more. Sterling's weakness may make exports more attractive. In 2006, the last year for which figures are available, the UK exported £10.5bn of farm products.
Agricultural land is still fetching historically high prices, giving farmers an equity cushion. Borrowing is much lower than in other sectors. The total value of farming assets in the UK is estimated at around £150bn, giving a gearing ratio of less than 10 per cent, far less than the rates other industries have come to see as normal.
Monday, October 27, 2008
Buckwell expresses doubts about SFP and pillars
Allan Buckwell expresses doubts about the efficacy of the Single Farm Payment in his interview with Agra Focus (see below). He comments, 'It is a very simplistic stablization measure and the distribution of the payments is a big odd.'
Later in the interview, he explains, 'I was never really a big fan of the Single Farm Payment. It was an absolutely necessary step to unhook support from prices ... When you look at the payments per head or per hectare or per annual work unit by Member State, there is a variation of about 3-50 fold from the highest to the lowest.'
He also expresses doubts about the two pillar distinction which has been regarded, perhaps too uncritically, as a central plank of the recent development of the CAP in order to increase spending on the 'multifunctional' or public goods aspects of agriculture. He notes, 'The distinction between the two pillars served a purpose. If it's creating an obstacle to the development of a better policy, then let's scrap it.'
He comments, 'There is little doubt that Pillar 2 is becoming unpopular. It is unpopular with farmers: many farmers in many countries say they cannot access the schemes that are available. They see it as bureaucratic, and also complain that money is leaking away to others. The bureaucrats and the administration say that it is a complex system with very high administrative costs and co-financing puts off Member States from doing more of it.'
He argues that co-financing is the key issue. If co-financing rules are stopping sensible reform, they should be changed. It might be better to co-finance everything with the member state contribution related to the national income per head. What is needed, he argues, is an explicit debate about the underlying principle rather than about 'funny little new programmes.'
Later in the interview, he explains, 'I was never really a big fan of the Single Farm Payment. It was an absolutely necessary step to unhook support from prices ... When you look at the payments per head or per hectare or per annual work unit by Member State, there is a variation of about 3-50 fold from the highest to the lowest.'
He also expresses doubts about the two pillar distinction which has been regarded, perhaps too uncritically, as a central plank of the recent development of the CAP in order to increase spending on the 'multifunctional' or public goods aspects of agriculture. He notes, 'The distinction between the two pillars served a purpose. If it's creating an obstacle to the development of a better policy, then let's scrap it.'
He comments, 'There is little doubt that Pillar 2 is becoming unpopular. It is unpopular with farmers: many farmers in many countries say they cannot access the schemes that are available. They see it as bureaucratic, and also complain that money is leaking away to others. The bureaucrats and the administration say that it is a complex system with very high administrative costs and co-financing puts off Member States from doing more of it.'
He argues that co-financing is the key issue. If co-financing rules are stopping sensible reform, they should be changed. It might be better to co-finance everything with the member state contribution related to the national income per head. What is needed, he argues, is an explicit debate about the underlying principle rather than about 'funny little new programmes.'
Wednesday, October 22, 2008
Interview with Allan Buckwell
Agra Focus has been conducting a series of interviews on EU farm policy and one of the longest and most interesting to date is with Allan Buckwell. He is currently policy director with the (England and Wales) Country and Land Business Association, but is also chair of the policy committee run by the European Landowners Association. He was for many years a respected agricultural economics and policy academic at the now sadly diminished Wye College. Perhaps his most interesting role in policy terms was when he spent a year in DG Agri in 1995-6 and chaired a group which wrote a report on a Common Agricultural and Rural Policy for Europe.
The whole interview is well worth reading as is Agra Focus for those who wish to keep up to date with developments in the CAP debate. Over the next few days we shall publish some highlights from the interview.
Allan Buckwell said that in the 1990s there was a consensus that policy had to change and the direction in which it had to move was liberalisation. That meant moving away from distorting commodity markets. Now there is not the consensus on what direction to take the CAP.
Moreover, the broader European debate, which in 2005-6 seemed to be moving away from the accumulated outcome of 40 years of incrementalism was now replaced by very little strategic thinking at all. There was retrenchment all over Europe and a shift to Euroscepticism rather than taking a clean sheet of paper and thinking about what a new Europe could look like.
Allan Buckwell suggested that policy faced two challenges, a food challenge and an environmental challenge. Recent events suggested that there might also be a risk management challenge as well.
He reiterated his belief that the CAP should evolve to become a Food and Environmental Security Policy. There was no difficult in convincing people that environmental security was a big issue. 'Unfortunately, coming from where I do, if you mention the words food security you are immediately accused of being a farmer protectionist and wanting higher prices.'
Buckwell insisted, 'I am arguing that food and the environment are inter-related and there are such big market failures surrounding the environmental impacts of agricultural production, that this justifies a policy.' What was needed was not the agricultural policy we have had for the last 40 years, but there was a clear job to be done.
Part of what he has in mind is stimulating agricultural development in the new member states and modernising infrastructure and marketing there. He also emphasises the need for research and development work on how one maintains the productivity of agriculture and yet reduce its environmental impact. These are worthwhile aims for public action.
The whole interview is well worth reading as is Agra Focus for those who wish to keep up to date with developments in the CAP debate. Over the next few days we shall publish some highlights from the interview.
Allan Buckwell said that in the 1990s there was a consensus that policy had to change and the direction in which it had to move was liberalisation. That meant moving away from distorting commodity markets. Now there is not the consensus on what direction to take the CAP.
Moreover, the broader European debate, which in 2005-6 seemed to be moving away from the accumulated outcome of 40 years of incrementalism was now replaced by very little strategic thinking at all. There was retrenchment all over Europe and a shift to Euroscepticism rather than taking a clean sheet of paper and thinking about what a new Europe could look like.
Allan Buckwell suggested that policy faced two challenges, a food challenge and an environmental challenge. Recent events suggested that there might also be a risk management challenge as well.
He reiterated his belief that the CAP should evolve to become a Food and Environmental Security Policy. There was no difficult in convincing people that environmental security was a big issue. 'Unfortunately, coming from where I do, if you mention the words food security you are immediately accused of being a farmer protectionist and wanting higher prices.'
Buckwell insisted, 'I am arguing that food and the environment are inter-related and there are such big market failures surrounding the environmental impacts of agricultural production, that this justifies a policy.' What was needed was not the agricultural policy we have had for the last 40 years, but there was a clear job to be done.
Part of what he has in mind is stimulating agricultural development in the new member states and modernising infrastructure and marketing there. He also emphasises the need for research and development work on how one maintains the productivity of agriculture and yet reduce its environmental impact. These are worthwhile aims for public action.
Tuesday, October 14, 2008
Farmers divided over DECC
Farm organisations in the UK have divergent opinions on the consequences of the formation of a Department of Energy and Climate Change (DECC) which takes over responsibility for the key environmental issue of climate change from DEFRA.
NFU vice-president Paul Temple said he hoped the separation of energy and climate change would leave DEFRA with a sharper focus on food and farming. That would echo the days of the Ministry of Agriculture, Fisheries and Food (MAFF)that was focused on food production.
To echo the language of the film The Graduate I have one word to say to that: BSE. MAFF was a hopelessly clientilistic ministry that was in a symbiotic relationship with the NFU and almost always put productionist values first.
Because the Country Land and Business Association represents a lot of large landed estates (ok, I know that it has farmers like my brother-in-law in membership as well - a 7th generation Welsh farmer) it tends to be more interested in conservation. Actually, I also think there is a bit of self-selection in who becomes a member.
A CLA spokesman said that unless the two departments retained cohesion, the role of landowners in environmental management could be marginalised. 'Ed Miliband [the new DECC minister] will need to appease many groups in his new post and many campaigners who had relationships with DEFRA will have to introduce themselves to him afresh,' said the CLA.
Farmers Weekly blogger David Richardson, an unreconstructed productionist who is a very effective spokesman for large-scale arable farmers, said that until Hilary Been was removed, food production would never regain prominence, whatever the reshuffle. He accused Mr Benn of thinking of himself as an 'overseas development minister', presumably because he has expressed concern about the impact of the CAB on the Global South.
You can read David Richardson's views here: Farmer . When I looked the Defra story was second, as he was on to badgers.
It will be interesting to know what the new DEFRA Council of Food Policy Advisers will do, or more particularly whether it will take a balanced stance:
Defra
At the moment, I do not know who is on it which would indicate whether it was a nest of productionists or a body that tried to take account of a range of viewpoints.
NFU vice-president Paul Temple said he hoped the separation of energy and climate change would leave DEFRA with a sharper focus on food and farming. That would echo the days of the Ministry of Agriculture, Fisheries and Food (MAFF)that was focused on food production.
To echo the language of the film The Graduate I have one word to say to that: BSE. MAFF was a hopelessly clientilistic ministry that was in a symbiotic relationship with the NFU and almost always put productionist values first.
Because the Country Land and Business Association represents a lot of large landed estates (ok, I know that it has farmers like my brother-in-law in membership as well - a 7th generation Welsh farmer) it tends to be more interested in conservation. Actually, I also think there is a bit of self-selection in who becomes a member.
A CLA spokesman said that unless the two departments retained cohesion, the role of landowners in environmental management could be marginalised. 'Ed Miliband [the new DECC minister] will need to appease many groups in his new post and many campaigners who had relationships with DEFRA will have to introduce themselves to him afresh,' said the CLA.
Farmers Weekly blogger David Richardson, an unreconstructed productionist who is a very effective spokesman for large-scale arable farmers, said that until Hilary Been was removed, food production would never regain prominence, whatever the reshuffle. He accused Mr Benn of thinking of himself as an 'overseas development minister', presumably because he has expressed concern about the impact of the CAB on the Global South.
You can read David Richardson's views here: Farmer . When I looked the Defra story was second, as he was on to badgers.
It will be interesting to know what the new DEFRA Council of Food Policy Advisers will do, or more particularly whether it will take a balanced stance:
Defra
At the moment, I do not know who is on it which would indicate whether it was a nest of productionists or a body that tried to take account of a range of viewpoints.
Friday, October 03, 2008
Is MAFF back in the UK?
Details are still sketchy and yet to be confirmed but it looks as if the Department of Environment, Food and Rural Affairs is to lose its climate change function as part of the Cabinet reshuffle. Defra would retain its agriculture, food and rural affairs roles, thus looking more like than a MAFF Mark II. Let's hope it isn't as clientilist and productionist as the old department.
Friday, September 26, 2008
Wait a minute
The Scottish farm minister Richard Lochead has firmly ruled out a demand from NFU Scotland for the early payment of £61m of less favoured area support. He pointed out that early payment would jeopardise the Single Farm Payment as EU rules state that SFP must be paid ahead of LFA support.
The Scottish NFU argued that early payment would provide some respite to farmers escalating feed, fertiliser and fuel payment. Many families are constrained by rising food, energy and petrol prices. Perhaps on the same logic child benefit should be paid out early?
In an editorial Farmers' Weekly calls for a 'coherent, joined-up plan ... from DEFRA, which encourages a scaling-up of UK food production'. It doesn't get much to get the farming community to fall back on a call for Stalinist five-year plans. Machine Tractor Stations anyone?
Those in farming tend to see the world rather differently from the rest of us. To be fair, there are progressive farmers who see the need to engage in a dialogue with consumers and respond to market opportunities. But all too often they are not the public voice of the industry.
The Scottish NFU argued that early payment would provide some respite to farmers escalating feed, fertiliser and fuel payment. Many families are constrained by rising food, energy and petrol prices. Perhaps on the same logic child benefit should be paid out early?
In an editorial Farmers' Weekly calls for a 'coherent, joined-up plan ... from DEFRA, which encourages a scaling-up of UK food production'. It doesn't get much to get the farming community to fall back on a call for Stalinist five-year plans. Machine Tractor Stations anyone?
Those in farming tend to see the world rather differently from the rest of us. To be fair, there are progressive farmers who see the need to engage in a dialogue with consumers and respond to market opportunities. But all too often they are not the public voice of the industry.
Monday, September 22, 2008
Food security and CAP reform
A short overview article I have written on this subject can be read here:
Reform
Reform
New book recommendation
Whilst I have some reservations about plugging a book in which I wrote the concluding chapter (on 'Implications for Future Reforms'), I do recommend Johan Swinnen (edited) The Perfect Storm: The Political Economy of the Fischler Reforms of the Common Agricultural Policy published by the Centre for European Policy Studies in Brussels. You can now download it for free here:
Book
It was based on an excellent workshop in Brussels which involved some of the Fischler insiders as well as academics. The result is, I think, one of the most informed and authoritative accounts of the Fischler reforms that we have available to us.
Book
It was based on an excellent workshop in Brussels which involved some of the Fischler insiders as well as academics. The result is, I think, one of the most informed and authoritative accounts of the Fischler reforms that we have available to us.
Tuesday, September 16, 2008
An exercise in decoding
France has produced a paper on the future of the CAP which is designed to stimulate discussion at the informal farm council to be held there in the Rhone-Alps region on 21-23 September. The paper is very vague, no doubt deliberately so, and interpreting has to be an exercise in decoding.
The paper argues that in the 'new context' of rising food and fuel prices, the future of the CAP should centre around four areas. The first of these is assuring food security in the EU. No suprises there, as France has been a vigorous adopter and champion of the revived food security discourse which provides a new underpinning for subsidy and protection.
New content can be placed in it, however, as is evident from a discussion on economic patriotism I participated at Science Po in Paris last week. The argument there was that even new market approaches could be brought under the economic patriotism umbrella.
The second objective is contributing to sustainable and balanced food supplies in the world. A laudable aim, but the EU has frustrated it by dumping surplus produce on the world market and undermining local suppliers, as well as frustrating the development of commercial agriculture in the Global South by placing barriers to entry around the European market. Hopefully, some of the worst of these practices are coming to an end.
The third aim is preserving the rural fabric and ensuring territorial cohesion, an objective close to French hearts with its emphasis on the cultural dimension of the CAP. The paper argues that the uniformity of Pillar 1 is in danger of stifling the diversity of the French agricultural landscape. Vulnerable areas, of which no doubt there are many in France, should get some sort of 'top up'.
The fourth objective is participating in the mitigation of climate change, which everyone is in favour of, but the challenge is how you actually do it, particularly in an economic downturn.
The most specific the paper gets is a call for less static support tools which a decoding suggests are favoured in part because they may be a way of getting around international trade rules. As well as providing support for integrated enviromental measures, these tools (whatever they might be) would be a means of dealing with increased market volatility.
This leads me to suppose that one might be talking about some modernised verision of deficiency payments, as used in Britain before it joined the common market. It may be, and this is just surmise, that the French think they cannot keep the SFP going beyond 2013, but they may be able to sell a subsidy that is linked to climate change and environmental benefits and also gives farmers some protection in hard times.
Whether such a vague document will lead to a structured or useful discussion at the informal Farm Council remains to be seen, but somehow I doubt it.
More information on the meeting is at Council
The paper argues that in the 'new context' of rising food and fuel prices, the future of the CAP should centre around four areas. The first of these is assuring food security in the EU. No suprises there, as France has been a vigorous adopter and champion of the revived food security discourse which provides a new underpinning for subsidy and protection.
New content can be placed in it, however, as is evident from a discussion on economic patriotism I participated at Science Po in Paris last week. The argument there was that even new market approaches could be brought under the economic patriotism umbrella.
The second objective is contributing to sustainable and balanced food supplies in the world. A laudable aim, but the EU has frustrated it by dumping surplus produce on the world market and undermining local suppliers, as well as frustrating the development of commercial agriculture in the Global South by placing barriers to entry around the European market. Hopefully, some of the worst of these practices are coming to an end.
The third aim is preserving the rural fabric and ensuring territorial cohesion, an objective close to French hearts with its emphasis on the cultural dimension of the CAP. The paper argues that the uniformity of Pillar 1 is in danger of stifling the diversity of the French agricultural landscape. Vulnerable areas, of which no doubt there are many in France, should get some sort of 'top up'.
The fourth objective is participating in the mitigation of climate change, which everyone is in favour of, but the challenge is how you actually do it, particularly in an economic downturn.
The most specific the paper gets is a call for less static support tools which a decoding suggests are favoured in part because they may be a way of getting around international trade rules. As well as providing support for integrated enviromental measures, these tools (whatever they might be) would be a means of dealing with increased market volatility.
This leads me to suppose that one might be talking about some modernised verision of deficiency payments, as used in Britain before it joined the common market. It may be, and this is just surmise, that the French think they cannot keep the SFP going beyond 2013, but they may be able to sell a subsidy that is linked to climate change and environmental benefits and also gives farmers some protection in hard times.
Whether such a vague document will lead to a structured or useful discussion at the informal Farm Council remains to be seen, but somehow I doubt it.
More information on the meeting is at Council
Saturday, September 06, 2008
Credit crunch hits organic food sales
Sales of organic foods to leading supermarkets in Britain are struggling, suggesting that when recessionary conditions hit shoppers are ready to sacrifice their green credentials in favour of cheaper food. According to TNS World-panel data, sales of organic produce at Sainsbury's fell by 3.8 per cent and at Tesco by 1.3 per cent in the three months to early August. Spending on organic produce in the whole market has fallen by 19 per cent from £100m to £81m this year.
Organic agriculture is inherently more expensive than intensive agriculture. However, the Soil Association insisted that what was happening was a plateau rather than a reversal. Year-on-year average growth over the last decade has been 25 per cent.
It is interesting that organic egg sales have taken a particular hit, falling by 18 per cent in the four weeks to end of August. Consumers think that they can still be ethical by buying free range eggs.
These market developments could offer an opening for Integrated Crop Management which offers a route to more environmentally friendly farming without going organic. It is, of course, remarkable how tolerant consumers are of the use of so-called 'traditional' compounds by organic farmers, but they may not be aware of their use. 'Organic' has certainly embedded itself in the public consciousness with a very favourable image.
Organic agriculture is inherently more expensive than intensive agriculture. However, the Soil Association insisted that what was happening was a plateau rather than a reversal. Year-on-year average growth over the last decade has been 25 per cent.
It is interesting that organic egg sales have taken a particular hit, falling by 18 per cent in the four weeks to end of August. Consumers think that they can still be ethical by buying free range eggs.
These market developments could offer an opening for Integrated Crop Management which offers a route to more environmentally friendly farming without going organic. It is, of course, remarkable how tolerant consumers are of the use of so-called 'traditional' compounds by organic farmers, but they may not be aware of their use. 'Organic' has certainly embedded itself in the public consciousness with a very favourable image.
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