The NFU's policy director Martin Haworth thinks that UK policy on CAP reform is no longer being driven by DEFRA. Rather the Treasury and the Home Office is in charge. Their priority is seen as being to protect the British rebate rather than British agriculture. The NFU is fighting to ensure that any deal to protect the rebate does not come at the expense of agreeing to cuts in farm support.
The NFU has been forced to give up its opposition to any 'greening' of Pillar One support and has accepted that CAP reform is likely to impose further environmental conditions on subsidy payments. The emphasis now is on ensuring that any measures are fair and achievable.
The NFU clearly considers that its stance has been undermined by that of the Country Land and Business Association (CLA) which has advocated ranking environmental mesures alongside food security in importance. NFU president Peter Kendall has described the CLA's stance as a 'noose around our neck' in the negotiations. It had made it easier for policy makers to argue that subsidy payments should be shifted from food production to the environment.
Saturday, April 30, 2011
Wednesday, April 27, 2011
What impact will co-decision have on CAP reform?
In an interetsing paper presented at the Agricultural Economics Society conference at Warwick University last week, Alan Greer and Tom Hind explored the possible impact of the introduction of the co-decision on CAP decision-making and reform prospects. They proceeded by setting out four scenarios:
Scenario 1 The 'conventional' view (often put forward in the media) in which the EP gains power at the expense of other institutions (assuming that there are significant points of difference).
There are two limiting factors on the ability of the EP to exercise power. First, as the lead committee ComAGRI has had very limited experience of co-decision and it has to develop positions that can command majority support across the Parliament. If its views are too close to those of the agricultural community (and the committee is more agriculturally focused than in the past), it could be challenged in the plenary, especially on environmental issues. Second, the Parliament has limited resources relative to the other institutions: the total staff of ComAGRI is around 15, plus three seconded researchers.
Scenario 2 The Council-EP axis in which the Council of Agriculture Ministers will use its expertise to work in close partnership with the EP to shape the legislation proposed by the Commission, weakening the latter. This depends on member states being able to work closely with national MEPs and the presenters argued (rightly in my view) that this scenario was not likely to develop in the next few years.
Scenario 3 The Commission-centric scenario in which the EP's resource void is filled by the Commission. The Commission would use its expertise and resources to work with the EP, using ithe role of arbitrator to facilitate agreement between the EP against the Council in order to shape the final outcome more closely to its preferences. The paper authors thought that this was the most likely scenario. The Commission had increased its displacement as a result of enlargement.
Scenario 4 'Co-indecision'. Co-decision might actually make decision-making more difficult. An average co-decision dossier takes 36 months to process. Some participants in the audience thought that this was the most likely scenario.
If that is the case, it does not bode well for reform. But any of the scenarios is likely to make the reform process more complex, slower and less radical.
Scenario 1 The 'conventional' view (often put forward in the media) in which the EP gains power at the expense of other institutions (assuming that there are significant points of difference).
There are two limiting factors on the ability of the EP to exercise power. First, as the lead committee ComAGRI has had very limited experience of co-decision and it has to develop positions that can command majority support across the Parliament. If its views are too close to those of the agricultural community (and the committee is more agriculturally focused than in the past), it could be challenged in the plenary, especially on environmental issues. Second, the Parliament has limited resources relative to the other institutions: the total staff of ComAGRI is around 15, plus three seconded researchers.
Scenario 2 The Council-EP axis in which the Council of Agriculture Ministers will use its expertise to work in close partnership with the EP to shape the legislation proposed by the Commission, weakening the latter. This depends on member states being able to work closely with national MEPs and the presenters argued (rightly in my view) that this scenario was not likely to develop in the next few years.
Scenario 3 The Commission-centric scenario in which the EP's resource void is filled by the Commission. The Commission would use its expertise and resources to work with the EP, using ithe role of arbitrator to facilitate agreement between the EP against the Council in order to shape the final outcome more closely to its preferences. The paper authors thought that this was the most likely scenario. The Commission had increased its displacement as a result of enlargement.
Scenario 4 'Co-indecision'. Co-decision might actually make decision-making more difficult. An average co-decision dossier takes 36 months to process. Some participants in the audience thought that this was the most likely scenario.
If that is the case, it does not bode well for reform. But any of the scenarios is likely to make the reform process more complex, slower and less radical.
Saturday, April 23, 2011
'Greening' of CAP on its way
Both Defra and the NFU think that they have lost the battle to prevent the 'greening' of the CAP: Greening .
The NFU is concerned about the impact of the proposed measures on competitiveness, but it looks as if farmers will have to comply with environmental requirements to claim their Single Farm Payment. The NFU is consequently going to re-think its tactics on this aspect of the negotiations.
The NFU also thinks that delays in putting forward formal Commission proposals means that the start of the new policy will be delayed until January with the existing policy rolled over for one more year.
The NFU is concerned about the impact of the proposed measures on competitiveness, but it looks as if farmers will have to comply with environmental requirements to claim their Single Farm Payment. The NFU is consequently going to re-think its tactics on this aspect of the negotiations.
The NFU also thinks that delays in putting forward formal Commission proposals means that the start of the new policy will be delayed until January with the existing policy rolled over for one more year.
Tuesday, April 19, 2011
Farmers' fuel tax break under threat
The concession which provides farmers with 'red' diesel at a lower rate of duty are under threat. The diesel is coloured red so that checks can see if it is being used illegally off farm.
Draft plans by the European Commission say that current EU rules that allow member states to apply a zero rate of taxation on energy used for agricultural purposes should be repealed. The objective is to allow EU tax policy to contribute to 'green growth'.
The document argues that agriculture is one of the important sectors left out of the EU's Emissions Trading Scheme. The proposal says that a carbon tax of about £20/t should be introduced to bring agriculture in line with other sectors of the economy. It also calls for an energy consumption tax.
The news has been greeted with dismay by farming organisations at a time when oil prices have been rising. The duty rate on red diesel has increased nearly fourfold over the past decade. Farmers were paying an average of 63p a litre for red diesel in February, up from 46.9p in February 2010. This still compares very well with the price paid by hauliers and motorists.
Draft plans by the European Commission say that current EU rules that allow member states to apply a zero rate of taxation on energy used for agricultural purposes should be repealed. The objective is to allow EU tax policy to contribute to 'green growth'.
The document argues that agriculture is one of the important sectors left out of the EU's Emissions Trading Scheme. The proposal says that a carbon tax of about £20/t should be introduced to bring agriculture in line with other sectors of the economy. It also calls for an energy consumption tax.
The news has been greeted with dismay by farming organisations at a time when oil prices have been rising. The duty rate on red diesel has increased nearly fourfold over the past decade. Farmers were paying an average of 63p a litre for red diesel in February, up from 46.9p in February 2010. This still compares very well with the price paid by hauliers and motorists.
Wednesday, April 13, 2011
Times have changed
As farm commissioner Franz Fischler pushed through a reform of the CAP against resistance from member states. However, in an interview with Agra Focus he indicates that in the changed environment of co-decision such a strategy is no longer feasible.
Asked whether the plans put forward by current Commissioner Dacian Ciolos went far enough, Fischler commented that the plans were rather vague and went on to say, 'I accept that under the new circumstances, under the way decisions will be made in the EU with the co-decision procedure, one cannot do what we have done in the past - that is to say come forward with a big surprise, a big reform, where everybody is against this reform at the beginning. This doesn't work anymore so one has to find a different approach and in principle I think the approach of Ciolos is the right one, but how far can you go?'
Fischler is a candidate for the post of director general of the UN Food and Agriculture Organization which is perhaps not as influential as it once was and needs a strong hand at the helm to revive it.
Asked whether the plans put forward by current Commissioner Dacian Ciolos went far enough, Fischler commented that the plans were rather vague and went on to say, 'I accept that under the new circumstances, under the way decisions will be made in the EU with the co-decision procedure, one cannot do what we have done in the past - that is to say come forward with a big surprise, a big reform, where everybody is against this reform at the beginning. This doesn't work anymore so one has to find a different approach and in principle I think the approach of Ciolos is the right one, but how far can you go?'
Fischler is a candidate for the post of director general of the UN Food and Agriculture Organization which is perhaps not as influential as it once was and needs a strong hand at the helm to revive it.
Monday, April 04, 2011
Complete Doha Round demand reform states
The prime ministers of the nine of the more reform oriented states have called on the EU to do it all it can to conclude the Doha Round in 2011 which they term a 'make or break year'. The letter, entitled Getting Europe Growing is signed by the leaders of the UK, the Netherlands, Sweden and Denmark, the leading lights of the traditional reform bloc. They are joined by the Baltic states, Poland and Finland. The absence of any southern member states is significant.
WTO trade rounds have been the most effective driver for reform of the CAP because they provide an exogenous pressure which helps to overcome internal obstacles. Manufacturing and service industry interests exert pressure when they see an agreement with benefits for them jeopradised by a failure to agree on agriculture. This is what happened in the concluding phase of the Uruguay Round.
Unfortunately for the hopes of reformers the political context has changed. The current administration in the US has not given a higher priority to trade policy and is preoccupied with coming up with a political deal that can provide an agreement on the budget. The political pressure for greater liberalisation that came in the past from agribusiness interests has weakened.
Even if the US and the EU could agree on the outlines of a deal they can no longer impose it on the other participants with some side payments. Emerging countries have become powerful players and while liberalisation suits Brazil's interests, India and China want to protect their peasant populations.
WTO trade rounds have been the most effective driver for reform of the CAP because they provide an exogenous pressure which helps to overcome internal obstacles. Manufacturing and service industry interests exert pressure when they see an agreement with benefits for them jeopradised by a failure to agree on agriculture. This is what happened in the concluding phase of the Uruguay Round.
Unfortunately for the hopes of reformers the political context has changed. The current administration in the US has not given a higher priority to trade policy and is preoccupied with coming up with a political deal that can provide an agreement on the budget. The political pressure for greater liberalisation that came in the past from agribusiness interests has weakened.
Even if the US and the EU could agree on the outlines of a deal they can no longer impose it on the other participants with some side payments. Emerging countries have become powerful players and while liberalisation suits Brazil's interests, India and China want to protect their peasant populations.
Friday, March 25, 2011
Plans to cap big farm subsidies lack support
Plans to limit subsidies paid to big farms under the Common Agricultural Policy have won insufficient support in the Council of Farm Ministers: Big farms
The farm commissioner thought that the proposals would be popular with taxpayers. Possibly so, but they have always been opposed by UK and Germany, the countries with the largest number of big farms.
The CAP is supposed to be, among other things, about the international competitiveness of EU agriculture, although in practice more attention is given to propping up marginal farmers. Large-scale farms tend to be more efficient and competitive, so if there are to be subsidies, they should receive them on the same basis as everyone else.
The farm commissioner thought that the proposals would be popular with taxpayers. Possibly so, but they have always been opposed by UK and Germany, the countries with the largest number of big farms.
The CAP is supposed to be, among other things, about the international competitiveness of EU agriculture, although in practice more attention is given to propping up marginal farmers. Large-scale farms tend to be more efficient and competitive, so if there are to be subsidies, they should receive them on the same basis as everyone else.
Monday, March 21, 2011
Setback for reform
Those wanting reform of the CAP have suffered a setback after 20 member states signed a declaration opposing radical reform of the policy: Reform . France was particularly pleased that Poland and Romania signed up given that accession states have been pressing for an eastward redistribution of funds.
The countries that refused to sign up were the reform camp of the UK, Denmark and Sweden; the three Baltic states (hardly big recipients of largesse); and Greece (which may have to do something with the current austerity package).
Although the UK acknowledged that the declaration was a setback in hopes for reform, budgetary pressures may yet have an impact on the final package.
The countries that refused to sign up were the reform camp of the UK, Denmark and Sweden; the three Baltic states (hardly big recipients of largesse); and Greece (which may have to do something with the current austerity package).
Although the UK acknowledged that the declaration was a setback in hopes for reform, budgetary pressures may yet have an impact on the final package.
Thursday, March 10, 2011
Inside the CAP reform process
A major new analysis of the CAP reform process, An Inside View of the CAP Reform Process by Arlindo Cunha with Alan Swinbank has been published by Oxford University Press. Cunha was Portugal's Minister of Agriculture during the negotiation of the MacSharry reforms and was involved in the Fischler reforms as a member of the European Parliament. Swinbank is one of the UK's most distinguished agricultural economists and has written extensively on CAP reform.
The books explains how the 'old' CAP became no longer fit for purpose, deals with the structure and functioning of CAP decision-making, examines the 1992, 1999 and 2003 reform and also the Health Check and includes the results of a Delphi survey of some of the key players in the reform process.
The analysis suggests that the series of reforms 'was initiated by the Commission, with a particularly important role played by the commissioner, with the Commission playing its cards as an agenda setter at a time when internal and external forces were pressing for policy change.' There is much talk these days of the relative weakening of the Commission in the EU policy process and one wonders how far it will be able to play this kind of role in the future.
It is noted that the Commission has not been as successful in developing rural development as the second pillar of the CAP as Commissioner Fischler would have liked, but the decoupling of support has been relentlessly pursued. Of course, one might add that it has made the CAP more respectable.
However, much has not changed. It is noted that that the CAP still pre-empts a large share of the EU budget and that support is very unevenly spread both between and within member states. Larger farms receive higher payments and payments reflect past production structures.
The books explains how the 'old' CAP became no longer fit for purpose, deals with the structure and functioning of CAP decision-making, examines the 1992, 1999 and 2003 reform and also the Health Check and includes the results of a Delphi survey of some of the key players in the reform process.
The analysis suggests that the series of reforms 'was initiated by the Commission, with a particularly important role played by the commissioner, with the Commission playing its cards as an agenda setter at a time when internal and external forces were pressing for policy change.' There is much talk these days of the relative weakening of the Commission in the EU policy process and one wonders how far it will be able to play this kind of role in the future.
It is noted that the Commission has not been as successful in developing rural development as the second pillar of the CAP as Commissioner Fischler would have liked, but the decoupling of support has been relentlessly pursued. Of course, one might add that it has made the CAP more respectable.
However, much has not changed. It is noted that that the CAP still pre-empts a large share of the EU budget and that support is very unevenly spread both between and within member states. Larger farms receive higher payments and payments reflect past production structures.
Wednesday, February 02, 2011
Lords committee calls for radical CAP reform
The House of Lords EU Sub-Committee on Agriculture, Forestry and Fisheries has called for radical reform of the CAP: Lords . Direct payments should be phased out. The Committee welcomes proposals to 'green' Pillar 1.
The committee argues that innovation should be a central part of the whole reform agenda. This would unlock agricultural productivity which has been relatively static. High quality agricultural research and development, and its transfer to practitioners, are key to the future of EU agriculture. To boost funding, it should be possible to transfer money from the CAP to the research budget to fund Framework programmes.
The Committee calls for vastly improved farm advisory services so that farmers have better access to high quality impartial advice on possible innovative approaches. Unfortunately, publicly provided arrangements were dismantled a long time ago and it is difficult to see how they could be restored. Possibly private providers such as agronomists could undertake public policy work on a contract basis.
The report seems to reflect good sense, but there have been so many of these reports over the years and nothing much really seems to change as a result.
The committee argues that innovation should be a central part of the whole reform agenda. This would unlock agricultural productivity which has been relatively static. High quality agricultural research and development, and its transfer to practitioners, are key to the future of EU agriculture. To boost funding, it should be possible to transfer money from the CAP to the research budget to fund Framework programmes.
The Committee calls for vastly improved farm advisory services so that farmers have better access to high quality impartial advice on possible innovative approaches. Unfortunately, publicly provided arrangements were dismantled a long time ago and it is difficult to see how they could be restored. Possibly private providers such as agronomists could undertake public policy work on a contract basis.
The report seems to reflect good sense, but there have been so many of these reports over the years and nothing much really seems to change as a result.
Monday, January 31, 2011
Financial speculation and volatile prices
There has been increasing discussion recently about the link between financial markets such as those dealing with futures and derivatives and volatlity in farm prices. The subject has been highly contested and there is no consensus view.
This viewed is shared in a leaked draft of a Commission communication which concludes that there is no conclusive evidence on the causality between activity in derivatives markets increased volatility & price increases in the underlying physical markets.
The draft version suggests unsurprisingly that agricultural commodity prices are expected to stay higher than their historical averages reversing their long-term downward trend, with producer margins increasingly squeezed due to higher costs.
Similarly price volatility is expected to remain high, although 'uncertainties with respect to its causes and duration persist'. Referring to the ‘CAP Towards 2020’, it notes that food security has been identified as one of the main drivers for future reform in EU policy, underlining that a 'strong agricultural sector is vital for the highly competitive food industry to remain an important part of the EU economy and trade and a major contributor to international markets'.
Commenting yesterday on a decision to defer its publication, the Commission spokesperson outlined that there is 'no doubt about the links between the physical & financial markets', but that there is a 'need for more time to look at the specifics at play between the financial markets and markets that are not closely regulated' such as Over-the-Counter (OTC) derivatives. The Commission now intends to 'refine the analysis' on the reasons why markets fluctuate and seek greater clarity on the interaction between speculation and markets.
This viewed is shared in a leaked draft of a Commission communication which concludes that there is no conclusive evidence on the causality between activity in derivatives markets increased volatility & price increases in the underlying physical markets.
The draft version suggests unsurprisingly that agricultural commodity prices are expected to stay higher than their historical averages reversing their long-term downward trend, with producer margins increasingly squeezed due to higher costs.
Similarly price volatility is expected to remain high, although 'uncertainties with respect to its causes and duration persist'. Referring to the ‘CAP Towards 2020’, it notes that food security has been identified as one of the main drivers for future reform in EU policy, underlining that a 'strong agricultural sector is vital for the highly competitive food industry to remain an important part of the EU economy and trade and a major contributor to international markets'.
Commenting yesterday on a decision to defer its publication, the Commission spokesperson outlined that there is 'no doubt about the links between the physical & financial markets', but that there is a 'need for more time to look at the specifics at play between the financial markets and markets that are not closely regulated' such as Over-the-Counter (OTC) derivatives. The Commission now intends to 'refine the analysis' on the reasons why markets fluctuate and seek greater clarity on the interaction between speculation and markets.
Friday, January 28, 2011
It's all in the green box
The EU has done a good job of stuffing its CAP subsidies into the green box category which is supposedly free of distortions to international trade, this latest report from ICTSD shows: Green Box
Production-linked subsidies hit a new 'low' of €12.3bn, whereas green box subsidies such as the Single Farm Payment amounted to a new high of €62.6bn. That makes a total of €74.9bn and it is worth reflecting on the opportunity cost of that amount of spending.
As one comment on the report points out, what really distorts global trade are the EU's high tariff barriers, particularly in relation to so-called 'sensitive' products. Should the Doha Round resume, this is an area in which agreement will be needed.
Of course, there are questions about whether subsidies placed in the green box are really free of distortions to international trade and this could be tested in the quasi-judicial WTO dispute settlement mechanism at some point in the future.
Production-linked subsidies hit a new 'low' of €12.3bn, whereas green box subsidies such as the Single Farm Payment amounted to a new high of €62.6bn. That makes a total of €74.9bn and it is worth reflecting on the opportunity cost of that amount of spending.
As one comment on the report points out, what really distorts global trade are the EU's high tariff barriers, particularly in relation to so-called 'sensitive' products. Should the Doha Round resume, this is an area in which agreement will be needed.
Of course, there are questions about whether subsidies placed in the green box are really free of distortions to international trade and this could be tested in the quasi-judicial WTO dispute settlement mechanism at some point in the future.
Wednesday, January 26, 2011
The subsidies dilemma
A farmer writing to Farmers Weekly says of Caroline Spelman's support for phasing out the Single Farm Payment, 'Surely she must realise the subsidy keeps most farmers in business?'
The correctness of this view in the short term, for livestock farmers at any rate, was confirmed by HSBC's head of agriculture Allan Wilkinson who said that livestock and dairy enterprises are likely to be even more reliant on subsidy payments to make a profit this year.
He told Farmers Weekly that while arable producers will benefit from the dramatic upturn in commodity markets, relatively static meat and milk prices, combined with big increases in feed costs, will put margins for beef, sheep and dairy producers under significant pressure.
Part of the answer is, of course, not subsidies but the response of the individual farm business to admittedly difficult market conditions. Mr Wilkinson acknowledged that output and costs varied significantly and that top-performing producers and those who had managed to secure higher end prices or cheaper inputs would fare better.
He commented, 'It's clear that volatility is here to stay and the successful busineses will be those that devote more effort to marketing strategies, in conjunction with a continued focus on technical efficiency and lowering production costs.' In other words, farmers have to get smarter.
Subsidies may not help them to get smarter. With Simon Marsh of Harper Adams University College, Farmers Weekly is following the month-by-month progress of an upland suckler herd that's consistently performing in the top 1 per cent of all costed herds. Mr Marsh commented, 'For too long, the UK beef industry has relied on support payments and it has stifled incentive to strive for efficient production.'
I was recently talking to a journalist from an esteemed weekly who has written on the CAP. He commented that when prices were low, the French (as the main defenders of the CAP) said that subsidies were needed to boost farm incomes. When prices were high or volatile, they were needed to ensure food security. He once asked a French minister if there were then any conceivable market circumstances in which an argument could not be produced in favour of subsidies.
We do not start with a blank sheet of paper and a sudden withdrawal of subsidies would seriously disrupt the market. But we should be starting down that road. Many farmers would be happier getting their return from their market without all the transaction costs of filling in forms to claim subsidies and the hazard that you may be denied part or all of your entitlement because of an inadvertent error.
What is more the UK is facing up to £1bn of fines from the EU in large part because of incompetent handling of Single Farm Payments (some £664m appears to relate to Defra). This was described in 2009 by the Commons Public Accounts Committee as a 'singular example of comprehensively poor administration on a grand scale.' Britain has now joined Italy and Greece among the worse offenders on farm funding
The correctness of this view in the short term, for livestock farmers at any rate, was confirmed by HSBC's head of agriculture Allan Wilkinson who said that livestock and dairy enterprises are likely to be even more reliant on subsidy payments to make a profit this year.
He told Farmers Weekly that while arable producers will benefit from the dramatic upturn in commodity markets, relatively static meat and milk prices, combined with big increases in feed costs, will put margins for beef, sheep and dairy producers under significant pressure.
Part of the answer is, of course, not subsidies but the response of the individual farm business to admittedly difficult market conditions. Mr Wilkinson acknowledged that output and costs varied significantly and that top-performing producers and those who had managed to secure higher end prices or cheaper inputs would fare better.
He commented, 'It's clear that volatility is here to stay and the successful busineses will be those that devote more effort to marketing strategies, in conjunction with a continued focus on technical efficiency and lowering production costs.' In other words, farmers have to get smarter.
Subsidies may not help them to get smarter. With Simon Marsh of Harper Adams University College, Farmers Weekly is following the month-by-month progress of an upland suckler herd that's consistently performing in the top 1 per cent of all costed herds. Mr Marsh commented, 'For too long, the UK beef industry has relied on support payments and it has stifled incentive to strive for efficient production.'
I was recently talking to a journalist from an esteemed weekly who has written on the CAP. He commented that when prices were low, the French (as the main defenders of the CAP) said that subsidies were needed to boost farm incomes. When prices were high or volatile, they were needed to ensure food security. He once asked a French minister if there were then any conceivable market circumstances in which an argument could not be produced in favour of subsidies.
We do not start with a blank sheet of paper and a sudden withdrawal of subsidies would seriously disrupt the market. But we should be starting down that road. Many farmers would be happier getting their return from their market without all the transaction costs of filling in forms to claim subsidies and the hazard that you may be denied part or all of your entitlement because of an inadvertent error.
What is more the UK is facing up to £1bn of fines from the EU in large part because of incompetent handling of Single Farm Payments (some £664m appears to relate to Defra). This was described in 2009 by the Commons Public Accounts Committee as a 'singular example of comprehensively poor administration on a grand scale.' Britain has now joined Italy and Greece among the worse offenders on farm funding
Monday, January 24, 2011
Global farming food and future report out
An important report led by the Governnment's Chief Scientific Adviser, Sir John Beddington, setting out the challenges facing farming and food supply on a global basis is now available: Farming Future You can hear a Radio 4 discussion on the topic here: Beddington
This should provide a basis for a serious discussion about how agricultural productivity can be raised whilst coping with the challenge of climate change and other environmental considerations such as the maintenance of biodiversity.
Land is a finite resource, indeed its availability is diminishing because of urbanisation and the effects of climate change. Farming and food is very dependent on oil at various stages of the food chain, while the availability of water is an increasing constraint.
In the longer run support for the farming industry should not come through blanket subsidies but by, for example, ensuring that there is an adequate research structure that is oriented towards devising practical solutions towards the resolution of pressing problems.
This should provide a basis for a serious discussion about how agricultural productivity can be raised whilst coping with the challenge of climate change and other environmental considerations such as the maintenance of biodiversity.
Land is a finite resource, indeed its availability is diminishing because of urbanisation and the effects of climate change. Farming and food is very dependent on oil at various stages of the food chain, while the availability of water is an increasing constraint.
In the longer run support for the farming industry should not come through blanket subsidies but by, for example, ensuring that there is an adequate research structure that is oriented towards devising practical solutions towards the resolution of pressing problems.
Sunday, January 23, 2011
Buoyant market for SFP entitlements
The market for SFP entitlements appears to be buoyant. Buyers far outnumber sellers which naturally tends to push up prices. George Paton of WebbPaton told Farmers Weekly that they had a requirement for 2400ha on their waiting list.
The confiscation of entitlements under tighter usage rules has had the effect of reducing the number of 'spare' entitlements. There are also more buyers about, some of them finally getting round to buying entitlements for land that missed out on the original allocation in 2005.
English flat-rate entitlements of €241/ha are currently worth around £205/ha, which is close to the level they can be expected to pay out in 2011, assuming exchange rates remain similar to current levels (when the pound fell against the euro it pushed up the value of payments received by farmers in sterling.) Entitlements for Severely Disadvantaged Areas and Moorland Areas are once again in particularly short supply and are fetching up to twice their annual face value.
Ideally one would not pay general subsidies of this kind to farmers at all. However, if one does have them, there is an argument for having a secondary market to re-allocate them more efficiently to those who think they need them most.
In a sense those who buy and sell in this market are taking a bet on the sterling/euro exchange rate. Of course, this not only affects the sterling value of the SFP, but also key input prices which have been rising substantially recently. 'Red' diesel for use on farms is taxed at a lower rate than diesel bought for normal domestic or business use, but its price has been pushed up substantially recently by rising world oil prices.
The confiscation of entitlements under tighter usage rules has had the effect of reducing the number of 'spare' entitlements. There are also more buyers about, some of them finally getting round to buying entitlements for land that missed out on the original allocation in 2005.
English flat-rate entitlements of €241/ha are currently worth around £205/ha, which is close to the level they can be expected to pay out in 2011, assuming exchange rates remain similar to current levels (when the pound fell against the euro it pushed up the value of payments received by farmers in sterling.) Entitlements for Severely Disadvantaged Areas and Moorland Areas are once again in particularly short supply and are fetching up to twice their annual face value.
Ideally one would not pay general subsidies of this kind to farmers at all. However, if one does have them, there is an argument for having a secondary market to re-allocate them more efficiently to those who think they need them most.
In a sense those who buy and sell in this market are taking a bet on the sterling/euro exchange rate. Of course, this not only affects the sterling value of the SFP, but also key input prices which have been rising substantially recently. 'Red' diesel for use on farms is taxed at a lower rate than diesel bought for normal domestic or business use, but its price has been pushed up substantially recently by rising world oil prices.
Friday, January 21, 2011
Ciolos lays it on the line
Dacian Ciolos has emerged as a more authoritative and decisive farm commissioner than many expected. Whether his line is the correct one is another matter. But the grumpy old man of British farming, Farmers Weekly correspondent David Richardson writes of his appearance at the Oxford Farming Conference, 'he had comprehensively mastered his brief and, when questioned, actually answered as fully and frankly as any politician I have known.'
The content of his message is perhaps less welcome. It's clear that he sees his job as being to change the CAP but also to defend its essential elements. I do, however, welcome the news that research and development may be included in pillar two. The food chain needs more publicy funded, applied research which can help to tackle pressing policy problems and on farm challenges. This has been cut back drastically over the years.
It is evident that the Commissioner thinks that part of the price of defending the CAP is capping subsidies to larger farmers. He is clearly influenced by his Romanian experience where it has been possible for farmers with very large farms (presumably in some cases former collective farms) to use the income from subsidies to start other businesses. This is evidently resented in Romania where there are also many small (and by European standards) relatively backward farms.
Ciolos argues that in some parts of Europe the choice is small farms or no agricultural activity at all. It may be that in some of these areas agricultural activity is not really viable and the land should be farmed as an ecological asset to maximise environmental benefits.
Ciolos argues that it's very difficult to explain how giving €2m to one individual or company is 'income support'. If the CAP really is income support, it's an inefficient way of delivering it.
What is continually overlooked with the CAP is the international competitiveness dimension which is supposed to form part of the policy. Large-scale farmers tend to farm to a high standard (including animal welfare standards), are highly competitive and also are often substantially involved in agri-environmental work.
If you cut off aid to them, you are penalising them for being more efficient. In any case there would be all sorts of legal problems over the definition of a farm business.
Ciolos evidently sees the CAP as more justifiable as a mechanism for the transfer of funds from taxpayers and consumers to marginal farmers. It is actually not an efficient way of helping them or the environment, it doesn't do much for food security (given that their output is low) and it doesn't help the EU food industry to become more competitive.
The content of his message is perhaps less welcome. It's clear that he sees his job as being to change the CAP but also to defend its essential elements. I do, however, welcome the news that research and development may be included in pillar two. The food chain needs more publicy funded, applied research which can help to tackle pressing policy problems and on farm challenges. This has been cut back drastically over the years.
It is evident that the Commissioner thinks that part of the price of defending the CAP is capping subsidies to larger farmers. He is clearly influenced by his Romanian experience where it has been possible for farmers with very large farms (presumably in some cases former collective farms) to use the income from subsidies to start other businesses. This is evidently resented in Romania where there are also many small (and by European standards) relatively backward farms.
Ciolos argues that in some parts of Europe the choice is small farms or no agricultural activity at all. It may be that in some of these areas agricultural activity is not really viable and the land should be farmed as an ecological asset to maximise environmental benefits.
Ciolos argues that it's very difficult to explain how giving €2m to one individual or company is 'income support'. If the CAP really is income support, it's an inefficient way of delivering it.
What is continually overlooked with the CAP is the international competitiveness dimension which is supposed to form part of the policy. Large-scale farmers tend to farm to a high standard (including animal welfare standards), are highly competitive and also are often substantially involved in agri-environmental work.
If you cut off aid to them, you are penalising them for being more efficient. In any case there would be all sorts of legal problems over the definition of a farm business.
Ciolos evidently sees the CAP as more justifiable as a mechanism for the transfer of funds from taxpayers and consumers to marginal farmers. It is actually not an efficient way of helping them or the environment, it doesn't do much for food security (given that their output is low) and it doesn't help the EU food industry to become more competitive.
Friday, January 14, 2011
Spelman hits raw nerve with Ciolos
The speech by Defra secretary of state Caroline Spelman has clearly hit a raw nerve with farm commissioner Dacian Ciolos: Ciolos
In essence what Ciolos is saying is that this was a speech made for domestic consumption, but it will cut no ice in Europe. Depressingly, he is probably right, but the secretary of state was still right to set out her stall. She may be able to have some impact on the details of any deal, particularly when the budget dimension is brought into play.
Once again food shortages and volatile prices are in the news. If nothing else, this is a case for doing something about the high tariff barriers which surround the EU in the food area, particularly on so-called 'sensitive' products. If developing countries could get more access to developed markets, they would be incentivised to move towards more commercial agricultures which would feed more people both at home and abroad.
There are, of course, a lot of complex issues here and there are undoubtedly some areas of the world where improving semi-subsistence agriculture is the best way forward. But no one is going to become genuinely prosperous that way.
In essence what Ciolos is saying is that this was a speech made for domestic consumption, but it will cut no ice in Europe. Depressingly, he is probably right, but the secretary of state was still right to set out her stall. She may be able to have some impact on the details of any deal, particularly when the budget dimension is brought into play.
Once again food shortages and volatile prices are in the news. If nothing else, this is a case for doing something about the high tariff barriers which surround the EU in the food area, particularly on so-called 'sensitive' products. If developing countries could get more access to developed markets, they would be incentivised to move towards more commercial agricultures which would feed more people both at home and abroad.
There are, of course, a lot of complex issues here and there are undoubtedly some areas of the world where improving semi-subsistence agriculture is the best way forward. But no one is going to become genuinely prosperous that way.
Friday, January 07, 2011
The big politics behind the CAP deal
Why was Dave Cameron willing to do a deal with France and Germany on CAP subsidies given that he is genuinely an Eurosceptic? This article (which was easy to miss as it came out on Boxing Day) explains the big politics behind the deal and opens with some amusing remarks about CAP subsidies: CAP deal
Wednesday, January 05, 2011
Call for fundamental CAP reform
In a major speech at the Oxford conference, secretary of state Caroline Spelman has called for a more ambitious approach to CAP reform and a fundamental change in the nature of the CAP: Spelman
She's talking the talk like former secretaries of state, but walking the walk is always more difficult. Only in very special circumstances has it been possible to build anything like a winning coalition for reform. Current thinking reinforces the trend towards protectionism she rightly criticises.
She's talking the talk like former secretaries of state, but walking the walk is always more difficult. Only in very special circumstances has it been possible to build anything like a winning coalition for reform. Current thinking reinforces the trend towards protectionism she rightly criticises.
Monday, December 20, 2010
Has a grand deal been done?
The future of the Common Agricultural Policy depends on what is decided about the EU budget. And the broad shape of the EU budget is usually decided in grand deals between the leading countries of Europe. Indeed, in the past, the future of the CAP has effectively been decided over lunch between French and German ministers. However, in a larger EU, that is not as simple, although the Franco-German axis is still very strong.
However, this time it looks as if a grand deal may have been done between Britain, France and Germany. David Cameron has been quite an effective negotiator in Europe and for understandable reasons he wants the EU budget frozen in real terms. It's very difficult to inflict misery at home when there is apparent profligacy in Brussels (a lesson that the European Parliament seems slow to learn).
Britain is denying it, but essentially what seems to have been agreed is that Britain's budget rebate, won by Mrs Thatcher, will stay intact although the original justification for it has been undermined. In return France will be able to keep the CAP more or less unscathed. Germany has already sold the pass, as it usually does, by signing up to a joint declaration with France calling for a strong CAP.
Needless to say, the accession states, and in particular Poland, are furious. They want the budget to be maintained and subsidies to their farmers brought in line with the rest of Europe. To some extent that could be achieved within the current budget envelope, although farmers in other member states would lose out.
There is a lot of hard negotiation to come, but it may be, despite denials, that the basic outlines of a deal have been agreed. If that is so, it will be a disappointment, but not a surprise, for the CAP reform camp.
However, this time it looks as if a grand deal may have been done between Britain, France and Germany. David Cameron has been quite an effective negotiator in Europe and for understandable reasons he wants the EU budget frozen in real terms. It's very difficult to inflict misery at home when there is apparent profligacy in Brussels (a lesson that the European Parliament seems slow to learn).
Britain is denying it, but essentially what seems to have been agreed is that Britain's budget rebate, won by Mrs Thatcher, will stay intact although the original justification for it has been undermined. In return France will be able to keep the CAP more or less unscathed. Germany has already sold the pass, as it usually does, by signing up to a joint declaration with France calling for a strong CAP.
Needless to say, the accession states, and in particular Poland, are furious. They want the budget to be maintained and subsidies to their farmers brought in line with the rest of Europe. To some extent that could be achieved within the current budget envelope, although farmers in other member states would lose out.
There is a lot of hard negotiation to come, but it may be, despite denials, that the basic outlines of a deal have been agreed. If that is so, it will be a disappointment, but not a surprise, for the CAP reform camp.
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