Agricultural ministers of the OECD met in late February 2010 – the first time since 1998 – and issued a communiqué that touches on everything and says close to nothing. For once, such an empty statement is perfectly fine. The OECD Secretariat doesn’t need its ministers in order to do an excellent job in providing intellectual guidance and hard data.

The flagship of OECD research is certainly the country-level analysis of agricultural policies, based on Producer and Consumer Support Estimates and enriched by a brief description of recent policy developments in the report on Agricultural Policies in OECD Countries: Monitoring and Evaluation 2009.

New research on the CAP has been presented at an OECD Workshop on the Disaggregated Impacts of CAP Reform in March 2010.

The OECD also prepares a regular report on the Environmental Performance of Agriculture.

Equally important are the thematic research pieces. A 2009 piece on the ‘Adjustment Options and Strategies in the Context of Agricultural Policy Reform and Trade Liberalisation’ compares the liberalization experience in various OECD countries. It concludes that the agricultural sector frequently adapts better to liberalization than expected (greater efficiency, higher quality, different products), so that the need for adjustment policies is often overestimated. Policies to encourage exit from the agricultural sector are beset with the problem of windfall profits (payments for actors that would have left the sector anyway). Adjustment policies should rely, wherever possible, on generally available adjustment measures, including through the social security and tax system.

Especially interesting is the case of sectoral adjustment policies in Australia. The Farm Family Restart Scheme (FFRS) – now renamed into “AAA Farm Help – Supporting Families Through Change” – assists “low-income farmers who cannot borrow against their assets by giving them access to improved welfare support, as well as adjustment assistance for those who wish to leave the industry. It included income support for a maximum period of one year, grant of up to AUD 45 000 for those wishing to leave farming, access to professional advice on the future viability of the farm business, and other forms of counselling. The FFRS operates as a decision support system for farmers considering exiting the industry by giving them access to professional advice on the future viability of their business and on employment opportunities if they choose to exit the industry.“ Quite different from EU round-about handouts!

Another OECD work published in 2009, ‘Managing Risk in Agriculture: A Holistic Approach’, assesses the sources of risks, discusses private and public risk management tools and offers an overview of the implementation of risk management tools in OECD countries. It reveals the complexity of risk management and calls for prudence in designing governmental schemes (so as not to encourage risk-taking and replace private risk management mechanisms).

‘The Implementation Costs of Agricultural Policies’, published in 2007, finds that the advantages of targeting policies at desired outcomes outweigh the increased transaction costs of implementation for a very broad range of parameters. Furthermore, transaction costs can be much reduced through best practices (especially by the use of information technologies). This undermines the standard argument that the need to avoid excessive transaction costs makes a blunt policy like the Single Farm Payment inevitable.

I am a great fan of BirdLife’s work on the CAP, but in their joint position paper with the European Landowners’ Organization (ELO), presented on 27 January 2010, BirdLife has taken a step in the wrong direction. What’s more, it has announced that this is only the beginning of their cooperation with the ELO. [...]

Agriculture Commissioner Mariann Fischer Boel has announced she’ll not seek a second term in office. Unlike predecessors Franz Fischler and Ray MacSharry there is no round of CAP reform named after her and perhaps it is to make up for this that the Commission has just published a new leaflet. [...]

Roger Waite, one of the sharpest analysts of EU farm policy writes at farmpolicy.com on the timetable for the next CAP reform. Definitely worth reading.

“Analysis from Brussels”- by Roger Waite- Towards the Next, Truly Big CAP Reform- The Timetable

Today, the US raised its intervention support prices for some dairy products as a way of supporting the US farm price for milk. The support price for skimmed milk powder was increased by 15 percent and for cheddar cheese by 16 per cent for a limited 3-month period. Immediately milk prices on the Chicago Mercentile Exchange increased by 5 per cent, and it is estimated that the measure will add $243 million to US dairy farm incomes in the current year.

From a European perspective, this measure has ambiguous effects and may even be welcomed for its short-run effects. In the short run, the Commodity Credit Corporation will enter the market as an additional buyer, raising the floor price of milk. While only US milk products are eligible for support, as a major dairy exporter this action is going to help to strengthen world market prices, to the benefit also of EU producers.

In the long run, of course, the measure will keep more US dairy farms in production than would otherwise be the case. When dairy markets recover, the disposal of US stocks will dampen the upswing in dairy product prices, and there will be more US competition than would otherwise be the case.

Nonetheless, as a way of mitigating short-run price volatility on world markets, encouraging countries to engage in counter-cyclical stock-holding seems a sensible thing to do, provided of course that the stabilised price is not set above the long-run market equilibrium. The limited duration of the US measure is a positive sign in that regard. The difficulty is that this measure would be caught in the WTO Aggregate Measure of Support as an amber box subsidy, and the ability of countries to pursue amber box subsidies will be severely curtailed under proposed Doha Round disciplines.

Is this a case where ideology has triumphed over sense? Would it make sense to exempt intervention buying from WTO disciplines under appropriate circumstances? The EU experience with intervention gave stock purchases to support market prices a bad name, but this was in the context where markets were also highly protected by tariff barriers and the use of export subsidies. In the absence of trade barriers, intervention buying has positive spillover effects for producers in other countries. Could WTO rules be designed to encourage such good neighbour policies?

Recently, I was looking for an internet source for EU export refunds – not overall expenditure, but the refund rates for individual commodities by month. What I was hoping to find was an Excel worksheet which set out this information, but it seems extraordinarily hard to come by. The nearest I could get was the excellent webpage on export refunds for milk and meat products maintained by OFIVAL, the French marketing agency. However, the data here take the form of pdf files containing the information every time the refund levels are changed, and it would be extremely tedious to transfer this into an Excel file. Another excellent site is Datum, hosted by the UK Dairyco. Here the information on export refunds for dairy products is updated weekly, and it is also possible to download an Excel file with historical data, but of course the data only covers dairy. The Commission’s CIRCA network also seems to have pdf versions of export refunds – you can view the sugar data here – but access to CIRCA more generally and to its interest groups requires one to register so I don’t know if similar information for other CAP commodities is also available here. Again the drawback is that the information is not available in Excel format. Do any readers have other suggestions where this information could be found?

A widely-accepted justification for subsidising agriculture is that we need to prevent the emergence of the industrialised, mono-cultural agriculture which is the inevitable result of an efficiency-based, cost-oriented farming model by protecting the diversified, environmentally-friendly small farmer in order to maintain the positive environmental benefits of European agriculture. This is part of the philosophy of agrarianism which underpins much discussion of agricultural policy.

Let us leave aside for the moment the fact that the bulk of existing farm subsidies go to larger farmers rather than smaller ones, so that even if the thesis above is valid, current agricultural policy does not support it. My interest is in the evidence for the thesis itself. Is it the case that small farms are better for the environment? [...]

Just days before the final ag Council meeting under the Czech EU presidency, member states’ positions on the Council Conclusions are still far apart. Things look a lot like last year when France attempted to show the way to long-term CAP reform, while some states resisted any move that could pre-empt the budget review/financial framework negotiations. CAP defenders are again trying to integrate far-reaching & far-fetched arguments on the benefits of the CAP that would point towards maintaining a big CAP budget and a strong first pillar. [...]

Agriculture is special. It therefore deserves an outstanding dose of public subsidies. Or so we are told. But is there anything that is not special? The standard approach of economists (and others who happen to think clearly though writing about agriculture) is analytical: debunking erroneous claims for subsidies. The problem is that rational argument goes only that far. So the idea is to try something else: making up far-fetched cases in favor of subsidizing non-agricultural sectors. Their resemblance to some pro-CAP arguments would show the latter’s absurdity. [...]

There is an excellent piece of analysis from Roger Waite, editor of Agra Facts, on the final health check legal texts and the current situation in commodity markets. Falling prices are worrying farmers and piling the pressure on policy makers to turn the clock back on the CAP, with the ink barely dry on the health check.

Read Roger’s insights over at farmpolicy.com.

Czech agriculture minister Petr Gandalovic made an curious statement at the informal Agriculture Council meeting held earlier this week in the French Alps. Mr Gandalovic, who will assume the chairmanship of the Council under the Czech EU Presidency in the first half of 2009, told his colleagues:

“The more specific you make the policy, the more room you give to bureaucrats who make the decisions. Non-targeted payments give more power to farmers.”

In case it’s not clear, Mr Gandalovic was making the case against targeted payments. In doing so, perhaps inadvertently, he touched on a question that goes to the very heart of the debate about the future of the CAP: the extent to which the CAP’s 54 billion euros of annual public expenditure should be targeted on clearly defined objectives and measurable outcomes. It is a debate raging right now within DG Agriculture, a power struggle that is pitting CAP ‘modernisers’ who seek a greater role for the current rural development pillar against CAP ‘consolidators’ who defend the “Fischler settlement” and the current Commission Health Check agenda. What it boils down to is a debate over the fundamental role of public policy in agriculture. [...]

Full details at the WTO’s website. WTO Director General Pascal Lamy said:

“These revised texts set the stage for a decisive moment in the Doha round. Ministers and other senior officials will soon arrive for intensive negotiations the week of 21 July. They need negotiating documents which are clear and precise as they consider the complex issues of agriculture and industrial goods trade. These texts go a very long way in that direction. These negotiations have been long and tough but the prize awaiting us should we reach agreement is worth the effort. A deal to open trade in agriculture and goods means more growth, better prospects for development and a more stable and predictable trading system. We must not let this opportunity slip through our fingers.”

The main issues currently under negotiation that impact the CAP are in the market access pillar and relate to tariff issues, particularly the scale and handling of ’sensitive products’ that get partial exemption from the across-the-board tariff cuts. In relation to domestic support, the text appears to be close to being finalised. The main decision still to be taken by Ministers is the size of the cut in Overall Trade Distorting Support (OTDS). The options are a cut of between 75% and 85% for the EU, a cut of 66-73% for the US and Japan, and a cut of 50-60% for other countries. Even an 85% cut for the EU would not have any impact on current domestic support payments, which are notified as ‘non- or minimally trade distorting’ and therefore exempt from constraints.

Over at farmsubsidy.org you can see the first fruits of a mapping project which aims to place every EU farm subsidy payment on a fully interactive web-based map, powered by the excellent Google Maps. The first country to get the mapping treatment is Sweden, chosen because its government has been by far the most transparent in terms of farm subsidy payments. The map displays some € 7 billion in CAP expenditure in 2 million payments to 114,700 recipients since 2000. We think the map-based interface is a fascinating new platform for bringing the CAP closer to the citizens that pay for it. Now that Sweden is done, other countries will follow.

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The think tank “Notre Europe” just released a document on the future of the CAP. Notre Europe’s point of view is that because the health check (HC) is likely to lead mostly to short term adjustments, the “real” debate on the CAP is likely to take place before the next financial perspectives. The outcome could be very contingent to the situation that will prevail in 2013 (e.g. market situations). Notre Europe launched a reflexion that intends to look to more structural changes, with a longer term horizon than the HC.

All the members of the (large) task force did not share a common position on this issue and instead of producing a UN-type consensual document, two of the members, L.P. Mahé and I drafted our own conclusions, not necessarily shared by the others. I believe that many of the readers of this website will find the proposals a bit too “French” (even though the authors are considered as dangerous free marketers in their own country). But hopefully, this will trigger more thinking from other institutions.

The link to the English version of the document is here.

Roger Waite, editor of Agra Facts and long-time Brussels CAP watcher, has written a superb ‘health check explainer’ for farmpolicy.com, the US-based farm policy news source. The briefing covers what the health check is in terms of policy, process and politics. Highly recommended reading and reproduced in full below, with permission. [...]

The WTO negotiations have become a live issue in Irish politics because Ireland is the only EU country which will hold a referendum to ratify the Lisbon Treaty, and the campaign provides an opportunity for interest groups to maximise their bargaining strength. For example, farm groups who are traditionally pro-EU in referendum votes have threatened to campaign against the Lisbon Treaty not because of the content of the Treaty but because of their dissatisfaction with the way they see Peter Mandelson as EU Trade Commissioner handling the WTO negotiations.

Padraig Walshe, President of the Irish Farmers’ Association, the largest of the Irish farm groups, gave a not-so-veiled warning recently when he noted that “it would be unrealistic to expect the farming community and rural people to vote for the Lisbon Treaty while Mandelson is planning the destruction of the Irish and European family farm structure.” [...]

Agra-Facts is one of the best CAP news sources, although it does come with a fairly hefty price tag that probably puts it out of reach of anyone who is not professionally involved in European agriculture policy. Roger Waite, Agra Facts editor, tells me that he would like to open the Agra Facts competition to ‘rename the CAP’ to readers of this blog. Here are the details, and be sure to scroll down the page for our exclusive interactive name generator tool. [...]

Earlier this week, BBC Radio 4 broadcast Churchill Confidential, a dramatisation of British cabinet meetings chaired by Prime Minister Winston Churchill, records of which have only recently been released into the public domain. In this week’s episode, looking at Churchill’s second term of office (1951-55), we get an overview of the pressing issues of state at that time: the impending conflict with Egypt over the Suez Canal, the development of the British atom bomb, balancing Britain’s relationships with its European neighbours and the United States of America, immigration and race relations, the coronation of Queen Elizabeth II, the devaluation of the pound and, somewhat incongruously… a decision on whether to reduce the meat ration. Why is this relevant to the CAP? Find out after the jump… [...]

The Commission’s “CAP Health Check” communication acknowledges the fact that European Farming and countryside face unprecedented environmental challenges: continuous biodiversity decline, increasing climate change and a looming water crisis. The Communication fails however to come up with credible proposals for dealing with these challenges. It was hoped that the Commission would use the Health Check to outline a long-term sustainable vision for European farming and land management. Instead, the Communication seems bent on a business as usual scenario. [...]

The recently leaked Commission Green paper sets the scene for the upcoming health check. What emerges at the moment is a very cautious and minimalist approach, in line with what the Commissioner has been promising for a while. Two things seem striking. The first is the choice to ignore the budget review debate. The second is the lack of courage in confronting the CAP’s failings. [...]

Jack Thurston reviews some recent academic studies, including a recent paper by Stefan Kilian and Klaus Salhofer from the Technische Universität Munich, which make the point that much of the benefit of agricultural support policies does not end up in the hands of farmers who are its intended beneficiaries, but rather benefits landowners. However, my reading of the Kilian/Salhofer paper is that we need to be careful in applying this conclusion to the EU’s Single Farm Payment.

Kilian and Salhofer highlight the requirement in the EU Single Payment Scheme that a farmer must possess an entitlement in order to qualify for the payment. It turns out that this creation of a new ‘factor of production’ can modify significantly the conventional conclusion that landowners benefit from agricultural support. [...]

Much initial reaction to the Commission’s leaked Health Check proposals has focused on its renewed attempt to introduce a cap on the Single Farm Payment amount which an individual farmer can receive. In fact, the proposal does not amount to a cap in the sense of an absolute ceiling, but takes of the form of a tapered payment Farmers receiving between €100,000 and €200,000 would face a 10% cut, those receiving between €200,000 and €300,000, a 25% cut and those receiving over €300,000, a 45% cut. Jack Thurston’s blog yesterday highlights the limited impact the measure will have.

It might be useful to put the Commission’s proposal in some historical perspective. Capping was part of the Commission’s initial reform proposals in each of the past three CAP reforms – the 1992 MacSharry reform, the 1999 Agenda 2000 reform and the 2003 Mid-Term Review. In this post I review the evolution of this concept and corroborate the implications of the Commission’s Health Check proposals. [...]

Analysis of the Commission’s leaked proposals for the CAP Health Check show that the payment limitations proposal is significantly less ambitious than the proposal made during the Agenda 2000 (1999) and Mid-Term Review (2003) reforms of the CAP. [...]

Jerzy Wilkin of Warsaw University in a recent paper has summarised the agricultural experience in the New Member States (NMS) under the CAP since they joined the EU in 2004. One of the points he highlights is the change in attitudes among farmers to the EU particularly in Poland, the largest of the New Member States. Although ex ante studies had suggested significant gains to agriculture as a result of accession, farmers were generally fearful and negative towards membership prior to 2004. Three years later, the situation is transformed. The share of Polish farmers supporting Poland’s accession to the EU has risen from 23% in 1999, to 38% in 2002, to 66% in 2003 and to 72% in 2005. [...]