Author: Alan Matthews

The likely size of the EU budget in the next financial perspective period (the length of which still remains to be decided, whether 2013-2000 or 2013-2024) became a little clearer last month with the publication of a letter to the President of the European Commission signed by five Member States including France, Germany and the UK as well as the Netherlands and Finland.

This called for an increase in payment appropriations over the 2013 by no more than the rate of inflation, thus maintaining the size of the EU budget constant in real terms. The letter called for commitment appropriations to increase by less than the rate of inflation. It is significant that the letter did not call for a cut in the absolute size of the budget, which has been happening in some Member States.

Proposing the new financial perspective is the prerogative of the Commission, which will make its proposal in July this year.… Read the rest

The EU Commission’s report on indirect land use change related to biofuels and bioliquids released just before Christmas has made the continuation of the EU’s renewable energy in transport targets extremely problematic. Indeed, it is hard to see how this policy can survive in the New Year without some extremely clever footwork by the Commission.

Further studies recommended

The report was mandated by the Directives setting out the EU’s renewable energy targets, which required the Commission to review the impact of indirect land use change on greenhouse gas emissions and to address ways to minimise that impact, including proposing a concrete methodology to incorporate emissions from carbon stock changes caused by indirect land-use change.

After a two-year investigation, the Commission report has accepted that indirect land use change (ILUC) will reduce carbon savings from biofuels, but it stopped short of immediately recommending new barriers against unsustainable biofuels. Instead, it has delayed the announcement of its biofuels strategy for a further six months in order to undertake additional studies.… Read the rest

The Commission has just forwarded the first of two required reports on the milk market situation and the prospects for a smooth phasing-out of the milk quota system. The next one is due at the end of 2012. The report concludes that a “soft landing” is on track in an overwhelming majority of Member States.

Milk quota prices have a very low value, already at zero in some Member States, and decreasing in most of the others with a view to reach zero in 2015. Milk quotas have ceased to work as a production limit in most Member States, especially in the new Member States, and market orientation is already the leading principle in a number of them. It concludes that under these circumstances there is no reason to revisit the Health Check decisions with regard to the gradual increase in quotas and the end of the quota regime on 1 April 2015.… Read the rest

The US Congressional Research Service has just updated its review of the US-EU beef hormone dispute, one of the longest-running trade disputes under GATT/WTO dating back to the 1980s. The briefing sets out the milestones in the dispute, discusses the basis for the differing positions of the EU and the US on the scientific evidence regarding the health risks of consuming hormone-treated beef, and outlines the Memorandum of Understanding signed between the two sides in 2009 which provides the basis for a potential settlement of this dispute.

The MOU provides that the EU should open an increased tariff rate quota for non-hormone-treated US beef at a reduced tariff rate, while the US agreed to delay its implementation of increased duties on particular EU imports, while retaining its existing duties which are sanctioned under the WTO dispute settlement procedure. Ultimately, there is provision for the US to drop is retaliatory duties altogether in return for a further increase in the TRQ for non-hormone-treated beef.… Read the rest

The Commission’s November 2010 communication on the future of the CAP post-2013 envisaged that Pillar 1 direct payments might, in future, consist of three elements: a basic income support payment; a green payment; and a natural handicap payment. Another theme of the communication is that greater flexibility should be given to Member States in how they distribute their Pillar 1 envelope. The Scottish Government recently released the Pack Report of an inquiry into future support for agriculture in Scotland. Although it appeared before the Commission communication did, some of its ideas reflect what is in the communication while other ideas suggest ways in which Member States might make use of any flexibility they were given.… Read the rest

The formal Commission communication on the future of the CAP published today, and which Jack Thurston has summarised below in his own inimical way, had become available some weeks ago in a leaked version when it went into inter-service consultation. It is an interesting exercise to deduce, from a comparison of the two versions, what changes were made as a result of this process and what implications they might have.

At the outset, we can state that the two documents are substantially the same, with only very minor adjustments. Thus, all of the criticisms made of the earlier document remain valid. The Commission stresses that this is still a consultation document. It does provide some shape to the discourse around the future CAP, sometimes in a positive direction (placing more emphasis on targeted payments for public goods and highlighting the importance of innovation) but sometimes in a negative direction (raising misleading concerns about relative farm –nonfarm income levels and food security).… Read the rest

In the past few years commentators have emphasised the growing integration between food and energy markets. Food prices were always influenced by energy prices on the cost side, but with the growth of markets for biofuels made from agricultural feedstocks, prices are also linked on the demand side. If oil prices rose, this would tend to pull up food prices as grains, sugarcane and vegetable oils were diverted to fuel production, and if oil prices fell, feedstocks would move back again to the food market also pushing down prices there. The crucial lever here was seen as the Brazilian sugar-ethanol complex and Brazil’s fleet of flex-fuel vehicles, which facilitated easy substitution between the two markets.

But agricultural markets are subject to their own shocks independent of the energy market, and the price integration is far from perfect as shown by a comparison of sugar and oil prices over the past twelve months.… Read the rest

The European Court of Auditors today released a report reviewing the outcome of the 2006 sugar regime reform. The Court makes some criticisms of the design of the 2006 reform, but more important are its findings and recommendations which are likely to feed into the debate on the shape of the CAP post-2013. Here the report manages to give ammunition to both CAP reformers and diehards, and if early reactions in my own Irish media are any guide it is the more reactionary views which are getting the media spin.

The Court notes that one objective of the reform was to contribute to a more competitive sugar industry, and that this was to be achieved by concentrating quota reductions in the least competitive areas. The audit criticises the Commission for the absence of data on the productivity of individual factories and for the fact that data on the overall competitiveness of sugar production in different Member States was somewhat dated.… Read the rest

The EU renewables target of 10% of transport fuel by 2020 to be met mainly by biofuels has been heavily criticised for its potential impact on diverting land from food to fuel production and thus putting upward pressure on food prices. Another source of criticism is whether it does actually contribute to reducing overall greenhouse gas (GHG) emissions. The Commission sought to deflect this latter criticism by requiring that biofuels which count against the renewables target must show a direct GHG saving of 35% compared to the fossil fuel that they displace. This saving requirement is gradually increased to 50% and 60% for fuels produced by installations that start production after 2017 and 2018, respectively.

However, these GHG reduction requirements do not take into account the possible indirect effects of converting cropland to biofuel production, which will encourage indirect land use change (ILUC) by conversion of pasture or forest to produce the food crops displaced by biofuels.… Read the rest

One result of the last two enlargements in 2004 and 2007 was to bring millions of small farms into the EU, most of which are either subsistence farms (SFs) or semi-subsistence farms (SSFs). Various definitions of what is a subsistence or semi-subsistence farm exist (see the background paper on this topic by Sophia Davidova and colleagues for the recent seminar in Sibiu, Romania on semi-subsistence farming) including physical area (e.g. less than 5 ha), size of farm business (below a certain ESU threshold) or market orientation (share of production going to own consumption).

According to Eurostat FSS, in 2007 there were 11.1 million small farms (below 8 ESU) within the EU-27. Of these, 6.4 million were below 1 ESU, therefore considered SFs and the remaining 4.7 million were SSFs. The total number of holdings in 2007 in the EU-27 was 13.7 million, so the share of SFs and SSFs was equal to 46.6% and 34.5% of the total number, making them the dominant farm type in Europe.… Read the rest