Author: Alan Matthews

Alan Matthews is Professor Emeritus of European Agricultural Policy in the Department of Economics at Trinity College, Dublin, Ireland. His major research interests are agricultural policy analysis, the impact of international trade on developing countries, and computable general equilibrium analysis of trade and agricultural policy reforms. He has worked as a consultant to the European Parliament, the OECD, the Food and Agricultural Organisation of the United Nations and the UN Industrial Development Organisation, and has been a panel member in a number of WTO Dispute Settlement procedures. He is a former President of the European Association of Agricultural Economists but writes here in a personal capacity.
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Production effects of agri-environmental programmes

EU agri-environmental policy dates back to the mid-1980s and became a mandatory part of the EU agricultural policy toolkit in 1992. Initial implementation in many Member States emphasised policies designed to mitigate the environmental harm associated with agricultural intensification (e.g. by paying farmers to lower fertiliser inputs) but over time and under Commission prodding the objectives have shifted more to environmental enhancement.

Around two-thirds of EU agri-environmental programme payments are classified in the OECD’s Producer Support Measure (PSE) calculations as ‘payments based on input constraints’. Such programmes would be expected to reduce EU production. Empirical attempts to measure the impact of the CAP on EU production and world market prices generally ignore their production-restraining impact and thus tend to over-estimate the world market effects of EU agricultural policy. … Read the rest

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Carbon efficiency and trade policy

In an earlier post, I wondered whether there were data on the relative carbon efficiency of agricultural production in Europe versus third countries. A recent FAO study arising from a collaborative effort by FAO and the International Dairy Federation which assesses GHG emissions from the dairy food chain throws light on this. The study uses a Life Cycle Analysis (LCA) approach, and thus includes the land use change induced by the consumption of feed (principally soybeans) in intensive dairy systems.

The results are unambiguous:

“A global trend emerging from the results is the lower level of emissions per unit of product in intensive compared to extensive systems. This is mainly driven by two factors: the higher digestibility of the animals’ feed, and the higher milk productivity level… However, it is possible that production systems in industrialised countries will experience increasing emissions with intensification, as the marginal reductions in emissions from enteric fermentation may not compensate for the increased emissions from manure, fossil energy and other inputs.”

… Read the rest
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Sarkozy offers a deal on CAP reform

President Sarkozy took farmers into his confidence in a recent speech at the Salon d’agriculture where he proposed a new direction in France’s position on CAP reform post 2013. Noting that there were farms in France where the share of subsidies equals the value of production, he declared that this does not make sense if the farmer is a producer. He criticised the policy approach of accepting compensation for reductions in prices because, some day, there is no longer sufficient funds to continue to pay for the subsidies.

Instead, he proposed to the other EU partners a deal whereby France would be flexible on the share of the next financial perspective going to agriculture provided that this was balanced by more rigorous Community preference which, implicitly would lead to a higher market return. His argument is that if third country producers had to respect the high environmental, traceability and animal welfare rules which must be respected by European producers, then European farmers would be able to compete on price alone.… Read the rest

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NMS farm ministers flex their muscles

The USDA Foreign Agricultural Service carries a useful report of the meeting in Warsaw on 3 February last attended by the agricultural ministers from the new Member States which concluded with a declaration on the future of the CAP after 2013. Its a fairly uncompromising defence of a large agricultural budget after 2013. The USDA notes that not only are the NMS sore about the unequal distribution of direct payments, but they are rapidly losing ground in the production of primary agricultural commodities. Poland, for example, now imports more pork than it exports, while meat and dairy exports from West to East have surged. The declaration was signed by ten Member States, including Estonia which is sometimes seen as part of the CAP reform camp. Only the Czech Republic attended as an observer but did not sign. The USDA FAS report contains the translation of the agreed declaration which can also be downloaded from the Polish Ministry of Agriculture website here.… Read the rest

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German call for reform of CAP payments

The German Council for Sustainable Development has just published a report highlighting the environmental damage caused by intensive agriculture and calling for a reform of the CAP direct payments system. It proposes a three-fold structure of payments: an environmental basic payment, a series of targeted agri-environmental payments for farmers who accept higher obligations, and a series of payments for high nature-value areas where the continuation of agricultural production is desirable but threatened on economic grounds.

For the environmental basic payment, it suggests that eligibility would be conditional on farmers turning over at least 10% of their area to environmentally-friendly husbandry with a view to maintaining a high level of biodiversity in the agricultural landscape throughout the EU.

The Council explicitly argues against the idea that farmers should be remunerated for fulfilling their statutory obligations with respect to the environment, animal welfare and food safety (cross compliance). It also justifies full EU financing of most of the payments “so long as these are directed to fulfilling EU objectives”, thus apparently advocating that some of the existing co-financed agri-environmental payments in Pillar 2 might be moved to Pillar 1 at least as far as financing modalities are concerned.… Read the rest

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Ciolos confirmation hearing poor reflection on the Parliament

It is now over a week since the confirmation hearing of Commissioner-designate for Agriculture and Rural Development Dacian Ciolos before the European Parliament, but it was only this weekend that I had the opportunity to listen to the EP’s video of the hearing itself. Commentary elsewhere on Mr Ciolos’ performance has been rather negative (my colleague Jack Thurston described it as a lack-lustre performance both in style and substance) and I would not disagree with this assessment – his responses on co-financing and on the legitimacy of equal per hectare payments across all EU Member States were just two examples of woolly and obfuscatory replies.

But I think we may need to take into account the context of this confirmation hearing, which was solely before members of the EP’s Committee on Agriculture. Thus, Mr Ciolos was faced with a totally one-sided perspective on agricultural policy by agrarian representatives. Committee members sought his views on the reintroduction of price supports, higher barriers against third country imports and more support for their special interest groups.… Read the rest

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What does co-decision have in store?

When the Lisbon Treaty came into force on 1 December 2009, one of the big winners was the European Parliament which gained equal status with the Council of Ministers in most EU decision-making, including for the first time agricultural policy-making (although with some ambiguity about its role in setting prices and aid levels to which Wyn Grant has drawn attention). There is considerable interest in whether these new powers will be used to promote or block CAP reform. The pessimistic view is that the EP will become the focus of intense sectoral lobbying which will be used to block reform.

Parliament2Some light may be thrown on the way the EP will exercise its new legislative role by looking at trade policy, another area where the Parliament gained new powers under the Lisbon Treaty. Currently, the EU-South Korean Free Trade Agreement, which was negotiated under the old Nice Treaty rules, is up for ratification under the new Lisbon rules.… Read the rest

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Keeping an eye on the sugar market

Sugar did not experience the massive price spike in 2007-08 of other commodities, but has been making up for this with a tremendous increase in prices in 2009, driven by poor harvests in Brazil (the world’s largest producer) and strong import demand in India (the world’s largest importer). Raw sugar prices have risen from around 10 USc/lb in May 2008 to over 27 USc/lb currently, and market analysts expect further increases in the coming months.

The increase in world prices means that world prices are now above the (much reduced after the recent sugar reform) EU reference price. Recent price trends are shown in the following figure, reproduced from the SugarTraders website

sugarprices

Despite the very tight global market, EU sugar beet supplies have moved in the opposite direction. The EU expects a bumper sugar beet harvest this year, with beet yields among the best in years. Combined with imports from developing countries which now have free access to the EU market, the EU will have a considerable surplus over its domestic needs.… Read the rest

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Lessons from the 2009 EU dairy market crisis

The EU dairy market is now recovering from the severe drop in milk prices in 2009. Perhaps the clearest sign of this recovery is the setting of export refunds on dairy products to zero since mid-November, as world market prices for dairy products have strengthened in recent months.

It is thus an opportune time to evaluate the EU’s response to the crisis, and to see what lessons might be drawn for how the Union can address similar problems in other farm sectors in the future. My view is that there is a lot to be learned from the dairy crisis, and that the outgoing Commissioner deserves credit for the way she handled it.

EU milk prices improving

Let us first review the evidence that the milk market is improving. The trends in the EU market prices (proxied by the German price and represented by the blue line) and the EU intervention price (the red line) for butter and skim milk powder (SMP) have been graphed by CLAL.it… Read the rest

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Eurostat preliminary farm income figures for 2009

Eurostat has just published its first estimates for real agricultural income per worker in 2009. For the EU27, the figure is down 12.2% on the 2008 figure, but with considerable variation across countries, from -35.6% in Hungary to +14.3% in the UK. While differences in commodity price trends and variations in commodity composition across countries will account for much of the variation, other factors include the further phasing in of direct payments (in the NMS) and currency fluctuations against the euro (important in explaining the UK trend).

Eurostat also publishes a comparison of trends since 2005. Choosing any one year as a base is always problematic, given the possibility that the base year is an untypical year. This is the case for Ireland, for example, where double payment of the direct payments in the transition to the SPS resulted in unusually high farm incomes in that year.

Overall, average real agricultural income per agricultural worker has more or less held constant over the last four years, with the 2009 index (base 2005 = 100) for EU27 standing at 98.3.… Read the rest