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Recent trends in EU farm incomes

Earlier this month, without any fanfare, Eurostat produced its estimates of farm income for 2015 (see its database domain aact_eaa06 under the Economic Accounts for Agriculture, EAA). Given the noisy campaign by the farm lobby in recent months for additional support to the sector, one would expect the figures to show a sector in dire straits, reeling from crisis. There are, of course, individual sectors in trouble. There are individual member states where farm incomes over the past two years have taken a very serious hit. And there are individual farmers in all sectors, particularly those who are heavily borrowed, who have run into financial difficulty. But, perhaps surprisingly, the sector as a whole seems to be holding up well in the face of recent market shocks.

According to the preferred Eurostat farm income indicator, farm incomes in 2015 were either 1% above the average for the previous five years or 2% below the average for the previous three years.… Read the rest

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The use of CAP impact indicators for policy evaluation

This post is written by Ulrich Koester and Jens-Peter Loy

According to new legislation, the European Commission (EC) is in charge of evaluating Pillar 1 measures of the Common Agricultural Policy (CAP), while Pillar 2 measures have to be evaluated by the Member States (MS). Pillar 1 measures are of utmost importance for EU expenditure, amounting to a share of about 40% of the total expenditure of the EU budget. The request for evaluation is a significant step forward. One may wonder whether this new task indicates that the measures of the CAP have not been evaluated regularly so far. In the following, we focus on one specific measure, direct payments, for two reasons.

First, these payments make up more than 70% of the total CAP expenditure and, second, the EC has already published respective evaluation results.

The structure of the post is as follows: In the first part, we present the evaluation methodology widely used by professional economists.… Read the rest

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Council supports voluntary milk reduction scheme

Yesterday, the Agriculture Council agreed on a package of 13 measures to bring relief to agricultural markets in difficulty. Most attention has focused on the Commission’s willingness to invoke Article 222 of the CMO Regulation to permit producer organisations and recognised interbranch organisations in the dairy sector to introduce voluntary measures to reduce milk supplies, financed by member state funds. This attention is due more to the unusual nature of the measure rather than an assessment of its likely effectiveness.

The measure was put forward by Commissioner Hogan in his address to the Council. The agreement is summarised here in the Presidency Council conclusions and here in this DG AGRI press release following the meeting.

The legal basis

The legal basis for the measure will be Article 222 of the CMO Regulation which refers to agreements and decisions during periods of severe imbalance in markets. It permits the Commission to derogate from the normal competition rules which prevent producers from cooperating to influence supply and market prices under certain conditions.… Read the rest

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Temporary supply management for milk offers no solution

The agenda for Ministers meeting at the Agriculture Council meeting tomorrow Monday 14th March includes a discussion of the difficult market situation facing a number of agricultural sectors, including dairy, pigmeat and fruits and vegetables. Ministers will assess the adequacy and effectiveness of the market support measures currently in place, and whether additional measures could be envisaged.

At last month’s February Council, member states were invited to submit concrete proposals on possible additional measures, on top of the €500 million aid package adopted by the Council last September (extraordinarily, only 10 out of 28 member states have so far introduced schemes to spend this money). More than 100 initiatives and measures were submitted, which have been summarised by the Dutch Presidency under five headings:

• Extension or reactivation of existing measures, like storage
• Flexibility in implementing the current regulatory framework, for instance as regards the recovery of penalties
• Accelerating already launched initiatives, like addressing unfair trade practices in the food supply chain
• Preparatory and supporting actions like studies or setting up monitoring bodies
• New measures, such as support to producers who voluntarily reduce their milk production.… Read the rest

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Back to the CAP's future: An interest- or evidence-based policy?

In May 2016, at an informal AGRIFISH Council meeting, the Dutch Presidency will discuss the CAP post-2020. A mere 2.5 years after the last reform (finalised in December 2013) and just after the first execution of the new First Pillar payments and Rural Development Programme schemes in 2015, a new round of discussions about the rationale, goals, measures and impacts, of the CAP is already beginning; in effect, a new CAP reform.

Entering the first phase of reform, we may assume that the formation of political decisions and new legislation will take place in familiar stages. In the first stage, everything goes; it is marked by diverse and opposing opinions of Member States, think-tanks, interest groups and individuals. The menu is likely to include everything from the CAP’s complete abolition through radical or gradual changes to few or no changes; mainly, significant efforts will be directed towards keeping the policy alive – at all cost.… Read the rest

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Agriculture in the debate over Brexit

The European Council meets this Thursday in the hope that it will agree on a package of measures that will satisfy the UK’s demand for a renegotiation of its relationship with the EU. The details of the package and the main stumbling blocks are spelled out in the Council President Donald Tusk’s invitation to leaders to the Council meeting. The mood music leading up to the summit meeting is constantly changing. Whether this is a careful choreography to persuade voters back home that what will be achieved is a significant deal, or whether the continuing objections will derail a deal will be clearer by the end of this week. If a deal is reached, there is heavy speculation that the referendum date itself could be 23 June.

UK opinion as captured by opinion polling is shown in the chart below. If we mark the official start of the Brexit debate as the date of the UK Prime Minister’s famous Bloomberg speech on 23 January 2013 (still one of the best arguments in favour of the European Union that I have read), those in favour of Leaving were reportedly ahead at that stage.… Read the rest

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The 2016 mid-term review of the Multi-annual Financial Framework

Imagine a scenario where UK voters go to the polls later this year to vote on whether to remain in or leave the EU, while at the same time in Brussels a debate is in full swing over whether to increase the ceilings for the 2014-2020 Multi-annnual Financial Framework (MFF), and thus the UK contribution to the EU budget. This seems to be the nightmare scenario behind the story carried by Euractiv earlier this week based on the views of an anonymous EU official and which declared that “the major event in the calendar of the Juncker Commission, the midterm review of the European Union’s 7 year budget, has been effectively cancelled”.

The report goes on to explain:

EU officials are too scared to come up with policy recommendations to recalibrate the €960 billion EU budget until 2020 by mid-summer, as such proposals would most likely coincide with the Brexit referendum expected in June.

… Read the rest
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What endgame for GIs in the TTIP negotiations?

I have previously written on the importance that the EU places on extending protection for its geographical indications (GIs) in its negotiations with the US on a Transatlantic Trade and Investment Partnership (TTIP) agreement. In that post, I looked at how the protection of GIs was addressed in a number of recent EU free trade agreements, notably those with South Korea (EUKOR) and with Canada (CETA).

GIs remain one of the tough nuts to crack in the TTIP negotiations, for reasons I outline in this presentation. In a recent update on the outlook for the TTIP talks from Bloomberg, its report included GIs along with certain agricultural tariffs and sensitivities on government procurement and financial services as among the endgame issues where a resolution would only be expected as part of the political trade-offs at the end of the talks. The report noted that US and EU officials will convene a high-level working group in early 2016 to discuss GIs in an attempt to narrow the gap between the two sides.… Read the rest

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WTO dimensions of a UK 'Brexit' and agricultural trade

Following a first round of discussions on UK demands for a renegotiation of the terms of its membership of the EU at the European Council meeting last month, it now seems that the February meeting of the Council will agree on some package of measures and promises in response to UK Prime Minister David Cameron’s demands. It will then be up to Cameron to decide if this package is sufficient for him to campaign to stay in the EU in the referendum promised to take place before the end of 2017 and possibly later this year.

Even if Cameron decides to campaign in favour of staying in, there is no guarantee that the UK voters will follow him. A possible Brexit, or UK exit from the EU, remains a distinct possibility.

If a Brexit were to occur, the UK would have to decide on what agricultural and agricultural trade policy it wished to pursue outside the EU.… Read the rest

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Is the removal of quotas responsible for the increase in EU milk production in 2015?

The plight of milk producers supplying the dairy cooperative Arla in Denmark and Sweden was the lead article in my Danish newspaper yesterday morning. Interviews with a number of farmers supplying Arla highlighted their loss-making situation at current milk prices. The journalist writing the story highlighted that a number of factors were responsible for the current low milk prices: the Russian import ban on EU dairy products, lower import demand in China but also increased production in the EU which he attributed to the removal of milk quotas in April of this year.
That EU milk production has increased is clear, as shown in the figure below. Production has increased from 135.2 mt in 2008 to a forecast 149.4 mt in 2015 and an estimated 150.8 mt in 2016. More recent data from the Milk Market Observatory (MMO) Dashboard for 23 December 2015 even suggests that the expected increase in 2015 will be significantly higher at 1.8% rather than the 1.1% shown in the December 2015 short-term outlook.… Read the rest