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Does France really want to suspend agri-environmental measures?

The president of the main farmers’ union, the Fedération Nationale des Syndicats d’Exploitants Agricoles (FNSEA) Jean Michel Le Metayer called for “a pause in agri-environmental measures” and the suspension of new measures. For French speaking readers, the (short) video is here.

The Ministry of agriculture seems sympathetic with this position, even though Nicolas Sarkozy has recently positioned himself as greener than his predecessors, with initiatives under a framework law called the “Grenelle of the environment” and a carbon tax (it turns out that farmers should be exempted from paying this tax, eventually). The French minister Bruno Le Maire apparently said a few days after that, indeed, a revision of the agri-environmental measures (AEM) was necessary and that it should start with an inventory of the provisions adopted throughout the Union according to the newspaper Le Figaro. On January 13 Le Maire unveiled a proposal for a new agricultural law to be discussed by the Parliament with little apparent concern for the protection of the environment.

sheep3The idea of suspending agri-environmental measures is bizarre, given that they are voluntary measures that are highly appreciated by farmers in some regions, providing often a third or more of the farm incomes in mountainous regions for example. So what did the FNSEA president actually mean? After some inquiry, it seems that he actually used the term “agri-environmental measures” for CAP jargon ignorant journalists. He was not in fact targeting the AEMs, i.e. second pillar measures, but rather the GAECs (Good Agri-Environmental Conditions, i.e. a set of technical constraints that farmers needed to respect in order to receive the Single Farm Payments, under Pillar 1, part of what is sometimes known as cross-compliance), as well as “any element of regulation that imposes environmental constraints such as the Nitrate Directive, or national measures under the new Grenelle law framewok” (FNSEA sources). Le Metayer argued in the interview that because of low prices and low incomes, farmers could not afford the ever growing stream of environmental regulations.

To FNSEA’s defense, some of the constraints imposed in 2009 turned out to be ill-designed in some regions. For example, farmers had to plant intermediate crops between harvests so as to keep soil covered and reduce nitrate leaching. In some areas, the lack of rain when these crops were planted resulted in extra costs without any environmental benefit. However, the FNSEA position sends an awkward signal regarding farmers’ image in the public opinion, while water pollution with nitrates makes headlines every summer. More worryingly, Le Metayer’s demand shows how much the the anti-environmental stance is widespread among the mainstream French farm lobby (another farmer’s union, the Coordination Rurale runs perhaps an even more anti-environmental program than the FNSEA). The FNSEA is highly representative and about to win again a majority in one of the main instances that co-manage the agricultural sector with the government in France. Only a minority of farmers belonging to the left wing Conféderation Paysanne seems in favour of a greener CAP, but their position regarding market regulation makes them hardly credible in the European debate (they favour a system of generalized quotas and a complex set of coupled payments restricted to small farms). A fringe of enlightened entrepreneurial farmers, the Société des Agriculteurs de France is open to produce public goods as much as wheat if the CAP pays them for that, but this is more a think tank than a powerful union.

It is hard to make predictions regarding the future behaviour of France as far as the coming debate on the CAP is concerned. With France becoming a net contributor to the CAP, the unholy alliance between the ministry and agriculture and the ministry of finance to defend large CAP budget is about to end. The former minister, Michel Barnier, used Health Check flexibility to reallocate 1.4 billion euro of Single Farm Payments towards the extensive grass-fed livestock sector. This has turned the powerful cereal producers against the government. Given that farm incomes have decreased much more than the EU average in 2009, the Ministry of agriculture can hardly afford more radicalization of the farmers, and his apparent scorn for environmental causes is perhaps tactic. However the historical aversion of the FNSEA for the environment has been particularly effective in the past. France will certainly resist any greening of the CAP in the future.

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Roger Waite the new voice of DG Agri

Roger Waite, editor of Agra Facts and frequent podcast guest on this blog, has accepted the job of spokesperson for Agriculture Commissioner-designate Dacian Ciolos. It’s sometimes said that you can count the number of people who truly understand the Common Agricultural Policy on the fingers of one hand. Roger is certainly among that select few. He’s been reporting on agriculture policy in Brussels for the past 17 years and certainly knows his way around. He speaks fluent French (and German?) and has been said to possess a ‘silver tongue’. He steps into the larger-than-average shoes of Michael Mann, another poacher-turned-gamekeeper who gave up his job as the Financial Times Brussels correspondent to speak for Ciolos’s predecessor Mariann Fischer Boel.

Unlike some longstanding members of the Brussels press pack, Roger could never be accused of being a ‘cynical old hack’. As well as being knowledgable about the CAP, he’s excellent company, good humoured and approachable. He’s a true European and genuinely believes in the possibilities of a common agricultural policy that is better aligned to meet the challenges of the 21st century and that operates in an accountable and transparent way. He understands the political pressures that come to bear on CAP decision-makers and I am certain he’ll be a valuable asset to the Commissioner in the years ahead. I wish Roger well in his new job and look forward to continuing our good working relationship, albeit in an altogether new modus operandi.

According to EuroPolitics, Commissioner-designate Ciolos has also named to his cabinet Yves Madre, agriculture adviser at the French Permanent Representation to the EU. Austrian Georg Häusler will be his head of cabinet and Romanian national Sorin Moisa deputy head of cabinet.

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BBC Documentary: A Farm for the Future

A Farm For the Future is a documentary that aired on the BBC last year. It explains just how oil-dependent our agriculture is: every calorie of food produced in the western world requires ten calories of fossil fuel energy. The film looks at the challenge of dwindling oil supplies and tries to find out what kind of farming – and food – might we be expected to see in a post-peak oil world. The answer? Permaculture and more nuts.

The film is available on Youtube in five parts.

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25 Questions for Dacian Ciolos

Agriculture Commissioner designate Dacian Ciolos will appear in a confirmation hearing at the European Parliament in Brussels this Friday. Here is a list of 25 questions that MEPs should put the man who – subject to their approval – will set the agenda for European food and farming policy over the next five years.

The hearing will be webcast live, between 9am and noon, Brussels time.

The basics

1. Should maximising food production in Europe be a central objective of the CAP?

2. How would you respond to those who say it is hard to make the case for the CAP as a policy to support farm incomes when there are six and seven figure subsidies being paid every year to the likes of the Queen of England and Prince Albert of Monaco?

3. What is your opinion on the variation in rates of direct payments between new member states and the EU-15? Is any action is required to to address the issue?

4. Do production controls have a role in the future of the CAP?

5. Are you in favour of strengthening or relaxing the cross compliance conditions for those receiving direct payments?

6. Has the CAP gone too far down the road of decoupling subsidies from production – or not far enough?

7. What is your opinion of the US’s programme of counter-cyclical farm subsidies? Could such a system of direct payments that vary according to market prices be appropriate for the EU?

Farm economy

8. In terms of farm structures and farm sizes, where is European farming headed? What farm structures should be encouraged in the New Member States?

9. Do you agree that direct payments increase the market price of land and therefore make it harder for young farmers to start new farm businesses? What should be done?

10. What lessons should be drawn from the crisis in the dairy industry in 2009?

International trade

11. What is needed to reach an agreement on the trade negotiations in the Doha Development Agenda?

12. The EU maintains high tariffs on certain key agricultural commodities and products even though this makes food more expensive for European shoppers. Will you seek to reduce tariff levels?

13. Do you pledge the end of all EU export subsidies by 2013?

Environment and rural development

14. There is currently a lot of talk about public goods. What, in your opinion, are the public good that are most relevant in the context of agricultural policy?

15. Is it your opinion that some types of farming are better for the environment than others that, in some cases, can be very damaging to the environment. How should the CAP take account of these differences?

16. Should agri-environment support be restricted to farmers or should anyone who manages land and can potentially provide environmental services be eligible for aid?

17. Do you consider that the proper place for European rural economic development policy is as part of European regional policy, not as part of the CAP?

18. Do you agree that agriculture should be included in any European plans for reducing greenhouse gas emissions and not given special exemptions?

19. Should the CAP have a new ‘third pillar’ to help Europe mitigate and adapt to climate change? If so, what kind of policy measures would it contain?

Reforming the CAP

20. What will be your main objectives and guiding principles for the CAP post 2013?

21. Are you in favour of retaining the two pillar structure of the CAP and if so, what advantages do you see?

22. Would you favour the further use of modulation to shift funds from Pillar 1 to Pillar 2 of the CAP?

23. Is there a linkage between the CAP and the issue of national budgetary imbalances and various corrections and rebates in the EU budget?

24. How do you regard the connection between decisions on the shape of the CAP post-2013 and decisions on the EU financial perspectives for 2013-2020?

25. In future, should the first pillar of CAP, like the second pillar, and much of the rest of the EU budget, be nationally co-financed?

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Welcome to capreform.eu

This group blog on European food and farming policy began in 2008 during the ‘health check’ or policy review of the CAP and could be found at the URL caphealthcheck.eu. The ‘health check’ is now well in the past and it’s time to rename this blog to keep up with the times and to introduce a new design. We hope you like it. The entire archive has been transferred to the new domain at capreform.eu and hopefully all the subscriptions (email and RSS) should continue to work. If there are any problems, use the contact form to get in touch.

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The NFU perspective on the future of the CAP

Britain’s National Farmers’ Union is noted for its strategic, long-term view of agricultural issues. Its officials have a sophsiticated, well informed view of developments and it was therefore interesting to read an interview in the latest edition of Farmers Weekly with the NFU’s head of economics and international affairs, Tom Hind. He was at one time acting head of the NFU’s office in Brussels.

Not surprisingly, he takes the NFU line that farmers need to continue to receive the single farm payment (SFP) to give them a degree of income stability, especially faced with volatile markets. A basic tenet of agricultural economics is that markets for farm commodities are relatively unstable: to put it at its simplest, even with modern agronomy, the weather remains a factor which can disrupt such markets. If one accepts the view that farmers as a category require market stabilisation measures (which is not quite the same thing as income stabilisation), there is still room for a debate about whether the SFP is a particularly efficient or fair policy instrument, but it could be argued that we have to work with what we have.

In any event, he is confident that the long-term legitimacy of direct payments will be strengthened during the upcoming debate about the future of the CAP. He is emphatic that decision-makers in the UK ‘must move away from ideologically entrenched positions, especially on phasing-out direct payments.’ Not surprisingly, he is heartened by the declaration made by 22 EU governments in Paris in favour of a strong CAP. It’s a document short on specifics, but it really represents a political commitment, rather than a set of policy recommendations.

It is interesting that he does fear some further renationalisation of the CAP which many member states pushed during the health check. He notes that in recent weeks several governments have resorted to state aids to give support to their farmers. He is correct to point out that such activities can lead to competitive distortions between member states and hence undermine the single market. What particularly concerns him is the possibility of national co-financing of direct aids. With justification, he fears that UK farmers would lost out as the Treasury would not be keen to top up direct support.

He does oppose direct payment schemes that used farm size or turnover for determining levels of support. He says that such criteria are ‘woolly’ and they are certainly difficult to interpret and apply in practice given the legal and other issues surrounding what constitutes ‘a farm’. However, the real objection is that Britain is one of the countries that would lose out. If one is going to have farm subsidies, and one wants European agriculture to be competitive, should they be denied to the farmers best placed to compete on international markets?

Photo credit: Gerry Balding // Flickr Creative CommonsWhere I have particular sympathy with him is when he says that what is wanted is a policy focused on the market. This does not mean just decoupling, but also correcting market failures such as excessive retail power. Whether the EU can do much about this is another question. In large part it falls within the competition policy remit of member state governments, but they are often reluctant to rein in retailers who keep down inflation by delivering cheap food to voters, albeit by usually contractual and other tactics that are arguably unfair and not in the long-run interests of an efficient and effective food chain.

Clearly someone like Tom Hind is looking at these issues with the needs of his members in mind: that is what he is paid to do. Most of us wouldn’t start from where we are and a sudden withdrawal of subsidies could have substantial negative impacts on the agricultural economy.

Nevertheless, modern farmers are much more market oriented and are aware that they have to deliver products that the consumers want: hence the proliferation of farm shops and small-scale processing businesses serving niche markets with value added products. Hopefully, they can eventually be weaned off subsidies, particularly if competition policy is used to remove unfair practices.

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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. However, exports are limited by a WTO ruling to 1.374 million tonnes, so the EU will be building carry-over stocks at a time of a significant global sugar deficit.

Photo credit: David H-W (Extrajection) Flickr Creative CommonsBeet growers in the EU, according to a post on the Agrimoney.com website, have called on the Commission to allow more of the EU’s sugar surplus on to the world market, but the Commission has rejected this call, saying it has to stand by the WTO ceiling. According to a Bloomberg report on 14 December last, the Commission view is that “the carry-over of surplus sugar in the EU is inevitable as it is not possible to export out-of-quota sugar in excess of the WTO limit.”

Whether this is the case or not goes back to the basis for the WTO ruling on the complaint brought by Brazil, Australia and Thailand against the previous EU sugar policy. The WTO ruled that, despite the absence of explicit export refunds for over-quota EU sugar, over-quota sugar was effectively subsidised because it was being sold at less than average cost of production and was cross-subsidised by the higher price of quota sugar.

The Bloomberg report quotes a number of UK agricultural economists who argue that because world prices are now above EU reference prices, then exports can be undertaken without subsidy and the export limits should not apply. The French Miniser for Agriculture has promised his country’s beet growers that he will raise with the Commission ways to avoid carrying over this year’s surplus into the following year.

However, the EU spokesman points out that EU market prices are still above the world price (as is also seen in the diagram above, although EU prices are only published with a 3-month lag). Thus, even without an explicit export subsidy, other exporting countries may still be able to argue that additional EU exports are only possible because of cross-subsidisation.

EU market prices have been falling, and this has consequences for those ACP developing country exporters which still benefit from a price guarantee on the EU market. Whereas ACP exporters were getting €512/tonne and €616/tonne for ACP raw and white sugars respectively in May 2007, these prices had fallen to €448/tonne and €517/tonne by September 2009 (EU sugar prices including ACP prices are reported on the EU Circa website). Some ACP exporters are now arguing that it does not pay in the short-term to export to Europe, so projected imports in the current year may be lower than expected.

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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 and are reproduced below.

Trends in EU butter prices

Trends in SMP prices

The German butter price is now back to the level of 2002 before the cuts in intervention prices. The recovery in SMP prices has not been as strong, but even so these are now comfortably above intervention levels. EU dairy farmers also benefit from an additional €5 billion per year in the form of direct payments (3.5c/kg milk) to compensate for the reductions in intervention prices.

Farm prices are responding to the better prices for dairy products, although with some lag. The average EU price for standardised 4.2% fat milk, according to the LTO, has risen to €27.06/100kg in October 2009 from its lowest point of €23.74/100kg in April. It is now back at the levels of Spring 2007, before the big run-up in prices in 2008.

The recent USDA market outlook for dairy products in 2010 foresees continued strong prices into 2010 as economic growth recovers particularly in developing countries. While the large stocks of SMP in particular overhanging the market are seen as a negative factor, it observes that in the US most of these stocks are committed for domestic food programmes and that the EU is unlikely to release its stocks on to the market soon for fear of the political fallout from producers.

The Commission’s response to the dairy crisis

Assuming that prices continue to strengthen throughout 2010, it is useful to review what lessons were learned for crisis management when faced with a substantial fall in the price of a farm commodity. The Union’s responses to the collapse in domestic milk prices in 2009 can be divided into market management measures and income support measures.

Among the market management measures were

  • Export refunds for dairy products were introduced in January 2009.
  • The intervention period has been extended until February 2010. Normally, intervention buying is limited to 30,000 tonnes of butter and 109,000 tonnes of SMP and is only open between 1 March and 31 August each year. The Commission has already bought butter and SMP well beyond these limits (approximately 83,000 tonnes of butter and 283,000 tonnes of SMP).
  • Adjustments to the quota/superlevy system to exclude quota bought-in by member States and kept in the national reserve from the superlevy calculation.
  • Incorporation of the dairy sector into Article 186 of the Single Common Market Organisation (the so-called disturbance clause), which allows the Commission to take temporary action quickly, under its own powers, during times of market disturbance.
  • Reinforcement of the School Milk Programme by extending the range of products and the age groups of children covered by the scheme. A new round of promotional measures for dairy products was also opened by the Commission.

    • In total, the Commission expects to spend up to €600 million on market measures this year.

    Among the income support measures were:

  • 70 percent of direct payments could be paid 6 weeks earlier than usual (from 16 October).
  • An additional aid package of €280 million for dairy farmers was agreed in October 2009, under pressure from the Group of 21. The division of these payments between Member States was agreed in November, and the money must be paid out by June 2010. For the record, the agreed aid allocation is: Belgium, €7.21m, Bulgaria €1.84m, Czech Republic €5.79m, Denmark €9.86m, Germany €61.20m, Estonia €1.30m, Ireland €11.50m, Greece €1.58m, Spain €12.79m, France €51.13m, Italy €23.03m, Cyprus €0.32m, Latvia €1.45m, Lithuania €3.10m, Luxembourg €0.60m, Hungry €3.57m, Malta €0.08m, Netherlands €24.59m, Austria €6.05m, Poland €20.21m, Portugal €4.08m, Romania €5.01m, Slovenia €1.14m, Slovakia, €2.03m, Finland €4.83m, Sweden €6.43m, UK €29.26m.
  • Under the Health Check and the Economic Recovery Package, an extra €4.2 billion is available to address ‘new challenges’, including dairy restructuring, although the outgoing Commissioner has tartly noted that some of the most vocal advocates of EU aid have made relatively little use of their own allocations to help dairy farmers.
  • Member States were allowed to make a one-off payment to farmers of up to €15,000 in state aid until the end of 2010 under the Temporary Crisis Framework, adopted by the Commission in January 2009. While aid schemes put in place under this instrument had to be open to all primary producers, the primary intention was to provide assistance to dairy farmers.


    • Reflections on the Union’s response to the dairy crisis

    A first observation to make is that, while the Commission did resort to market management measures such as intervention and export subsidies, much more emphasis on this occasion was put on income support measures.

    It was noticeable that the Commissioner firmly set her face against any increase, even temporarily, in intervention prices and against a reduction in quotas, arguing that both would be against the spirit of the Health Check intended to move the CAP in a more market-oriented direction.

    Although the future of export refunds after 2013 is uncertain (the EU has committed to their elimination but only in the context of a successful outcome of the Doha Round in which similar disciplines applied to other forms of export support), it is likely that the greater emphasis on direct income support measures in response to crisis is here to stay. While the loud voices calling for stronger support measures as part of a food security policy for Europe would doubtless like to see stronger market management measures, these are effectively beggar-my-neighbour responses unless undertaken as part of a global framework (e.g. a global stocks policy).

    A second observation is that the income support measures included both a relaxation of state aid restrictions (allowing Member States to fund payments to producers) and a Community scheme. While the national state aids were permitted only in the context of a measure taken as part of a wider response to the economic crisis, they do flag a possible direction for future responses to agricultural market crises. When the figures come in, it will be interesting to assess how much use the individual Member States make of this opportunity.

    A third observation is that the payments will be made to producers only with a lag (the exception is the speeding up of the disbursement of the standard Single Farm Payment). This means that payments will reach farmers after the crisis has passed and when incomes are already recovering. Clearly, payments should reach farmers at the time when they are most needed, and hopefully the decision to allow the Commission to respond to future dairy market crises on its own initiative may facilitate this in future.

    A fourth observation is that there is now little headroom in the EU budget up to 2013 to fund unexpected crisis management measures. The outgoing Commissioner has made clear that funding the €300m emergency aid from the 2010 budget has utilised any remaining headroom and, apart from the use of the safety margin, any further call on the agricultural budget would trigger the financial discipline mechanism requiring a cut in direct payments.

    Price volatility on agricultural markets is expected to increase in future (though whether this is a reasonable presumption to make deserves further analysis, and the outcome depends on the interaction between production shocks and their distribution where climate change is expected to increase volatility, trade policies and their implications for price transmission from world to national markets, and government behaviour particularly with reference to stocks).

    Presumably these lessons will be analysed by the High Level Experts’ Group on Milk which is looking into the medium and long-term future of the dairy sector and which will deliver its final report by the end of June 2010. A very useful input is the report on price volatility in the dairy sector commissioned by the European Dairy Association and written by my Irish colleagues Michael Keane and Declan O’Connor.

    The 2009 EU dairy market crisis was handled well by the outgoing Commissioner. There was no back-tracking in the direction of CAP reform, and a number of innovative new instruments to address income volatility in a particular sector are being tested. The lessons learned from this experience will be an important input into the discussions on the shape of the CAP post-2013.

    Update 5 January 2010: When writing this post, I had not seen that the French have made use of the national state aid provision to provide up to €700 million to farmers affected by the crisis. Aid under this new scheme can be granted until 31 December 2010 and will take the form of direct grants, interest rate subsidies, subsidised loans as well as aid towards the payment of social security contributions. See http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/1866&format=HTML&aged=0&language=EN&guiLanguage=en,

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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. Nonetheless, there is considerable variation around this average. The UK stands out with an index of 148.0. Bulgaria and Romania joined the EU at the same time, but the Bulgarian index stands at 136.9 while the Romanian figure is only 95.4. Germany is around the EU average at 100.8, but France fell behind at 88.7. However, the real laggards are Luxembourg (67.7), Ireland (67.9, noting that 2005 was an unusual year) and an astonishing 46.5 in the Commissioner’s own country, Denmark.

    The poor income performance in 2009 is already being used as an argument why direct payments should not be reduced in the next financial perspective, even though it will not enter into force until 2014 by which time a lot can happen. But the wide national heterogeneity in income trends is a further argument that income support should be a national and not an EU competence.