Wednesday, February 28, 2007

Check this out!

Do check out the new CAP Health Check blog at: Health Check

It will be gathering items from a number of CAP blogs, including this one, and there is also a very useful News Harvester service on relevant topics.

EU's share of global milk production falling

The EU's share of global milk production is falling as a result of the quota system according to Rabobank dairy specialist Mark Voorbegen. Addressing a seminar addressed by Dairy UK, he said that the EU had a 27 per cent share of the global market in 2005, down from the 1995 level of 31 per cent. By 2015 it is forecast to fall to 25 per cent (although by then quotas may have been abolished).

Termination of the EU quota system would become crucial for the long-term global supply/demand balance. Milk volumes in the EU-15 would remain stable in aggregate terms but with some relocation to more favourable areas. There would be a moderate growth in supplies in the accession states.

The UK had a good scale of farming and a good structure but Voorbegen had doubts about its export capabilities and whether it could bring a higher volume of milk into the EU. Just like farmers in Australia and New Zealand, farmers would have to adjust to more milk price volatility in the future.

Rudolf Schmidt, dairy farmer adviser for the German Farmers Union, said that the main challenge in Germany to a competitive dairy industry was from the biofuel industry. An overdependency on subsidies for biofuel 'could drive milk production away.'

Around ten per cent of the German agricultural area, some 1.6 million hectares, are already accounted for by biofuel crops. Moreover, bioenergy was making feed for dairy farmers more expensive.

Just as well they haven't heard the half jocular suggestion that cows should pay a climate change levy for the amount of methane they produce (which has far bigger impacts on global warming per capita than carbon dioxide).

Friday, February 16, 2007

Experts look at the past and the future

Commission officials and leading experts on the CAP met under the auspices of the European Network of Agriciultural and Rural Policy Research Institutes (ENARPRI), The Centre for European Policy Studies (CEPS) and the University of Leuven (KUL) in Brussels on Thursday to discuss the past and the future of the CAP. The interesting discussion was conducted on Chatham House terms, but some flavour of it can be given here.


There was concern about an unthinking rush to replace foods crops by biofuels. One view expressed was that they were a disaster with an incredible increase in the surface area covered in the United States. The missing US exports were equivalent to those of Australia and Canada combined. They used a lot of water which was a more precious resource than oil.

Another speaker drew attention to the number of bills before the US Congress on the ethanol issue. It was seen as nothing to do with farm output but with energy independence, although a cynic might also see a link with the early primary in Iowa.
The mandates (obligations) were a recipe for rent seeking and represented bad policy.

The future balance of the CAP

There was some interest in the development of a policy that emphasised food and environmental security policy. Whilst this was not endorsed by all participants, there was a recognition that a spatially diffuse, multi-dimensional environmental challenge was being managed by fragmented private managers. The key market failure was environmental: climate change.

There was concern about the delay to rural policy implied by the effective halt in transfers from Pillar 1 to Pillar 2. Less was now being spent on Pillar 2 than before the budget discussions. The view was expressed that Eastern Europe had little interest in rural policy because it didn't have co-funding money. More generally, member states wanted to re-nationalise the CAP.

The health check was taking shape. It was a tidying up, a simplification. There was a long check list involving a move away from partial decoupling and getting rid of set aside, but none of it was fundamental. The budget review was much more important, coupled with the renewed discussion on the constitution. Quite a few people wanted to cut the CAP budget.

The easiest way of saving money in agriculture would be to cap big farmers which would also make it easier to defend the CAP. It was somewhat alarming to hear one respected presenter claim that the CAP had been steered towards acceptability and respectability by reform.

The Commission view

Invariably on these occasions I lock horns when the Commission and this happened when I suggested that there were limits to the radicalism of the reform which left 46 per cent of the EU budget spent on the CAP. The response was that this was a strange way of addressing this, given that the EU had a tiny budget. CAP spending accounted for one per cent of public expenditure in the whole of Europe. Farmers made up five per cent of employment, ten per cent of the population lived in rural areas and 47 per cent of the European land surface was farmed.

On that logic if, say, small shopkeepers are three per cent of the EU population, they should get three per cent of the budget in handouts. Farming is meant to be a commercial activity. If it is producing positive externalities, it should be rewarded for that, but the delivery of those outputs needs to be clear and demonstrable.

The producer perspective

The producer perspective on this is interesting. They fear paying twice for the Doha Round (although no one would forecast whether there would be a successful conclusion or not). They also see the single payment as 'nominal' and eroded by inflation (which is a strange way of looking at some of the sums paid out). It is also seen by farmers as a transitional payment which will eventually disappear. However, most of those in the meeting thought that market payments would persist after 2013 and even after 2020. The CAP is a resilient beast.

Saturday, February 10, 2007

Farm Bill may not do the trick

The US Farm Bill published last week may not offer enough to revitalise the Doha Round trade talks where the scale of US domestic support for agriculture is one of the outstanding issues. Indeed, given that the bill is likely to be watered down by the Congress and the Senate, prospects are even less good than they might at first appear.

Ag Secretary Mike Johanns stopped short of an EU-style decoupling of domestic support from production. The bill is likely to cost around $10bn less than over the next five years than was spent under the 2002 farm bill. However, USDA admitted that the proposals would cost approximately $5bn more than the projected spending if the 2002 farm bill had been extended over the 2007-12 period. The administration heralded the proposed bill as one that directed subsidies away from the traditional commodity group recipients including rice, corn, cottn and wheat and towards conservation and rural development programmes. Johanns admitted that the proposals represented an evolution of the 2002 bill rather than a radical break from it.

The headline totals do not go beyond the cut in annual allowable trade-distorting farm subsidies that the Bush administration has already informally offered in the Doha round. The controversial counter cyclical payments scheme which compensates farmers when prices are low is to be adjusted but the changes are incremental.

There will be strict limits on subsidy payments to the biggest and richest farmers. The existing subsidy payment limit per individual of $360,000 is retained, but new rules will seek to clamp down on the practice of artificially dividing up large holdings in order to get around the rule. There is also a $7.6bn increase in conservation funding with the focus on improving enviromental quality.