Friday, 11th April 2008
Transformation of the CAP and food prices
Politicians are very good at focusing on the short-term. They think only about how to win the next election. Very few pause to consider what may be over the horizon. But for those of us engaged in agriculture, the ability to plan for the longer term is essential. I want to do that this morning. But to look to the future, we must begin by examining the past.
The CAP was originally created after the Second World War with the goal of increasing agricultural productivity, to ensure that citizens of the EU could be properly fed and never again have to confront food rationing. Unfortunately, the policy was a victim of its own success to the extent that it soon had to be redesigned to help manage the problem of over-production in almost every sector. The response was to clamp down on supply by means of quantitative restrictions or quotas. This led to the introduction of milk quotas, intervention storage, import tariffs, set-aside and a plethora of other costly controls. But now the situation has dramatically turned around. Climate change, bio-fuel production, globalisation and the growing middle class in China, India and Brazil, have all contributed to rising cereal prices, an end to set-aside, food security scares and even export tariffs. The agricultural market in Europe has undergone a complete U-turn in the space of only 2 years.
So what does the future hold for Europe’s farmers? The Commission has issued its preparatory proposals for the CAP Health Check and we know that some of the key issues will include an end to export refunds, a 'soft-landing', for the ending of milk quotas by March 2015, dealing with the globalised economy and things like environmental degradation, water management and climate change.
It is also worth noting that in terms of its importance the CAP budget has fallen from top place, where it used to absorb over 70% of all EU funding - up to 50 billion Euros a year, to third place behind structural and cohesion funding. And that is against a background where more and more of the budget is heading East to countries with vast, subsistence farming sectors like Romania and Poland. The CAP is a monolith which successive Commissioners have been determined to cut down to size. The Mid-Term Review implemented by Franz Fischler in 2003, ended production-led subsidies and introduced instead the Single Farm Payment. Under Marian Fischer-Boel the SFP will be routinely trimmed. The CAP now absorbs just over 30% of the total EU budget and the Commission plan to whittle this down even further over the next decade. Ultimately, if the French ever agree, farmers will be left to produce for the market place in a virtually subsidy-free environment, but there is a long, long way to go before we achieve that goal.
In addition, farmers have to deal with the invidious modulation system which is geared towards taking more and more out of the Single Farm Payment and diverting it to rural development, with the Commission aiming to exact stiffer modulation penalties on bigger farms. The UK has the biggest average holdings in the EU at 67 ha, so this is quite simply a tax on efficiency and one which we have fought strongly to avoid. The CAP embodies the law of diminishing returns. So how will our farmers survive? WShat does the future hold?
The key trends in world agricultural markets are now becoming apparent. Rural areas are not stable. Spreading urbanisation, declining agricultural employment, increasing segmentation of the EU market, enhanced by the growing importance of transportation costs, further trade liberalisation and enlargement and increasing competition between food, fuel and fibre, will be the main drivers in the future.
Sadly, farm incomes in the UK and indeed throughout the EU are largely held hostage by the retail giants. Cheap food has become the main driving force behind Europe's leading supermarkets, a relatively small number of whom now dominate the EU retailing sector, using their massive buying-power to force down prices paid to suppliers to unsustainable levels. We live in an era where supermarkets like TESCO and ASDA pay their suppliers 7p for a chicken and think nothing about importing pig meat from Denmark, Poland and Germany, when our pig farmers, complying with the toughest welfare regulations in the world, are losing £25 for every pig they kill.
In Scotland, supermarket profits have soared at the expense of our farmers, many of whom, particularly in the dairy sector, were forced out of business. We have gone from 14,000 dairy farms ten years ago to 6000 today. The OFT (Office of Fair Trading) produced a report suggesting that UK supermarket chains were involved in a cartel, artificially depressing the price paid to producers, in some cases only a year ago, down to 17p per litre for their milk, below the cost of production, while it was selling off the supermarket shelves for above 50p per litre. Well I must say the OFT report came as no surprise to any of us. It is what we knew had been going on for years. Thankfully now the dairy sector is doing better, with increases of up to 50% in the value of milk, but for many it will be a case of too little too late!
Massive fines of over £1 million have been handed down to the offending UK supermarkets, but I doubt very much if it will teach them a lesson. Some EU Member States have introduced national controls that seek to limit such abuse by supermarkets. However, large supermarket chains operate across national boundaries, making such legislation ineffective. So now the European Parliament has asked the Commission to carry out an investigation into the way supermarkets have abused their dominant position in the marketplace, and to look for ways in which the interests of consumers and producers can be protected against this grossly unfair profiteering by the supermarket giants.
With the huge escalation of cereal prices worldwide, the arable sector is seeing some improvements, although many farmers last year had sold their grain forward at much lower prices. But it is worth remembering that with oil at $110 per barrel and fertiliser and feed prices virtually doubled, most farmers are still struggling to see daylight. So while the increase in cereal prices has benefited grain producers, it has added a further burden to the red meat sector. Beef producers in particular still face depressed prices on the supermarket shelves while their input costs for feed have risen dramatically.
And that brings me to the question of bio-technology. We really need to get our act together in Europe on the question of GM production. Our farmers are facing a huge escalation in the price they have to pay for feed, while we dither about GM approvals for varieties that are commonly used by our competitors outside the EU. In addition, we import over 30 million tonnes of GM maize into the EU every year and incorporate it into animal feeds across every sector. Our policy of virtual zero tolerance for GMs in foodstuffs is totally unsustainable and simply hands an advantage to our direct competitors who are laughing all the way to the bank. Food security in Europe means looking after our home production and not always handing a commercial advantage to our non-EU competitors.
It is madness that we apply more stringent red tape and regulation to our own EU producers than we apply to our competitors outside the EU. Our farmers are bound hand and foot by red tape and yet we import vast quantities of foodstuffs produced under welfare and hygiene conditions that would constitute a criminal offence in the UK. We must rleax the rules on bio-technology and ignore the FRANKENSTEIN FOODS tabloid headlines. The reality is that GM foods are harmless and point the way to overcoming global food shortages in the future. Our loss of GMs will be our competitors' gain."
The way we sell the pass to our competitors outside the EU was never more clearly highlighted than by the situation over Brazilian beef which came to a head last December, with the announcement by the European Commission that all beef imports from Brazil were to be banned unless they came from EU-approved holdings.
I and other members of the European Parliament's Agriculture Committee had been calling for tough action against Brazil since we heard from representatives of the Irish Farmers Association (IFA) who inspected 42 cattle ranches in that country in May last year. They uncovered a catalogue of failures involving appalling standards of traceability, poor production values, lax border and movement controls, even including the illegal use of hormones. Scottish farmers ignoring the rules on traceability and bio-security in such a blatant fashion would end up in jail. We told the Commission repeatedly that it was outrageous that we continued to allow vast quantities of Brazilian beef into the EU, undercutting our own beef producers and putting at risk the entire industry from contaminated or diseased imports. Thankfully they eventually took notice and clamped down on Brazil, although they have now lifted the ban for a small number of inspected and EU-approved Brazilian beef producers. But new controls will slash the estimated 300,000 tonnes of beef imported into the EU each year from Brazil and may provide some advantage to our own producers who are keen to develop new markets.
These measures are not before time. Cattle numbers in the UK have fallen dramatically from over 12 million in 1996 to just over 10 million today. We are only 66% self-sufficient in beef and the trend is downwards. It is a similar situation in the EU with a declining level of self-sufficiency and an increasing reliance on imports. If we go on like this we will have no livestock sector left and will rely entirely on imported food to feed our citizens. Swapping energy dependency for food dependency is a very dangerous development and one which would place the people of Europe at risk from sudden disruption of the food chain by natural or man-made disasters. We must not allow this to happen. Food security is every bit as important as energy security or even security against terrorism.
Right now the EU seems hell-bent on killing off Scotland’s sheep sector. The Agriculture Council agreed last December that mandatory electronic identification should be introduced across the EU for sheep and goats by 31st December 2009. This may well constitute the last nail in the coffin for our beleaguered sheep farmers, already reeling from the collapse of prices following last year’s scandalous foot and mouth outbreak. With cast ewes making until recently only £2 in the market, it stretches credulity to imagine how the Council of Ministers believe that sheep farmers can afford to fit every animal with expensive microchips and buy costly electronic scanners. This will be the last straw for many Scottish sheep farmers who are already staring bankruptcy in the face. Soon we will have no industry left and we will rely on imported lamb from countries out-with the EU, who pay no attention whatsoever to the rigorous regulations and controls we impose on our own farmers. This is why our national flock in the UK has fallen in the past decade from 20 million to under 16 million sheep - still the biggest flock in Europe but not, I fear, for much longer.
The one amendment which my Conservative colleagues and I did manage to get through the parliament in Strasbourg last December was a plea that Member States should provide financial assistance to sheep farmers to help pay for electronic identification, by using funds from their rural development programmes. I would urge the UK government to look sympathetically at this proposal, given that farmers have already contributed to the rural development funds through voluntary modulation. It is the least the government could do. After all, it was the UK government's failure to invest properly in the modernisation of one of their own laboratories at Pirbright in Surrey that led to the foot and mouth outbreak in the first place and caused the subsequent movement restrictions which led to the collapse of sheep prices. Now for the Animal Welfare Minister - Jeff Rooker - to declare in Brussels, following the Council meeting, that the introduction of mandatory electronic tagging at the end of 2009 is a "significant achievement" was simply adding insult to injury and shows how disastrously out of touch Gordon Brown’s government is in respect of rural issues.
It is no wonder that recruitment into our industry is at an all-time low. Many farmers want to leave the industry but can't afford to retire. They have no private pension plans to fall back on. More worryingly, 66% of farmers’ children in a recent UK poll said that they had no intention of following their fathers and mothers into the family farm. In the UK 30% of farmers are aged over 65 while only 3% are aged under 35. The long hours, burgeoning bureaucracy, dire financial returns and gross instability of the industry have completely overwhelmed them. Those who will survive must chart a new way forward and at long last, there are some positive signs emerging.
Demand for food is rising along with the increasing world population. At the same time, an area the size of the Ukraine is being taken out of food production every year because of drought – or climate change. In addition, millions of hectares are being taken out of food production to meet the growing demand for bio-fuels. All of this will force up the price of food to the consumer and guarantee greater returns for farmers. Meantime the growing demand for red meat from the burgeoning middle classes in countries like Argentina has led, for the first time, to the imposition of export tariffs on beef. Similar export tariffs have been put in place on cereals in Russia and on rice in China. This is a new phenomenon and offers a clear opportunity for EU producers if we can simply reduce the compliance burden imposed on them by the bureaucrats.
But the long-term solution must inevitably be found in the marketplace. The market is king. The market drives everything. For far too long European farmers have been lulled by a sea of subsidies into producing commodities that the market did not want, or already had in abundance. Those days are gone. To survive, farmers must identify niche or, in some limited areas, global marketing opportunities and produce goods that the consumer wants and needs. They can do this collectively or individually, through marketing co-operatives, producer organisations or similar bodies.
Farmers will have to become less dependent on subsidy and on market intervention and focus more on high quality regional markets. Environmental protection and sustainable rural development must be key parts of the reform package. The challenge will be to match supply to consumer demand: In other words, to satisfy the age-old law of economics. Farmers and growers produce a wide range of high quality agricultural outputs to high environmental and animal welfare standards. However, a similar level of competence in marketing does not always match their production skills. For many producers, a greater understanding of the operation of the food chain and the significance of customer/consumer demand in driving market change, and the requirement of today’s major buyers, are essential for future competitiveness, for instance, selling fresh produce on-line, direct from the farm, will assume much greater significance.
New opportunities of income growth result first and foremost from farm-based direct marketing programmes and from accommodation of guests, from organic farming, from the production of plants for energy generation and from assuming communal services.
The most common forms of farm-based direct marketing are farm shops, farm-gate sales and farmers markets. Although there is increasing evidence of growth in this area, scope exists for considerable further expansion. It is commonplace in France, for example, to find leaflets in most village shops advertising every individual local commodity from cheese, garlic, fruit, vegetables and foie gras, to bread and wine. Farms and shops offer ‘tastings’ and guided tours, thus benefiting from exploitation of the tourist potential from food production.
Diversity, based on agricultural and extra-agricultural activities is the reality of many farm systems throughout Europe. For example, the co-operation of agriculture with the tourism industry and the catering trade increases the attractiveness of the countryside in many areas of the EU. The production of regional specialities, combined with direct marketing, has proved very popular with visitors. Innovative and saleable products can only be produced and marketed by means of close co-operation between the farming, food, beverage and grocery trades. Marketing associations and producers’ groups increase the effectiveness of farm-based supply and are necessary prerequisites for the long-term success of alternative forms of marketing.
So we must do everything possible to promote and encourage the entrepreneurial spirit of our farmers. If we are to secure a sustainable future for the EU agricultural sector then we must give a high priority to protecting the interests of those who live and work in our rural areas. Only by so doing, can we hope to lead the world in producing high quality food in a healthy environment and a beautiful countryside.
