CAP policy a key focus for the year ahead
European Commissioner for Agriculture Phil Hogan has targeted unfair trading practices in the food chain and simplification of the CAP as key priorities.
Undoubtedly, he is correct in looking at the food chain. ICSA is supportive of this, having started the campaign for EU regulation of the food chain in 2014.
I attended the EU parliament agriculture committee on January 9 where the commissioner was present.
The meeting revolved around the report of a task- force set up by Hogan which makes proposals on strengthening the position of farmers in the food chain.
One key idea is more price transparency on who gets what (ie retailer, processor, primary producer).
We know that farmersā margins are continuously being squeezed to the point where few are viable but we know very little about how much margin is being grabbed by the other players.
ICSA wants to see very stringent regulation on this. Voluntary codes of conduct are a proven waste of time but expect strong resistance from the retail sector.
Ultimately, the fear is the proposals will be watered down and that farmers, who operate almost in perfect competition with one another will continue to lose out in the face of buying power concentrated in the hands of a small number of processors and an even smaller number of dominant retailers.
For that reason, we need to realise that the future for farmers is dependent on a whole basket of policy decisions, across multiple sections of the European Commission.
Central to this is that farmers need options which reduce the impact of being dependent on a kind of oligopoly structure in the marketplace; in other words getting screwed because the dominant purchasers of your product can pay you what they like.
It is critical that policy decisions are carefully assessed to ensure that they do not worsen the position of the weakest link (primary producers) in either the supply side or demand side.
Hence, proposals which result in farmers producing more product than they would otherwise do are disastrous for farmers because the outcome is lower price, all other things being equal.
We saw this in action in dairying in 2016. Global falls in price were counteracted by supply reduction, partially from voluntary culling of cows, but also helped by the EU policy decision to offer some financial incentive to farmers to cut back on autumn production.
This helped concentrate the minds of milk purchasers who might have been slow about passing on price increases as demand picked up.
ICSA really sees this as a salutary lesson and it explains why ICSA wants to see future CAP policy include such instruments for the beef sector as well.
This canāt come quick enough for Ireland where increased cattle output and lower live exports in recent years will result in 200,000 more head for slaughter in 2017 versus 2015.
ICSA believes that, just like dairying, beef farmers need financial support to cut back supplies. The only farmers who can do this in practice are the suckler farmers who make the breeding decisions.
Dairy farmers also make breeding decisions but they are motivated solely by milk price. Hence, the ICSA strategy is to offer a payment of ā¬200/cow/annum to voluntarily produce fewer calves over a five-year period.
Another example, this time on the demand side, concerns cereals. The directorate general for energy in the commission (DG Energy) has introduced a whole raft of proposals called the clean energy package for debate and decision in 2017.
A key proposal is to move towards phasing out biofuels.
This is astonishing in that 10 years ago, the clear position of the EU was that biofuels should be encouraged for a whole variety of logical reasons and in response to imperatives that havenāt changed. In fact, they are more urgent.
Farmers and industry alike were encouraged to grow crops for biofuels. Key reasons included:
- Lower greenhouse gas emissions.
- Replacing dependency on damaging and finite fossil fuels with a renewable source.
- Reducing EU reliance on the import of its fuel requirements.
- Giving farmers an alternative outlet for their crops.
- Contributing to the goal of multi-functional agriculture under CAP and reducing the need to dump food on least- developed countries.
All of these reasons continue to be uber salient but you wouldnāt think it from the latest commission proposals.
In a nutshell, the clean energy package includes what is referred to as RED II (Renewable Energy Directive two) which basically cuts the required contribution of crop based biofuels in transport energy from 7% to 3.8% by 2030.
In practice, such a decision will lead to a much quicker reduction of biofuels because industry will get the hint and stop investing.
This is clearly bad for EU farmers because they lose a customer for crops such as maize, sugar beet and rape.
Ultimately, it speaks to the need for logical policy that is focused on supply and demand effects in agricultural markets rather than on the traditional reliance on ājust give cashā to mitigate bad market based outcomes.
