FarmPolicy

August 21, 2019

EU CAP Health Check, Doha, Ag Economy and Chairman Peterson

EU CAP Health Check

James Kanter reported in today’s New York Times that, “European Union governments agreed Thursday to overhaul the way the trade bloc distributes tens of billions of euros in subsidies to farmers.

“But some critics said the measures did not go far enough and risked skewing markets further.

The measures, which cover a period from now to 2013, represent the biggest reform of European farming policy in five years.”

The Times article noted that, “Critics said the changes, which were hashed out Thursday morning after all-night talks in Brussels, were only a partial shift in policy rather than a wholesale reform of the 43 billion euro ($54 billion) subsidy system.”

Later, the article indicated that, “The reforms are ‘all about equipping our farmers for the challenges they face in the upcoming years, such as climate change, and freeing them to follow market signals,’ said Mariann Fischer Boel, the union’s commissioner for agriculture and rural development. ‘I’m pleased we managed to find a compromise.’

The measures also are positive for European trade relations, although the system still could distort markets by affecting prices and the way farmers work, said Indhira Santos, a research fellow specializing in European agriculture at the Bruegel research organization.

“‘On paper these reforms make the European system more compatible with global trade rules,’ Ms. Santos said. ‘In practice — although these changes might mean the payments are marginally less distorting — there’s really little difference because most of the money still goes to the same people.’”

“But Jack Thurston, the co-founder of Farmsubsidy.org, which campaigns for budgetary transparency in European farm spending, said the reforms’ significance would be lessened because most of the international trade friction around European farming concerned tariffs, rather than quotas or spending,” the Times article said.

A news release issued yesterday by the European Commission stated that, “The European Commission welcomes the political agreement by EU agriculture ministers on the Health Check of the Common Agricultural Policy. The Health Check will modernise, simplify and streamline the CAP and remove restrictions on farmers, thus helping them to respond better to signals from the market and to face new challenges. Among a range of measures, the agreement abolishes arable set-aside, increases milk quotas gradually leading up to their abolition in 2015, and converts market intervention into a genuine safety net. Ministers also agreed to increase modulation, whereby direct payments to farmers are reduced and the money transferred to the Rural Development Fund.”

The release added that, “Currently, all farmers receiving more than €5,000 in direct aid have their payments reduced by 5 percent and the money is transferred into the Rural Development budget. This rate will be increased to 10 percent by 2012. An additional cut of 4 percent will be made on payments above €300,000 a year.”

John W. Miller reported in today’s Wall Street Journal that, “The European Union will double the portion of farm subsidies it steers away from farms to other rural businesses, after France abandoned a fight to boost the subsidies rewarding farms for producing more.

“With world food prices rising recently, France had argued that increasing production — with the help of government aid — would be a boon that would help alleviate price pressures. But the move also would have reversed a decade of efforts to cut Europe’s state-subsidized agricultural output, which has hampered the agricultural development of poorer nations elsewhere.

“On Thursday, with food prices collapsing, Paris abandoned the fight. ‘The political and economic contexts have changed since June,’ says Pierre Sellal, France’s ambassador to the EU. Wheat prices have fallen to less than $6 a bushel on the Chicago Board of Trade, down from a peak of more than $12 a bushel.”

The Journal article stated that, “With France’s agreement, the EU will go in the other direction and double the portion of the bloc’s $75 billion-a-year farm subsidies that it steers to nonfarm rural businesses, to 10% by 2013 from 5% this year. The EU also will increase paying farmers their subsidies as lump sums regardless of what or how much they grow. France also conceded defeat in agreeing to phase out direct aid for tobacco farmers by 2010.

Still, France prevented any cuts to the EU’s overall farm budget until at least 2013. It also watered down the proposal shifting funds to rural development, allowing France to keep up direct payments to sheep and goat farmers, and to buy up to three million tons of wheat for bread per year from French growers.”

Reuters writer Jeremy Smith, writing about the EU CAP policy changes in an article from yesterday, explained that, “Despite the last-minute changes, it remains Europe’s most significant farm reform since 2003, which introduced the concept of ‘decoupling’ — EU jargon for breaking the link between how much farmers produce and the amount of subsidy they receive.

“The old system was criticised in the developing world for distorting trade and encouraging the over-production that created the bloc’s infamous ‘grain mountains’.

These reforms reinforce the move towards full decoupling.”

An article posted yesterday at EurActive.com described the CAP changes this way: “According to the agreement, more subsidies for farmers will now have to be spent on measures to protect the environment, rather than measures to support farming income that are linked to production levels.”

And, in an update posted yesterday at the CAP Health Check Blog, Jack Thurston noted that, “Roger Waite, Editor of Agra Facts, gives the inside story on the all-night negotiations that led to a deal early this morning (20th November) on the health check of the CAP . He explains how the negotiations were handled, that the big winners were Italy, Germany and France and that at key moments there was intervention from several heads of government. He also explains that the United Kingdom was joined by several of the new member states who were not able to fully endorse to the final agreement.

“According to Roger the biggest surprises were a new milk fund and the decimation of the progressive element to its plan to redirect farm subsidies from direct aids to funds for farmland conservation and rural economic development.”

Doha

In an editorial regarding the CAP, which also highlighted the Doha Round of WTO trade talks, an item posted yesterday at The Economist Online stated that, “The French have summoned EU farm ministers to a special meeting on November 28th to discuss an exquisitely drafted paper on the common agricultural policy (CAP) after 2013, when the EU’s next multi-annual budget begins. In theory, not much harm should come from conclusions endorsed by lowly farm ministers on a Friday in Brussels four years before the next budget. But senior Eurocrats fear that an accident of timing may make France more ambitious. They note that G20 leaders at the Washington summit on November 15th made a firm commitment to revive the Doha round of world trade talks, and reach a framework agreement by the end of the year (in unusually clear language, G20 leaders ‘instruct’ trade ministers to pull off this feat).

Behind the scenes, says a senior Brussels official, the summit’s European convener, President Nicolas Sarkozy of France, was ‘furious’ at this push for a quick agreement on world trade. France is dubious about the EU’s current negotiating offer to cut farm subsidies and dismantle many import barriers. But the French also know that the political costs of blocking a trade deal have risen. It would give the next American administration ‘all kinds of excuses’ to water down other multilateral plans to save the world.

Amid such calculations, diplomats suspect that Mr Sarkozy will put the future of farming on the agenda for the final summit of France’s EU presidency next month. That summit may coincide with a meeting of trade ministers in Geneva. In exchange for accepting these trade talks, Mr Sarkozy could ask his fellow EU leaders for a solemn pledge that substantial cash and protection for farmers will survive after 2013.”

In other Doha developments, an AFP article from yesterday reported that, “The United States has warned that a small two-week ‘window’ was left to revive the Doha Round of global trade talks as officials tried to devise a formula to tear down tariff barriers before the end of the year.

Asia-Pacific ministers were meeting in Lima Wednesday ahead of a regional summit this week to break a deadlock on how to break down tariffs in key agriculture and manufacturing areas that could lead to a successful conclusion to talks.

“In Geneva, the headquarters of the global trade watchdog, senior officials were scheduled to meet from the weekend in a new push to find agreement since the collapse of the WTO’s last attempt to broker an accord in July.”

The article added that, “‘It is going to be a very small window to see whether the actions of trade ministers and senior officials in Geneva actually reflect the very strong language in the (Group of 20) leaders declaration,’ said US Trade Representative Susan Schwab.

“She spoke after attending three hours of talks in Lima among ministers of 21 economies of the Asia-Pacific Economic Cooperation (APEC) forum ‘about how do we get this elusive breakthrough on Doha’ ahead of a weekend leaders’ summit.”

Matthew Franklin reported today at The Australian Online that, “With trade officials from the 153 nations that make up the World Trade Organisation due to reconvene in Geneva this weekend, Ms Schwab said it was too early to tell whether the trade negotiations could be resurrected.

“‘I don’t yet know whether I have a right to be confident,’ she said. ‘We will have a much better sense after the weekend. At that point we will have, I hope, a sense whether countries are going to move off of some of the strongly held views that brought down the round in July.’

“She said she was ‘hearing the right noises’ in talks with APEC trade ministers yesterday and hoped for completion of the modalities agreement by the end of the year, as had been requested by the G20 leaders.”

Reuters writer Alan Raybould reported yesterday that, “World Trade Organisation chief Pascal Lamy said on Thursday he would decide soon whether to call a ministeral meeting on the Doha trade round, but setting a deadline for talks was premature.”

The article added that, “Brazilian Foreign Minister Celso Amorim said this week that a meeting must be called by Dec. 8 if a deal was to be had by the end of the year, but Lamy played down such deadlines.

“‘They all have their own notion of timing because they all have their own constraints. We know we don’t have much time left,’ he said. ‘The technical options should be on the table 10 days before the ministers negotiate them.’”

And a separate Reuters article from yesterday reported that, “European and U.S. business leaders said on Thursday deals scrapping tariffs in individual industrial sectors would increase the chance of a successful conclusion to the World Trade Organisation’s Doha round.

“‘A breakthrough on sectoral tariff agreements by the G20 … would go a substantial distance toward facilitating the conclusion of the Doha round,’ BusinessEurope and the U.S. National Association of Manufacturers said in a letter sent to the EU and U.S. trade chiefs.”

Ag Economy

David Streitfeld reported in today’s New York Times that, “The farmers said it would not last, and they were right.

“When the price of wheat, corn, soybeans and just about every other food grown in the ground began leaping skyward two years ago, farmers were pleased, of course. But generally they refused to believe that the good times would be permanent. They had seen too many booms that were inevitably followed by busts.

“Now, with the suddenness of a hailstorm flattening a field, hard times are back on the American farmstead. The price paid for crops is dropping much faster than the cost of growing them.”

The Times article explained that, “The government reported this week that the cost of goods and services nationwide fell by a record amount in October as frantic businesses tried to lure customers. While lower prices are good for consumers in the short run, a prolonged stretch of deflation would wreak havoc as companies struggled to stay afloat.

In this lonesome stretch near the Texas border, farmers are getting an early taste of a deflationary world. They have finished planting next year’s winter wheat, turning the fields a brilliant emerald green. But it cost about $6 a bushel in fuel, seed and fertilizer to put the crop in. That is $1 more than they could sell it for today, and never mind other expenses like renting land.”

Meanwhile, Andrew Martin reported earlier this week at the International Herald Tribune Online that, “For the past year or two, U.S. food manufacturers have streamlined production, reduced package sizes and raised prices, saying that they had little choice because of the unprecedented increases in the cost of ingredients like corn, soybeans and wheat.

Now, with the price of oil and other basic commodities plunging, it might seem logical that food prices would follow. Do not count on it.

“Government and food industry economists are predicting that the overall cost of food at U.S. grocery stores and in restaurants will continue to increase in 2009, with the prices being particularly high for meat and poultry.”

Mr. Martin noted that, “Even as overall consumer prices recorded their biggest drop in history Wednesday, food prices continued to inch upward, albeit at a slower pace than in previous months. The Labor Department’s consumer price index showed that food prices increased 0.3 percent in October, compared to 0.6 percent in September and August.”

Grand Island Independent (Nebraska) writer Robert Pore reported yesterday that, “As farmers wrap up what has been a weather-delayed harvest, any chances for improved prices may have to wait until next year, said Terry Francl, senior economist with the American Farm Bureau Federation.

“Francl, who also farms in Howard County, said the price declines in corn and soybeans have been driven by the decline in oil prices and concerns about the financial and equity markets.”

Mr. Pore noted that, “Scott Irwin, agricultural economist at the University of Illinois, said ethanol helped drive two years of record profits for grain farmers but also will hold down income during a looming recession that already has halved crop prices.

Irwin said agriculture’s fortunes are now tethered more to ethanol than food, making crop growers vulnerable to sharp price swings at gas stations rather than the typically slower cost shifts at groceries.”

Chairman Peterson

Chris Clayton noted yesterday at the DTN Ag Policy Blog that, “House Agriculture Committee Chairman Collin Peterson, D-Minn., said Thursday he doesn’t plan to leave his post and, despite a lot of speculation, Peterson isn’t a candidate for agriculture secretary in President-elect Barack Obama’s administration.

“‘I don’t know a thing about it,’ Peterson said after a hearing at the Capitol on credit swaps and derivatives [related article]. ‘I can’t find out who is making the decision or what’s going on. I have no idea. The only thing I know is this that I can tell you for sure, it will not be me. That’s the only thing I can tell you. They keep bringing my name up, and I just, I have a lot of work to do here. I enjoy this job. It’s important for me to stay where I’m at. There are a lot of other people out there they can find to be ag secretary. I told the Obama people if they want my advice I will give it to them on who I think it should be.’”

Mr. Clayton added that, “Peterson wants to reorganize USDA next year that will include emphasizing computer overhauls in major agencies such as the Farm Service Agency and the Risk Management Agency. Peterson said whoever takes the mantle at USDA needs to focus heavily on upgrading the computer systems and using software vendors that understand agricultural lending and risk management.

“Peterson added that he also thinks there are serious changes needed at RMA, particularly regarding how overall policy is created at the agency and implemented between the headquarter in Washington and satellite office in Kansas City, Mo.

“‘But obviously we have to have an administration and a secretary interested in doing this as well,’ Peterson said.”

Keith Good

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