Since the mid-1990s, the CAP has experienced a series of major reforms that mostly resulted in the progressive dismantling of agricultural market regulatory tools and the decoupling of farmers’ aid. According to Hervé Fisher, Director of Entretiens Européens , a firm created in 2003 to organize European conferences to advance the European debate on key issues for the future of the European Union, developments under the CAP clearly showed its limits during the past few years. “Obviously, European agriculture cannot exist only on markets, whose volatility visibly demonstrated their inability to provide price signals and the required stability for productive investment,” writes the executive in the editorial of the “Lettre des Entretiens Européens
for Sustainable Agriculture and Green Growth” published in the 2012 second half. He also believes it is essential to provide the new CAP with new market regulation mechanisms that enables it to meet the many challenges it faces––ensuring food security, promoting agricultural products, connecting food and non-food production, protecting the common good (environment, biodiversity and climate), ensuring progress in a key economic sector for economic and social stability, and stabilizing farmers’ incomes at lucrative levels. As the European Union is attempting to design a new CAP, this Lettre des Entretiens Européens
aims to address these various issues, building on the work conducted in a cycle of debates held in Brussels in 2011 by Confrontations Europe. With the objective of cross-cutting views by players from the civil society, the economic arena and organizations, the publication hears the views of 20 experts in European agriculture––Michel Griffon, Henri Nallet, Jean-Louis Rastoin, Julien Marre, Michel Dantin, Alain Lamassoure, André Faaij, Simon Key, Fabrice Génin, Claudine Foucherot, Francis Flénet, Mickaël Poillon, Philippe Duclaud, Xavier Beulin, Tassos Haniotis, Jacques Carles, Matthias Langemeyer, Amal Chevreau, Gérard Tubéry and Caude Fischer. We highly recommend this issue of the Lettre
, which deserves the credit for making a constructive addition to the fundamental debate concerning the future of European agriculture. You will find below the contribution of Jacques Carles, Executive Vice President of momagri, who points out that agricultural markets are intrinsically volatile, and need regulation instruments to stabilize agricultural prices and incomes, before outlining momagri’s proposals for the future CAP.
momagri Editorial Board
Why are agriculture and food now on the G8 and G20 agendas? Because agriculture is once again considered by national governments as a strategic asset in international arenas, and a decisive stability factor beyond which lies food security.
Consequently, agricultural output is at the heart of the major food, environmental and development issues of our century. Today, it is even recognized as a source of economic growth and innovation. This is the framework within which the debate on agricultural market regulation has returned, after an absence of several decades.
In such environment, why is the post-2013 CAP proposed by the European Commission failing to answer such development? As a comparative analysis of U.S., Brazilian, Russian or Chinese agricultural policies can attest, the objectives set in the CAP reform are not competitiveness, agricultural income stability, or even price volatility.
If Dacian Ciolos clamped down the ultra-liberal direction taken by the previous Commissioner, Europeans have not yet selected the regulation mechanisms to achieve such objectives.
In fact, the debate has barely started, due to widespread opposition to accept that agricultural market regulation can operate without budgetary drift or international trade distortion.
Liberalization versus stabilization: A debate that goes back to the 18th century
The history of economic thinking shows these alternating variations: For some, the market is the best regulator in farming economy, and for others, agricultural price volatility calls for a stabilizing policy.
Actually, agricultural markets are not fulfilling their task in balancing supply and demand. A one to two percent increase in supply generates a slump in agricultural prices, driving farmers, in poor countries and in Europe, to give up their land. On the other hand, a decline by a few percentage points in agricultural supply triggers a price spike.
Starting in the 20th century, economists have demonstrated that agricultural markets were structurally unstable, and that agricultural prices were experiencing chaotic fluctuations.
In line with this, momagri has identified three causes for agricultural price volatility: Farmers’ expectations, financial speculation and natural hazards. On this basis, the organization designed a new economic model––the momagri model––that reflects the endogenous expectations of involved players––farmers and speculators––in agricultural markets.
Agricultural markets even became complex anticipation markets, due to the interaction of players––farmers and speculators––which reinforces a trend towards agricultural price volatility.
The free interplay of market forces therefore cannot be the antidote to price hyper-volatility and food crises. Worse still, it only exacerbates these imbalances.
Faced with such evidence, a majority to accept that agricultural prices are intrinsically volatile is currently forming, yet is not reaching any consensus on explaining the trend or outlining the solutions.
Breaking down taboos against regulation in the name of food security
Today, it is not a question of duplicating recipes from yesteryear, but of adapting price and income stabilization mechanisms (counter-cyclical payments, private and public reserves and insurance, among others), while learning from past experience.
It is more an issue of designing public intervention procedures that stabilize prices within price tunnels (defined by activity sector and by geographical zone) that allow proper compensations to farmers. And stabilizing prices does not mean managing them, but instead easing price spikes and drops, which are insufferable for consumers as well as for producers.
For farmers cannot achieve the sustainable development of their farms without minimal price stability and without “lucrative” revenues. This is why, based on intervention methods aimed at food security, domestic food aid, territorial development, the American, Brazilian, Russian or Chinese governments implemented steadfast support policies for farmers.
Another CAP is possible: Defining pragmatic mechanisms of regulation
With that in mind, the think tank momagri is advocating “another CAP”, where most of the budgetary envelope earmarked for Single Payment Schemes (SPSs) would be redistributed towards agricultural market management instruments, using a counter-cyclical rationale.
Indeed, the SPSs improve high incomes when prices are soaring, but are insufficient to cover farmers’ production costs when prices are low. Consequently, momagri recommends that SPSs be converted to aid for private reserves. The measure would enable farmers to get their output to market at the best possible time. Public intervention would be restricted to pronounced market destabilization.
Such system would be supplemented by a tax on agricultural market transactions above a ceiling price, so that prices would be brought back within the “tunnel”. Lastly, a small amount of aid––approximately a quarter of average SPSs––called “Food Security Aid” would compensate farmers’ efforts to comply with European environmental and health regulations.
Simulations are showing that such a system would have saved the equivalent of an annual Community budget between 2006 and 2010. Moreover, based on estimates of price fluctuations in the upcoming years, the system could save from 10 to 20 percent of the budgetary envelope proposed by the European Commission. From a stable European budget perspective, the CAP would then regain genuine intervention means to be used in case of crisis.