The exercise in style that European Commissioner for Agriculture and Rural Development Dacian Ciolos must achieve is risky, as evidenced by the variety of positions expressed at the “The CAP Post 2013” Conference held this past July in Brussels!
momagri considers that “the chips are far from being down”. Indeed, the complexity of the arbitration proceedings is all the more real that we are facing an uncertain context bolstered by the financial and economic crisis, the renegotiation of the European Union budget and a new balance of power in the spectrum of international relations.
In addition, current events could still generate many future surprises. Can the seemingly set course of history be changed? Might we expect a CAP reform that enables farmers to make a decent living from their work?
Momagri is committed to this view and outlines its rationale below.
A. An equilibrium that is hard to reach
Several options exist to reform the CAP, from the most unfavorable to the most favorable…
The broad lines of the CAP reform, which are scheduled to be announced by Dacian Ciolos in mid-November, will be based on the three key concepts outlined in his July 20, speech: “A strong, effective and balanced CAP”.
What do we have behind these words? Countless expectations, challenges and options. Yet, the success of Commissioner’s actions will hinge––as it is often the case in politics––upon the quality of the balance of concerned powers.
Indeed, the variety of positions presented at the “The CAP Post-2013” Conference this past July in Brussels brings to light viewpoints that are far apart on several key issues––levels of governmental support, the role of markets, payments of public goods, requirements for food security, degrees of border protection an the regulation of futures markets…
Regarding the most important issue of agricultural price volatility, many experts keep asserting that there will be “no certainty”. And to the question of knowing “if liberalization curbs or increases volatility”, a participant gave the following surprising answer: “yes and no”.
The financial and economic crisis has sped up the transformation of the global balance of power
In this environment, several nations such as China, the United States, India, Russia and Germany, are revealing their agricultural and food priorities. From tax opportunities to regulatory measures, the goal is to develop agricultural capabilities and competitiveness on global markets.
The United States and Brazil have entered the race to become agricultural powerhouses. For the former, agriculture and food has been promoted to the level of “key component” of its foreign policy, and for the latter, President Lula has declared that Brazil was going to be “the world’s farm”.
Incidentally, who would doubt it when we are observing massive purchases of farmland or controlling interests of “agricultural real-estate assets” by various governments (for instance, the Brazilian legislation that limits to 5,000 hectares (12,350 acres) any acquisition of land by foreigners)?
In fact, it is impossible in the current state of knowledge to predict the directions of the future CAP. Are European leaders adequately responsive to the new global agricultural and food geo-policy?
Let us hope that the declarations of European Commissioner for Research Máire Geoghegan-Quinn stating that “Food security is a stark matter of life and death and without it there is no other kind of security” reveal an awareness that, according to some observers, is progressively emerging.
A Doha agreement in 2011 would not make any sense
B. The CAP reform: A two-phase process
“Doha is no longer the issue, the public debt is” recently said Michel Griffon an agronomist and economist, who leads the French National Agency for Research (Agence Nationale de la Recherche or ANR).
Even worse, a senior official of the European Commission speaking of the Doha Talks declared “Since we are no longer managing them, we learned to successfully bury them in the sand…”
And yet, others who remain convinced that the Doha Talks will conclude in 2011, consider it their duty to implement the directions currently on the negotiating table
But what is the consequence of the non-conclusion of he Doha Talks? A WTO report dated September 1, 2010 indicating that “trade grew by 25 percent during the first half of 2010” tends to put in perspective Doha’s role in the “powers that shape global trade.”
One thing is certain: the consultations are proceeding. We will have to “decode” the statements made at the G-20 Summit on November 11 and 12, as well as the negotiations between the four key players––“United States, Brazil, China, India.”
If a conclusion takes place, it will be a decision totally out of step with global changes. And even if our diplomats tuck in some openings between the lines of the final text, the consequences for European agriculture will be negative ones… and contrary to the directions publicized by Dacian Ciolos.
The scenarios: 2014, 2016 or 2020?
Some people would like to make us believe that the reform is already written up! In fact, we are looking at a process with multiple horizons. Many are even betting on a reform in 2020. We are indeed in a poker game where destabilization is crucial to win the game. What is the down side of the cards?
• First, there is Dacian Ciolos’ calendar :
Mid-November 2010: First orientations
First half of 2011: “Listing” of legislative bills
July 2011: Legislative bills
Fall 2012: Completion of the reform
While such strategy shows the pertinence to rapidly implement the main orientations for the future CAP, budget officials must then validate Dacian Ciolos’ proposals.
Addressing this issue, former MEP and current Special Advisor to momagri Catherine Guy-Quint points out “that the true decision-making center is elsewhere […] The Policy Challenges Committee as well as the Plenary Session of the European Parliament will ‘uphold or not’ the key principles to preserve a CAP that enables farmers to make a living from their work and insures food security to European citizens.”
Undeniably, the proposed options will have to fit in a budget that could be adopted later than planned, chiefly to allow the next legislature (2014-19) to work with a budget it voted on.
• Then, there are positions that are more clearly expressed: A two-phased reform.
First phase: 2013-16, during which temporary adaptations would allow to wait for more stable conditions (exit from the economic crisis, findings from impact calculations and implementation of new tools…).
Second phase: 2016-20, when a global reform would better meet the strategic challenges, provided that, by then, member states have come up with a political willingness.
momagri’s proposals: Market regulation and international governance
On the basis of an economic model that has been validated by the scientific community, momagri has shown that agricultural markets are unstable and that complete liberalization of agricultural trade leads to higher volatility of agricultural prices.
In this respect, Michel Fosseprez, President of Union InVivo, Co-Founder and Vice President of momagri, feels that “it is urgent to enlighten everyone on the absolute need for a global regulation system of agricultural prices. The consequences of weather on crops are challenging market economy mechanisms. The current events regarding the drought in Russia are once again proving it, as they caused the positive global wheat balance to become negative in a few weeks only. While they allow for greater visibility––and thus a more favorable response to market occurrences from economic players––futures markets are a factor in mastering farmers’ risk/price ratio. In no way can they manage the weather… It is up to a global governance system to develop a technique to manage production hazards, and thus a stable framework to ensure food security for citizens.”
“Persuaded that food security is tied to the efficiency of agricultural activities worldwide,” Pierre Pagesse and momagri’s other founders are advocating governance principles and regulation mechanisms for agricultural activities throughout the planet.
momagri’s propositions are based on five action principles:
1- Considering food security––that is to say agriculture and food––as Global Public Goods;
Thee principles, which we are currently presenting as action proposals for large homogenous economic zones––with Europe at the forefront through the CAP overhaul––will be introduced to the European Commission by the end of October.
2- Setting indicative equilibrium prices based on the real economy, per agricultural product and per large homogenous economic zone;
3- Delineating regulation-free fluctuation ranges around these equilibrium prices within a tunnel, and the implementation of regulation measures below or above the tunnel scope;
4- Building up strategic reserves to be managed at the global level, in order to command leverage to keep prices within specific tunnels and prevent crises;
5- Initiating, for each large economic zone, a system of tariff gates to be implemented in cases of competition distortions that destabilize prices.
What kind of CAP reform might we expect? We must not fear, nor hope for, a revolution in mid-November. We must analyze the leeway provided in Dacian Ciolos’ orientations. This being so, we must never forget that:
- Budgetary procedures still “rule” the political arena;
- Major geopolitical crises and issues can “inflict” changes of course. History serves as reminder of such occurrences.
Momagri Editorial Board
Pierre PAGESSE*: “Financialized agriculture leads to deadlock”
- In 2005, you spoke of the risks tied to agricultural price volatility and called for global agricultural and food governance. If the issue of volatility is now on the agenda of the up-coming G-8/G-20 Summit to be chaired by France, don’t you feel that your call for such organization is utopian?
Pierre PAGESSE – “This plea for an international agricultural and food governance system is currently gathering support. Incidentally, France and the European Union could take the opportunity to pioneer the concept; otherwise other powers––such as Russia, China or Brazil––will do it at a later time and according to their own rules.
It is the only possible path to exit the spiral of dumping prices and hidden subsidies.
Farmers must make a living from their know-how, which is to say from prices and not subsidies. On a personal basis, I produce enough calories to feed 1,000 people but I could not feed my own family without CAP subsidies. It is ludicrous!
My career path as president of Limagrain has given me the opportunity to face the various agricultural situations in the major regions of he world. I have witnessed the switch toward financialized agriculture––fueled by economic, environmental and social dumping––that leads the world to a poverty and food insecurity deadlock.
We need a system of governance that enables all agricultural activities to co-exist worldwide.”
*President of LImagrain and momagri Founder and Chairman
Christian PEES*: “Equilibrium prices per large regions of the world” :
- While the world once again became alarmed about rising wheat prices in the past few weeks, you consider that prices have reached a normal level. Why?
Christian PEES - “Indeed, prices experienced a sharp hike to €236/ton on August 5, 2010 from €160/ton in mid July, to reach €227.50/ton on September 1. Yet, the tragic fact is that nobody dared to state that today’s levels correspond to real production costs.
Prices ranging between €190 and €210 are the “just prices” to enable grain farmers to make a living from their work in a system free of financial aid. The issue is to manage the conditions of cattle farmers, who bear this price hike but cannot pass it on meat sale prices.
If a regulation system is not implemented somewhere in the production and sale process, we will face either the destruction of the EU agricultural production capability or a return to a subsidy system. In fact, €120/ton is a dumping price. Today, the most competitive grain farmers are reaching €170/ton for wheat. We do need some stability, but we also require lucrative price levels. Hence, momagri’s proposal to set up equilibrium prices per large region of the world and to design intervention mechanisms for agricultural policies based on such ‘benchmark price’”.
*President of Euralis, momagri’s co-founder and Vice President
1 This article reproduces a research paper published in the October 2010 issue of Coop de France Infos, a publication that aims to inform and train the directors and executives of agricultural and food cooperatives (http://www.coopdefrance.coop ).