26.05.2016 – Brussels. Today, Farm Europe hosted a reflection group on the situation of the global milk market, gathering key players and high representatives on both EU and global milk markets.

The milk crisis is entering its second consecutive year, with no hope of a recovery in the short term.

Farms are disappearing daily. If nothing is done, no less than 20% of Europe’s dairy farms and tens of thousands of dependent jobs will be wiped off the map, or will be moved to areas where dairy production is already highly concentrated.

Yet, despite climate change and growing concerns about the environment, animal welfare, or the vitality of rural areas, a balanced distribution of dairy production across the whole EU remains as much a priority today as it has always been.

The Commission is the only institution that is able to represent the collective interest – by making full use of its exclusive power to propose.

Concrete EU solutions exist

An immediate, simple, and effective policy response to the crisis lies in the introduction of a truly European scheme aiming to rapidly return some stability to the dairy market.

This is feasible.

There are two possible solutions, the rules for which would need to be determined at the European scale:

• Option 1: Building on the Article 222. This option would introduce on the basis of Article 219 of the single CMO a European obligation to target any emergency aid that is unlocked, including schemes funded with European funds and schemes set up under the state aid regime. As a result, Public funds would be exclusively targeted at dairy producers who undertake to reduce their production (relative to their 2015 level) through: a technical adjustment in their herd management, a higher culling rate, or through abandoning dairy production altogether. It would be responsibility of member states to set appropriate levels of public support, commensurate with the amount and type of reduction implemented. This option would guarantee that no public funds in the EU are channelled to producers that are not reducing their production. In other words, it would avoid unfair competition between farmers fuelled by public money. It would be necessary to set a clear reduction objective at EU level as a minimum reduction target.

• Option 2: The organisation of a European “call for tender” via additional EU funds to encourage dairy farmers to voluntarily reduce their production volumes, and which would be open to all European producers. The latter would undertake to reduce their deliveries to dairies by a set amount relative to 2015 and for a temporary period of 6 months, receiving a sufficiently appealing rate of compensation in return. This would be a truly EU scheme, managed and financed directly by the European Commission with a clear reduction target. More than 2 billions of litters could be withdrawn from the market with less than €500 million. This option would provide higher visibility on the quantities withdrawn from the market than option 1.

Such measures – either option 1 or 2 – would be beneficial for employment across all Europe’s rural areas. They would offer far better value for money than a new and ineffective plan to distribute public money in a piecemeal way, which would be catastrophic for Europe’s image, both in the eyes of taxpayers and farmers.

This EU plan should be drawn up and announced before the summer, and implemented by the autumn.

The Commission possesses, today, all the financial and policymaking power that it requires to submit, without delay, a proposal in this area to Member States and to the European Parliament under the Single CMO Regulation.

The 2016 CAP budget can fund an ambitious and effective plan without recourse to the emergency fund.

In addition to this, the European Commission should also work on a coherent package of measures introducing EU mandatory systems, that identify the origin of the raw material, inform the consumer, and at the same time encouraging efforts made by EU producers to generate more added value.

It is also necessary to engage, in the very short term and with the EU support, in a structured response to current misleading campaigns against dairy products, underlining the importance of nutritional properties of milk products and their fundamental role in a balance diet

However, any solutions that continue to structurally maintain over-production should be excluded. As is the case with ‘public intervention’ which is not the relevant tool to cope with the current situation. These measures only serve to prop up over-production through an artificial public buyer. A fresh increase in the intervention rate would not be helpful for the moment. It would only encourage the persistence of unsustainable levels of production, and would only further delay any recovery due to the massive levels of intervention stocks it would generate.

While the debate on the necessary evolution of the future CAP is about to rebound, thanks to the informal Council of agricultural ministers and to the Dutch presidency, this weekend, it is a good opportunity to come back on the discussion that has been on going around Farm Europe activities for now more than one year.

This work, based on the strategic note published here in January, has been focusing on 3 main topics which should be at the core of any agricultural policy in the future: Resilience, Sustainability and Investments.

The 2014 reform has consolidated the ‘public goods’ component of the Common Agricultural Policy. However, the economic reform of this policy which remains the primary aim of common European policy, is still to take place. Economic reform is a matter of meeting the most pressing societal challenge: sustainability of production, or, in other words, the ability of agriculture to meet the needs of the planet and of the responsibility which the EU must assume in this regard.

In responding to this issue, all actors are confronted with a number of challenges:

• the challenge of sustainable and consistent agricultural and industrial investments;

• the challenge of integrating innovation with efficient technologies;

• the challenge of market volatility, and ensuring that it does not interrupt the sustained growth of production.

In the EU, agricultural productivity has declined for over two decades. Income per unit of agricultural work has stagnated since the mid-90s in the EU-15, despite the restructuring of farms and the decline in the AWU: the efforts made by the agricultural sector seem to be consumed by the constant decrease of public aid (CAP) in real terms and the transfer of value added towards other links in the chain.

Today, many sectors find themselves in urgent need of investment to ensure their competitiveness.

Understanding the indivisibility and mutuality of the two components – environmental sustainability on the one hand, and economic sustainability on the other – seems to be the primary condition for ensuring sustainable development and effective public policy.

In this context, three key words are essential: Resilience, Sustainability and Investment.

Does the current CAP provide adequate responses?

Responding to market volatility:

 The EU is the only major agricultural area in the world responding with a scheme of aid decoupled from production. Beyond the comparative advantages of the EU system, it is disputable whether or not the European model remains appropriate when all its competitors play with a different set of rules. Confronted with market crises, the new CAP arrangements remain, to this day, rudimental (schemes for income stabilisation in 2nd pillar) or have proved ineffective in the face of recent crisis (emergency measures and markets measures of the single CMO).

Henceforth, it is necessary to appraise the possibility of moving part of the CAP to a system of income and margin insurance in two stages: with a first level of  basic (European) insurance (by sector?), financed by the CAP and for a minimum level of insurance tied to average production costs; a 2nd level of guarantees, chosen by farmers, of positive margins or positive revenue, (by production?), co-financed by the EU and based on a number of measures, whether European, national, or regional. It should also be assessed the possibility of developing individual savings at farm level, for example via accounting provision.

 Sustainability and compensation for public goods:

 Both the greening measures and measures of the 2nd pillar are criticised due to their complexity and/or their questioned efficiency. For the future, we could work on a single system of aids, with:

1)   one measure to respond to the challenge of providing public goods at the European level, allowing economic actors to decide and to mobilise the most appropriate means to achieving this;

2)  one measure to punctually compensate the costs linked to the commitment to go beyond the minimum in order to respond to specific regional issues;

3)  one measure to address the structural lack of competitiveness of a region or of a specific sector in a particular region.

For the ‘basic public goods’ component, can we address the need to move towards an objectives-based policy, concerning the environment/emissions (greening and agri-environmental measures)? From this perspective, two schemes are conceivable (one being exclusive of the other):

•  Either based on the ergonomics of the current greening policy, to recognise the use of advanced farming techniques as a mean of fulfilling all greening requirements;
• Or based on a balance sheet of farm emissions, with a definition of the objectives to be achieved but not of the means to achieving them.

For the component of sustainability, consumption patterns may be considered, via, for example programmes of distribution allowing the delivery of real ‘food stamps’ based on the American model, by promoting healthy eating in schools (school canteens) and public services (hospitals, the canteens of administrations, etc.), and with distribution to organisations for the poor. These “EU food stamps” must be subject to criteria of origin for such purchases.

Policy of Investment:

Should the CAP establish greater means of support for investments? If yes, is there a need for a European plan for competitive investments in the agricultural sector, in order to stimulate a technological leap towards an “agriculture of performance”?

In this context, and given the new economic environment of increased market volatility and the need for investments, do the financial tools on which investments are based require adjustment?

▪       Bank guarantees

▪       Insurance “income loss, margin loss”?

▪       Role of public support via the CAP?

▪       Role of the EIB, commercial banks, and insurance companies?

 All of these issues and their possible paths for the future are under analysis in the daily Farm Europe’s work and will be assessed and discussed at the Global Food Forum to take place in Milan, Italy, later this year (for more details, do not hesitate to contact us at : info@farm-europe.eu).

Today, Farm Europe hosted a debate on how Climate Change is impacting agriculture and food systems in a world experiencing more instable and volatile markets.

Food production has become very interdependent and supply side shocks due to draught, disease, severe climate events and lately climate change contribute to a high degree of volatility on output. On the demand side political instability, population growth, economic development in emerging markets and advanced economies, change in dietary habits and financial problems are key factors. The result is increased volatility with consequent effect on agricultural prices, producer’s income and consumer prices leading to political and social unrest.

What is our response? And, specifically, how main worldwide agricultural regions and notably Europe should respond to one of the most crucial challenges that the world will face in the coming decades? 

This one, alongside other key questions about how it will be possible to establish a sustainable agricultural and food systems were thoroughly addressed by panelists and participants.

Farm Europe’s event started with the presentation of a very innovative study on the ”Food Chain Reaction: A Global Food Security Game” which, in November 2015, gathered 65 thought leaders and policy makers from several countries in Washington, D.C. This project, to which Farm Europe had the pleasure to participate, revealed the different approaches toward agri-food systems at global level in the context of Climate Change, through a simulation of a real global food crisis caused by population growth, rapid urbanisation, extreme weather, and political turmoil. The exercise put the issue of food security at the forefront of a global conversation and teams were able to see firsthand via the simulation what the future of food security could look like in an increasingly volatile world.

Farm Europe’s discussion was then opened and fuelled by Farm Europe’s Senior Fellow Lars Hoelgaard, alongside with Patrice de Laurens from the French Ministry of Agriculture, Joost Korte, DDG at the European Commission, Joe Stone, President at Cargill Animal Nutrition and Jeff Malcolm, Director at WWF – sponsor of the Global Food Security Game.

Overall, from panelists’ comments two clear concepts came out:

1. At the end of the day, in this volatile context, Climate change and Food security challenges are common. Accordingly, decision makers have to build ambitious policy answers, not independently, but in a collaborative way, by taking into account political and economic interconnections in a ever more globalised world.
2. There is no single solution, no “silver bullet”. The key lesson is that these issues need to be addressed in an integrated manner across all sector