Author: Luc Vernet

Biofuels “Made in Europe” delivers concrete and tangible solutions to reduce emissions

Posted on - Posted by Luc Vernet

Speech at Euractiv Biofuel’s event 

In a few minutes, I will not develop all the science, arguments and figures on the positive impacts of EU sourced biofuels for the EU from both an economic, environmental and rural development point of view.

This has been done many times without changing the « accepted wisdom » of many in Brussels on biofuels, that is inspired by baseless claims or statements – it seems.

As Farm Europe, we contributed to this  debate with our report, which goes back to facts, analysing biofuels from a land, agriculture and food security perspective over the period 2005-2015.

And it’s clear! Today, in Europe, EU sourced biofuels are not competing with food. Food is competing with urbanisation and forests. In the specific case of biofuels, it’s not the issue of producing energy OR food, rather it’s producing both, food AND energy.

Sustainable biofuels (I) help limiting the crisis that is affecting the EU agriculture, (II) reduce EU dependence to imported feeds, and (III) have no negative impact on prices to consumers. In Europe, we have never produced more biofuels than today… food prices are far from being high… And this is truth as well at a global level as underlined several times by FAO and the World Bank.

There is clear evidence that EU sourced biofuels contribute to transport decarbonisation, more than halving carbon emissions, in comparisons with fossil fuels – and they represent a solution that is available today, with no possible doubts.

There is clear evidence as well, that these biofuels bring economic benefits for our economies, by reducing our trade deficit and generating jobs and growth, in particular within the farming sector, which is in great need for good news nowadays.

We should be very targeted in our approach at EU level, making a clear distinction between EU sourced biofuels, fossil fuels indeed, but also other biofuels from palm oil. Palm Oil Biofuels – even based on Use Cooking Oil, sometime imported – makes very poor sense for the EU from both an environmental and economic perspective. I do not talk about any sustainable use of palm oil in EU food industry – which is also a topic where we should avoid shortcuts. My purpose here focuses only on biofuels.

At the end of the day, the question is not analysing even more, finding the best way to present figures and arguments. It’s try to understand why we still have this negative perception and why such a proposal from the EC is today on the table, which would phase out to a large extend 1G biofuels, without any justification?

Personally, I think, from my past experience, that it mainly relies on the vision of our agriculture and food systems – or maybe the absence of a common strategic vision. Do we accept the words growth, profitability and competitiveness for our food systems and agriculture or do we promote a vision of decline? Do we want to grow forests all across the EU rather than crops, and limit agriculture to just providing our food, even without exporting? Do we want to use EU agriculture as a lever for a green economy or are there other economic priorities, for exemple secure de position of fossile fuels and encourage PalmOilBiofuels via UCO ?

If we are to opt for this second option, then we need to get ready for a steady increase of the CAP budget, and a complete abandonment of the market orientation of our agriculture. If not, we need to be serious and promote a real ambition of our agriculture and related industries based on green growth – and 1G biofuels are a key part of the development of these food systems.

In simple words, an alternative to fossil fuels that is available now.

The Milk Reduction Scheme: Good news for a truly European approach

Posted on - Posted by Luc Vernet

The European Commission can rightly be proud of the success of the milk reduction scheme launched in early September. With 1,07 million tonnes to be withdrawn from the market, the €150 million milk reduction scheme announced in July has shown its capacity to be an effective tool to rebalance the market and contribute to the upwards recovery of the milk price.

Although it is still too early to draw precise conclusions, it is clear that the success of the scheme has exceeded most of the expectations and the fears expressed by some experts. Even in Ireland, where very few producers were expected to be attracted by the compensation for reducing their production, 4.447 producers are about to take advantage of the scheme for a total amount of €10,4 million in financial support. This means that Irish producers will receive €2.380 on average, while the scheme will benefit 1.849 producers with an average support of €8.540 per farm in the UK; 3.932 producers (€2.800 on average) in the Netherlands; 9.947 producers (€4.060 on average) in Germany; and 12.957 producers (€1.960 on average) in France, which will therefore have a positive impact on the rebalancing of the EU market.

These figures are clearly showing the benefit of a pan-European targeted measure, which allows focusing public spending on producers that contribute to the rebalancing of the market by reducing their production levels, in a situation where the increase in EU milk production highly exceeded the demands of the market.

It is important to underline that this is the most EU wide tool that has been activated by the European Commission since the beginning of the crisis.

This confirm the analysis of Farm Europe, presented at an early stage of this milk crisis, that the money dedicated to the first aid packages would have been better spent on such a EU measure.

An early move would probably have reduced the length of the crisis and also lowered its costs for the EU budget, considering that more than a billion euro has been spent in total and that the first €500 million package mainly took the form of a non targeted emergency support managed by EU Member States, without sufficient coordination and without a clear positive impact on the easing of the economic crisis.

Now, the implementation of the second part of the July package has to be carefully monitor as well as the need of an increase envelope for the reduction scheme depending on market developments in the coming weeks.

The CAP can cope with a Brexit

Posted on - Posted by Luc Vernet

A Brexit would not be a serious blow for the CAP from a budgetary point of view, taking into account the British rebate and the return on contributions level: the CAP is the policy area to which the UK is the least net contributor. The impact of a Brexit would be first and foremost concentrated on the UK’s farming sector and on trade with many uncertainties as underlined in many reports. 

The UK is an important contributor to the overall EU budget, but it’s less the case when it comes to the Common Agricultural Policy. It supplies 10,5% of the global EU budget, but a more precise analysis shows that it provides only 5% of the CAP headings.

In 2014, the UK contribution was €14.1 billion after the deduction of the UK rebate (€6 billion), while EU spending in the UK totaled €7 billion: the UK was thus a net contributor, to the sum of €7.1 billion.

Nevertheless, to understand more specifically the impact of a Brexit on the CAP headings within the overall EU budget, it is necessary to go back to the drivers of the negotiations of the Multiannual Financial Framework, thus analyzing the position of each Member State, when it comes to every single policy.

The negotiating priorities of the different Member States in relation to the distribution of the EU budget, between the Union’s main policy areas, can be read, to a large extent, as a consequence of the specific performance, the so-called “ return on contributions” of each policy area compared with the Member State’s overall performance.

This helps drawing the real UK footprint on the EU budget, and the implications of the possible absence of a UK contribution in a post Brexit context – implications at financial ministers level, for the CAP.

The UK’s performance within the CAP stands at 0.57 cents. This means that the UK received 0.57 euros for 1 Euro paid in – which is much better than other policy areas : overall, if we take all the EU spending, the UK receive roughly 0.39 cent for 1 Euro paid in, mainly because of Regional policy (structural funds).

Taking 2013 as a baseline, UK received €3,9 billion via the CAP and contributed to the CAP for €6,8 billion.

This means that in financial terms, the overall impact of a Brexit on the CAP budget would be limited to less than 5% of the CAP budget – or around €2.9 billion per year.

This 5% would be balanced politically in case of a post-Brexit financial negotiation, knowing that the UK government has traditionally been the main advocate in the net contributors group of countries, which are reluctant to maintain the CAP budget.

More elements on the cost-effectiveness of the CAP can be found here.

Farm Europe launches the Wine Institute, a section dedicated to the wine sector

Posted on - Posted by Luc Vernet

Today, Farm Europe launches its Wine Institute. This new section of the think tank will offer an arena for reflection and specific debate on issues relating to the future of the European wine sector.

The key ambition of the think tank will be to follow economic developments and to propose policy options to strengthen Europe’s leading position in this sector, which represents some 420 billion euros in sales across the globe.

With the new planting rights system put in place on 1 January 2016, the European wine sector enters into a new era in terms of managing the growth potential of different market segments across Europe. All economic actors have a common responsibility in making the new system sustainable, efficient, and effective.

The WI will follow ongoing developments while working actively on achieving coherence between the challenges and evolutions underway in the sector and the public policy put in place at European level – in particular trade and promotion tools, climate change, innovation, and labelling.

 

Milk crisis: the taxpayer perspective

Posted on - Posted by Luc Vernet

Earlier this week, Farm Europe presented how a milk production reduction scheme may be efficient and how it could be implemented. Additionally, we think it is important to analyse the interests of the taxpayers while taking into account the different policy options available to decision-makers, especially since EU Commissioner Hogan announced yesterday his commitment to support the sector.

The farming sector (and the milk sector in particular) is a long term business : it cannot decide to produce more milk from one day to another.

Milk producers anticipated a growth in the market which has been disturbed massively by two major factors which were not predictable : the switch of the Chinese economy and the Russian ban (this country being previously one of the main importers of EU food products), without mentioning that climate conditions have an impact on the overall milk production (the warm winter in the EU pushed the milk production upwards).

Under these conditions, the policy options for EU decision-makers are the following:

1- “doing nothing” – meaning losing farmers (often young farmers who recently invested in new facilities- facing high charges)
2- “spend money to buy surplus” (traditional tools that are available within the CAP) “or give a bit of money to each producer” as the EU did last autumn (500M Eur)
3- reduce the level of production available on the market as proposed.

For the politicians, the key question is: what is in the long term interest of the consumers/taxpayers?

1- Nowadays the most affected are those farmers that invested recently. Losing those producers would mean in the future, when markets will recover, less capacity to benefit from the global growth of the milk market. In the long term, this would clearly discourage investments and new-comers in the farming sector  (the challenge today is to attract workers in the farming sector, not the contrary) – and so it would reduce the capacity of the farming sector to become more competitive and younger.

Now, anyway, this option seems to be removed from the table.

Then, the key question is : does the EU use taxpayers money to have a real impact on the crisis or simply to pretend that it is doing something, knowing perfectly that it will not change the situation for the producers (which would be wasting taxpayers’ money, indeed)?

2- Spending money to buy surplus would perhaps help in the very short term, but at one point the storage capacities are costly and limited (and not available all across the EU, especially not in the Baltic countries) – and the milk will come back on the market anyway. Giving direct support has already been done. 500 millions EUR represents less than 200 euros per farm – which is nothing when you lose money every day.

3- The last option developed by Farm Europe is certainly not perfect – there is simply no ideal option (in a perfect world offer and demand should always be perfectly balanced) – but it would contribute to rebalance the market in a very effective way, and stop the vicious circle in which the most competitive producers are producing more and more to recover their costs. It would be an efficient use of taxpayers’ money giving fresh air to those producers that will contribute to the future of the agri-food economy. It will not make a difference in terms of prices (or will only have a marginal impact) for consumers – it is a matter of cents! And, above all, from an environmental point of view it is better to reduce production than to waste milk.

Growth and resilience of the EU agricultural sector – Debate with Mr Tassos Haniotis

Posted on - Posted by Luc Vernet

IMG_2936On the morning of the 12th October, Farm Europe hosted an event on growth and resilience in the agricultural sector with Mr. Tassos HANIOTIS, Director at the European Commission in charge of Economic analysis, perspectives and evaluation for Agriculture and Rural Development. Mr. Haniotis outlined the drivers of challenges for EU agriculture, the counterintuitive link of agriculture to jobs and growth and the role of the CAP and its policy responses today, and for the future. Mr. Jean-François ISAMBERT, Vice President of AGRALYS, Vice-President of UNIGRAINS, and President of the European Civil Dialogue Group on Arable Crops, led the debate, drawing some conclusions on the challenges and opportunities for the future of European agriculture around 3 interdependent challenges to the agri-food sector – investment, sustainability, and resilience. Mr ISAMBERT said that “the primary question is not whether or not large agriculture areas will play a greater role in global trade in future, but rather whether they are equipped to do so. On this issue, Europe has a strong responsibility, given its favourable position in terms of both conditions for production and in terms of expertise. Indeed, we have the soil, the climate, and the technicalities that allow us to intervene. It is therefore our duty to provide concrete answers to the question of ‘how’ this may be done”.

The end of milk quotas: an unwritten chapter for the CAP

Posted on - Posted by Luc Vernet

The European Union is turning the page on milk quotas, introduced in 1984 to check the growth of butter mountains and milk lakes. While the market factored in the decision, taken in 2003, to end production limits, making significant investments, the public authorities haven’t. There has been a range of measures to ensure a ‘soft landing’ as quotas have been phased out, but these have neglected two key needs for the future:

  • Due to a lack of consensus on the European scale no clear policy framework to support farms into the post-quota period has been put in place;
  • The changes currently affecting farms have not been explained to European citizens : the farm of today, and of tomorrow, cannot be like the farm as we have known it.

As we approach the end of quotas the Union’s policy is, therefore, at sixes and sevens, with, on the one hand, production areas or businesses that are targeting international markets and must do so aggressively and, on the other, regions whose agricultural sectors are fragile and which are seeking new strategies to market their products and secure their future in the international market place.

For both of these realities, policy tools are needed to help stakeholders steer a steady course through the post-quota period as well as to ensure that the European Union is equipped to transform this challenge into a genuine opportunity for sustained growth.

What is needed, first and foremost, are policy tools that enable businesses to conquer new markets including effective measures to mitigate the effects of crises – the producers who will be the most exposed to crises in the coming years will not be those we might at first expect. Buying or modernising a farm is extremely costly – on its own, a milking robot for 60 dairy cows represents an investment of 100,000 Euros. In a period of crisis, how can farmers afford such investments?

The market crisis reserve set up by the last CAP reform has a fund of 400 million Euros. It was not designed to cope with a crisis in milk markets such as the one that occurred in 2009. Then, the community budget provided more than 600 million Euros, with, in addition, massive national financial support being provided in some MS, in particular in France and Germany. In light of the current state of public finances, it is unlikely that such national support will be forthcoming should another crisis strike.

The stakes are high: Europe has substantial assets and can meet international demand, but she is not alone. New Zealand, Australia and the United States are on the offensive. In recent years, the European Union’s share of the international market has dwindled by 10 percentage points, from 40% to 30%.

Policy tools are also needed to support production in the most fragile regions and to help agricultural industry to design and implement sustainable business strategies. In these regions, milk production has no real alternative if it is to continue to be viable and capable of providing a platform for the development of other related industries and services. Niche products such as certain high-value added PDO cheeses or fresh creams cannot be the one and only solution for all the regions concerned. Nor is it sure that maintaining support for milk production in mountainous areas will be sufficient to persuade a new generation of farmers to take on the risk of setting up there.

Milk and other agricultural industries also need to be able to innovate, invest and work together as a unit if they are to consolidate and develop their markets, and be resilient through difficult times. They must be able to count on a European political leadership that can plan ahead and limit the risk of contagion from global crises affecting commodities on their regional markets.

In short, in terms of policy, the rules of the game are, today, far from being clear or adequate to the task of coping in an effective way with a crisis. In the event of a serious crisis, even if the the entire market crisis reserve facility were provided as emergency relief to farmers, this would only provide a cheque of 600 Euros per farm on average. This would no doubt alleviate political pressure on European institutions, but it would have virtually no economic effect. Further analysis as well as a clarification of policy aims are now needed.