Agricultural Markets and Public Policies: Do European Farmers Compete on a Level Playing Field?

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As analysed in the Farm Europe report How to tackle price and income volatility for farmers? An overview of international agricultural policies and instruments, all the major agricultural powers at global level have developed crop insurance programmes in recent years to deal with climatic and/or sanitary events, and insurance represents only one part of their range of more or less sophisticated policy measures dealing with market volatility.

Except in the European Union, where the development of insurance tools is still in a rather embryonic state, elsewhere across the world, the payments made by farmers on insurance premiums are heavily subsidised by national policies.

Beyond a first safety net made of production insurance, countries such as Brazil and China structured their agricultural policies to manage market and income volatility with guaranteed prices defined at regional level. These tools are designed to maintain the profitability of the sector during market crisis. Moreover, these measures are supported in Brazil by a policy of massive credit aid (for which the reimbursements regularly differ in practice, and a part of the interest rate is compensated by the state). In China, the guaranteed price policy and massive public purchases are complemented by direct payments per hectare, despite the fact that the guaranteed prices are already very high.

The policy developed by the United States with the 2014 Farm Bill joins the objectives of the Chinese and Brazilian policies: guaranteeing the incomes of agricultural producers in the event of declining production prices. By abandoning almost all direct payments provided to farmers in favour of price and income insurance based policy, the United States provides farmers the guarantee that they do not have to bear the financial impact of heavy agricultural losses below a predefined level.

Australia has set up, alongside aid for investments and environmental preservation, a public policy based on crop insurance programs, subsidies and tax concessions, encouraging precautionary savings. Since 2014, measures to support farmers’ incomes have been added to this range of instruments. These measures are triggered individually in the event of a significant decline in agricultural revenues. The payments aim at providing a minimum income to farmers for a maximum period of 3 years, in parallel with the establishment of an individual recovery plan.

Meanwhile, since the 1990s, the European Union has pursued a policy seeking to decouple public support and production, advocating a market-oriented agricultural sector. Only in the face of major market disturbances, ex post response measures can be taken, often only under pressure from the industry and certain member states.

This difference in public policies is illustrated by two figures: 60% and 1%. While 60% of the US Farm bill is channeled to insurance devices and 1% for direct aids to farmers, 1% of the EU CAP budget goes to insurance-related measures, and 60% to direct payments for farmers.

Today, the economic efficiency of these various public policy schemes should be analysed without prejudice, excluding any return to massive intervention policies and the management of public stocks, which are now politically and economically irrelevant.

Apart from this comparative analysis on efficiency, the following dimensions should be considered:

  • The degree of stability in turnover and income of agricultural producers, at both the farm and sectoral level.
  • The economic relevance of the measure: the ability of the measure to actually benefit farming and its development, versus the degree of public support for actors other than agricultural producers.
  • The degree of reactivity to the farming sector: in an open world where economic actors are in almost immediate competition for the same markets, with different instruments, are European farmers on an equal footing to face current events and prepare for the coming seasons?
  • Impact on the capacity of the agricultural and food sectors to achieve a sustained growth in spite of market disturbances.

These elements constitute the framework within which Farm Europe develops its reflections on insurance devices as possible answers to market challenges faced by European agricultural sectors.