Archives: Travaux

Post Type Description

Double performance of EU agri-food sectors A key condition : Empowering farmers to increase economic stability

Policy Briefing

Double performance of EU agri-food sectors

A key condition :
Empowering farmers to increase economic stability

October 2017

For more than two decades the credo of policy-makers (the Commission more than anyone, Council and European Parliament) has been to promote a closer connection between farmers and market change, or, in the terms of the now traditional expression a “market-oriented farming”.

Yet, beyond the rhetoric and wishful thinking, the question that has refused to go away since 2008 is this: has the CAP itself adapted to the markets? with the way they function, with their ups and downs… in such a way that every industry segment in the European agricultural and agri-food sector is not only fully embedded in but also proactive in its markets?

The economic premise adopted by decision-makers throughout the 2003-2013 period has been, as far as possible, to cut the link between public support and production, with the markets determining what farmers should do or produce, unencumbered by any external influences. In other words, the underlying logic of the reforms of 2003 and post-Health Check modifications was to put in place a form of fixed-rate annual income support based on hectarage but paid as if merely “settling an account”, job done! Moreover, safety nets have been pulled away and now offer only low rates of support when the market is in deep crisis (extremely low, even with no connection with markets reality for the beef and veal sector).

1

With its toolkit limited by its economic philosophy, the CAP has appeared to oscillate between two assumptions: on the one hand, that markets function perfectly, and, on the other, that European agriculture is still enough protected from worsening global volatility ‒ in reality the EU has opened its borders hoping for a greater penetration of global markets by EU agricultural and agri-food products, but without the public support to back up this strategy.

In seeking to link European agriculture and global markets, the EU’s diverse agricultural industries have, as a result, found themselves disarmed in the face of increasing market volatility, a volatility which has only worsened both in amplitude and frequency and that has become firmly established since 2007-2009 as a ‘inevitable’ fact of life in global agricultural and agri-food markets.

It is also a reality that, while direct support under the CAP’s Pillar 1 constitutes the EU’s core support for protecting farmers’ revenue, it has not be conceived and can’t be ask to cover risks that farmers face, such as:

  • –  A more unpredictable climate. Due to climate change, weather events are set to be more intense. Hailstones, drought, flooding… there is no longer a single year in which emergency support is not needed.
  • –  Increased price volatility. An imbalance of just a few percent between supply and demand in global markets can generate sudden and disproportionately high fluctuations in the prices that producers receive, even if the global market is only a small fraction of total sales for the products in question. This domino effect has been ravaging the European dairy sector since 2009.
  • –  More frequent animal/plant health incidents. Trade between countries and with third countries carries greater inherent risks, which are more difficult to manage, and sometimes new.
  • –  Serious market failure when major crises occur. Sudden falls in price caused by oversupply can lead, especially in the case of short- cycle production, to individual behaviour that is poles apart from a collective approach to resolving or mitigating crises, i.e. increasing one’s own production to offset reduced margins with volume. Such spirals in which individual economic agents “dig their own grave” while hoping that their neighbours will go under first, destroy value, and are ultimately costly to the public purse, which is called to the rescue as a last resort. But these spirals also hit the farmers with good prospects the hardest, i.e. those who have recently invested to improve their productivity, but who are bled dry before anyone else when a crisis strikes.

2

Depending on the market segment, between 10 and 40 % of European production is exported. Yet, there are some who have called for – often with demagoguery – the EU to become more inwardly-focused, with a more or less disguised return to the policies of the 70’s and of high guaranteed prices (the result of which would also be destructive isolationism and a U-turn in terms of creating value). And others have proposed turning farmers into civil servants, effectively revoking their right to private enterprise as they become mere instruments for a societal engineering strategy that forgets agriculture’s primary productive function. Both of these routes should be condemned with vigour and the proposals associated with them rejected. They would only lead to the impoverishment of agricultural industries and rural areas – the most vulnerable first – and of the European Union as a whole; or an over-administration leading to both out-of-control funding and a business development impasse.

The European Union needs to be more ambitious and have the courage to envision the agricultural sector as an industry, one made up of entrepreneurs who engage in business and who trade, and to state its economic importance for the EU.

The core support that ensures the development of the agricultural sector is the direct support from the CAP’s Pillar 1. The Union needs, as a first step, to reaffirm its legitimacy, and notably in relation to:

  • –  requirements made of farmers that are not remunerated by the market but which farmers are asked to comply with;
  • –  the costs of meeting European quality standards, desired by both the European legislator and the European consumer;
  • –  and the right of European farmers to a fair standard of living, in Europe, whereas it is still 40% lower on average than that of other industry sectors, a state of affairs that cannot be justified by invoking the variable economic standards of global competitors.

    In light of the different risks prevalent in agriculture, the European Union needs to change tack and adopt a governance approach that sees farmers as responsible entrepreneurs operating in an industry and market and which:

  • –  gives farmers a central role in the response to climate/weather hazards and market variability;
  • –  acknowledges the European Union’s responsibility to provide support that is tuned to the fundamental economic needs of the agricultural sector in times of acute crisis.

    Ahead of the European negotiations for the Commission’s Financial Omnibus proposal, the 2016 Global Food Forum looked at how the current CAP could be modified to ensure that European farmers are able, from 2018 onwards, to voluntarily construct more robust strategies to protect their businesses from climate/weather risks and market variability.

3

In this regard, the 2016 Global Food Forum identified three types of instrument ‒ possessing the right combination of economic efficiency and effectiveness ‒ that should be put in place for farmers from 2018 by the CAP:

  • –  An effective incentive to take out insurance against weather risks, via CAP co-financing (at 65%) of crop insurance premiums, with an index-based payout threshold set at a recorded loss of 20 %. As weather constitutes the most frequent, most unpredictable and most destructive risk in agriculture, it is no longer tenable to manage through ‘political headline grabbing’ allocations of emergency funds, hostage to the vagueries of budget availability. Crop insurance is widely used by our international competitors and has demonstrated its value. The EU needs to join the leading pack.
  • –  The option of saving collectively within sectoral mutual funds that provide margin insurance (sectoral income stabilisation tools – IST). These funds would provide payments if recorded margins were to fall in relation to index-based reference level by more than 20% and they would receive CAP co-financing (65%) at the time of saving i.e. at the time of contribution into the fund and not when a crisis strikes. These industry-specific IST could offer quick and efficient solutions when the industry-market in question is characterised by sudden fluctuations, such as is the case in dairy or sugar markets. Producers ‒‒ farmers ‒ absorb the full hit and are, moreover, unable to stock their produce, even temporarily, without losing its ‘fresh from the farm’ value.
  • –  For specific agricultural industries: the ability to set up more operable mutual funds to cover crop and livestock health risks based on the existing Pillar 2 risk management measures introduced with the 2013 reform, but with more streamlined administration (payment trigger thresholds, calculation of loss).

    The Forum also stressed the importance of making progress on individual precautionary savings plans (with their national tax component) and experimentation with margin insurance tools (over and above mutual funds).

    The negotiations for the agricultural part of the Omnibus financial regulation have borne fruit in this respect. While the Commission’s proposal opens the door to sectoral IST, the European Parliament has recognized the importance for European agriculture of this negotiation.

    MEPs have taken the measure of responsibility that is theirs, with the Financial Omnibus being the only credible legislative window of opportunity this side of 2020 to respond to a pressing industry need for a means of managing weather and market risks without waiting for the next crisis to strike.

4

The EP (leading), the Council and the Commission have approved what is a useful legislative framework and a first practical step towards giving the CAP a structured business-oriented dimension, where the 2013 reforms had merely put down a marker.

Modified by the financial Omnibus, the CAP is thus moving towards a business vision in which European farmers are more equipped to take their own decisions in the market, with:

  • –  core support in the form of direct support, with its legitimacy confirmed, and designed to enable farmers to develop their business and to plan on the basis of ‘normal’ market conditions and trends;
  • –  agricultural industries take responsibility for the management of weather and market volatility risks, which is made possible by putting in place functional CAP incentives for farmers who choose to take out protection (individually and collectively) against such risks;
  • –  But one line of action, which is necessary for the coherence and efficiency of the whole risk management tool kit, remains to be put in place: what public action should do in cases when the sheer scale of a crisis exceeds the level of risk protection economic agents are expected to provide?

    In exceptional crises, whether related to crop/livestock welfare, the weather or the market, a public bridging measure needs to be designed and deployed in such a way as to preserve the European Union’s agriculture as an industrial asset. It needs to complement the individual and group schemes taken out by farmers. Standard risk management schemes are simply not designed to deal with ‘exceptional risk’, that is, ‘extreme events’, and it would be unthinkable to leave farmers unprotected from them.

    To date, in agriculture as in other industries – automotive, steel, banks, to name just a few, the policy response in times of severe crisis has mainly been to pull a financial sticking plaster out of the hat to avoid the complete disappearance of a vital industry. Moreover, any debate about agriculture and food must also think through how to ensure food sovereignty ‒ once this is set up as a strategic goal.

    And the legitimate expectation we should have towards a European economic policy, which the CAP is, is that sticking plasters won’t do. At best, they have no development effect and at worst, they have adverse effects.

    When a serious crisis strikes, policy action needs to be:

  • –  rapid, implying real-time analysis and deployment of pre-existing

    resources;

  • –  consistent with private risk and hazard management so as to

    avoid overlapping/competing provision or individual or group windfall behaviours;

5

  • –  economically virtuous, by giving private agents an incentive to participate actively in the resolution of… or at the least the alleviation of, crises;
  • –  designed for EU-scale implementation, which is the only scale at which it is possible to maximise efficiency and respect the European single market – the national, regional and local levels are simply not equipped to intervene in the case, which concerns us here, of global crises.

    The frequency of crises (market, weather) striking agricultural industries is unlikely to abate in the future, and so the European Union is going to have to tackle them ‒ and they may be very deep crises.

    Another and probably inevitable reality for the coming years, after Heads of State and governments have completed negotiations for the post-2020 budget, will be the absence of annual financial margins in the CAP budget. It would seem perilous to rely on the European Union’s ability to find ‘fresh money’ to alleviate future crisis in the world of agriculture.

    It is also incumbent on policy-makers to have in place a permanent rapid crisis response facility, with finance secured from the outset and whose administration/use should be both straightforward and tailored to the type of crisis involved.

    Squaring the circle ?

    Backing up private sector crisis and hazard management, responding to market failures during crises, guiding agricultural industries towards virtuous behaviours and away from individualist behaviours that can deepen crises, these should be the CAP’s objectives, in other words, preventing difficult situations from turning into crises.

    To achieve these objectives, and over and above the current market management instruments ‒ either public intervention or private storage ‒ the creation of a European fund for the prevention of crises in agriculture would appear to offer the most functional instrument for the EU.

    The creation of this fund, and its initial capital allocation, should be the object of a decision by Heads of State and governments as part of discussions for the MFF, in 2018 and 2019, as should also be the annual allocation to this fund from the crisis reserve introduced by the CAP in 2013, which will go the make up a predetermined fund total.

    This fund, with an initial allocation drawn from the European budget and pre- determined annual allocations from the CAP budget, would be a permanent, multiannual fund and ring-fenced for specific uses set out in its Statutes. It could be run from and financially administered by, for example, the European Investment Bank (EIB).

6

To fulfill its role as an efficient European risk and hazard management instrument for agriculture, this fund would have two principal tasks:

  • –  the reinsurance of insurance instruments taken out voluntarily by agricultural industries in the European Union. Trigger-criteria for this reinsurance need to be determined carefully in order to provide a backup for these instruments without reducing the accountability of those who implement them to do so in an efficient manner;
  • –  the financing ad hoc measures that the European Commission would determine on the basis of power afforded to it by the 2013 CAP to tackle particularly serious crises. These could be, for example, measures of the kind implemented in 2015 for the voluntary reduction of milk production in the European Union. In this regard, whenever a crisis triggers the activation of individual and or collective risk and hazard management instruments, the Commission could be required to present an analysis to Member States and ad hoc consultation groups ‒ of the situation in the industries concerned, including measures that might be taken to avoid a crisis and irreversible damage.

    ***

    By adopting the new three-part support package described in this paper:

  • –  core business support (Pillar 1 support);
  • –  insurance schemes, taken out voluntarily by farmers, to reduce

    the impacts of weather and market risks on their farm businesses;

  • –  a European fund for the prevention of crises in agriculture to

    ensure the continued existence of European agricultural industries.

    the European Union will have chosen to:

  • –  no longer have to hurriedly decide on action in emergency

    conditions, with funds allocated to reduce political pressure but having no economic impact (for example, in resolving the 2015 milk crisis approx. 1 billion Euros were spent but this spending has had no proven impact);

  • –  recognise farmers’ entrepreneurial ability, to encourage them to plan for weather hazards and market imperfections;
  • –  to clearly refute the dream merchants’ belief that public support can correct any and all market imperfections;
  • –  concentrate its intervention where policy action is most meaningful, to protect when there is a serious crisis, thereby preserving the potential of EU agricultural to grow and encouraging its farmers and other stakeholders to plan for such growth.

    Such a system would also be consistent with the objective of facilitating and enabling the ecological transition of European agriculture; by seeing farmers as responsible entrepreneurs, encouraged to create added value ‒ while being protected in an effective way from extreme hazards, and empowered, as a result, to invest and plan for the future.

7

FOOD CHAIN, NUTRITION AND WELLBEING. A CALL FOR EU COHERENCE.

Policy Briefing

FOOD CHAIN, NUTRITION AND WELLBEING. A CALL FOR EU COHERENCE.

October 2017

INTRODUCTION.

The European agro food model is constantly evolving and improving, and its relationship with health issues is becoming growingly important.

Usually this relationship is perceived mostly in negative terms, or at least in a quiet unidirectional way – nutrition issues-, putting aside other elements as important as culture and traditions, sociology, employment and economics, internal market principles, environment, genetics, lifestyles… On the other hand, the contribution of food to the European socio- economic development and wellness in the last decades cannot be neglected.

Much of the discussions around the issue are quiet polarized, sterile and more based in opinions than in science, which doesn’t help any progress on what can be considered the common goal: how to better integrate food and health for the benefit of consumers and society as a whole.

In the current European political agenda, two issues under discussion should be kept in mind – the reform of the Common Agricultural Policy and the Fitness Check of the General Food law – as long as in both ́food and health ́ binomial would be one way or the other present.

It is also worth noting the growing importance of International Organisations and its implications in the European internal debates on this issue.

Farm Europe wants to contribute to this topic with the following comments and open questions, in order to come up with concrete proposals and try to find the way to a more virtuous, comprehensive framework.

THE ISSUES

A . Numerous initiatives, poor results .

It is far more than evident the key role that food and drink plays in human health. It is like a two- lane highway in which one provides life; the other can have a negative impact on health. In order to prevent this negative effects (NCD ́s) public authorities try to promote different policies and actions with a dubious impact.

If we make a short overview of measures in place, those are the most relevant:

When it comes to public intervention, instruments are rather restrictive, and applied in different areas:

  • –  Commercial communication,
  • –  Taxes,
  • –  Advertising,
  • –  Points of sale,
  • –  Labelling,
  • –  Nutrition profiles
  • –  Nudge concept

    There are also voluntary agreements and codes of conduct, both at European and national level, reaching issues like:

    – reformulation of products ( 2016 Council resolution on product improvement and similar national initiatives ),

    – advertising ( i.e. SpiritsEUROPE Guidelines for the Development of Responsible Marketing Communications ),

    – labelling ( private schemes), …

    The point here is: to what extent this approach has been effective in practical terms?

If we put it into an European perspective, we have to realise that we participate in a sort of “collage” of measures, mixing European and national initiatives, in different areas, with different aims and ways, that need to be reconsidered – sometimes , politics is stronger than evidence.

A lot of examples can be shown in this sense:

  • –  national taxes on different products, mainly sugar and fats , distorting trade and competition in the markets.
  • –  Prohibition of sales in selected points ( canteens, schools,..).
  • –  Limits to advertising in tv and other media.
  • –  UK traffic lights system as well as French Nutriscore model.
  • –  Minimum Unit Pricing for alcoholic beverages in Scotland and Ireland,…

    Internal market principles – the basis of European integration –have been sidelined with direct impact on business, free circulation, competition and consumer welfare.

    It is quite clear that at European level health is a joint responsibility which ultimately rests in the hands of Member States, but there’s a need for a more coordinated, harmonised approach to get out form this messy situation.

    On the other hand, the Commission and it’s Services as guardian of the Treaty should strictly monitor wether all the Member States correctly apply and implement community law , avoiding the breach of the common rules.

    B. Evidence based science loosing ground with respect to opinion.

    Second issue or point for discussion, Science. It has to be acknowledge the improvements made in terms of food safety in Europe in the last 15 years. Both EFSA and the Commission have delivered a sound set of criteria that have created a strong consensus around the best science to inform food safety – and a comprehensive system to evaluate and manage risks. But in the last years , food safety has been replaced in the debate by nutrition and in this case we have to admit that the system developed for food safety has proven not to be fit for “health issues”. On the contrary, the general consensus has been replaced by divergence of scientific criteria, lack of trust in the institutions and the system itself, and confusion.

Science is top priority. Science is critical not only because it leads the way for improving human wellbeing, but also because evidence based science orients political action – or at least should-.

On the other hand, science is far more than a single discipline. The present “nutrimania” simply puts aside other fields of knowledge like sociology, genetics, physical activity or environment, while multifactorial problems need multidisciplinary approaches. Even when it comes to nutrition focus is more on products (“good” or “bad”) than in diets itself. And as a matter of fact “ we eat food, not nutritiens”.

Having said that, the question would be how can Europe improve its decision making in order to take any political action on evidence based science? How can we avoid science to be substituted by opinion when informing political and legal decisions?

Unfortunately, in recent times we have had also some examples that show how complex and confusing some issues can be:

  • –  the case of bisphenol A ,
  • –  Endocrine disruptors ,
  • –  Glyphosate …

    First of all we need more confidence in our institutions. EFSA must continue to be respected as the reference for excellence in science and food and at the same time, it must be able to better coordinate national Agencies in his effort to align criteria and inform action.

    Second and most important, how can we provide European Parliament with fundamentals to guide its legislative action? Its critical responsibilities ought to be backed with the best available science in order to help the decision making process.

    An idea would be to promote the creation of an Office for Scientific Support under the umbrella of the EP, and the cooperation of the Commission and EFSA. This Office / Unit would have the task of helping MEP ́s in taking their decisions with independent, neutral and comprehensive state-of-the art science.

    The basic idea is to provide MEP ́s with objective interpretative skills, a critical set of knowledge they need. The role of the Unit would not be to “make science” but to select the best available and be able to provide some objective assessment to help MEP ́s to better decide. At the same time it could promote independent debates, educational activities, hearings etc. so as to cooperate with stakeholders, journalists, scientists..

So progressively, a set of principles/ consensus/ basic ideas would be shaped and what is more important, a “triage” or rating of scientific production would be created according to its evidence, origin of publication, degree of support by the scientific community, etc.

Collaboration with other initiatives already in place like STOA (Scientific & Technical Options Assessment) in the EP and the Scientific Advice Mechanism set up by the Commission should also be enhanced.

C. Public opinion misperceptions.

A third issue is public perception. There is a growing misperception in public opinion around food, drink and health issues. The post-truth era is emphasising almost only negative facts or promoting magic wand nutrients. Misinterpretation of complex information and a great deal of news and sources (social media) makes really difficult to avoid confusion and distress in the public opinion spreading a bad and fake image around food.

How can this public image problem be avoided?

First of all, it has to be said that this is a common responsibility. As already stated, a more powerful role and respect to EFSA as scientific reference, and more active communication on its side would be needed. On the other hand, the Office for Scientific Support in the EP would also help in making the difference between opinion and science.

Lastly, Media have also its crucial role in laying down the foundation of a better informed and educated consumer, along with scientific bodies, ngo’s, agro food and consumers organisations, whose responsibility towards a sound, fact- based communication is also important.

D. The need for a common ground.

Finally, the issue of cooperation. The way in which debate takes place is not the most constructive one, it seems that each stakeholder sticks to its own position being more interested in counter-arguments and defending specific interests that in finding ways to progress against NCD ́s through cooperation.

Something has to be done. If we agree on the issues highlighted in this paper it can be assumed that there is a need for action.

In fact experience shows us that there is no “one-size-fits-all” effective solution, that demonising food and drink is not only counterproductive but unfair, and that something has to be done in order to overcome defensive positions.

So is there any possibility to improve cooperation and bring together all interested parties?

We think that if we give the lead to the European Parliament, there is an opportunity to open a debate with all stakeholders and get a broad agreement on common objectives: a better and sound healthy lifestyle in Europe, and a firm contribution from the food chain – it is crucial to understand that this is a common issue in which all the members of the chain ( farmers, industry and trade ) must work together and united.

This debate should lead to a set of compromises and guidelines based on science, responsible behaviour and concrete compromises for each and one of the stakeholders as a way to cooperate under clear rules, and measurable actions.

TOPICS FOR DISCUSSION

Apart from the measures proposed, the following questions are open for debate:

– What do we expect from private stakeholders? What role could they have or shouldn’t they have in a European process of thinking, concertation and decision making?

– What role can be expected from the food chain? What kind of commitments can be taken by producers, industry and retailers and consumers organisations?

– How can the EU better participate in international and global debates?

– How can you make sure that EU decisions will be based first and foremost on science whatever the inputs of national, European or international forum can be?

– How can the European institutions and notably the European Parliament (as elected representative of EU citizens) lead the way to a common action with all the stakeholders involved?

Why the sub-mentioned initiatives regarding improving health and nutrition are not either operational or on the contrary efficient ?

A Smart CAP for EU Precision & Smart farming

October 2017

 

Few facts:

Between 2010 and 2014, 5,337 new patent applications relating to precision and conventional equipment for agriculture were registered worldwide; 70% of those new agriculture patents were assigned to North America (the location of the filing company’s main headquarters), only 15% in Europe.

During the last few years, the EU has been financing research and innovation as well as product/service development projects. The majority of these projects are transnational, following the multi-actors approach and the co-design principle. If Precision/Smart Farming’s H2020 projects are expected to have decisive impact in supporting the development of new Agri-food business models, it is necessary to stress that, precision/smart farming is still underdeveloped in the EU. In other words, it is lagging behind some of our world competitors’ innovative approaches.

However, it is worth noting that, for instance, in the Netherlands nearly all arable farms larger than 100ha have adopted GNSS technology, while in France, precision farming is developing at a rapid pace with more than 600 000ha of winter wheat currently monitored via satellites.

Concerning the EU farming sector as a whole, on one hand, over the past 10 years, the growth of total productivity of the farming sector has halved and capital productivity has turned negative. Consequently, European farming sector is losing competitiveness.

On the other hand, societal expectations have never been so high on the farming sector, especially concerning issues related to environment and climate change. Not mentioning the on-going debates on the impacts of the environmental components of the CAP.

Today, the biggest challenge is clearly to find the right and balanced way to do more for the environment, while increasing the competitiveness of the European farming sector.

Both of these components have to be tackled together and synergies have to be found. It would not be useful and would even be counterproductive to imagine an increase in competitiveness without taking into account legitimate societal demands or to address environmental challenges without addressing the economic challenges of the farming sector.

In that respect, precision farming and smart digitalized farming are to be considered, as they are basically the only concrete tools, which are able to provide a plausible and pragmatic answer to this double challenge of competitiveness and environmental sustainability.

 

In this context what can, or should, CAP do and how could Europe deliver in this regard?

1) First, we have to make clear that:

– Smart farming allows for the reconciliation between farmers’ needs and citizens’ expectations and it should be understood by them as an opportunity to simplify their everyday life and not as something that complicates it even more.

 

In this regard, the social impact of smart farming has to be emphasized: farmer’s role as a public services provider, while at the same time being fully recognized as a producer of goods.

2) Second, there is no single approach on how to build and implement precision and smart farming.

It has to be clarified that this is not a matter of large farms only. Precision and smart farming are suitable and useful also for small farms, and as well for medium-size farms. Depending on the types of farms, the way to organize and disseminate these technologies has to be adapted, especially considering who is asked to invest:

– some Smart farming business models require the farmer to invest in this kind of technology equipment and artifacts,

– other organizations invest in building and operating a large scale smart farming technology infrastructure and provide ‘investment free’ smart farming services to farmers and farmer groups.

In few words, depending on the choice of technics to be implemented locally and the approach to be promoted, needs in infrastructures may differ, notably on the question of the use of broadband or not. With some options, broadband is not a prerequisite to smart farming.

Same story when it comes to the so-called “sensitive” question of ownership of data. Depending on the choice of local economic actors on precision farming or smart farming approaches to be implemented, data property may or may not be so sensitive and in any case, it cannot be an excuse to differ the move of EU farming sector to smart or precision farming.

3) Third, the implementation of precision farming or smart farming is not only a matter and responsibility of farmers.

It is of paramount importance that incentives are conceived to motivate farmers’ organizations, companies providing training and advice, technology providers, machinery manufacturers, research organizations, financial organizations and governments, to work together. First, right advice communication and training are needed to answer to the still 51%-63% of farmers, who are questioning the ability of SF to help them to overcome the challenges they are faced with (conclusion of a survey conducted in the context of the Smart Akis Program).

Furthermore, it has to be stressed, that today, the sensitive part is to put the farmer at the core of the decision and not as someone, whose only task would be to follow prescriptions defined by other “supposedly bright people”.

4) In that context, what could be the role of the current CAP and of a renewed CAP?

First and foremost, we have to show ambition.

Indeed, everything is not known yet, when it comes to precision and smart farming and the whole range of their benefits.

Both innovation and development of these techniques are still on-going. However, what seems very straightforward, is that within the next 7 years there can be a major shift of the EU farming sector to a EU smart farming sector.

The most important environmental benefit of precision and smart farming is the precise estimation of the inputs which are needed and the controlled application of this precise amount of agricultural inputs, which leads to the minimization of agrochemical residues (e.g. fertilizers and pesticides) as well as irrigation water conservation:

 

European Data Market Monitoring Tool (2016) shows: crop yields up to 50% and 23% thanks to smart water management and improved plant variety selection; cost savings (25% reduction of use of fertilizers, 9 -42% herbicides, up to 84 % pesticides), increased productivity (5% increased yields), reduced environmental contamination and time savings (drones covering one hectare in 10 minutes versus 90 minutes normally taken by traditional farm machines).

Consequently, CAP should not argue the usual “let’s wait and see when it will be ready”, but should be what it is aimed to be: a policy of investment for the future of the European Union, a policy, which is able to drive the process, based on a common ambition and focused on results.

We have to take the clear decision to shift from a prescriptive CAP to a results-based CAP, to move from a policy of conservation to a policy of ambition, by providing concrete answers to the double challenge of sustainability and competitiveness, both of them, not one without the other or one against the other.

In that respect, precision and Smart Farming practices allow:

  • To Address the sustainability challenge for EU agriculture in both its economic and environmental components;
  • To Enhance product traceability and to Improve communication between producer & consumer;
  • To Contribute to a more balanced, fair and transparent food chain;

 

And, at EU policy level, these techniques could:

  • Improve accessibility & transparency on what is really going on at farm level allowing for an implementation of a results-based policy;
  • be a major mean of simplification: Smart Farming equals Smart Policy in terms of reduction of administrative burden for EU/national authorities and bureaucratic procedures for farmers as well as in terms of monitoring.

Such a reformed results-based CAP (both environmentally and economically) would imply to define a clear CAP focus on smart investments, and on related efforts on training.

Renewed CAP should focus on smart investments.

Today, the European farming sector does not suffer from under-investment.

On the contrary.

But, do the current investments bring more competitiveness and more sustainability?

It is time to focus primarily on investments in machineries, in technology and in training, which answer at the same time to the double challenge of more environmental gains and more competitiveness. A smart European farming sector should be shaped in the near future, not within the next 20 years, otherwise the European Union will definitely lose the ground in comparison to its competitors worldwide. In that respect, we need a “European Marshall plan for a European smart agriculture” focused on specific smart investments Farm Europe is working on. We should not limit only to define or list them, rather we should focus on the scope of such European plan for smart agriculture in terms of:

  • financing and needed CAP incentives
  • environmental gains for the whole EU society
  • economic benefits for the EU economy, the EU agri-food sector and rural communities.

 

CAP: What societal promise for the European Union? Can we move from a prescriptive to a results-based policy?

October 2017

 

EU food systems represent not only a cornerstone, but also unique lever, to the issues to be tackled within the European Union, in order to meet the triple challenge of:

– healthy and quality diets, and reliable food security, for EU citizens and at global level. A crucial issue for well-being, peace and social equilibrium throughout the world. This implies a new vision for a renewed competitiveness of EU agriculture for each market segment: basic products with a combination of quality and price constraints; more sophisticated products; as well as niche or premium products.

– an economic growth all across Europe’s rural areas, with a clear commitment to a balanced economic development even in less competitive areas taking into account the negative impact of land abandonment in terms of both social and environmental dimension; agriculture is at the foundation of rural economic fabric, first fundamental layer of any possible economic development.

– a sustainable management of more than 70% of the European territory, which represents rural areas, whose only effective managers are proving to be the farmers and the foresters. Soil, water and air are common goods for all citizens. Farmers are the managers of agricultural land on a daily basis. They are responsible for its transmission to future generations. Therefore, without exonerate other citizens from their environmental responsibility (household waste, garden maintenance …), an optimal environmental management of agricultural productions, together with an effective action in the fight against climate change, are two imperatives to be combined with those of competitive agriculture and a viable economic network of European territories.

 

These three components – to increase European agricultural production in terms of both quantity and competitiveness, ensuring the presence of a resilient agricultural production on all the European Union territories, to cope with climate change and to ensure an optimal management of the environment on each farm – goes hand in hand with a clear, balanced strategy taking all these components into account, leaving aside any populist pathway, which would give preference on one of its components to the detriment of another.

 

The move back to ideas focusing only on productivity, or the proposals put forward by some, whose only aim is to ultimately make the European Union a broad “reserve of conservation”, of economic decline and unregulated imports, without any care towards environmental and social conditions related to these imports, are truly a lack of responsibilities. It is up to Europeans to build a right combination of growth, quality of life and good environmental management for each one of us.

 

Is this imperative to combine at the same time the three components – Competitiveness/Territorial dynamics/Environmental management – a “squaring of the circle” or simply a political and professional will to anchor this sector and the related policies of our times?

 

Reform path of the CAP: what lessons can be learned and which conclusions can be drawn from it?

For the last 25 years, since the 1992 reform, namely the core of all the reforms, which were adopted since then – including the one of 2013 – the European Union has adapted the CAP to address, first of all, short term problems present at that time, maybe not enough to put forward a renewed vision and defining a project for the European Union for the next 20 years.

1) To cope with a huge diversity of the different European regions and a risk of economic collapse of some of them, a rural development policy component was considered as the right response, by providing flexibility to tackle local challenges.

2) Challenged by the expectations of European consumers on the issues of animal welfare, protection and preservation of high value ecosystems:

– a conditionality of CAP subsidies was established. This conditionality has been created to give a coercive (financial) tool, via the CAP, for both the implementation of Community directives and regulations outside the CAP.

– A component of agro-environmental measures emerged within the Rural development policy of the CAP, to compensate for costs supported by farmers, when implementing targeted responses to specific environmental problems encountered locally or by each sector.

3) Confronted with a growing awareness during the last decade on:

– environmental issues, the need for a clear commitment of all actors to fight against climate change,

– the importance of renewing the links between these societal concerns and the responses provided by European farmers,

 

The 2013 CAP reform made the choice of a new environmental approach of the CAP, notably through the greening. This change was introduced to recognize, overall, that these challenges require a commitment of all European farmers and not just a small local fraction, voluntarily opting for agro-environmental measures of the II Pillar of the CAP. By linking 30% of direct aids (around € 12 billion per year) of the CAP to basic agronomic practices, the principle underneath was that an effort, both modest or more important, (depending on “the starting point”) carried out by all farmers, led to substantial environmental benefits generated by farmers throughout the European Union. This action was conceived to be supplemented, if necessary, by voluntary measures, more ambitious locally.

 

4) Taking into account the challenge of competitiveness and the increasing volatility of agricultural markets (due to stronger, recurring economic, climatic or health hazards), few “windows” were simply opened by the 2013 CAP reform for a better organization of the supply chain or to test economic tools to mitigate the effects of climatic or health hazards, and the ability to resist collectively to extreme downturns in market prices.

 

After two years of implementation of this reform, the European Commission has started to provide some early assessments.

– From an economic point of view, it is clear that European agriculture has not found yet the path to renewed competitiveness. During the last 10 years, productivity growth in agriculture has halved in the EU15, the EU13 farm income catch up effect following the enlargement process is slowing down, while capital productivity has become negative.

The resilience to crises of the EU agricultural sectors has been showing its weaknesses in the last three years and the CAP is clearly lacking of responses.

This has led the European Commission to propose initial adjustments to the issue via the proposed financial Omnibus Regulation and the European Parliament has gone further, in order to provide farmers with pragmatic and efficient answers from 2018 onwards.

– On the environmental aspect, the latest overviews shown diverging interpretations, as well as the first impact assessment on the implementation of the 2013 Reform and particularly the “greening” measures of Pillar 1 of the CAP.

Concerning the issue of climate change, agriculture has the dual position: on one side it brings solution by carbon sequestration and, on the other side, it produces GHG emission at the same time.

In 2014, agriculture accounted for 10.2% of CO2 emissions within the European Union. However, it is also an economic sector which has definitely contributed to emissions reductions over the past 15 years, with a decrease of 9.3%.

In terms of soil quality, 13% of arable land is estimated to have being affected by modest to strong erosion. The rate of organic carbon content tends to improve with current agricultural practices, while 45% of soils still have rates of between 0 and 2%.

With regard to water, the use of irrigation is an important topic of debate, particularly in the southern part of the European Union. In total, agriculture uses around 24% of the waters in the European Union (mainly irrigation), being clearly behind the energy sector (44%). Significant progress in the management of water use have been recorded over the past 15 years, with a saving of 20% of agricultural water usage.

Water quality in the European Union is estimated to be affected by the presence of fertilizers in 22% of rivers and 37% of lakes. Whereas, the presence of pesticides is still a problem in 16 Member States, affecting 20% of groundwater and 16% of rivers. In this area, as well as in the field of air quality, changes in agricultural practices have led to reduction of inputs used per hectare and to the further improvement of effluent management in livestock farms, especially with the increase in the storage capacity on farm.

 

In order to encourage pragmatic changes in agricultural practices throughout the European Union, and thus providing a comprehensive basic response to the environmental challenges mentioned previously, the co-legislators adopted the “greening” measures within the first pillar of the CAP.

 

These greening measures were aimed at the adoption in all the Member States as “generalized”, non-contractual and annual measures, and with simple objectives (before the use of subsidiarity principle widely adopted by some Member States).

The requirements linked to these measures go beyond the rules of conditionality, however they do not seek to address specific local or regional issues, where the related intervention is the responsibility of (voluntary) approaches within the framework of CAP II Pillar.

 

What initial lesson can be drawn from the first two years of “greening” measures?

 – In 2016, 72% of the EU agricultural area was covered by at least one of the “greening” obligations. More than one-third of farmers are concerned. Important to underline that: the 40% of farmers exempted from the application of the “greening” measures, is not more than 5% of the EU agricultural area.

O These simple facts confirm that the objective of broad coverage through measures related to the environment under CAP 1st Pillar is achieved, while the agro-environmental measures of the 2nd Pillar of the CAP cover only slightly more than 20% of the agricultural areas of the EU.

  • Conservation measures of maintaining permanent pasture and those of crops diversification (alternative option selected for the rotation requirement in line with an annual management of the measures and a limitation on related administrative costs) have allowed to guarantee the quality level of carbon sequestration by grasslands[1] and a diversity of crops in coherence with the principles of good agronomic practices, which were deemed to encourage more than 10% of European agricultural producers to change their practices accordingly.
  • Concerning the 5% requirement of Ecological Focus Areas (EFAs), it should be noted that it was largely accomplished by farmers with EFAs counting for 15% of arable land in 2016, 8 Million hectares (10% by applying the weighting factors of different EFAs on biodiversity).

 

Three big categories of EFAs can be identified: landscape features (trees, terraces, buffer strips, etc.), land lying fallow, nitrogen-fixing crops, and catch crops.

 

Of 10% of arable area in EFAs (applying weighting factors), 4.6% is made up of landscape features and fallow-land. These two categories almost entirely fulfill the 5% objective of EFAs in the EU. Nitrogen-fixing crops and catch crops account for 5.4% of the arable land, and in a way, a “plus” compared to the outcome to be achieved and defined by legislators.

It should be noted that these crops are an addition, beyond the subject biodiversity, to the interest of:

– soil protection against erosion,

– improvement of soil organic quality,

– protection of water quality (specifically with regard to catch crops)

– as well as an improvement in the protein balance of the European Union,

thus, contributing both to the environmental and economic objectives assigned to the CAP.

 

Beyond the positions adopted by one or the other, it is in the light of this analysis that the contribution of the greening measures are to be evaluated for the first two years of the implementation of the 2013 CAP reform.

Such a review also needs to shed lights on the principle of complementarity and not of overlapping, as proposed by the co-legislators and the Commission in terms of environmental responses brought by the CAP:

– a broad action of incentives (and not compensation), via the “greening” measures within the 1st pillar of the CAP, confirming a sustainable agronomic approach – throughout the European Union – that encourages those who implemented them to maintain them and those who were still uncertain to adopt these measures.

– more ambitious and specific actions through agro-environmental measures (of compensation) of the 2nd pillar of the CAP that offer the possibility for farmers to cope with specific problems, in a better, more targeted and/or “local” way with regard to environmental issues, by compensating for the additional resulting costs.

 

In the debates that are taking place both on the evaluation of ‘Greening’ and the future development needed for the CAP, a particular attention should be given, not to generate any confusion, between measures and objectives and, for example, to keep a clear distinction between “Greening” measures within the 1st pillar and the 2nd pillar of the CAP. However, this “temptation” seems great for some pursuing tactical goals, sometimes more political than technical.

 

However, should we conclude that the deepening of the environmental response of the CAP is a non-subject or a resolved subject with the current answers at our disposal?

 European agriculture represents an integral part of international commitments on the new measures taken in the fight against climate change (COP21) and towards the achievement of Sustainable Development Goals (UN). In the current context, necessary and renewed efforts are needed to tackle climate change. Economic sectors are encouraged to continue to move forward, across the Union European as a whole, and not only in specific areas.

 

In this context, the principle of greening measures addressed to all farmers, within the 1st Pillar of the current CAP, keeps its relevance.

However, the current measures suffer from several weaknesses:

– Prescriptive on agricultural technical practices to be implemented by the farmers, do the greening measures resulting from the 2013 CAP provide a clear picture of the contribution of European agriculture for Environment and Climate change? In other words, counting the hectares of different crops, adding the hectares of landscape features or of land lying fallow or under cultivation, nitrogen-fixing or catch crops can provide a trend of evolution, but does it depict the efforts of farmers within the European Union and can their actions be quantified in the fight against climate change?

– For the farmers themselves, are the provisions of the current CAP -readable, engaging and empowering? It is clear that the Member States, in their implementation of the “Greening” measures, have made extensive use of the possibilities offered by subsidiarity to better link Greening demands to the realities of the field.

 

As a result:

O an increased degree of complexity in the application of the greening measures while remaining in a prescriptive attitude that does not allow farmers to make an optimal synthesis of the specific features of their operations and the environmental benefits, which they would be able to provide under the “Greening”.

O vagueness on the results to be achieved by farmers. Inevitable confusion, given that the results are not defined. Only means to be implemented are specified but without any definition and quantification of why they should be implemented.

 

– This uncertainty seems both encouraged and born from a coherence, which has never been affirmed nor implemented within the CAP and between the imperative of enhanced sustainability of an agriculture – “armed wing” of the European Union in its fight against Climate change and towards environmental resilience – and the imperative of renewed competitiveness of European agriculture to answer to the expectations of European citizens and world markets coherently and by providing safe, quality and affordable food, and non-food products. Rightly or wrongly, the feeling widely shared in the European Union today is that the “Greening” measures are potentially an obstacle to the competitiveness and, on the other hand, that the search for this necessary renewed competitiveness, could only be made to the detriment of the environmental component of the CAP[2].

 

Therefore, can we embark on a change of paradigm and mindsets? The agricultural community has a role and the responsibility not only to be present in these debates but:

– to claim and fulfil its mandate and nature of the only effective manager of European agricultural and forest areas,

– to be one that will break this populist and comfortable spiral on the most pressuring environmental framework refraining from defining and to commit itself to the objectives to be attained and the clauses of a contractual relationship.

– to address the challenge of consolidating the environmental component of the CAP, and in particular the “greening”, through a results-based policy, clearly identified and valued, leaving the farmer the care and responsibility to choose the means and notably the most efficient means to reach them on his/her farm.

 

Precision agriculture and the use of digital technology offer a unique path not only to achieve more competitiveness and more environmental safeguard at the same time, but also it provides the capacity to show the results in an objective and quantified way. Therefore, it is the role of the economic actors, supported by political decision-makers, to ensure that a relevant part of European agricultural production is realized in this framework within a period of 5 to 10 years.

To do this, it is necessary to define a CAP with renewed eco-environmental efficiency, able to determine:

– A defined number of clear and realistic commitments that the agricultural sector would take in terms of environmental outcomes to be achieved by the next decade; Quantified, measurable and automatic results, simply by using digital techniques.

– An alternative path based on comparable measures to the current “greening” (thus based on technical instructions to be implemented), for farms either not wishing to pursue this path or not being able to commit themselves to the measures and data collection methods involved in the implementation of Precision or digitized agriculture.

 

In very concrete terms and by being truly pragmatic, it would be necessary that the abovementioned commitments are summarized in a limited number of performance parameters and indicators of the environmental impact of agricultural production, and to encourage farmers, starting from 2018 to carry out, over the period 2018-202(2) (from here to the next CAP reform) and on a voluntary basis, the photography of the environmental balance of their operations on the basis of these parameters and indicators.

 

To move forward concretely, it is necessary to propose possible ambitious and realistic commitments (also technically and economically) and the related indicators.

 

 

*           *           *

 

 

[1] Schulze and al (2010) : Evaluation of carbon sequestration by grasslands in the EU-25 of 32 millions tons C/year.

[2] The ban on the use of pesticides on nitrogen-fixing crops areas, which was declared in respect of Ecological Focus Areas seems an example. Which objective: zero residues, the maintenance of a biodiversity equilibrium or a principle of limiting the productive EFAs notwithstanding the calls to strengthen the protein balance of the EU?

 

BREXIT: A MOMENTEOUS CHALLENGE FOR THE EU AGRI-FOOD SECTOR

October 2017.

The political shock of Brexit has yet to be translated in actual economic and commercial terms, but the clock is already ticking.

End March the UK notified its intention to withdraw from the EU, opening up the two-year period for negotiating the terms of the withdrawal and the terms of the future EU-UK relationship.

The uncertainty as to which will be the future model of the trade relationships between the EU and the UK is still paramount. Will the negotiations succeed or fail? If there is success at the end of the day, to which degree will the UK retain access to the EU market in the future? If negotiations fail, what will the consequences be for the EU agri-food sector?

Beyond these uncertainties it is however possible to shed light on a number of factors that will shape the EU/UK relationship in the agri-food sector. There are a number of hard facts and reasonable assumptions that point towards substantial changes to the EU trade with the UK.

This paper examines the consequences of Brexit for the EU-27 agri-food sector under both scenarios, were negotiations to succeed or to fail.

At this stage it is hard to predict which scenario is more likely.

The EU has adopted negotiating guidelines that follow a two-phase approach.

First the EU will seek to settle the terms of the disentanglement of the UK from the EU, clarify the conditions for the EU citizens in a post-Brexit UK and avoiding a hard boarder in Ireland.

Only in a second phase will the EU negotiate the framework for the future relationship, including the crucial future trade relation terms.

The UK has stated its broad objectives for the negotiations, pointing towards a future relationship outside the single market, and linking the terms of disentanglement to the terms of the future relationship. To say it differently, the UK wants to know what the future trade and other conditions will be before agreeing on the terms of its withdrawal, which include the highly contentious issue of its remaining financial responsibilities.

The first rounds of negotiations have taken place in a context where the political hand of the UK side has been weakened by the results of the May election. That makes it even harder to predict the outcome, as the UK negotiation position might become more difficult to steer and its margin of manoeuvre more limited.

It is thus too early to tip the balance in favour of success or failure. The stakes are high, in particular for the UK, and reason would encourage finding acceptable compromises. However the charged political content of many of the issues under negotiation, at the very core of national sovereignty, might hinder agreement. Control of emigration, and border controls in general, the decision on the highest legal court, and due payments for exiting the EU are amongst the most politically charged files that could derail negotiations, in particular as the UK Government has come out weakened from the latest election.

The possibility of a total reversal of Brexit is pursued by some in the UK (and in the EU), betting in a growing realization of its high costs and a harsher economic environment in the UK. But the likelihood of a Brexit reversal is dimed by the current political spectrum in the UK and the public acceptance of the referendum results. It is in our opinion advisable to prepare for the consequences of Brexit, rather than hope for the better.

At present what we face is an extremely difficult negotiation in a very limited time period. On the 29th March, 2019, in 1 ½ years’ time, the UK will most probably no longer be a member of the EU, and will have exited the single market on that date, or at a not so distant date after a short transitional period.

The impact on the EU agri-food sector will be huge, in particular in the scenario where negotiations fail. No other economic sector in the EU faces such a strong impact as the agri-food sector, as a result of the significance of current trade flows with the UK, and the relative high level of the tariffs applied to trade with third-countries.

Let’s turn out now to what that impact might be.

 

1) Brexit: the basic facts for the agri-food sector

 

Increased competition

The agriculture and food sector is by far and large the field in which the EU-UK relationship is the most integrated in political, economic and budgetary terms.

The EU agri-food sector will face much more competition on the UK’s internal market from global competitors, with cascade effects on the internal market irrespective of what will happen in terms of the future EU-UK trade deal.

Agriculture and food have never been a prominent topic across the Channel. A complete U-turn would be surprising, which means that agriculture and the agri-food sector will from the UK side be open to full-fledged free trade arrangements with major trading partners across the world.

Since the UK decided to leave the EU, it has opened exploratory trade talks with 10 countries or groups of countries, including the US.

It is clear that the UK will actively pursue achieving Free Trade Agreements with key players as soon as possible after exiting the single market, as a means of counterbalancing the expected trade and economic losses in the EU market.

The consequences of the UK position is that irrespective of the model of the future UK-EU relationship, the UK market will be a new market for EU products as they will face much more competition from other suppliers. These FTAs to come will have a serious impact in EU exports to the UK, and will create new challenges for the EU market as explained later in detail.

The UK market is today protected by the EU common external tariff, and by a host of EU sanitary and other regulations. While the EU market is already open to some FTA partners, and other FTAs are under negotiation, it is likely that the UK will in the future be open to other countries than those negotiating with the EU and will agree to freer terms of trade in agriculture with the countries with which the EU is negotiating. This is a relevant point, as the EU has protected sensitive sectors in agriculture (cf. meats, sugar) in previous deals and is expected to do so in the future with the likes of the US and Mercosur, whilst the UK will likely have a more liberal position.

Whatever the result of the EU/UK negotiations, both the internal policy shift in the UK and diverging trade strategies between the EU and UK will lead to medium and long terms changes for the EU agri-food sector. This should not be underestimated, even more following the clear commitment of the new British leaders to create the biggest open economy in the world. This strategy will make it difficult a full-free trade agreement between the EU and the UK without any safeguards, as some of the sectorial examples examined below will highlight. Otherwise, London’s open trade strategy would de facto become the EU’s strategy, like it or not.

 General overview of current trade

60% of the agriculture and food products consumed in the UK are imported. And nearly 75% of these are coming from the EU.

The UK is a major outlet for traditional agri-food export countries such as the Netherlands (€7.1 billion), Ireland (€4.9 billion), France (€4.8 billion) and Germany (€4.6 billion).

The agri-food sector in Spain (€3.4 billion), Belgium (€2.7 billion), Poland (€1.6 billion) and Denmark (€1.6 billion) are also exposed to Brexit with certain sectors facing serious risks.

A cautionary word is appropriate as the figures for The Netherlands and Belgium might reflect to a large extent the relevance of their ports, rather than domestic production. But that does not diminish the finding that many EU countries have substantial trade interests in the UK market.

 

Import from the UK

(Euros)

 Export to the UK

(Euros)
Austria 108.207.079 271.330.636
Belgium 684.608.268 2.667.223.082
Bulgaria 71.556.683 41.217.324
Croatia 27.016.215 6.431.806
Cyprus 76.105.720 85.858.174
Czech Republic 137.097.310 170.390.671
Denmark 365.219.049 1.623.935.605
Estonia 47.482.091 15.310.667
Finland 111.311.244 34.836.701
France 2.484.298.382 4.791.461.894
Germany 1.494.024.144 4.644.292.061
Greece 142.686.820 336.917.304
Hungary 58.504.990 183.163.232
Irish Republic 4.077.079.845 4.908.779.976
Italy 626.362.930 2.934.593.190
Latvia 100.294.083 47.316.734
Lithuania 28.472.794 115.148.883
Luxembourg 13.911.661 9.602.981
Malta 58.521.783 8.561.933
Netherlands 1.594.874.537 7.080.342.691
Poland 374.892.142 1.648.208.087
Portugal 229.360.778 302.346.917
Romania 55.646.367 131.130.843
Slovakia 20.758.663 65.572.647
Slovenia 16.005.634 20.962.750
Spain 1.136.869.487 3.446.915.458
Sweden 345.254.757 464.090.031
Total 14.486.423.470 € 36.055.942.290 €

Table 1: Overview of EU/UK agri-food trade in 2016 (Source: HMRC, UK Gov)

 

2) Sectorial overview of the EU-UK post- Brexit trade challenges

 2.1 Scenario 1- negotiations are successful

Under this scenario the EU and the UK would agree on the terms of its future trade relationship. Under the likely assumption that the UK would exit the single market as indicated by its Government, this would mean that the UK and the EU would have negotiated a Free Trade Agreement that would kick-in after the UK exit, on 29th March, 2019 or after an agreed transitional period.

 Meat products: a further chill for the EU beef community

Nearly €1 billion of EU beef meat products are routed to the UK every year, mostly from Ireland (more than €700 billion). This is an additional sword of Damocles for the whole EU beef sector, which is already under pressure from the EU trade agenda while facing a structural crisis at the same time.

It is clear that the real game for the future of this trade flow is not tied with the terms of the EU/UK FTA but rather more with the UK/rest of the world FTAs to come. It is indeed hard to believe that UK FTAs with countries such as Australia, Argentina, Brazil or the US would not pave the way for a significant share of imported beef meat from these countries into the 65 million people British market. EU exporters will in the future have to compete with the most competitive meat producers in the world. It is therefore illusory to think they will keep their UK market share, on the contrary they should expect it to shrink significantly. In addition, these FTAs could have an indirect effect, by pushing Irish beef producers to find new outlets in the world market but also in the EU domestic market.

Danish, German, Dutch and to a lesser extend Spanish and French pig producers will also likely be affected, the UK being a €670 million market for EU exporters. Additional bad news coming from the UK would come on the top of difficult conditions with Russia leading to an enhanced dependence on exports to China.

In turn, the UK is expected to pay a special attention to the €350 million trade flow of sheep meat exported or re-exported, in particular in the context of its future new bilateral relations with the New Zealand. A very significant share of this trade flow is channelled to the French market (€190 million). New Zealand producers benefit from a 280.000 tons tariff free quota to the EU. They see the Brexit as an “opportunity in time of change”.

For the meat products, the cascade effect of trade agreements will have to be carefully assessed. Serious safeguards on future UK exports will be needed to avoid that a post-Brexit UK open to the global meat market does not lead to a de facto opening of the EU  to the world market, by diverting the UK beef production to the EU market and satisfying UK’s beef consumption through imports.

 

Wine and spirits: New World wines and Scotch whisky

For more than 20 years EU wine producers have been working hard to stop the drain of their market share in the British market. Their efforts to repel the New World onslaught could be short lived as a result of the UK’s opening to New World exports.

The market seems to have stabilised for traditional EU wine makers at €1.8 billion, with France leading the way (880 million), followed by Italy (€540 million) and Spain (€228 million).

The UK will also be willing to secure a preferential access to the internal market for Scotch whiskies, which is indeed particularly sensitive from an economic point of view. This tariff line (more than €1.2 billion) represents 10% of the UK’s agri-food exports, with France, Spain and Germany being the main outlets.

The willingness of the UK to open its market to New World countries for the wine sector will seriously reduce the attractiveness of the British market for the EU wine sector, and likely further erode its market share.

 

Sugar and sugar products: will EU-UK producers dig up the hatchet?

Having the UK open to the world market will change drastically the EU sugar landscape, and the difficult balance reached between sugar beet and cane refiners. The long-standing tensions between the continental sugar beet cooperatives (German, French and Dutch) and the US owned cane sugar refining company (American Sugar Refining – Tate&Lyle, which owns, in London, 25% of the total refining capacity in the EU) are about to rebound.

On the one hand, the EU sugar producers are enjoying an important outlet in the British market (€880 million in 2015). On the other hand, Tate&Lyle is poised to regain some competitiveness from UK FTAs with sugar cane producing countries. In this case, assuming that the beet sugar producing company maintains its production, the British market would most probably be in a position to switch from a deficit to a surplus position.

Restrictions via current EU strict rules of origins for the sugar sector will need to be also implemented to the UK to avoid a damaging triangular trade in a post-Brexit context, taking into account that raw sugar refining into white sugar is not considered as a substantial transformation allowing operators to rebrand it as “local products”.

 

Milk and milk products: more competition in a big market

On paper, the challenge of Brexit for the milk sector is more than significant (€2.5 billion EU exports). Once again, Ireland (€718 million) but also France (€546 million), Germany (€345 million), the Netherlands (€186 million) and Italy (€167 million) have serious interests in the British market.

Even if the trade balance is not in its favour, the UK also has a significant market position in Ireland (in particular via Northern Ireland) and France. In total, nearly €1 billion of milk products are exported or re-exported from the UK to the EU internal market.

An UK FTA with New Zealand and with the US would inevitably bring added competition in the UK market for EU exporters, which could face an erosion of their market share. The losses in the UK market could lead to increased pressure on the EU-27 internal market, which is the last thing the sector needs after the still fresh dairy crisis.

 

Fruits and vegetables: is the carbon foot print a sufficient argument for preferring EU origin?

With about €4.9 billion of fruits and vegetables exported from the EU to the UK, it’s clear that EU producers are exposed to the Brexit consequences. Spain (€1.9 billion) and The Netherlands (€ 1 billion) are by far the most exposed.

Many other countries are also concerned, such as Italy, Belgium, Ireland, Poland, France, Germany, Greece or Cyprus, which is traditionally exporting potatoes to the UK (€6 million).

The challenge for EU exporters could come from freer access to the UK market from exporters in North Africa.

Nevertheless, the proximity to the market should allow EU producers to keep strong positions, even under enhanced competition with the rest of the world.

 

2.2 Scenario 2 – negotiations fail

Under this scenario the UK leaves the EU without reaching an agreement on the future trade relationship.

On 29th March, 2019 both sides have to apply to each other its WTO tariffs, which incidentally are the same.

These tariffs are in general low, with the notable exception of the sector of interest to us – the agri-food sector. Therefore whilst they are not in general a constraint to the continuation of previous trade flows (although custom procedures will add to trade costs), in the agri-food sector where they average  more than 20% and peak at or over 100% in the meats, dairy and sugar sectors, tariffs are definitely a barrier to trade. Even in the less protected sectors tariffs are relatively high for many products. For grains they range from 40% to 90%, and for the fruit and vegetable sector tariffs for citrus are 30% and even higher for apples, pears and fruits juices.

The application of those tariffs would practically eliminate trade on these products between the UK and the EU, in a context where the UK would have reached FTAs with other important countries as seems likely. As the EU currently enjoys an important trade surplus with the UK, it would be the EU agri-food sector which would face the stronger negative impact of a negotiation failure.

At issue are more than 35 billion euros worth of exports that would face a critical shortfall. The impact of that external market loss could not be cushioned by progress in exports to other markets.

In the meat, dairy and sugar sectors, that account for more than 5 billion euros worth of EU annual exports to the UK, trade could come to a near complete halt.

Wine exports would drop as they would face higher tariffs than New World producers benefitting from FTA conditions with the UK.

Even fruit and vegetable exports could be scaled back, if the UK manages to broaden the geographic scope of its new FTAs.

It is difficult to see which EU agri-food exports will not be affected with the exception of some high-end and processed products.

This scenario if made true would also bring about serious disruption of the EU market conditions for so many important agriculture sectors. The EU farmers would be left with a situation of severe oversupply in the meat, dairy and sugar markets, which would lead to drastic price cuts followed by significant farm and processing industry restructuring.

It would also come at a moment where the negotiations on the future of the CAP would probably be gathering steam under significant budget cuts as Brexit will also mean a serious hit for the overall EU budget. Notwithstanding, the EU finance Ministers will have to keep in mind June’s 1984 agreement (Fontainebleau) on the British rebate, stemming directly from the low rate of return for London when it comes to the Common Agriculture Policy. Anyhow, the net reduction from Brexit would be around 3.5 billion euros, a not so negligible amount.

 

  1. Brexit and EU’s current FTAs and tariff rate quotas

Existing FTAs have been negotiated for a market that included the UK, and tariff rate quotas (TRQs) for sensitive products have been calculated accordingly. Concerning sugar this is especially significant: the quarter of the raw sugar imported in the EU is now entering via the UK.

The EU without the UK will significantly change that picture. Logically the UK share in current TRQ’s should be extracted, otherwise the existing quotas would no longer reflect the balance of the negotiations and would overburden the EU-27 market.

In addition to that, WTO has implemented rules when a new member is acceding to a custom union (Article XXIV of the GATT). The EU enlargement (including the enlargement with the UK in 1973) has therefore led to concessions to compensate for tariff increases: for sugar, this resulted in CXL quotas. By the same token it would be logical to extract the UK share from these quotas.

However the consequences of a member leaving a custom union in existing FTAs or Art. XXIV concessions is not foreseen by WTO rules. WTO rules are designed to open up markets, and its provisions are geared towards that goal. Freer trade terms are set in stone and reversals are not part of the rules (or are subject to dispute settlement).

Farm Europe welcomes the early agreement between the EU27 and the UK on the sharing-out of these TRQ, and that the agreement is notified to the WTO and FTA interested parties. The European Commission should not be too impressed by the first reactions of other countries and interested parties, which with little surprise seek to extract new concessions from the exit of the UK, and stay the course during the upcoming talks in Geneva.

 

4) CONCLUSIONS

Brexit is a momentous challenge for a sector that is already showing a number of strains, that is investing less than what it should, that has experienced lower productivity and seen revenues stagnate.

 

The agri-food sector should not in any case underestimate its negative impacts that could be felt in less than 2 years’ time

Under the best scenario, one in which the new trade relationship between the UK and the EU is set under a Free Trade Agreement, Brexit will bring about additional competition for EU exports in key sectors – beef and other meats, dairy, sugar, wine- and reduce the Member States contributions to the EU budget.

Brexit will also intensify competition in the EU market for some products as a result of the diversion of previous EU exports to the UK, or as a result of triangular trade following the new UK FTAs with other major exporters.

Under the worst scenario, one in which on 29th March, 2019 each party applies to the other exports its WTO tariffs, trade would come practically to a halt in many sectors, and would be scaled back in others. The drastic reduction of the 35 billion worth annual exports to the UK would destabilize many EU markets, severely reduce producer prices, and lead to crisis and restructuring of farms and processing industry.

It would also come at a moment where the negotiations on the future of the CAP would probably be gathering steam under significant budget cuts as Brexit will also mean a serious hit for the overall EU budget.

The negotiation on the future of the CAP will be the most important of the last decades having regard the challenges facing the sector and the budget pressures.

 

The question is whether the current CAP is designed to meet those challenges. The question is whether this CAP offers the sector what it needs, and in particular the right set of tools to increase resilience to market shocks such as the ones to be expected from Brexit.

The best answer to more competition from other countries, in the UK market or elsewhere, is to improve your own position. In order to improve its position the EU agri-food sector should also seek to improve its competitiveness, and increase its market share at the global level.

That is the subject of discussion in other panels in the Forum. But the challenge from Brexit dramatically adds to the need of policy reform in the EU.

A vision for the future of the EU Agri-Food sector

POLICY BRIEFING

 A VISION FOR THE FUTURE OF THE EU AGRI-FOOD SECTOR

FOR A EU AGRI-FOOD SECTOR ALL ACROSS THE EU

 October 2017

 

The EU agri-food sector is at a crossroads. The sector endures a string of crisis, a decade long stagnation of incomes, an unbalanced value chain, whilst the society expects always more to be done on environmental protection, and on providing nutritional and healthy food.

The sector must build a vision for the future if it wishes to overcome present hardships, respond to societal expectations, and thrive.

That vision should build on what has been achieved, on a thorough examination of today’s challenges, and create the foundations for a future that brings together growth and economic and environmental sustainability.

Agriculture in the EU has in the last half-century been moulded and supported by a Common Agriculture Policy. The destiny of the sector is intertwined with the direction and strength of the CAP.

The debate on the future of the CAP should therefore be closely tied to the debate on what future we want for the sector. That is the right way to give guidance to the discussion on the future of the CAP, looking at present achievements and shortcomings and setting a path forward.

The sector badly needs a coherent vision, and a coherent set of policies. Without that vision, without a coherent set of policies embedded in the CAP, there will be no turning round of the current hardships.

Pursuing the status-quo will make farming less and less attractive for future generations, and thus less farm renewal, and a lower level of entrepreneurship. Dimmed future prospects will also bring less investment, less exports and more imports, lower growth and fewer jobs. Environmental degradation will rise with the abandonment of rural areas, and a lower capacity of farmers to invest in both agricultural productions and climate change responses.

This negative scenario can and should be avoided. A modernized CAP can and should have the means to build a better future. The time is ripe for the sector to take the matter in his hands and present the society at large a solid vision for the future.

 

SOCIETAL EXPECTATIONS

Society wants more jobs and growth, a better protection of the environment, healthy and nutritional food, and a territorial balance that leaves no regions behind.

We need to create more jobs and bring growth but the dilemma in the agri-food sector is that in particular agriculture is losing jobs and facing stagnating incomes.

It is not a fate that is not reversible. It is possible, indeed necessary, to get the agricultural sector back to a growth path. In order to get there we need the right policy mix. And let us not forget that only growth can in a sustainable way bring more jobs.

More jobs and growth come with increased productivity, with increased competitiveness. Producing more with less inputs does not lead to fewer jobs, as growth in the whole sector can create more jobs than those which are made redundant.

We need to do an even better job at protecting the environment. The current CAP marks a paradigm shift with regard to previous policies as it puts environment at the core with the greening requirements in the first pillar. But greening comes with a prescriptive and highly cumbersome set of regulations, and a much lesser focus on results and on the ability of farmers to achieve those results.

We need less water pollution from nutrients and pesticides, to stop soil degradation, to have less negative effects of pesticides in biodiversity, and less unsustainable practices.

The sector needs to respond, and adapt, to the milestones decided in Paris on climate change and the related EU own goals.

The EU is also committed to the Sustainable Development Goals, many of which are directly related to agriculture as are the goal of ending hunger worldwide and protecting the planet from degradation.

Farmers can and will respond if the right incentives are put in place. New technologies can play a major role to transform farming in a more environmental sustainable activity.

It should be well understood by all that there is a shared interest between the agri-food sector and society at large to have a vibrant farming community, with a future as an economic sector, as entrepreneurs, a farming community who is able to invest, adapt, and do a better job to protect the environment.

Farmers are the wards of the environment, without farmers there is no credible way of protecting the environment.

We need to continue providing healthy and nutritional food. The EU is on top of the world on producing safe and quality food. The EU enjoys the highest standards, and there is no coming back on these achievements.

We need territorial balance, the society does not accept that the more fragile and intermediate regions fall to the fate of decline and abandonment.

The rural development policies in the second pillar of the CAP have contributed to reverse those negative trends, but more should be done to revitalize regions that are less endowed or far away from the big economic centres where consumption is concentrated.

 

CHALLENGES

The CAP has provided for decades a common framework, a common set of rules and resources, which have greatly helped developing the EU agriculture.

Recent CAP reforms have made EU farming more competitive worldwide, decoupling support from prices has restored a market orientation, direct payments are a significant source of income stability, rural development policies have assisted fragile regions and the policy has become more in phase with other important policy objectives- protecting the environment, food safety, animal welfare.

The issue therefore is not whether the CAP is a policy that should be pursued to the benefit of the EU agri-food sector and the whole society, but whether it needs changes that make it a better policy mix to respond to current and future needs.

When examining where agriculture stands today in the EU, a number of problems and shortcomings comes to the front.

Price volatility has increased, as a result of more openness and integration with world markets. Climate change has also resulted in a higher frequency of extreme events, which impact on production and markets, and contribute to increased volatility.

Price volatility is the new normal, the amplitude of price volatility has reached in the 2004-16 period 87% for cereals, 62% for pork, 51% for milk, not to mention over 400% for vegetables.

Income volatility has also increased. At least 20% of farmers experience each year an income loss larger than 30%.

Outright crisis have befallen in very important markets lately. The dairy crisis lasted over a year and affected millions. Fruit and vegetable production, pork, were also affected. Beef production endures a long lasting depressed situation.

It comes as no surprise that farmers’ incomes have stagnated. In the last ten years real total factor income has stagnated. Capital and input income has fallen significantly, over 10%.

The Commission DG AGRI expects another decade of income stagnation and a further 14% decrease of total agriculture income in real terms. This would have dire consequences for EU sector, as agriculture decline will impact hard on the whole processing industry.

The sector shows a lack of productive investment, limited adoption of new technologies, and lagging innovation.

With lower investment and slow technological change the sector cannot become more productive, more competitive, generate more wealth and provide increased incomes for farmers.

Although EU exports have increased, the EU is losing market share as other competitors have higher export growth.

The EU leads in exports of high-quality and high-end food products, but it badly needs a competitive domestic foothold otherwise its position will be compromised.

The value chain is highly unbalanced against farmers. Most of the value added is captured by other actors, which benefit from a much higher degree of concentration. Only five retailers control between 43% and 92% of each national food market, whereas 1 100 000 farms produce 80% of the total EU output.

Unfair trading practices are widespread, penalizing the weakest link in the chain- the farmer. Attempts to self-regulate the marketing chain have lead nowhere.

When crisis strike, the farmer absorbs most of the shock, whereas when prices move up others benefit more.

CAP regulations have become very cumbersome, making simplification of rules a largely shared whilst elusive goal.

If there is an area where over-regulation is stifling is on the protection of the environment, on greening. The CAP has put environment protection at its core, and rightly so, but it has done it in a prescriptive rather than results oriented way.  Farmers and national administrations bear the burden of highly prescriptive provisions, but have it hard to demonstrate what has been achieved.

This situation has led to increased call from environmentalists to reinforce the green orientation of the CAP, often disregarding the other needs of the sector, and often overlooking the fact that without better incomes and better future prospects it is illusory to believe that farmers will stay being the environmental wards.

One of the main achievements of the CAP, the functioning of a single market, is being eroded by the proliferation of national label and health requirements. The EU is lagging behind in finding common ground in these areas, which creates the risk that the single market becomes more fractured, less efficient, with higher costs for the sector and ultimately to the consumer.

Those are the main ills of the EU sector. They require a determined and coherent response to be redressed.

The sector has come through many reforms of the CAP in the latest 20 years. There is some reform fatigue in the sector, which is understandable as stability and predictability are valuable.

However in a situation where agriculture income is expected to decline, investment and adoption of new technologies suffer, and the sector becomes less attractive to young generations, and less responsive to societal needs, action is obviously needed.

The pressures on the sector stemming from competition on resource allocation, which is bound to increase as a result of Brexit, and from competing views on policy priorities within the EU, are getting stronger.

The EU is at the eve on deciding on the global allocation of its resources for the next Financial Framework.

To do nothing is not the right option. If the sector does not take the initiative to shape its future, others will do it for him, and most likely neither in its best interests nor in the best interests of the EU at large.

The time is ripe for the sector to take its future on its hands, and shake out accommodation to the present policies for the sake of stability. It will be an error, as stability is the least likely outcome, as internal and external pressures are piling up as explained above.

What should be done? This paper presents now, area by area, the proposals of Farm Europe. They do not seek to turn the CAP upside down, or revolutionize its principles and objectives, but rather to modernize its tool box to adapt it to current and future needs.

 

RESILIENCE :

The new strategy for resilient agri-food systems in Europe should integrate one fact:  more than ever, agriculture is facing growing climate and market disturbances.

For the benefit of the whole EU food chain, the CAP should make available a set of efficient risk management tools to enhance the resilience of the wide range of EU agriculture models.

This will not be obtained through a single instrument at European level, but through a coherent and well defined choice of complementary tools, placing farmers at the core of the decisions according to their specific situation and needs. In each Member State, farmers should be free to opt for tailored self-insurance and/or mutual funds.

 

The Common Agricultural Policy is an economic policy, and one of the fundamental aspects in this regard is to ensure the development of an efficient and sustainable agriculture across the whole European Union.  Its core responsibility is therefore to strengthen the resilience of EU agriculture, which is based on a wide range of diverse family-farm structures.

–  Across the EU, CAP direct payments should continue to provide a first layer of stability to farms incomes. These direct payments are legitimate and imperative vis-à-vis the challenge of remuneration of public goods provided by farmers, the first being to ensure farming activity in each EU region.

– However, direct payments do not provide full answer to the need of more resilience in front of increased climate and market volatility. In that respect, the one-size-fits-all approach at the EU level is not an option to cope with market volatility. In each Member State, farmers should be free to opt for the best stabilization tools according to their specific situation and needs. This choice of complementary options in addition of CAP direct payments must be defined at EU level, through the Risk Management Toolbox.

Some of these tools already exist in the current EU legislation, but improvements are needed. Others have to be defined and developed in the future CAP reform.

A centerpiece of the Risk Management Toolbox is the climatic insurance that shields farmers from economic losses arising from adverse weather events. Climatic insurance is partly covered by existing legislation, and successfully tested in some Member States.

The analysis shows that climatic insurance stands ready to be applied to the whole range of arable crops, vineyards and fruit crops, as well as pastures. Such a tool can be co-financed under the present CAP.

The rate of subscription of climatic insurance in the CAP has however been too low. One reason is that Risk Management Tools are not at the center of the current policy. To this adds the fact that insurance payments only kick-in when losses are higher than 30%. This is far too high a threshold, and leads to a lack of interest by farmers to subscribe insurance as it only intervenes in rare catastrophic circumstances. In order to render this tool efficient the threshold should be lowered to 20%.

The co-financing by the CAP would thus no longer be accounted for in the WTO “green box” but this should not prevent the EU from better protecting its farmers as it enjoys a more than sufficient margin to do so, in particular under the “de minimis” provision of the WTO Agreement on Agriculture.

Even in the extreme case scenario where it would be adopted by all EU farmers it would cost around 4 billion euros per year to the CAP budget.

Building on the basic climatic insurance, farmers should be offered effective income stabilization tools, as is the case for mutual funds. Mutual funds could be developed in strategic sectors like the dairy industry or the sugar sector. The Commission has proposed to include sectorial income stabilization tools in the CAP toolbox, which is a wise move that we welcome.

For sectorial income stabilization tools to become attractive though, they should on top of paying losses above the reduced 20% threshold consider only the income that accrues from specific production and not the whole farm income, which would render the provision ineffective.

By the same token, the CAP should co-finance either the compensation provided by mutual funds to farmers when incomes drop, or the annual contributions to the funds, in order to increase the options available to farmers and mutual funds and provide stable CAP cofinancing. It should also allow the use of appropriate indexes to assess the income loss of farmers, and thereby facilitate and speed-up the compensation process.

On top of that, complementary options have to be assessed in the perspective of a post 2020 reformed CAP:

– A precautionary saving mechanism allowing farmers to manage their own self-insurance system by building up cash reserves and benefit at the same time from income tax stabilisation over several years. Although tax policies depend on Member States, such scheme should be part of an EU framework with a few common principles (dedicated account, freedom of withdrawal, etc.).

– Experiences should be encouraged to fine-tune revenue, margin or income insurance.

All these tools aim to strengthen both farmers and industry resilience to crises, while increasing their ability to invest during favourable periods. They are coherent with the need to develop new concrete and efficient options for risk management, while keeping a sufficient level of direct payments whose legitimacy remains untouched taking into account societal requests on EU agriculture and the production of public goods.

– In parallel, the EU should enhance the ability of the CAP to react with higher efficiency to market crises where the added value of measures taken at EU level is with no contest. Facing existing crisis, the quickest is often the cheapest and most effective. To do so, the European commission should not only be empowered to act but should have the obligation to present actions it intends to take to colegislators and to implement them (or to legitimate the decision not to act), as soon as the markets deteriorate above the theresholds of activation of voluntary risk management tools defined by the CAP. Such actions would require some financings, even if they have proved to be far less costly than political decisions to provide financial envelopes to cope more with the political sensitivity of crisis than their economic dimension (both in 2015 and in 2009).  In that respect, setting up a EU fund for agri crisis with an initial dotation and financed annually by the current so called yearly CAP reserve mechanism might be an option to be considered.

 

Environmental sustainability: an ambitious EU program for double performance to focus on results

Considering the rise in global food demand and increasing concerns about the impact of climate change, a major challenge for the EU agricultural sector will be to maintain its high level of production while ensuring a more sustainable use of its natural resources.

The COP 21 Paris Agreement on Climate Change, in which the EU has pledged to reduce its greenhouse gas emissions by at least 40% by 2030, will have a substantial impact on the EU agenda for various policy domains.

In July 2016, the European Commission proposed an ‘Effort Sharing Regulation’ (ESR), in order to ensure that these commitments would be accomplished.

High-tech farm practices are able to provide clear positive results in better managing farms and optimise the use of inputs, thus reducing the environmental impact of the agricultural sector and increasing competitiveness, and at the end of the day, producing more with less.

However, the adoption of these high-tech practices by farmers still remains low and differs widely among EU Member States.

Considering these technological advancements, the EU institutions should seize the enormous potential of innovation to build simple and effective policies which promote sustainability and competitiveness and reduce the amount of bureaucratic procedures for farmers.

Within the next six years, the European Union should encourage its farmers to shift to a precision and digitalised agriculture and food chain.

In that respect, a revised CAP should invest massively in innovation and propose an ambitious program for a double (economic and environmental) performance of the European agriculture, with a view to make precision & smart farming the new norm in the future.

Such an ambitious European plan should be built on two integrated components:

–           Investments in sustainable high competitiveness. The European Union should elaborate and put in place, through an ambitious CAP, its « Marshall plan » for a truly double performance of its agriculture, modern, in full harmony with citizen’s expectations. A CAP based on precision & smart farming allowing strong food production commitments, efficient environmental deliveries, lively agricultural communities and balanced rural development. New breeding techniques would be part of this investment drive with a view to increase the profitability of the sector and reduce emissions per unit of output

–           a shift from a prescriptive CAP to a real results-based policy on environment and climate change actions, that is complementary with the current greening criteria and based on the will of the farmers themselves. Producers having the choice to opt either for the existing policies or a result-based approach.

This would be a new paradigm for the CAP, with a tool based on quantifiable objectives, adjusted to the knowledge and technical capacities of farmers, and to the specificities of each farm.

A set of clear, well-defined and measurable environmental indicators should be established at EU level, and used as benchmarks to assess farmers’ action in implementing environmental friendly practices and techniques.

 

Smart & Precision Agriculture methods that show benefits for the sustainability of our food production system should be promoted in three ways:

– Including in the renewed CAP the priority of a European programme for Smart and precision Farming. The CAP must strongly support innovation on farms and in the food chain by focusing during this whole period on investments combining both economic and environmental competitiveness, by devoting an important part of the budget to it and by putting in place genuine training measures with incentive rates and European co-financing.

– At the same time, policies should provide specific support to those farmers, who are willing to make the transition towards Smart Agriculture.

This support would cover the initial extra-costs for farmers, associated with the knowledge transfers, investments and risks that are inherent to the adoption of new technologies.

– Finally, the possibility to establish a mechanism for promoting Precision & Smart Farming practices and new farming techniques. Such a mechanism should be simple, responsive, flexible and open to all the actors in the food chain, who implement the concept of Smart & precision Farming with a clear positive impact on the environment. In this new framework, implementing such new farming practices that answer to the sustainability objectives of the greening measures could automatically validate the good implementation of the so-called CAP requests, resulting in a reduction of administrative costs for both farmers them and public administrations.

 

To achieve these goals and build in details this European ambitious plan, Farm Europe is assessing for each of the main EU agri-sectors the need of investment in smart & precision farming methods, its cost and its outcomes in terms of environmental and economic benefits and the need of CAP financings in order to achieve the right balance between a rapid switch of the EU agricultures, public supports and entrepreneurial responsibility.

 

Food Chain

The lack of cooperation within the EU food chain is undermining the capacity of the sector to cope with the challenges posed by globalisation and investment.

The new deal should first reaffirm the prominence of the CAP over general competition rules. This principle should also be applied by national competition authorities.

Transparency should be improved, including when it comes to prices and volumes at first processing level and final consumer level.

Contractual relations should be encouraged on the basis of clearer rules, allowing collective contract negotiations at Producer Organisation level or by Groups of Producer Organisations.

In order to encourage cooperation among farmers and food producers, a branch approach for volumes and price negotiation should be explicitly authorised to guarantee a better repartition of the value when prices are going both up or down.

These mesures should be implemented bearing in mind that the relevant markets for the main agricultural products are more often at European rather than national or regional scale.

When it comes to Unfair Commercial Practices, a clear set of practices should be prohibited, with clear and dissuasive sanction mechanisms, fully securing the identity of the complainants.

In a context of fragmentation of the agricultural sector and a limited and very partial access for farmers to relevant information on market trends and the value of products, the three pillars of the EU food chain do not act collectively.

Increased price volatility since 2007 has fundamentally changed the rules of the game, due to the impact of harsh global price movements on the different actors in the food chain.

–           During periods of falling prices, farmers represent the main shock absorber for the entire industry. They see their margins shrink rapidly, and this undermines their already fragile economic situation.

–           Price declines are rarely passed on to consumers in the EU market, except in the case of highly perishable products such as fresh fruits and vegetables. Both processors and distributors thus benefit from the shock absorbing effect born by farmers, and can even benefit from some improvement of the margins for processed products on the EU market.

–           When prices are rising, the ability of farmers to benefit from these surges depends on the nature of their agricultural products, and more precisely on whether they can be sold directly on the market or not. As such, when agricultural products need a stage of processing (e.g. sugar) or processing and packaging before they can be sold on the markets (e.g. milk), the capacity of farmers to pass price increases in the food chain seems limited, or involves long periods of delay.

In this context and without delay,  initiatives should be taken by EU legislators to address this unbalanced situation. Not mentioning the importance of the regulation on Unfair Trade Practices, it is most urgent that legislators bring answers to each of the following necessary adjustments:

– to foresee that Member States decide to make the use of contracts compulsory at the request of farmers, or their producer organisations. Indeed, the use of contracts helps to reinforce the responsibility of operators and to increase their awareness of the need to better take into account market signals, to improve price transmission and to adapt supply to demand. The use of contracts would help to avoid certain unfair practices, thus protecting farmers against abuses in the chain.

– to extend the provisions of the dairy package beyond 30 June 2020 as they appear to constitute a necessary foundation for improving the economic conditions of dairy farmers.

– to adopt a provision, which allows Producer Organisations, or their associations, to collectively negotiate terms, including price, with a processor or a purchaser, for some or all of their members’ production. Their bargaining power vis-à-vis processors should be strengthened and it should result in a fairer distribution of added value along the supply chain.

– to allow interbranch organisations to negotiate agreements on value sharing clauses, including market bonuses and losses, as they might facilitate a better transmission of market signals and reinforce the functioning of the chain.

  • to consider the EU as the appropriate geographical level for the definition of the relevant market provided for in Art. 207 of the single Common Market Organisation, as the application of common rules has led over time to a higher level of integration of agriculture markets.

 

Territorial balance and economic sustainability: focus and invest on sectorial integrated strategies

The ambition of keeping a dynamic agri-food industry all across the EU should be transformed into reality. Over the past 10 years, the competitiveness of the EU agricultural sector decreased. The total EU farm productivity growth dropped by 54% and capital productivity turned negative.

Europe must not limit its actions to a set of initiatives aiming at accompanying a slowing down of its farming sector. Neither should it accept to limit its ambition to an agriculture of conservation of the most fragile areas.

On the contrary, the European policy framework should focus on launching dynamic and targeted economic strategies to revive investment all across the EU food chain.

The economic dimension of the Common Agricultural Policy should be renewed. The Common Agricultural Policy is first and foremost an economic policy, and one of the fundamental aspects in this regard is to ensure the development of an efficient and sustainable agriculture across the whole territory of the European Union. Nevertheless, it is too often regarded as a policy that assists passively to the structural adjustment ongoing in the farming sector, rather that being a policy with a real economic ambition, especially when it comes to fragile and intermediate areas.

The European Union is diverse. It consists of some highly competitive areas on the world stage, but it also involves regions with a structural deficit in terms of competitiveness. Beyond the economic ambition for the CAP that should address the challenges of EU agriculture everywhere, including in the most competitive areas, specific tools must be mobilised for fragile and intermediate areas, otherwise they will be exposed to an inexorable decline in the number of farms and the level of production, with a chain reaction involving the processing industry, the tourism sector and other related jobs.

Coupled Payments and Less Favoured Areas Payments remain and will remain relevant as a solidarity tool. Nevertheless the budgetary transfer policy has shown its limits, and could hardly stop the haemorrhage of the farming sector in these deprived less favoured areas and intermediate areas, confronted with sharp competition.

First, there is no single answer to the competitiveness challenges. Myriads of measures already exist, which is perhaps in itself a part of the problem: this multitude should not lead to a dispersion of resources, which undermines the effectiveness of such measures and can even lead in some cases to decision-making that is far-removed from those who live locally on the land and work in the agricultural sector.

Second, consistency is key. Therefore, it is above all necessary to reflect on how we can improve governance to mobilise the necessary tools at the local level, in order to develop truly economic projects and a growth ambition for these areas.

For some regions, such as mountain areas, for some sectors, a policy focusing on quality and market segmentation may be the appropriate response to trigger economic development, allowing sectors not to be in direct competition on the European and global markets with the most competitive areas in terms of production.

Many success stories already exist across the European continent. New initiatives in terms of market segmentation might be useful, especially when it comes to the meat sector.

However, marketing and geographical indications cannot be the single answer.

For areas that do not have the necessary foundations to build a process of segmentation, further reflection is needed on strategies involving territorial and economic projects. These plans should put the will of the industry into action by mobilising resources as well as clear and straightforward tools to turn these plans into reality.

Development in a truly industrial spirit –« chain approach » – has been a success factor for the development of the sugar industry in productive areas. Meanwhile, in areas with a productivity gap, the development of the biofuels industry can be taken as an example, given its capacity to provide a stable demand for local agriculture while responding at the same time to the sustainability expectations of society.

In addition to that, at farm level, and for some areas, time has come to question the specialisation trend. We should explore a new highly efficient type of mixed crop and stock farm holding. Associated with agronomic knowledge and management of ecosystems, these renewal of diverse farms might be an efficient option. In other areas with lower income per hectare, whose immediate challenge is to resist to competition from well-performing regions, when all the models explored previously cannot bring satisfactory answers, the question of farm expansion via intensification or extensification in order to generate economies of scale should not be avoided as well, or at least it must not be hindered for ideological reasons.

In this context, the question of an improved governance of the use of CAP supports – both 2nd pillar’s ones and parts of 1st pillar’ ones – should be addressed in order to focus first and foremost on sectorial and/or regional new integrated strategies which could make the difference in terms of renewed sustainable growth and jobs, alongside with a CAP delivering on investments of double performance and resilience.

 

 

A critical perspective on the Reflection Paper on the future finances of the EU

The reflexion paper tabled by the European Commission  end of June provide a picture of a budget that would neglect the economic reality of European agricultural and agri-food businesses and may compromise the goals of responsible environmental stewardship and high-quality food, for all of us.

On the 28th June, the European Commission (EC) published a Reflection Paper on the future finances of the European Union (EU). The Paper is presented as a starting point for a debate that will inform the EC’s 2018 proposals for the EU’s post-2020 multi-annual financial framework; it includes initial ideas and options which it hopes can be developed through the negotiation process to ensure an effective future budget.

The Reflection Paper was drafted by President’s Juncker’s Cabinet team and co-signed by the Commissioners for the Budget and for Regional Policy. Yet, when it comes to the EC’s ambition for the future of Europe, it simply leaves us baffled. We are also concerned at the absence of any economic vision for Europe’s agriculture and agri-food sector. The paper ignores agriculture’s strategic importance for the sustainable development of over 70 % of the EU’s territory and it ignores that, with 16 % of total industry turnover in the EU, it is second only to the metals industry. It ignores, moreover, that agriculture employs 10 million people and that 4.1 million industrial jobs directly depend on it.

A budget with no vision at all would have been better than the one proposed. The EC’s idea of the European Food System barely goes beyond niche markets for a free-spending urban elite with an idealized image of traditional agriculture. This vision is disconnected from the real world of a sector, which, while certainly suffering from structural economic difficulties, is on the cusp of a new technological revolution ripe with genuine opportunities to build an agriculture that is both competitive and sustainable, and a far cry from the stereotypes and prejudices that may exist.

On the question of how to fund the EU’s budget, the Paper mentions the recurring question of increasing the Union’s own resources, but offers no specific proposal for achieving this. By the end of the Paper, it is hard to escape the feeling that the EC has abandoned all hope of making any substantive progress on this question, even before negotiations have begun. In this case the lion’s share of the budget will continue to be funded through Member State contributions; with discussions focusing on whether or not to remove the 1 % GNI ceiling. Under this scenario, the gulf between net contributor MS and the others can only widen, with Germany’s voice likely to be the loudest in the forthcoming negotiations.

In order to finance the new challenges that it identifies (“the management of irregular migration and refugees, including integration, control of external borders, security, cybersecurity, the fight against terrorism and common defence”), the EC presents 5 potential scenarios and discusses the need to reform the EU’s current main policies, with the CAP chief among them.

A biased analysis of the CAP and a proposal based on handouts and degrowth.

– A reminder of the CAP’s objectives and the spirit of the 2013 reform

“Ensuring the economic, social and environmental sustainability of agricultural and rural communities is the core objective of the Common Agricultural Policy (CAP).”

The most recent reform of this policy introduced major changes to the system of direct payments, targeted to address the particular needs of young farmers and smaller farms, specific sectors or regions in difficulties, and the environment. (Commission Reflection Paper, 28 June, 2017)

Today, it is as if the EC has forgotten the strategic goals of CAP.

The picture painted by the EC in its Reflection Paper of today’s CAP contrasts with the EU’s policy of investing in growth, (in no small part) through agriculture and agri-food, which has been an explicit objective for more than 50 years. It contrasts too with the spirit of the reforms introduced in 2013, which sought to combine the development of agricultural businesses across the whole of the EU coupled with more effective environmental stewardship of all rural agricultural areas.

Taken from the end of the section discussing the CAP, the diagram reproduced below would not be out of place in a British tabloid in that it neglects to say that the 20 % of farms which receive 80% of funding – that is, all farms of 10 hectares or more in size – manage more than 88 % of the utilized agricultural area of the European Union and produce nearly 90 % of the Union’s agricultural production (Eurostat). This omission reveals the limitations of the Paper’s analysis: contrary to the clichés, the vast majority of the 20% of European farms that receive the lion’s share of the CAP budget receive this support precisely because they not only ensure European food security but also ensure the sustainable stewardship of rural territories – without which no public policy for agriculture could succeed.

An objective analysis of European agriculture and of the CAP should also lead to the observation that 45 % of registered farms have an annual turnover of less than 2000 euros. These are not commercial farms operating in the market, but small subsistence farms or farms in which the farmer has a second professional activity, which together occupy less than 4.6 % of the EU’s UAA (Eurostat).

A ‘status quo’ or even ‘degrowth’ based vision of the future of European agriculture, and a departure from the growth objective promoted by the Junker Commission.

“Among the debated options is the suggestion to target direct payments more effectively to ensure income to all farmers across the EU, particularly for marginal areas and the poorest farms. Such an option could reduce direct payments for large farms.”

There is room to further improve the performance of the policy by putting more emphasis on incentivising farmers to deliver environment and climate public goods and services. (Commission Reflection Paper, 28 June, 2017).

A reading of the sections in the EC’s Reflection Paper related to the CAP gives the strong impression that the EC:

  • is turning its back on the CAP, a policy whose primary goal is economic (and by doing so is failing to respect the provisions in the Treaty) but which is able to integrate solutions to environmental and societal challenges related to agricultural areas and activities;
  • is proposing to turn the CAP into a social and environmental policy in which production is no longer the core focus, or even becomes a secondary focus.

Such a vision implies a deep misunderstanding of (1) the agricultural sector, (2) the economic situation and (3) the reality of the CAP itself.

To suggest that it is possible to sustain a farming sector covering the whole of the EU on any other basis than that of sustainable farming businesses is wishful thinking, not to mention a mistake. In this regard, the European Union needs to get to grips with the reality of its own agricultural world: farms of 10 ha and larger constitute 20 % of all farms, produce 90 % of agricultural output and manage 88 % of agricultural land.

These farms don’t work against the other 80%, they work with them: both have their roles.

In more objective terms, in addition to primary agricultural production, this 20 % provide an essential foundation for the agri-food sector, which generates employment, products and exports. This industry is undeniably an asset and second only (in turnover) to the metals industry. The EU should take pride in it and stop depicting agriculture as somehow lagging behind, existing in some bucolic 19th century that we should want to preserve.

The European agricultural and agri-food sector is one of the most innovative, it is at the cutting edge of technology. In the 5 to 7 years ahead, technological advances will place opportunities within reach, and these will, if seized, enhance competitiveness and enable the sector to make a massive contribution to meeting our environmental challenges. But the CAP must guide this transition, make it possible, not put it at risk !

European policymakers and their advisors must get to grips with the reality which is far from the stereotypes of a small fringe group of urban executives. Time is of the essence. European agriculture needs to produce in all the EU’s territories and act as stewards for them, but it must also produce for every market segment, supplying the high-quality, healthy and affordable products that three-quarters of European citizens, who can’t afford to pay more, expect.

The EU deserves better than a mere ‘status quo’ policy. It needs agriculture in all its forms. It must encourage and support all its agricultures equitably and ensure their sustainable growth.

Food security is not a given. It is built and preserved and the EU has a massive responsibility to preserve it not only for Europeans but for world markets: pursuing a degrowth policy makes no sense and would occasion not only serious economic difficulties for the EU and European consumers but would massively increase instability in global markets. The first victims of such instability would be the most fragile importing nations, which need a minimum level of stability to be able to develop their own agricultural production.

Contrary to certain ideas popular within the EC’s Directorates, agriculture is not of secondary importance, it is not an expendable asset to be trimmed or circumscribed in order to benefit superior ‘environmental’ products that can shoulder the burden of problems caused by other industries.

If merely maintaining the status quo situation were to remain the main ambition, this would relegate production to a secondary order goal, and would probably have negative effects on both the economic development of territories and the environment. We should take the time to ponder whether, what would amount to a ‘bureaucratic’ rather than a ‘productive’ vision of the farm (i.e. small scale and strongly pushing towards extensification with as a consequence a large-scale use of subcontracting and farms operating at the end of the day as extensive holdings similar to the large estates in Scotland), would produce a sufficient number of responsible farmer-entrepreneurs to constitute a viable industry distributed across the whole of the EU? ; would they be able to protect the environment or produce in sufficient quantity to avoid the collapse of local agri-food businesses and the jobs they create? ; would such farms be able to offer European consumers products that respect European norms?

A set of scenarios and a strategy whose only real ambition for the CAP seems to be a substantial squeeze on the budget.

Apart from scenario 5 ‘Doing much more together: ‘the EU27 decides to do more together across all policy areas’ highly improbable, each of the scenarios imagined by the EC have in common a reduction to the CAP budget in order to refocus on “• Better targeted support for farmers under special constraints (e.g. small farms, mountainous areas and sparsely populated regions) and risk management tools for all farms • Investment in rural development (particularly agri-environmental measures)”.

One option to explore is the introduction of a degree of national co-financing for direct payments in order to sustain the overall levels of current support. Risk management tools could be envisaged for dealing with crises. Any changes would need to preserve one of the key assets of the policy: the protection of a well-functioning internal market ensuring a level playing field for all producers across the EU. (Commission Reflection Paper, 28 June, 2017).

This proposal for the national financing of direct payments is nothing other than a proposal to end any shared ambition for the EU’s diverse agriculture(s), a blatant desire to dismantle the CAP and to renationalize it while appearing to maintain an EU policy but appearing only.

How is it possible to have national co-financing for direct aid and at the same time claim to be maintaining an effective internal market? To juxtapose these strategies, to link them in a single sentence is audacious in style, but it does not stand up to rigorous scrutiny.

Today, the CAP is the only European policy which (1) fuels the economies of all MS in a tangible way (with an almost 100% absorption rate by the MS), and (2) which supports a geographically balanced development of rural territories. To propose such cofinancing:

  • suggests a serious misjudgement of the state of public finances in many MS;
  • riskswould creatinge a significant disparity in the treatment of MS, between those which have the resources to provide substantial cofinancing and a high level of aid to farmers and those which do not;
  • appears to show that the EC has openly taken sides with net contributor MS which have a financial vested interest in limiting the European budget and designing the latter in order to prioritize policy action that gives them a better financial return.

If the EC’s proposals were to be enacted, three consequences would ensue very quickly:

  • there would be an effort to market national agricultural production and food products to the detriment of other MS, and MS would seek to put in place barriers for non-national (imported) products;
  • it would become impossible to pursue any significant initiative at the European level as MS that cofinance would wish to retain the ability to decide how farmers should use funding – the idea that European norms can survive without a common budget is wishful thinking;
  • ultimately, there would be a call for the abandonment of all direct aid to agriculture from a number of MS, which would inevitably lead to massive restructuring and the concentration of agricultural production. This would also lead to the appearance of abandoned areas, which would need to be kept alive with significant sums of public money (either from national sources or from what remains of European agricultural policy devoid of any economic objective) where extensification would become the rule and the emergence of large holdings maximizing drawdown but with no productive logic would be the end result. In either case (no public aid means no leverage for policymakers to justify any extra policy demands from beneficiaries, and no essential support for the others ‒ deliberately cut adrift by policy), the EU would not be in a position to require any farmer to make any particular effort for the environment ‒ leading to the very opposite of the officially desired outcome of better environmental stewardship.

Some may think that this EC proposal too brazen to actually be implemented. But is this wishful thinking? Whether it is or not will depend on how farmers in the MS, MS themselves and influential members of the European parliament respond over the coming weeks.

At any rate, our experience with this type of negotiation compels us to ask one final question: do these proposals reflect the common negotiating tactic of pitching for 10 while aiming for 5 with the negotiating opposites pleased to accept (despite them being short-changed in the case at hand), or even satisfied/relieved with the outcome?

More specifically, by proposing that direct aid be confinanced nationally, is the EC ultimately seeking to obtain the cofinancing of the CAP’s Pillar 1 greening measures, by integrating these into Pillar 2, making them voluntary in the form of an ‘entry level scheme’, which is a required step for accessing any other agri-environmental measure?

Mathematically speaking, the transfer of greening measures to Pillar 2 would mean a reduction of 15 % of the CAP’s budget for the community’s financiers, with the other 15 % coming from the MS from national budgets (and very likely from the budget that is currently, in the case of MS with fewer resources, allocated to the CAP’s Pillar 2).

Politically, this would allow the EC to present its proposition, in the short term, as being just as pro-environment within a cofinanced CAP but knowing full well that the reality will be very different. The large net contributing MS will gain from the process but the others will not be able to find the necessary resources nationally. The consequence will be basic measures (‘entry level scheme’) that are more restrictive than those for greening and less funding for the other agri-environmental measures and investment for competitiveness, not to mention the complexity of managing such a basic scheme… which has been introduced in England where its complexity and relative ineffectiveness are manifest.

It is useful in this respect to bear in mind the fundamental difference between the greening measures under Pillar 1 and the agri-environmental measures under Pillar 2. Under Pillar 1, the funding for greening is a lump-sum incentive to promote the implementation of good basic practices across the EU. That these practices, or better ones, may already have been adopted by farmers or that that farmers may need to align their practices (whatever the cost), the greening payment is made. Under Pillar 2, only the additional costs incurred from implementing an agri-environmental practice are covered. These additional costs need to be properly documented, calculated and accepted by the EC. The transfer of the greening measures to Pillar 2 would prevent the most virtuous farmers, (who may have already adopted or may even have exceeded the required practices and may indeed have done so even before the 2013 reforms) from accessing the corresponding funding. In sum, punishing the virtuous.

It is highly likely that many farmers would choose to withdraw from the entry level scheme greening measures under Pillar 2 and would receive no AEM payments from the CAP. Once again, between the differential treatment of MS and disinterest among farmers who would tire with a bureaucracy so disconnected from the real world, the very future of the CAP would be at risk, which would be quite an achievement.

The idea of transferring greening measures to Pillar 2 is being very seriously considered by the EC. We think that the political decision may be imminent.

Add to this the poker-faced proposal to reduce cohesion funding, but the idea of stopping all these funding opportunities for the most developed MS is to reserve them for the other MS, thus being able to seduce them with an increase in their cohesion fund allocations.

Even if the latter MS have a very low absorption rate for cohesion funds, and are unlikely to be able to improve their rates in the coming years, it may prove very tempting for their governments to cry victory, albeit one in appearance only. Lurking behind these proposals there appears to be a thinly veiled desire to drive a wedge between those MS that would, in theory, be beneficiaries of future cohesion funding and those MS that would favour keeping a strong CAP.

In this context, we call on European policymakers, Heads of State and governments, and leaders of the European Parliament to take up the gauntlet and show their ambition for the European Union and for its farmers. You have a stark choice:

Either;

  • stand up for a European Union with vision, believing in growth, coupling a simultaneous drive for competitiveness and sustainability, ensuring the development of rural territories through a strategy focusing on the sustainable competitiveness of agricultural and agri-food businesses, and endorsing true solidarity between MS;

Or ;

  • adopt a narrow profit & loss approach to the benefit of the wealthiest contributor MS and by so doing expose agriculture to massive restructuring or condemn it to shrink thereby placing European food security and market stability in the hands of other world agricultural powers.

 

New Plant-Breeding Techniques: What are we talking about?

New Plant-Breeding Techniques (NBTs) are methods allowing the development of new plant varieties with desired traits, by modifying the DNA of the seeds and plant cells. They are called ‘new’ because these techniques have only been developed in the last decade and have evolved rapidly in recent years.

Moreover, as these practices are still continuously evolving, there is no limited set of techniques that can be put under the ‘umbrella term’ of NBTs.[1] Based on assessments of the European Commission, the following plant-breeding techniques can currently be considered as the main NBTs:
1) Site-Directed Nucleases (SDN) (including ZFN-1/2/3 and CRISPR systems);
2) Oligonucleotide Directed Mutagenesis (ODM);

3) Cisgenesis;

4) RNA-dependent DNA methylation (RdDM);

5) Grafting (non-GM scion on GM rootstock);

6) Reverse breeding;

7) Agro-infiltration. [2]

These New Plant-Breeding Techniques, which have emerged as the result of advances in scientific research, enable more precise and faster changes in the plant’s genome than conventional plant breeding techniques, which use chemical and radiation processes to alter the genetic characteristics of plants.[3]

As such, they have a significant potential for the plant breeding and agri-food industry, as they entail technical advances, economic savings and the improvement of crop characteristics.

First of all, NBTs have technical advantages compared to traditional plant breeding techniques. Some techniques (such as ODM and ZFN) allow site-specific and targeted changes in the genetic material of the plants, and for many of the techniques, the genetically modified code for the desired trait is only present in the first plant, but not in their offspring.

Secondly, NBTs have economic advantages, as the use of these techniques reduce the necessary time for plant breeding compared to conventional approaches (for which breeding can take up to 10 years), thus leading to lower production costs.

Crop improvements as a result of NBTs include the resistance of plants to diseases and drought tolerance, which can lead to higher yields, as well as higher nutritional qualities and storage or processing qualities.[4]

New Plant Breeding Techniques are currently in an uncertain situation regarding their legal classification, as there is considerable debate on how these practices should be regulated and whether they (or some of them) should fall within the scope of the EU GMO legislation. [5]

Registration and certification of non-GM and GM seeds in the EU

Seeds, the main focus of New Plant-Breeding Techniques which aim at improving their genetic characteristics, are regulated in the EU by 12 Directives: Directive 2002/53/EC on the common catalogue for varieties of agricultural plant species and 11 sectoral Directives that govern the seeds of specific crop species (for beets, cereals, fodder plants, forest material, fruit plants, oil and fiber plants, ornamental plants, potatoes, vegetables, and wine).

The legislative framework for seeds is based on two elements:

  • Registration of the seed varieties;
  • Certification of the seed varieties before they can be sold on the EU market.

The general principle is that companies can register their new seed varieties in the national catalogue of one of the EU Member states, which needs to notify the Commission, after which the seed variety will be registered in the Common Catalogue of the EU.

Before registering the variety, the seed needs to be tested for 4 elements:
– Distinctiveness: it needs to differ clearly on, at least, one important characteristic from another registered seed variety;
– Uniformity: all resulting plants should be identical;
– Stability: the plant characteristics should remain in place over generations;
– For agricultural crops, the ‘Value for Cultivation and Use’ needs to be proven. [6]

The first three elements are assessed through so-called DUS-tests (Distinctiveness, Uniformity, Stability), while agricultural plant varieties are subjects to additional VCU trials (Value for Cultivation and Use). The DUS-tests allow for the identification and description of varieties, while VCU trials test the agronomic performance of the plants resulting from the seeds, for instance on their yields. In order to be registered in the catalogue, the VCU tests need to show that the seed offers better results in terms of cultivation or use than other varieties that are available on the market. In general, DUS tests are conducted over a period of 2 years, while the VCU trials usually last between 2 and 3 years.

As such, registering a new seed variety requires a number of trials, resulting in experimental costs. In all Member States, the responsibility to carry out these procedures lies with the relevant national authorities, while the registration costs are usually shared between the public and private actors, although with significant differences between the Member States (see Table 8 below).

The costs for these procedures can also vary significantly per Member State (see Tables 10 and Table 14 below). For instance, the necessary DUS tests for varieties of winter oilseed rape require annual fees of €90 in the Czech Republic, €160 in Poland, €700 in France, €770 in Germany and to around €2000 in the UK. VCU procedures are generally more expensive, as for winter wheat, they amount to yearly costs of €1000 in Hungary, €1200 in Denmark, €1900 in Germany, €2500 in the UK and €2550 in France.

Before the seeds can be legally sold on the EU market, they also need to undergo a certification procedure, through inspections that verify and guarantee their identity, health and quality (for instance in terms of disease resistance). This is applicable to both seeds from inside the EU and seeds coming from outside the EU.

For most varieties, seeds are required to have multiplied over at least two generations (corresponding to around 2 years of control) and need to be sealed, labelled, sampled and tested to ensure that they meet the prescribed minimum standards. Seed certification costs usually account for 1 to 2% of the total production costs, which are mostly shared between the public authorities and the industry (see Table 22 below). [7]

For GM seeds, the legislation also requires the varieties to be authorised in line with the procedures outlined in GMO Directive 2001/18/EC before they can be included in the Common Catalogue and be sold on the European market. If the GM seed will also be used in food and feed, it has to follow the rules of Regulation (EC) 1829/2003 on genetically modified food and feed as well. As a result, the registration of GM seeds requires significant additional costs compared to non-GM seeds.

The authorisation process of “novel foods”

Novel foods are food or food ingredients that have not been consumed significantly within the European Union before 1997, when the first Regulation 258/97 on novel foods entered into force. It involves food from new sources; food obtained through new technologies (such as nanotechnology) or the use of new substances (for instance plant sterols), as well as food traditionally eaten outside of the EU (for example chia seeds). [8]

A novel food requires a scientific safety assessment and an authorisation before it can be sold on the EU market, and must fulfil the following criteria in order to be authorised:

  • it must not pose a risk to human health
  • it must not be less nutritious if it replaces a similar food, and
  • it must be labelled to avoid misleading the consumers. [9]

Companies need to submit their applications for the marketing of their novel food to the relevant Member State authority, and are required to present several types of scientific data on the compositional, nutritional, allergenic and toxicological characteristics of the products, as well as information on the production process and the intended use. The authority can allow the marketing of the product if the Commission and other EU Member States do not object, and are also able to ask EFSA for an additional assessment. If a decision of the Commission is needed, it will ask the opinion of the Standing Committee on Plants, Animals, Food and Feed. [10]

The rules applicable to novel foods will be updated in 2018, with the entry into force of Regulation (EU) 2015/2283. Within this new regulatory framework, an authorisation procedure can be started by an interested party, a country of by the Commission itself. The Commission will have to possibility to ask EFSA for an opinion on the safety of the novel food and will also need the endorsement of the Standing Committee on Plants, Animals, Food and Feed.

The legislation on novel foods does not cover additives, flavourings, extraction solvents, and most importantly, does not apply to GMOs – which are subject to Regulation EC 1829/2003 on GMOs for food and feed.
So far, there have been around 180 applications for novel foods (7 to 10 applications per year), of which 80 have been authorised for use in the European Union. [11]

The average cost of submitting an application for novel foods is estimated at between €20 000 and €45 000, although based on the fees charged by the national authorities and the data requirements, the expenditures can vary between a few hundred to one million euro. The Novel Food Regulation also foresees the possibility of a simplified procedure for foods similar to existing products, for which the requested fee ranges from €900 to €2000. The average period between the application and the final authorisation is 2 to 4 years. [12]

 

GMOs Seeds Novel foods
Main legislation –    Directive 2001/18/EC on the deliberate release into the environment of genetically modified organisms

–    Regulation (EC) 1829/2003 on genetically modified food and feed

 –    Directive 2002/53/EC on the common catalogue for varieties of agricultural plant species

–    11 sectoral Directives

–    GM seeds also need to follow the GMO legislation: Directive 2001/18/EC and Regulation (EC) 1829/2003

–    Regulation 258/97, which will be replaced by Regulation (EU) 2015/2283 from 2018 onwards

–    Does NOT apply to GMOs, which are subject to Regulation (EC) 1829/2003 on genetically modified food and feed
Requirements –    For cultivation: assessments of the environmental risks, monitoring of the GMOs after their release, labelling and registration requirements, and public consultations.

–    For food and feed: authorisation; supervision; and labelling (if they contain more than 0.9% of GMO components).

 –   For registration:
* DUS tests: identification and description of the seed variety.
* VCU trials (for agricultural crops): to test the agronomic performance of the plants resulting from the seeds. 

– For certification: inspections verifying and guaranteeing the identity, health and quality of the seeds; labelling; and tests of samples.

 Safety assessment and authorisation, requiring data on the compositional, nutritional, allergenic and toxicological characteristics of the products, as well as information on the production process and the intended use.
Average costs for approval – Registration fee: up to € 90 000

– Total costs of €6.8 million on average for the required data collection (has varied from €3.8 million to €10.3 million)

 Registration:

–    DUS tests: €90 – €2000 per year *

–    VCU tests: €1000 – €2550 per year *

 

Certification: 1% – 2% of total seed production costs *

 

* mostly shared or even fully paid by the public authorities

 €20 000 – €40 000 (but can vary from a few hundreds to one million euro)

 

For the simplified procedure of novel foods similar to existing products: between €900 and €2000
Average duration for approval –    For cultivation: 3 years*

–    For food and feed: 3 to 4 years

 Registration:

–    DUS tests: 2 years

–    VCU tests: 2 to 3 years

 

Certification: at least 2 years

 2 to 4 years

 

* based on the two completed applications of GMO maize

Relevance of “New Techniques” application in EU agriculture

 Given the enormous pressure that EU agriculture has to face, such as high population growth, climatic events and shrinking natural resources, the biggest challenge is how to meet increasing food demand (over 9 billion people by 2050), ensuring a high rate of productivity, without impacting the environment.

In this overall alarming context, the use of some of these NBTs can play a key role in allowing plant breeders to introduce in an efficient way, very precise, targeted genetic modifications, which have the capacity to fasten the selection speed. In other words, this translates into: low cost, ease of use and speed up of innovation processes, when compared with conventional plant-breeding techniques. Furthermore, NBTs are not only a valuable option for breeders, but these modern biotechnologies also allow to develop plant varieties that can adapt to climatic changing conditions.

To summarize, NBTs’ potential application in agriculture and food systems[13] can be identified in:

  • Precise and rapid alteration of crops to boost yields (genetic engineering is more predictable than conventional approach, given the targeted way through which direct modifications of an organism’s own genetic sequence are inserted)
  • Improved crop & vegetable resource efficiency
  • Reduced inputs needs
  • Plants with herbicide tolerance
  • Plants with pest or insect resistance
  • Plants with drought or flood resistance (climate change resilience)
  • Enhanced nutritional quality of food crops
  • Changes in composition of nutrients in plants (i.e. vitamins or fatty acids)
  • Food crops with reduced allergenicity (for example wheat without gluten)
  • Increased fruit and vegetable shelf-life

Focusing on the health-safety dimension, as highlighted by the SAM-HLG explanatory note “an assessment of safety can only realistically be made on a case- by-case basis and depends on features of the end product including:

unintended and intended effects, the species, the environment in which the product is used, the agricultural practice in question, the intended use and the exposure”.

Accordingly, NBTs should go hand in hand with good agricultural practices. This means that the potential benefits of these new techniques should be further evaluated by considering their complementarity to the conventional farming methods.

Positions of experts, EU institutions and Member States on NBTs

High Level Group of the Commission’s Scientific Advice Mechanism (SAM)

In October 2007, upon the request of the EU Member States, the European Commission set up an expert working group composed of nationally appointed scientists, in order to assess whether or which NBTs should be regulated by the GMO legislation. The working group examined the following techniques: ODM, ZFN, cisgenesis and intragenesis, grafting, agro-infiltration, RdDM, reverse breeding and synthetic genomics. [14]

The working group completed its work in 2012, but the final report was never released. While the experts unanimously agreed that plants developed through cisgenesis and intragenesis should fall under Directive 2001/18/EC, opinions were still pending on the regulatory status of the remaining NBTs. [15]

On April 28, 2017 the SAM-HLG released its explanatory Note in response to the request, formulated in the Scoping Paper (adopted by the HLG on 25 November 2016), by the European Commissioners for Health and Food Safety, Vytenis Andriukaitis and for Science, Research and Innovation, Carlos Moedas to provide an up-to-date overview and a comprehensive scientific comparison on new techniques in agricultural biotechnology, including their potential agri applications in both fields of synthetic biology and gene drives, considering the key characteristics of each of these new techniques.

The Note underlines, among the other, that:

  • “All living organisms are subject to alterations to their genetic information due to molecular processes which can occur spontaneously and due to exposure to environmental stressors”.
  • “All breeding techniques applicable in agriculture (conventional breeding techniques, CBT; established techniques of genetic modification, ETGM; and new breeding techniques, NBT) make use of genetic diversity and change whether naturally occurring or resulting from human intervention, in order to select or generate plants, animals or microorganisms that exhibit preferred characteristics”.
  • “There is heterogeneity within the NBT, and some similarities between some NBT and some CBT and some ETGM, and this is reflected in the variety of end products which can result from the employment of NBT. These similarities and differences relate to 1) molecular mechanisms; 2) the size, location and frequency of the resulting genetic changes (precise and intended vs. imprecise and unintended); 3) the extent to which ETGM are employed in NBT; and 4) the presence or otherwise of exogenous nucleic acids (DNA or RNA) in intermediate and end-products. These factors affect among others the extent to which the genetic changes are detectable”.
  • “The genome editing subset of NBT can produce precisely located alterations to DNA sequences, ranging from ‘point mutations’ (changes of one or a few nucleotides, which may be either random or specified) to the insertion of (endogenous or exogenous) genes. Other NBT, such as RNA-dependent DNA methylation (RdDM) make no changes to DNA sequences at all”.
  • “The end products of NBT may or may not contain exogenous DNA depending largely on the technique(s) employed. The development of an end product that involves the use of NBT may additionally use ETGM in one or more intermediate steps (e.g. in genome editing, RdDM), agro- infiltration, etc.), and as a consequence, exogenous nucleic acids may be present in intermediate products but not necessarily in the end product”.
  • “This variety and versatility of NBT explains why comparisons between NBT and CBT, and NBT and ETGM, in the Note are only made where relevant, and suggests that grouping techniques together as NBT may not be optimal for scientific or other reasons”.
  • “Differences between the groups of techniques (CBT, ETGM, and NBT), of relevance to unintended effects and efficiency, depend on the extent to which changes can be targeted, and how precisely they can be made. Changes made with CBT, in particular by mutation breeding in plants, require the screening of a large population in which changes have been randomly induced and the selection of desirable progeny. ETGM and NBT by contrast do not require such extensive screening as pre-defined changes are made to defined genetic sequences or to gene expression”.
  • “ETGM and NBT differ in the extent to which they produce ‘unintended effects’. Unintended mutations do not however always have phenotypic effects, and not all phenotypic effects are detrimental”.
  • “Random insertion of nucleic acids is characteristic of the employment of ETGM in plants and animals, and multiple insertion events can also occur at untargeted and therefore uncontrolled genetic locations. By contrast, the NBT of genome editing offer not only the ability to target insertions (resulting in comparatively fewer unintended effects on the expression of other genes or their disruption) but also the ability to make small, precise and specific changes, such as point mutations, which can also be observed in nature. The employment of the NBT of gene editing does not exclude ‘off-target’ effects, where a precise change is made to a genetic sequence identical or similar to that in which the change is desired, but in another location. By contrast with unintended effects resulting from ETGM and CBT, NBT off-target effects are rare, and in general, the frequency of unintended effects in NBT products is much lower than in products of CBT and ETGM”.
  • “The precision available from the employment of NBT and efficiency of their use means that some products can only be realistically obtained with the use of these techniques and not through the use of CBT or ETGM. The issues of unintended effects due to NBT (and in particular, genome editing related off-target effects) are the subject of much research at present as evidenced by the rapidly growing number of publications in the field”.
  • “The Note makes qualitative statements about the relative costs and speed of product development. The speed with which mutations can be introduced using NBT is often higher (in particular when using the CRISPR-Cas genome editing system) than that which can be achieved with ETGM and CBT, mainly due to the reduced need for time-consuming screening procedures and/or back-crossing, with correspondingly lower costs. The time and costs related to subsequent regulatory approval are not within the scope of the Note”.

This independent explanatory note, as also specified in the Scoping Paper, does not take a position; it does not cover legal issues and it does not make policy recommendations to policymakers.

The European Food Safety Authority (EFSA)
The European Food Safety Authority (EFSA) has published opinions on two specific types of NBTs and their safety assessment, namely on plants developed by cisgenesis and intragenesis, and on the Zinc Finger Nuclease 3 technique. EFSA concluded that the existing rules on risk assessments for GMOs are appropriate for cisgenic and intragenic plants, as well as for the ZFN-3 technique.

In its opinion on cisgenesis and intragenesis, EFSA argued that cisgenic plants have similar risks than plants bred with conventional breeding techniques, but that intragenic (and transgenic) plants can involve additional risks. It notices that all of these breeding techniques can produce ‘variable frequencies and severities of unintended effects’, which cannot be predicted beforehand and need to be assessed on a case-by-case basis. In general, however, such unwanted genetic traits can be removed by breeders during the selection and testing phases. EFSA concludes that the risks of these NBTs for human and animal health will depend on factors such as the extent to which the plant is cultivated and consumed. [16]

In its opinion on Zinc Finger Nuclease 3, EFSA found that this technique can minimise the risks of genetic disruption compared to the currently used transgenesis methods, as it allows a more precise insertion of DNA into a defined area of the plant genome. These techniques would also involve less changes in the plant genes than most mutagenesis techniques, and when these changes do occur, they would be similar to those produced by conventional breeding techniques. [17]

The Joint Research Centre (JRC)

In 2011, the Joint Research Centre (JRC) of the European Commission published a report on ‘New plant breeding techniques: State-of-the-art and prospects for commercial development’, which includes an assessment of the intended and unintended changes and effects of NBTs.

The JRC concludes that it is currently impossible to identify the genetic modification for plants bred with the following NBTs: ZFN-1 and 2, ODM, RdDM, grafting, reverse breeding and agro-infiltration. On the condition that information on the introduced DNA is provided, it is however possible to identify the genetic modifications created through ZFN-3 technology, cisgensis/intragenesis and floral dip. Without any prior knowledge on the DNA introduced by the NBT, it is not possible to identify genetic modification in the modified plants.

The European Parliament
On 25 February 2014, the European Parliament issued a resolution on ‘Plant breeding: What options to increase quality and yields?’, in which it stressed the importance of developing and using NBTs that respond to societal and agricultural demands and being open to the new technologies available. The Parliament also expressed concerns over the delayed regulatory assessment of NBTs and called on the Commission to clarify their legal status as a matter of urgency. [18]

France

In France, the Environmental Code excludes organisms obtained through mutagenesis from the GMO regulation through Article D.531.2. Nine organisations and trade unions have challenged the legality of this article and requested its repeal to the Prime Minister, who in turn has requested the Council of State (Conseil d’Etat) to repeal the article and pronounce a moratorium on herbicide-tolerant plant varieties obtained through mutagenesis.

On 3 October 2016, the Council of State referred 4 questions to the European Court of Justice (CJEU), related to whether a variety of herbicide-resistant rapeseed obtained through New Plant Breeding Techniques should follow the GMO approval process. These questions especially address the NBTs of ODM (oligonucleotide directed mutagenesis) and SDN (site directed nuclease), and revolve around the following issues:
1) Do organisms obtained through mutagenesis constitute GMOs, and are they therefore subject to the rules of Directive 2001/18/EC on the deliberate release into the environment of genetically modified organisms? Or are these organisms, or some of them, exempted from the precautionary measures, impact assessment and traceability requirements included in this Directive?

2) Do varieties obtained through mutagenesis constitute ‘genetically modified varieties’ subject to the rules laid down by Directive 2002/53/EC on the common catalogue of varieties of agricultural plant species, or are they exempted from the obligations laid down in this Directive?

3) If organisms obtained through mutagenesis are excluded from Directive 2001/18/EC, does this mean that EU Member States are not allowed to subject these organisms to the obligations laid down by the Directive, or do they have a margin of appreciation to define the regime applied to these organisms?

4) Does the precautionary principle, guaranteed by Article 191.2 of the TFEU, call into question the validity of Directive 2001/18/EC? Should we take into account the evolution of genetic engineering processes, the emergence of plant varieties obtained through these techniques and the current scientific uncertainties about their impacts and the resulting potential risks for the environment and human and animal health?

The Council of State will rule on this matter after receiving the opinion of the Court of Justice, which is expected in about 18 months. [19]

More recently, on 29 March 2017, the French Parliamentary Office for evaluation of scientific and technological options (OPECST)[20] – assisted in its work by a Scientific Committee – issued a report on “the economic, environmental, health and ethical challenges of biotechnology in the light of new research tracks”, which adopts an holistic perspective on the topic, by examining research in biotechnology, applications of new biotech to human medicine, to the environment, agricultural applications (NBTs), legal and security issues as well as risk assessment and public discussion.

The Report was published after more than a year of study. The overall process gathered a wide variety of actors: from scientists, doctor and academics, to politicians, industries and representatives of civil society.

Having developed this holistic approach, “the rapporteurs support the development of new breeding techniques, which will happen in any case outside Europe”.

The rapporteurs call for greater priority to be given to research in this area and decisions to be taken to avoid EU researchers and companies to relocate and so the EU and its Member States to lose ground at global level on this key economic sector.

Regarding the potential role of new breeding techniques applied to agriculture, the rapporteurs, after consultations with scientific experts, concluded that :

  • “New Plant-Breeding techniques should be considered on a case-by-case basis to fully understand the impact of a new genetic trait on the environment”;
  • “Targeted genome modifications techniques could have revolutionary applications in agriculture, as consisting in the very precise introduction of genetic traits, which enable to accelerate the selection speed. Furthermore, they could occur naturally and are virtually undetectable”;
  • “NBTs are complementary to the other agroecology methods. They can be appropriate for both big and small producers”

Overall, the rapporteurs specify that “new breeding techniques are not GMOs within the meaning of the EU Directive 2001/18” and that “assessments must be adapted to the risks involved”.

With regard to the public opinion dimension, and by recognizing the difficulties that the process would involve, they consider necessary to engage the public in a renewed debate on these new biotechnologies, “even if they are still at an experimental stage”, by adopting a multidisciplinary approach.

Germany

On Thursday 24 November 2016, Minister of Agriculture Schmidt (CDU/CSU) announced that the Federal Government adopted a draft amendment to the Genetic Engineering Act (18/10459). Under the proposal, organisms obtained through new breeding techniques are not necessarily regarded as GMOs; whether the techniques would fall under the Genetic Engineering Act or not would be assessed on an individual case-by-case basis, and will be both process- and product-related.

The views on NBTs also remain highly divided within the German government. For instance, a legal analysis commissioned by the German Federal Agency for Nature Conservation concludes that the organisms produced by NBTs fall under the scope of Directive 2001/18/EC. The analysis based this judgement on the fact that genetic modifications are carried out purposefully by NBTs and lead to changes in the organisms which do not occur naturally. [21] Meanwhile, the German Federal Office of Consumer Protection and Food Safety argues that certain techniques – ODM and CRISPR-Cas9 – do not constitute GMOs in the sense of the Directive, because the modifications can also be generated through conventional mutagenesis techniques and cannot be distinguished from them. [22]

Other EU Member States

Opinions on the legal status of the various NBTs also differs widely between other Member States and their national government agencies.

In 2015, the Board of Agriculture of Sweden announced, after questions from Swedish researchers, that some Arabidopsis plants that were developed using the CRISPR-Cas9 technology do not fall under the EU definition of a GMO and thus fall outside the scope of the Directive.

In the United Kingdom, the Advisory Committee on Releases to the Environment indicated that only plants obtained through cisgenesis and intragenesis should be recognised as GMOs. On the contrary, the Commission on Genetic Modification (COGEM) of the Netherlands has argued that cisgenic plants should be exempt from the GMO Directive, as this technique only inserts genetic elements from the same or cross-compatible plant species.

Furthermore, the crop development company Cibus has also asked six countries for their opinion on the ODM technique, namely Finland, Germany, Ireland, Spain, Sweden and the United Kingdom. All of these Member States told Cibus that they do not consider the ODM-technique to lead to a GMO as defined by EU legislation.

 

ANNEX: Short explanations of technical NBT terms

1) Site-Directed Nucleases (SDN)

SDN refers to the general technology of using a DNA-cutting enzyme (nuclease) to generate a targeted break in the DNA. The aim is to take advantage of the DNA break and the plant’s natural repair mechanisms to introduce targeted changes in the plant characteristics.

The various applications of SDN are usually called SDN-1, SDN-2 and SDN-3, depending on the specific DNA break and repair process. Examples of SDN techniques include Meganuclease (MN), Zinc Finger Nuclease (ZFN), Transcription Activator-Like Effector Nucleases (TALENs) and Clustered Regularly Interspaced Short Palindromic Repeat (CRISPR).

2) Oligonucleotide Directed Mutagenesis (ODM)

The ODM technology uses a site-specific oligonucleotide (an organic molecule that forms the basic building block of DNA) to cause a specific single-base change to one or only a few bases of the DNA. The oligonucleotide is identical to the DNA sequence in the plant, except for the single base-pair change. The plant cell will repair this ‘mismatch’ by incorporating it into its own DNA sequence, resulting in a desired specific change in the plant’s genome (the oligonucleotide is degraded by the cell after a short period of time).

3) Cisgenesis/Intragenesis

Cisgenesis and intragenesis refer to the introduction of a DNA fragment into a plant that is derived from the same or closely related species, in order to transfer useful genes.

While cisgenesis refers to the introduction of whole unchanged genes, intragenesis uses a new combination of DNA fragments taken from the species itself or from compatible plant species. As such, only cisgenesis can achieve results that are also possible through traditional breeding methods (although in a much shorter time period), while it also entails less risks for unintended effects than intragenesis.

4) RNA-dependent DNA methylation (RdDM)

RdDM uses epigenetic processes to change the activity of targeted genes without changing the DNA itself. As such, it regulates the gene expressions induced by developmental or environmental changes, for instance drought resistance when plants are exposed to drought conditions. These changes in plants are mediated by small interfering RNA (hence the name RNA-dependent methylation), and may persist for a number of generations, after which the effect will gradually fade away.

5) Grafting (non-GM scion on GM rootstock)

Grafting involves attaching a non-genetically modified scion (the upper part of the plant) onto a genetically modified rootstock. Examples include fruit trees, grapes, tomatoes, cucumbers, and roses.

6) Reverse breeding

Reverse breeding is a method in which the order of events leading to the production of a hybrid plant variety is reversed. The resulting hybrid plant is genetically similar to the original plant and does not contain foreign DNA.

7) Agro-infiltration

Plant parts, mostly leafs, are inserted in the plant through liquid Agrobacterium tumefaciens in order to transfer desired genetics or genetic expressions to the genome of the plant. The response of the plant is monitored to select plants for further breeding. This technique is mainly used to create resistance for crops against diseases.

 

[1] European Parliamentary Research Service, New plant-breeding techniques: Applicability of GM rules, 2016, p. 2.

[2] European Commission, New plant breeding techniques, https://ec.europa.eu/food/plant/gmo/legislation/plant_breeding_en.

[3] EPRS, op.cit., pp. 1-2.

[4] Joint Research Centre of the European Commission, er the genetic characteristics of plants-the-art and prospects for commercial development’evJRC Scientific and Technical Reports, 2011.

[5] EPRS, loc.cit.

[6] Library of the European Parliament, Seeds and other plant reproductive material: towards new EU rules, 2013, pp. 2-3.

[7] European Commission, Evaluation of the Community acquis on the marketing of seed and plant propagating material (S&PM), 2008.

[8] EFSA, Novel and traditional food: guidelines finalised, https://www.efsa.europa.eu/en/press/news/161110.

[9] European Parliamentary Research Service, Updating rules on novel foods to keep up with scientific advances, 2015, p. 2.

[10] EFSA, loc.cit.

[11] European Commission, Authorisations, http://ec.europa.eu/food/safety/novel_food/authorisations_en.

[12] European Parliamentary Research Service, Updating rules on novel foods to keep up with scientific advances, 2015, p. 3.

[13] European Parliamentary Research Service, New plant-breeding techniques: Applicability of GM rules, 2016 p. 2

[14] European Commission, loc.cit.

[15] EPRS, op.cit., p. 4.

[16] EFSA, 退Scientific opinion addressing the safety assessment of plants developed through cisgenesis and intragenesisn, EFSA Journal, Vol. 10, No. 2, 2012.

[17] EFSA, 退Scientific opinion addressing the safety assessment of plants developed using Zinc Finger Nuclease 3 and other Site-Directed Nucleases with similar function’, EFSA Journal, Vol. 10, No. 10, 2012.

[18] European Parliament, Resolution on “Plant Breeding: What options to increase quality and yields?” 2014, p. 6.

[19] Feed Navigator, France asks ECJ to decide if plants from new breeding techniques are GMOS, http://www.feednavigator.com/Regulation/France-asks-ECJ-to-decide-if-plants-from-new-breeding-techniques-are-GMOs.

[20] OPECST, which was set up by Act n° 83-609 of July 8, 1983, following a unanimous vote of the French Parliament, aims ” to inform Parliament of scientific and technological options in order, specifically, to make its decisions clear “. OPECST ” collects information, launches study programmes and carries out assessments”. More details available here: http://www.assemblee-nationale.fr/11/documents/index-oecst-gb.asp

[21] German Federal Agency for Nature Conservation, Legal Analysis of the applicability of

Directive 2001/18/EC on genome editing technologies, 2015.

[22] German Federal Office of Consumer Protection and Food Safety, Opinion on the legal classification of New Plant Breeding Techniques, in particular ODM and CRISPR-Cas9, 2016.

BREXIT AND TRADE: A DOUBLE CHALLENGE

The political shock of Brexit has yet to be translated in actual economic and commercial terms. The uncertainty as to which will be future model of the trade relationships between the EU and the UK is still paramount. Will we see a hard or a soft Brexit? To which degree will the UK retain access to the single market?

Beyond these uncertainties it is however possible to shed light on a number of factors that will shape that relationship in the agri-food sector. There are a number of hard facts and reasonable assumptions that point towards a substantial different scenario for the EU trade with the UK.

This paper examines the consequences of Brexit for the EU-27 agri-food sector. It also explores the expected outcomes of EU trade openings for a number of sensitive sectors, and how both might have a cumulative impact.

Brexit and enhanced trade openings are a double challenge for a sector that is already showing a number of strains, that is investing less than what it should, that has experienced lower productivity and seen revenues stagnate. 

I) Brexit: Building a new EU-UK agri-food relationship

The agriculture and food sector is by far and large the field in which the EU-UK relationship is the most integrated in political, economic and budgetary terms.

For more than 40 years (since UK’s accession to the EU in 1973), the Common Agricultural Policy and the EU norms and standards have been the reference point for the British agri-food sector and the British input in the building process of both the CAP and the EU standards has been far from negligible, not to say decisive.

As a result, beyond speculations on the new relationship between London and Brussels, it is already clear that when Brexit will materialise, it will lead to a serious reshuffling of the agri-food landscape both within the UK and all across the EU, both politically and economically.

Politically, the CAP and the future EU standards will be negotiated without the British perspective in the negotiation room.

Economically, the EU agri-food sector will continue to have a major outlet in the UK. Nevertheless, much more competition on the UK’s internal market is to be expected from global competitors, with cascade effects on the internal market irrespective of what will happen in terms of the future EU-UK trade deal.

Finally, the Brexit will be a serious hit for the overall EU budget, although the EU financial ministers will have to keep in mind June’s 1984 agreement (Fontainebleau) on the British rebate, stemming directly from the low rate of return for London when it comes to the Common Agriculture Policy. The particular issue of the CAP budget is discussed in more detail in another paper to the Forum.

This paper provides an overview of the current relationship between the EU and the UK.

It does not attempt to offer advice to the Brexit negotiations. Nor does it speculate on what will be the model of the future relationship – Norwegian, Swiss, Turkish or a new type of compromise. The paper has however to make a few assumptions, deemed to be reasonable. The first assumption is that there will be a Brexit. The second assumption is that the UK will keep a liberal approach in terms of seeking trading opportunities.

This paper attempts at examining the likely consequences of Brexit to the EU’s agri-food sector, and advise how the EU should cope with the new challenges.

  • “First, Free Trade” (UK’s Prime Minister)

“First, free trade (…) As the UK leaves the EU, I have set out our ambition to become the global leader in free trade. The leaders from India, Mexico, South Korea and Singapore said that they would welcome talks on removing the barriers to trade between our countries. And the Australian trade minister will visit the UK to take part in exploratory discussions on the shape of a UK-Australia trade deal”.

Theresa May, G20 Summit, 5 September 2016

To secure the fullest possible access to the EU internal market will be a top priority for the UK authorities in the negotiations to come with the EU, the financial passport being the Grail to obtain for the City.

Agriculture and food have never been a prominent topic across the Channel. A complete U-turn would be surprising, which means that agriculture and the agri-food sector will from the UK side be open to full-fledged free trade arrangements, with the EU or with other trading partners across the world.

The consequences of the UK position is that irrespective of the model of the future UK-EU relationship the UK market will be a new market for EU products as they will face much more competition from other suppliers.

The UK market is today protected by the EU common external tariff, and by a host of EU sanitary and other regulations. While the EU market is already open to some FTA partners, and other FTAs are under negotiation, it is likely that the UK will in the future be open to other countries than those negotiating with the EU and will agree to freer terms of trade in agriculture with the countries with which the EU is negotiating. This is a relevant point, as the EU has protected sensitive sectors in agriculture (cf. meats, sugar) in previous deals and is expected to do so in the future with the likes of the US and Mercosur.

Whatever the result of the EU/UK negotiations, both the internal policy shift in the UK and diverging trade strategies between the EU and UK will lead to medium and long terms changes for the EU agri-food sector. This should not be underestimated, even more following the clear commitment of the new British leaders to create the biggest open economy in the world. This strategy will make it difficult a full-free trade agreement between the EU and the UK without any safeguards, as some of the following sectoral examples will highlight. Otherwise, London’s trade strategy would de facto become the EU’s strategy, like it or not.

  • General overview

60% of the agriculture and food products consumed in the UK are imported. And nearly 75% of these are coming from the EU.

The UK is a major outlet for traditional agri-food export countries such as the Netherlands (€6.9 billion), Ireland (€5.2 billion), France (€5 billion) and Germany (€4.5 billion).

The agri-food sector in Spain (€3.2 billion), Belgium (€2.6 billion), Poland (€1.5 billion) and Denmark (€1.4 billion) are also exposed to Brexit with certain sectors facing serious risks.

A cautionary word is appropriate as the figures for The Netherlands and Belgium might reflect to a large extent the relevance of their ports, rather than domestic production. But that does not diminish the finding that many EU countries have substantial trade interests in the UK market.

Import from the UK

(Euros)

 Export to the UK

(Euros)
Austria 94.318.746 251.526.706
Belgium 617.756.600 2.604.172.578
Bulgaria 56.194.333 51.222.306
Croatia 19.447.709 7.098.784
Cyprus 86.165.948 71.195.244
Czech Republic 107.017.996 156.908.534
Denmark 362.851.241 1.462.364.846
Estonia 54.957.773 3.803.545
Finland 119.437.681 31.929.068
France 2.441.796.662 5.067.814.230
Germany 1.397.286.506 4.506.542.294
Greece 131.784.989 303.757.531
Hungary 63.185.940 188.578.696
Irish Republic 3.985.230.782 5.228.378.706
Italy 562.220.945 2.895.689.405
Latvia 83.549.302 21.283.486
Lithuania 19.295.228 109.494.990
Luxembourg 11.347.879 14.521.458
Malta 59.764.250 8.873.363
Netherlands 1.680.708.365 6.890.781.462
Poland 307.409.448 1.530.058.102
Portugal 227.016.503 288.970.984
Romania 43.612.159 129.803.664
Slovakia 16.756.322 61.474.370
Slovenia 12.854.150 17.885.818
Spain 1.010.320.620 3.221.110.105
Sweden 318.031.451 375.272.432
Total 13.890.319.530 35.500.512.707

Table : Overview of EU/UK agri-food trade in 2015 (in EUR) (Source: HMRC, UK Gov)

  • Sectorial overview of the EU-UK post- Brexit trade challenges

Meat products: a further chill for the EU beef community

Nearly €1 billion of EU beef meat products are routed to the UK every year, mostly from Ireland (more than €700 billion). This is an additional sword of Damocles for the whole EU beef sector, which is already under pressure from the EU trade agenda while facing a structural crisis at the same time.

It is clear that the real game for the future of this trade flow is not tied with the EU/UK negotiations but rather more with the UK/rest of the world Free Trade Agreements to come. It is indeed hard to believe that UK FTAs with countries such as Australia, Argentina, Brazil or the US would not pave the way for a significant share of imported beef meat from these countries in the 65 million people British market. EU exporters will in the future have to compete with the most competitive meat producers in the world. It is therefore illusory to think they will keep their UK market share, on the contrary they should expect it to shrink significantly. In addition, these FTAs could have an indirect effect, by pushing Irish beef producers to find new outlets in the world market but also on the EU internal market.

Danish, German, Dutch and to a lesser extend Spanish and French pig producers will also likely be affected, the UK being a €670 million market for EU exporters. Additional bad news coming from the UK would come on the top of difficult conditions with Russia leading to an enhanced dependence on exports to China.

In turn, the UK is expected to pay a special attention to the €350 million trade flow of sheep meat exported or re-exported, in particular in the context of its future new bilateral relations with the New Zealand. A very significant share of this trade flow is channelled to the French market (€190 million). New Zealand producers benefit from a 280.000 tons tariff free quota to the EU. They see the Brexit as an “opportunity in time of change”.

For the meat products, the cascade effect of trade agreements will have to be carefully assessed. Serious safeguards on future UK exports will be needed to avoid that a UK open to the global meat market does not lead to a de facto opening of the EU internal market to the world market.

Wine and spirits: New World wines and Scotch whisky

For more than 20 years EU wine producers have been working hard to stop the drain of their market share on the British market. Their efforts to repel the New World onslaught could be short lived.

The market seems to have stabilised for traditional EU wine makers at €1.8 billion, with France leading the way (880 million), followed by Italy (€540 million) and Spain (€228 million).

The UK will also be willing to secure a preferential access to the internal market for Scotch whiskies, which is indeed particularly sensitive from an economic point of view – not mentioning the Scottish push for a new independence referendum. This tariff line (more than €1.2 billion) represents 10% of the UK’s agri-food exports, with France, Spain and Germany being the main outlets.

The willingness of the UK to open its market to New World countries for the wine sector will seriously reduce the attractiveness of the British market for the EU wine sector, and likely further erode its market share.

Sugar and sugar products: will EU-UK producers dig up the hatchet?

Having the UK open to the world market will change drastically the EU sugar landscape, and the difficult balance reached between sugar beet and cane refiners. The long-standing tensions between the continental sugar beet cooperatives (German, French and Dutch) and the US owned cane sugar refining company (American Sugar Refining – Tate&Lyle, which owns, in London, 25% of the total refining capacity in the EU)are about to rebound.

The fact that David Davis, UK State Secretary for exiting the EU, is a former Senior Executive of Tate&Lyle might not help for peaceful talks on this file.

On one hand, the EU sugar producers are enjoying an important outlet in the British market (€880 million in 2015). On the other hand, Tate&Lyle is poised to regain some competitiveness from UK FTAs with sugar cane producing countries. In this case, assuming that the beet sugar producing company maintains its production, the British market would most probably be in a position to switch from a deficit to a surplus position.

Taking into account that raw sugar refining into white sugar is not considered as a substantial transformation allowing operators to rebrand it as “local products”, restrictions via current EU strict rules of origins for the sugar sector will need to be also implemented to the UK to avoid a damaging triangular trade in a post-Brexit context.

Milk and milk products: more competition on a big market

On paper, the challenge of the Brexit for the milk sector is more than significant (€2.5 billion EU exports). Once again, Ireland (€718 million) but also France (€546 million), Germany (€345 million), the Netherlands (€186 million) and Italy (€167 million) have serious interests in the British market.

Even if the trade balance is not in its favour, the UK also has a significant market position in Ireland (in particular via Northern Ireland) and France. In total, nearly €1 billion of milk products are exported or re-exported from the UK to the EU internal market.

An UK FTA with New Zealand and with the US would inevitably bring added competition in the UK market for EU exporters, which could face an erosion of their market share. The losses in the UK market could lead to increased pressure on the EU-27 internal market, which is the last thing the sector needs after the current (and yet unfinished) dairy crisis.

Fruits and vegetables: is carbon foot print sufficient argument for EU origin?

With about €4.5 billion of fruits and vegetables exported from the EU to the UK, it’s clear that EU producers are exposed to the Brexit consequences. Spain (€1.6 billion) and The Netherlands (€ 1 billion) are by far the most exposed.

Many other countries are also concerned, such as Italy, Belgium, Ireland, Poland, France, Germany, Greece or Cyprus, which is traditionally exporting potatoes to the UK (€6 million).

The challenge for EU exporters could come from freer access to the UK market from exporters in North Africa.

Nevertheless, the proximity to the market should allow EU producers to keep strong positions, even under enhanced competition with the rest of the world. 

 II) Trade: the challenges ahead

 Trade deals have become a topic of heated debate and increased public scepticism on what would be the benefits for the common citizen.

The difficulties that even the less broader and controversial trade deal with Canada (CETA) has faced pale as compared to the reactions to TTIP, leading to at least further delays in concluding the negotiations, and even questioning its viability in the current form. The fact that the UK will in the future no longer be a member of the EU also diminishes the size of the EU market, and in some cases alters the EU trade priorities. Brexit thus inevitably leads to a re-evaluation of the balance of current negotiations.

The future of the trade negotiations lies squarely on the evolution of the political scenario in both sides of the Atlantic. A lot will depend on who wins the next US presidential elections, on the priorities of the new US Administration. But the political scenario in the EU is also becoming more complex and less trade-friendly.

Other than making hazardous forecasts on whether the political appetite for trade deals will falter or not, this paper looks at the on-going and proposed trade negotiations and examines what would be their expected impact in the agri-food sector. The sector will exercise some influence on the viability of the trade talks, but it will likely not be a determinant one..

This chapter examines the challenges the EU agri-food sector faces from current and prospective trade negotiations, on top of Brexit.

  • Concerning concluded FTAs and tariff rate quotas

Existing FTAs have been negotiated for a market that included the UK, and tariff rate quotas (TRQs) for sensitive products have been calculated accordingly. Concerning sugar this is especially significant: the quarter of the raw sugar imported in the EU is now entering via the UK.

The EU without the UK will significantly change that picture. Logically the UK share in current FTA and TRQ’s should be extracted, otherwise the existing quotas would no longer reflect the balance of the negotiations and would overburden the EU-27 market.

In addition to that, WTO has implemented rules when a new member is acceding to a custom union (Article XXIV of the GATT). The EU enlargement (including the enlargement with the UK in 1973) has therefore led to concessions to compensate for tariff increases: for sugar, this resulted in CXL quotas. By the same token it would be logical to extract the UK share from these quotas.

However the consequences of a member leaving a custom union in existing FTAs or Art. XXIV concessions is not foreseen by WTO rules. WTO rules are designed to open up markets, and its provisions are geared towards that goal. Freer trade terms are set in stone and reversals are not part of the rules (or are subject to dispute settlement).

In the context of the Brexit negotiations the Commission should seek to divide the WTO import quotas with the UK to reflect the new reality, and jointly present the new arrangements to the other WTO members which have negotiating rights

  • Concerning current and prospective trade negotiations

It is worth reminding that even if the EU has many other trade interests beyond agriculture, the sector at large represents a significant share of the EU’s GDP and employment. The future of the sector is vital for the EU as a whole. It should be recalled in this context that the EU has a Common Agriculture Policy that should help frame that future. The CAP is a unique feature in the EU policy landscape, and it should be designed in a way that helps the sector coping with the many challenges it faces.

Without pretending to present a full economic analysis of the aggregate consequences of the trade deals being negotiated or considered by the EU (a Commission evaluation paper is expected soon), this paper looks at the two biggest trade deals in terms of impact in the sector (TTIP and Mercosur) and draws some useful conclusions as to what would be the main challenges and how the EU should address those.

Farm Europe has already examined TTIP and Mercosur and made appropriate sectoral recommendations. Now the time has come to go further and extract broader policy proposals that would help better shape the EU sector, make it more resilient and competitive.

Other than TTIP and Mercosur, and assuming CETA will be applied soon as it looks likely, the EU has a number of ongoing trade negotiations from which those with India, Japan and if agreed by the EU Institutions, Australia and New Zealand, will add to the impact of the former two.

That impact is far from identical, each negotiation has its specificities. Within each trade deal the sectoral impact might be diverse. But that diversity should not prevent us from drawing some conclusions.

The trade deals bring challenges and opportunities, depending on the sectors and the countries. There are sectors where broadly speaking the EU is poised to benefit – wine and spirits, olive oil, processed products. Other sectors offer a much more complex picture, either because they face countries at different stages of competitiveness (the case of dairy products or sugar) or because the EU is on average on par with those countries.

There is however a sector where with one notable exception (Japan) the EU will face strong competition from more market openings – the meat sector. While it is undeniable that Japan could be an important outlet for EU pork exports in particular, the global outlook from the combined FTAs is the opposite for beef and poultry, and even the overall balance for pork might be negative. US, Canada, Brazil, Argentina, Australia, are all competitive producers of beef, and for some pork and poultry as well. Judging from the terms of the agreement with Canada the sector should expect in case TTIP and Mercosur are concluded, not to mention the FTAs with Australia and New Zealand, a very significant surge in imports and a further deterioration of the trade balance.

Where the picture is less clear, on dairy or sugar for instance, the devil is in the details. On dairy the benefits expected from a Mercosur or Japan deals could be questioned by the Australia and New Zealand deals to a certain extent. Not to mention that the US sector has a known potential to develop, adapt and compete.

On sugar the potential benefits in the Japan FTA seem limited, as Japan’s sugar market is highly controlled. Where there is little doubt is on the terms of trade with Mercosur (Brazil) or Australia that can be dramatic to the survival of the EU sector. Brexit could also become a key factor in the future of the EU sugar market, adding to the negative impact of the FTAs.

In all the other sectors, even in those where the EU is poised to gain like the wine sector, more competition will be brought in. New World wine producers have made significant inroads in world market share, and they will also benefit from freer trade in the EU.

To summarize, further trade openings will bring a surge in imports in the meat sector, a big shock in the making to the sector which has structural problems of its own. The losses in the UK market as a result of Brexit will compound the negative effects of FTAs under negotiation or to come.

The sugar sector will face further competition from imports and a loss of the UK market, to an extent that will depend on the specific conditions agreed for the FTAs and for the future trade relations with the UK. On the other sectors the results will very much depend on the terms agreed, but the underlying force will be more competition in the EU market.

The EU should not just wait and see what the consequences might be. The CAP is a great policy if properly designed. Rather than pursuing a line of “business as usual” the decision-makers would be well advised to anticipate the challenges from further trade openings that they are promoting.

3) Relaunching the EU trade policy on a new governance

Brexit may be the occasion to evaluate the opportunity to review the way that mandates for negotiations are given to the European Commission.

Up to now, mandates are approved without review clauses, even if given a long time ago and in a significantly different context (e.g. Mercosur).

Worth reminding that agreements can only be adopted (by the European Parliament and Member States parliaments, if needed) as a whole – or not. In case of failure to adopt, the reliability of the EU Trade policy can be brought into question by partner countries, weakening the European attractiveness already undermined by the loss of the UK.

In this way, and paradoxically, Brexit may be the opportunity to relaunch the EU trade policy on a new governance, more transparent and thus more acceptable to the civil society.

III) CONCLUSIONS

The common line to the challenges Brexit and freer trade is enhanced competition for the EU-27 agri-food sector across the board, and a very daunting challenge to the beef and sugar sectors.

The opportunities that freer trade will offer should be recognized, but they do not invalidate the challenges ahead.

As already said above, the EU agri-food sector has an asset that should be fully used to reinforce the sector, make it more resilient and competitive: the CAP.

The question is whether the current CAP is designed to meet those challenges. The question is whether a CAP designed around a policy of decoupled direct payments offers the sector what it needs.

The best answer to more competition from other countries is to improve your own position. In order to improve its position the EU agri-food sector should seek to improve its competitiveness, increase its market share at the global level and become more resilient to external shocks.

To improve competitiveness, and indeed also to protect the environment, the sector needs more and better targeted investment.

To improve its resilience to external shocks it needs policies that protect incomes against climatic and economic events.

That is the subject of discussion in other panels in the Forum. But both Brexit and trade add to the need of policy reform in the EU.

Forging a new ambition for the EU’s suckler herd

The European beef sector is one of the most important agri-food sectors in Europe. It is characterized by great diversity and it is at the foundation of the economic fabric of many rural areas across the European Union. It provides a great number of jobs at each step of the value chain, from the farm to the sale point, encompassing a range of intermediaries, supporting industries as well as sales & retailing.

In this context, the suckler herd – an important segment of the EU livestock sector – is a key player, not only because it provides more than one third of the beef consumed in the EU, but also for its strategic role in very specific EU areas, – mainly located in Ireland, France, the United Kingdom, Spain, Italy, Portugal and also, more and more, in Poland. Niche market is also present in many other EU Member States, with demand rising in countries like Finland and Sweden. It is also important to highlight that in many areas, this specialized breeding system cannot be replaced by other farming activities. This is due to the agronomic profile of the land.

However, the contribution of this specific sector to the EU economy is too often underestimated.

When compared to other breeding activities, the EU beef sector production has distinctive traits, which make it particularly exposed to external factors:

  • Tight margins, when looking at producer’s prices
  • Generally low level of profitability, when considering the complexity of the production systems overall
  • Low level of elasticity
  • High global competitiveness vs low internal competitiveness (structurally between 70% to 90% of the incomes in the beef sector depend on CAP subsidies)
  • Animal welfare concerns supported by activists’ campaigns;
  • A mix of positive and negative environmental impacts (biodiversity, carbon sequestration and emissions).

In addition to this, profound changes in consumption, technologies, public policies and international trade are combining together to make the future unpredictable, or at least difficult to foresee, in particular due to:

  • the threat of a more intense competition from the bilateral agreements agreed (Canada) or currently being negotiated – namely Mercosur, Australia, New-Zealand, not mentioning the US;
  • the lifting of milk quotas, which is disrupting the sector’s equilibria through renewed growth in the dairy herd, which already supplies two thirds of the beef consumed in Europe.

Consequently, the sector is facing a double challenge:

  • Building a clear and concrete vision for the future and, to do so, devising a strong market-driven business strategy for the sector as a whole. This strategy must enable the industry to seize opportunities both within Europe and beyond, as well as help it to adapt to changes in demand.
  • Designing and contributing to build the most suitable policy tools to support and accelerate the implementation of this business strategy, valorizing the wide diversity of culture and economic models in Europe in this specific sector and laying down the foundations for a common European approach, with flexible and relevant tools developed and adapted to this diversity.

Yet, despite the efforts undertaken, especially through the Common Agricultural Policy, the sector has been struggling with recurring structural crises for almost three decades now. The impacts of these crisis have affected different regions in the EU, at different times and in different ways, depending on their production models.

In this context, it is more than urgent, on the EU market, to valorize better products, to build efficient meat supply chain focusing on modernization, structuration as well as viability and to cope with the challenge of market volatility. While, on the Global market, to ensure effective promotion measures and a meaningful trade agenda, always bearing in mind the high sensitivity of the sector. The EU has definitively a key role to play as a supplier of safe and quality meat products.

The EU beef sector clearly has the capacity to seize the growth opportunities stemming from the increase in beef meat global demand forecasts for the upcoming years.

Main concerns arising from the sector

 The current market situation for bovine meat is quite alarming both in terms of economic and societal aspects.

Starting from the last years, a steady increase in slaughtering (linked to the difficulties experienced by the dairy sector), so a production increase, has affected producer’s prices consequently.

The situation in Ireland, the Netherlands and Poland provides an overview of the on going economic developments.

In 2017, Ireland will experience 200,000 more cattle for slaughter than in 2015, in addition to a chaotic situation on traditional export markets (Russia, Turkey) and the sharp fall of the pound in the wake of the Brexit referendum in the UK, which is the biggest export market for Irish beef producers.

The same type of impact is expected in the Netherlands. This is due to the deliberate choice of the NL milk producers to increase the dairy herd in 2015 and 2016, ahead of the implementation of the new domestic regulation on Nitrogenous effluent release. As a consequence, at the end of 2016 data showed that there were already 160,000 more NL cattles for slaughter than in 2015.

On top of this, Poland appeared as a newcomer with strong ambitions in the sector. Because of the milk crisis and the strong competition of western milk producers, many polish producers are converting their milk herd into suckler herd. Between 2004 and 2016, the polish beef meat production register a 66% surged, Poland becoming the 7th EU producing country, exporting 90% of its national production. (Poland being traditionally a pig meat market).

Furthermore, another issue of concern is the surge of young calves from the dairy herd, which are not deemed as suitable for viable beef production system. One of the few options is to export them.

Accordingly, the links between dairy and beef sectors should be tackled thoroughly, since outlooks for the first one are positive, especially in terms of profitability.

The forecasted expansion of the dairy herd should not happen at a detriment of the specialized beef herd.

At the same time, the beef sector is facing two communication challenges:

  • On one hand, some big EU competitors – in particular from South-America – are spreading the idea among EU consumers, via aggressive trade and promotion actions, that quality beef = non-EU meat.
  • On the other hand, activists are challenging beef meat consumption as such building their campaigns on misinterpretation of nutrition science and hard hitting animal welfare actions.

The EU should work actively against these two highly dangerous and false misconceptions and messages from both an economic and health point of view.

What ingredients would make an effective policy?

 A certain number of ideas come up regularly in discussions at EU level and they could be definitely considered and evaluated as a possible basis for a successful European business strategy for the EU’s suckler herd. Specifically, on the basis of currently available information, and bearing in mind the challenges we can foresee, Farm Europe believes that the following could be key ingredients in a common European strategy, and that they could offer a starting point for a discussion on such strategy:

  1. Market segmentation (ensuring production is demand-driven). The priority must be for the sector as a whole to reflect on remodeling its product offer, in order to make it clearer and closer to consumer demands. This implies a root and branch review of all the parameters that govern the sector, niche market, and supply chain dynamics – from breeds to industry organization, to the point of sale, including research, innovation, and market prospects for European beef products.

The long-term success of this approach remains on ensuring a more harmonious co-existence between suckling and dairy herds.

Three market segments seem to emerge:

  • Entry-level: mainly carcasses of culled dairy cows, but also entry-level cuts from suckling livestock of lower quality used for minced beef, processed products, entry-level cuts of beef ;
  • Mid-range: mainly consisting of suckling livestock, including, but not limited to, large, well-known and developed meat breeds such as Angus or Charolais (cow or YB meat depending on markets);
  • High end: productions anchored in terroirs, with a very high reputation potential, valued at all stages of the chain of production and marketing as an exceptional product. These represents signs of quality (PGI, labels, etc.).

The challenge is to develop economic coherence for each of these segments, both at the level of livestock systems and at the level of the sector, through research and innovation, but also through the promotion, organization and the transfer of value to producers.

  1. Research and innovation through improved animal genetics and by enhancing farming practices (in buildings, animal feed etc.), it is possible to make advances that will better satisfy consumer demand in terms of products on the market and societal expectations in terms of health, environment and animal welfare. Effective communication, information and decision should be science-based, with a clear commitment of all stakeholders in that respect (from economic actors to medias, from decisions makers to NGOs), while not discouraging research and innovation in this field.
  1. Structuring the sector will require two types of action:
  • greater coordination: between producers, processing and distribution.

It has become an absolute necessity to organize the sector, including coordinating at strategic market segment level or, when deemed relevant also at local producing regions’ level. This coordination should result in a fair return for the first stage of the industry’s supply chain – and an improved awareness across the whole chain in relation to consumer demands.

Such coordination must strengthen the industry’s ability to respond quickly and adapt its products to new opportunities, thereby creating value, and it must accelerate the take up of innovations across the whole sector. Coordination of the sector and its different markets and supply chains, should lead to the uptake of market segment strategies covering breeding and commercialization dimensions.

This enhanced cooperation within the supply chain would lead to an array of positive outcomes for all the actors: improve the production planning on the basis of market demand, organize information/awareness programs to the consumer, as well as product promotion activities/marketing, simplify the uptake of research and innovation for the sector and enhance the export capacity in foreign markets.

  • Firm-level re-structuring including farms and industrial firms (slaughterhouses) so that each partner in the chain is able to invest thanks to a fair level of profitability, develop the business sustainably, and be strong enough to play a full part in the devised strategy.

This firm-level and sector-wide re-structuring goal should (1) be managed taking into account the characteristics of each Member State (and also specific cost issues applying to firms) and (2) take into account the particular characteristics of producing regions in terms of their respective models (suckling, breeding, fattening, etc.).

In parallel, enhanced action should be pursued to encourage investments into bio-energies, which can both strengthen the viability of certain farms and contribute to climate change mitigation.

  1. Commercialization. Effective communication systems and quality labels are needed so that consumers are made fully aware of advances in quality, the environment and animal well-being – and so that operators obtain a meaningful return on investment consistent with the market segment and the production infrastructure in place.

An enhanced communication effort should be encouraged in order to highlight the specific features of the EU livestock sector, in particular to differentiate it from feedlots of the American continent.

In Europe, structurally falling consumption makes it necessary to pursue offensive strategies to defend the positions of EU businesses relative to international competition in each of the three market segments, as well as to promote each cut of beef and each partner in the supply chain as effectively as possible by identifying the segment in which it or they would be most successfully marketed.

Marketing and discount sales strategies should moreover be managed so that:

  • beef is not a loss leader, and marketing truly focuses on selling surplus stocks.
  • prices in segment A do not drag prices down across the whole sector.

Internationally, real opportunities exist, especially with respect to live cattle, high-end products (segment C) and co-products.

Effective communication and marketing strategies need to be implemented for both the EU internal market and international markets. An ambitious export strategy should be stepped up, based on efficient tools acting as a lever to develop markets such as export credits, and well-targeted promotion actions.

Our recommendations: structure, modernize and promote the EU suckler herd

On top of the usual policy tools included in particular in the CAP, the European Union must mobilize its capacity to strengthen the sector, especially in order to anticipate the impact of trade negotiations that weaken the EU beef meat sector, already confronted with structural and recurring crisis.

Such revitalization plan should not be limited to a policy of budgetary transfers – even though their legitimacy must not be put into question (Coupled Payments, LFA payments). The European Union must go beyond these tools offering levers to structure, modernize and promote the EU suckler herd with the support of well calibrated financial supports.

The objectives of the toolbox could be summarized as follow:

  • Organisation, market segmentation and structuration:
    • Building a strong market-driven business strategy for the whole sector, based on clearly established market segments;
    • At local level: helping producers to invest and make money out of their work (organization, investment, including in bio-energies);
    • Building efficient meat supply chain (including via a proper competition policy and the extension of the milk package – see annex) and more innovative and modern slaughterhouses;
  • To cope with the challenge of market volatility:
    • Building tools, which are able to improve market resilience (ex: mutual funds) to limit the shock in the milk sector, which have in turn collateral effects on the specialized beef sector;
    • Coping with sanitary and climate risks, including taking into account grass land model which is an important carbon traps or fattening systems with climate-efficient feeding and effluent management practices;
    • Achieving greater coordination in the supply chain (between producers and other partners in the supply chain) with enhanced possibility to discuss and negotiate prices and volumes.
    • Triggering, when necessary, market management tools as it has been done for the milk sector in 2016. In certain cases, well organized mandatory storage action could be more easily set up targeting the dairy herd and taking into account the lower level of losses in relation with storage process, than products with higher value. For the suckler herd, possible measure of live storage on the farm might be explored, with the aim to rebalance the market temporarily, covering feed costs, etc.
  • To promote the EU model, its positives externalities and the effort already done in terms of sustainability and, especially, to highlight the viability and specific features of the European beef sector via adequate marketing tools and well-funded promotion campaigns.
  • To enhance private quality scheme and GIs systems: high quality beef could also move in this direction. The idea could be to develop new quality schemes or new criteria (on grass-fed beef for instance or other breeding practices that have a good impact on fat content) linking it with the idea of differentiation (mid-range market). Certain GIs could be developed, especially for the high-end segment. Quality schemes must be able to address consumers’ concerns as well as they could be developed in relation to animal welfare and industrial livestock production methods, while facilitating the marketing of the products.
  • To develop further the sustainability of the EU production systems (innovation, smart policy and consumer awareness), with well-designed climate actions.

Farm Europe strongly believe in the potential of the EU beef and veal sector, both economically and in terms of sustainability, against the current pessimistic visions of the future combining de-growth and abandonment of land currently experienced by producers.

The think tank considers an absolute priority to invest and reflect on the future of this sector confronted with structural economic changes.

Of course, given the complexity of this sector, there is no magic wand. Nevertheless, the objective should be to capitalize on the assets of this strategic sector for many regions in Europe, not adopting a defensive approach. In other words, to focus on a true economic ambition for the future.

Implementation of the strategy should help to secure the internal market and reduce imports. Specifically, it is crucial for the European sector to retain control of the high added value segment, which makes it more necessary to have an ambitious strategy for the specialized sector – and consistency in the commercial strategy of the EU overall.

Measures exist within the current framework of the Common Agricultural Policy, which could be mobilized. Beyond that, a strong revitalization plan must be shaped at EU level.

Additional budgetary resources should be targeted on the key elements of an ambitious policy strategy, complementing existing tools, with the objective of leveraging and accelerating the structuring and modernization of the sector by offering to producers the right tools to build on their future.

Annex

Short term: Get on the Omnibus!

The European Commission presented on 24 November 2016 an evaluation report on the milk package confirming the positive effects of the new regulatory provisions for this sector, in particular those relating to Producer Organizations (Article 152 (3)) and to the Negotiations of Collective agreements (Article 149). These measures have helped to strengthen the weight of producers in the supply chain.

To date, meat producer organizations cannot collectively negotiate collective terms in excess of 15% of the total production of the Member State concerned. This threshold constitutes, as such, a real brake to the organization of production, since it remains very far from the purchasing power of industrial operators.

However, the sector is marked by the existence, on one hand, of a major global operator – JBS – in the acquisition phase on the European continent and, on the other, within the EU. Presence of highly concentrated champions at the national level should be also considered. In France, Bigard holds 42% market share; In Germany, Vion concentrates more than 30% and the same is in the Netherlands; In Italy, the recent acquisition of Unipeg has allowed Cremonini to approach the 30% mark, as ABP in Ireland.

In addition to the concentration in the meat industry, which is both at global and Member State level, there is a concentration of distribution, particularly in the fresh meat segment. As a result of the loss of speed of the traditional specialist circuits (butchers’ shops), major retailers now sell up to 80% of the fresh meat sold in some Member States.

A solidarity and integration within the entire sector will be necessary to preserve a specialized breeding in Europe.

In view of the increasing number of structural and cyclical difficulties, initiatives are being taken in Member States to structure the sector, segment markets and value products in order to strengthen the sector’s capacity to invest and look at the future.

However, these initiatives are hampered, on one hand, by the lack of clarity in European rules coupled with unfortunate experiences in some countries, as the sector has been scalded by sanctions for non-compliance with competition rules and fragmentation, and on the other by the lack of solidarity within the sector.

It is therefore important, not only, to review, clarify and simplify as quickly as possible the rules of competition and to ensure the consistency and uniformity of law in this field between two closely related sectors in the European Union, namely meat and milk. In other words: competition law for the meat sector should be aligned with that in force for milk, through an extension of the milk package. In addition, there needs to be an increased consultation within the sector in order to go beyond individual short-term strategies.

In the context of the EU’s trade negotiations, the crisis in the meat sector is expected to get even worse in 2017 in the wake of the milk crisis (due to the increase in culling of animals). For the European Union, it is time to send a clear signal of its will to accompany the sector in its structuring efforts, without waiting for the next reform of the Common Agricultural Policy.