Readers might think that they have already read about this, but the fact is that in the US a new layer of support to help agriculture cope with the Covid-19 crisis was launched this week. This support package is the third since the beginning of the crisis, so yes you have read about increased support in the US but you’ve not read about the latest.

This package consist of an additional $ 470 million for commodity purchases, financed by customs revenues. The biggest share goes to dairy products with a $ 120 million allocation. Potatoes, turkey, chicken, pork, come after in a long list that includes a variety of fruits and some fish products.

It is worth recapping how much support US farmers have had so far to cope with the Covid-19 crisis. First came an increase of the main support programmes war chest of $ 14 billion. Second a $ 19 billion package consisting of $ 16 billion direct payments and $ 3 billion commodity purchases. And latest the $ 470 million this week package. In total a staggering $ 33.47 billion, or slightly more than 30 billion euros.

In the EU? The specific Covid-19 support package is estimated worth a paltry 80 million euros.

Comparing per farmer and per hectare Covid-19 support in the US and in the EU, in euros, says it all:

• US: €15 415 per farmer; €73 per hectare
• EU: €8 per farmer;  €5 per hectare

In all major crisis there is a moment of denial, a moment of blame and a moment of reckoning. We are experiencing a major and unprecedented crisis, a crisis on which states decided to stop economic activity to protect lives. Unfortunately we see many still in denial of the inevitable impact on agriculture.

Farm Europe has written about the likely impact of the Covid-19 crisis in agriculture markets, and what should be done to anticipate the shock.

Here we want to look forward and contribute to what should be the comprehensive response of EU agriculture policy, and what should be avoided at all cost at this stage.

The European Commission indicated her willingness to revise the MFF, the multi-annual budget proposal. You will recall that the CAP was badly treated in the original proposal, with real budget cuts of 12% over the 7-year period.

The current crisis has however showed one thing: we need food security. Some third countries have announced food export restrictions. What would have been the situation in the EU if we were short of food supplies?

Farm Europe agrees with those who point out that food security cannot be delegated, and that the CAP is not a policy only for farmers but rather a policy to the benefit of EU citizens.

Food security is not achievable at local level, only an EU-wide approach will deliver. We are not advocating a narrow and misguided concept whereby each county or region should be self-sufficient, because it is simply not feasible nor desirable. Only at a larger level like the EU, with a functioning internal market, can we achieve actual food security. We are also not advocating that the EU should not trade with the rest of the world, as we can benefit from trade and enjoy its economic benefits without compromising food security.

We also need a reversal of the unfavourable treatment of agriculture in the EU budget proposal. The EU agriculture has been the bedrock of food provision to European citizens even when most of the economy is idle. It is however facing hardship due to reduced demand and demand shifts, as a result of commerce shutdowns, and in the near future reduced purchasing power of many Europeans and world consumers. The last thing EU agriculture needs is further cuts in support. When life lines are extended to whole parts of the economy it would be unaccountable to reduce support to agriculture.

By contrast what we don’t need is a set of policies that increase the burden of producing food in the EU. We don’t need a Farm to Fork Strategy, or a Biodiversity Strategy, that only increase restrictions on the use of inputs, that reduce the agricultural area and productivity, and that reduce already stretched farmer’s incomes.

Farm Europe wishes to be crystal clear: we believe that EU policies should contribute to further environmental protection and to fight climate change. But that has to be done hand-in-hand with furthering the economic situation of farmers and assuring food security.

Increasing the land set-aside for biodiversity goals to 10% and organic production to 30%, as some propose, would reduce the EU production of food by a staggering 15%. Reducing pesticide and fertilizer use without providing farmers with the investments and the technology mix to achieve meaningful environmental goals will result in further food reduction and economic distress for farmers. That is not acceptable.

Thus the second logical “what we need” is a package to promote the right investments in agriculture, those which reduce the environmental foot print and greenhouse gas emissions and at the same time keep or expand agriculture production, ensure food security and sustain farmer’s livelihoods.   

We also need to strengthen the resilience of the sector. As Farm Europe has been consistently advocating, and the European Parliament COMAGRI has taken the lead in proposing, we need a well-financed crisis reserve in the CAP that would have the means and the mandate to quickly intervene in times of crisis, by making use of exceptional measures and shoring-up insurance and mutual funds.

This Covid-19 crisis will leave its scars for some time and we need to learn from past experience that showed that the current CAP crisis management tools are not good enough. The latest dairy or fruits and vegetable crisis are witness to the problems we faced in the past, at great economic and budgetary cost.

What we don’t need is to wait-and-see, to seat back and wait for the crisis to unfold in the dairy, beef, wine, fruit and vegetable, sugar, ethanol or any other sector. The flower and ornamental plants producers are already facing tremendous hardship. Farm Europe calls on the decision-makers, and in particular on the European Commission to change gear and become proactive rather than reactive.

The Covid19 health crisis has taken hold on the economic sectors with significant effects. These effects are likely to be long-lasting, with a recession threatening the European Union and other world economies.

This crisis also highlights the importance of food security. Some in the European Union may have tended to take it for granted, or even to make European agriculture the banker of certain bi or multilateral trade negotiations.

Food security does not mean retreating into a search for local autarky that has never existed, nor is it synonymous with an autodafé of trade with third countries. It is the right balance between boosting European agricultural sectors, a strong single European market ensuring fluidity of trade, and trade with the rest of the world meeting the remaining needs of the European Union and meeting the demands of world markets for which the European Union must assume its share of responsibility in terms of supply and stability of the said markets.

Food security in the European Union is one of the essential bases of its political autonomy.

For it to be true, it goes:

– by an ambitious European policy aimed at the development of the agricultural sectors in all European regions – Farm Europe will devote a specific analysis to it with proposals for action

– in the very short term by urgent measures to respond to the economic crisis in which many agricultural sectors are currently plunging.

FOR ACTIONS TO BE TAKEN WITHOUT DELAY:

– For the dairy sector: this sector suffers from an imbalance between supply and demand due to the seasonal upward curve in production (return to grass) on the one hand and the already noted contraction in the demand for powder in view of the slowdown in exports and the demand for butter from industry and the closure of the out-of-home catering sector on the other. For the record, the recent crises have underlined the sensitivity of the market to any imbalance at a very early stage. A 3% drop in demand leads to a crisis with a collapse in prices.

Remember that in this sector, as in most agricultural sectors, stopping a farm means its disappearance and a decline in production. In view of the investments at stake and the typology of European agricultural holdings (essentially with family capital), the transition from animal production to a plant and vice versa is not and cannot be the reality of European agriculture.

—> in order to avoid a fall in prices and the disappearance of producers, the intervention of products must be opened up, as well as private storage aid for certain products, but above all a European measure to encourage the voluntary reduction of production is urgently needed.

It will then be a question of ensuring that the impact of this measure is not minimized by increases in production by producers who would see it as a windfall effect.

– For the beef sector: major difficulties already exist on the noble (premium) cuts due to the closure of out-of-home catering, the closure of butchery departments in supermarkets. Consumers direct their purchases towards prepackaged purchases and products that are quick to cook. In a context of uncertainty, consumers also tend to deport their purchases on cheaper cuts or meats.

In view of the differentiated evolution of the premium/chopped parts markets, it would be advisable to:

1) Immediately open the private storage aid measure for noble cuts (only for noble cuts)

2) Ensure the balance of this market segment at European level by closely monitoring the marketing and import flows for this category of beef. As a reminder, the market premium for these fine cuts does not exist in Brazil or the USA. In fact, these producers are able to export to the Community market with real profitability at an intra-EU selling price of 7 to 8 euros, which is 1/3 lower than the market price.

3) Activate the clauses provided for in the 2013 CAP allowing farmers to organize together the conditions for marketing their products in times of crisis.

With regard to the meat sectors, attention must also be paid to the sheep sector, a significant part of the annual turnover of which is called into question due to the current crisis and the containments decided.

– For the wine sector: sales via large-scale distribution were maintained in March and should also be in April. However, those destined for out-of-home catering have stalled, those via specialized stores have been reduced, as has the flow of exports, which has contracted sharply. As for the other sectors, the losses in volumes sold will not be made up. In addition to the drop in current turnover, there is the problem of the arrival of the new production in areas where the tanks will be full of stocks. To the financial problem could therefore be added a technical problem, which will amplify the first.

—>  distillation measures in certain regions should be considered as soon as they are well used to respond to the Covid-19 crisis and not to erase more structural problems of market adequacy for certain wines, similarly, use of green harvest could be considered.

—>  reinforced promotion campaigns, in particular on the EU market, must be financed substantially within the framework of exceptional European measures,

—>  a one-year extension of the validity of authorisations held by producers should be decided by way of derogation from article 62 paragraph 3 of Reg.1308/2013.

– For the fruit and vegetable sector: this sector is facing the full impact of the crisis, while its production period is picking up again. It is facing major labour problems, a drop in the consumption of fresh fruit and vegetable products, with consumers switching to long-life products, whether cooked or simple to cook, and production losses with limited storage time. It is therefore necessary to ensure a balance between demand and offer in order not to degrade prices – and therefore to envisage withdrawals of production in the absence of a reorientation towards processing limited by industrial capacities and the balance of the markets themselves – and financial support in view of the inevitable loss of income for seasonal production and a decline in post-health crisis market until consumption has returned to previous levels. In addition, measures to promote consumption will have to be planned as soon as the health crisis ends.

– For the flower and nursery sector: this sector has virtually ceased activity, resulting in a loss of turnover and harvests. Direct financial aid is required for these businesses by activating the provisions of article 219 of regulation 1308/2013.

– For the sugar and ethanol sector: this sector will face a very deteriorated situation very quickly. The energy market has fallen significantly, leading to a sharp drop in the prices and volumes of fuel ethanol. The slowdown in global economic activity that will follow the end of the health crisis does not allow us to hope for a real improvement. Three consequences for the European sugar and ethanol sector:

– a higher availability of sugar at world level due to the redirection of part of Brazil’s ethanol capacity to sugar production, and thus a fall in world sugar prices,

– lower ethanol prices on the European market

– a slowdown in the demand for ethanol on the US market, which will result in US quantities being redirected to the world market and thus be likely, without precaution, to flood the European market.

—> therefore, urgent measures must be taken to preserve both profitability for European productions on the European market and a certain fluidity in world sugar trade. The Commission must immediately begin an analysis of market equilibrium and define the regulatory actions for imports and their price to be taken in order to preserve the European market, particularly in the very short term for ethanol.

– For the cereals sector: the European cereals and field crops sector will suffer the double impact of a very likely global recession, low energy prices, the foreseeable drop in US corn prices and a aggressive commercial policy of the United States on the agricultural markets; a policy already marked before the health crisis by the China-USA agreement which relegated European sources of supply to the background.

In addition to the specific actions to be taken for each sector, a European crisis plan must be prepared for all sectors in order to protect as many structures as possible from the falls in margins that they are likely to have to face. This fund must be able to provide farmers with direct aid to partially compensate for margin losses and cash loan guarantees. A European plan for financial aid for margin losses must be put in place.

All these measures must be financed out of the CAP budget. It would make no sense to reduce CAP direct aid to farmers in order to finance a crisis fund to rescue European agriculture.

The Covid-19 crisis is already impacting agriculture in a number of ways: cross-border flows of agriculture goods face delays, and in some areas there are not enough workers.

These are serious problems. We understand that measures are being taken to speed up cross-border trade, and particular work shortages can only be addressed at regional and local level.

However, there is an area where the EU, and in particular the European Commission, needs to be extremely vigilant and proactive, as it falls squarely under her responsibility.

We refer to the agriculture markets, which are poised to suffer dearly as a result of the Covid-19 crisis.

There is already a dramatic impact on the flower and ornamental plants sector, which directly and swiftly feels the blow of shop closures. Other sectors, more dependent upon restauration, will also be impacted. Consumption of fresh products may suffer as a result of confinement, as families shop less frequently and daily routines are upset.

However, the worst is unfortunately still to come. The Covid-19 crisis will evolve into a full blown economic crisis, as a result of the closure of so many economic sectors. Some countries will be more impacted than others, but all will suffer and the EU will face a steep recession.

A recession will cause a reduction of demand for agriculture products and a shift of demand to cheaper products. To make things worse, there is no escape valve through exports, as the crisis strikes worldwide. On the contrary, exports will also suffer.

It is thus predictable that agriculture markets will to some extent, some more than others, fall into crisis in a depressed economic environment.

What should the European Commission do? Should it adopt a wait-and-see policy? Should it rely solely on the current CAP crisis management tools? Should it just raise the level of state aids, instead of pursuing a common approach?

The US have followed another route, they prepared for the consequences by raising the agriculture budget by $ 48 billion, including $14 billion to replenish the Commodity Credit Corp., a Depression-era program designed to stabilize farm incomes, and $9.5 billion to support producers of specialty crops, livestock and dairy, as well as those who supply farmers markets, restaurants and schools.

This relief package comes on top of two previous aid packages to compensate for the losses of US farmers in the US-China trade wars.

In the EU, the producers affected by the US retaliations on the Airbus dispute, in particular wine producers, haven’t received any specific support. As Farm Europe already pointed out the divergence of support to farmers across the Atlantic is widening.

So far the European Commission has only relaxed state aid rules to cope with the Covid-19 crisis. Whilst it is understandable to relax state aid rules in times of crisis, on its own it will create distortions between farmers in countries which have the economic might and the political will to help the sector, and those who haven’t.

And even a host of state aids is not the response to EU-wide market crisis. Those can only be tackled by common measures.

Farm Europe strongly believes that we need to learn from past experience. In the latest market crisis, be in the two dairy crisis, or the fruit and vegetables, it was clear that intervening when the crisis had fully developed cost more and caused more economic and social pain.

In addition, the current CAP is ill-equipped to address severe market crisis in many sectors, as for instance the intervention triggers are way too low and the tool box isn’t bold enough. Risk management tools defined in 2013 and refined thanks to the Financial Omnibus are not equipped to face such a crisis. They provide answers to market volatility not to deep crisis.

Therefore a wait-and-see approach is clearly a mistake. The EU needs to anticipate the pain to come and equip herself to deal with it.

It is crucial that the EU moves swiftly to create a real crisis reserve, with the appropriate rules of engagement. COMAGRI has proposed it, the European Commission should take the initiative as a matter of urgency.

We need more than 400 million euros, we need to have rules of engagement that allow the Commission to intervene quickly to redress the markets, by the best means available – e.g. reducing supply and compensating farmers for the output loss, intervening more decisively. And the last thing farmers need is to see their direct payments cut by the amounts used to fight the crisis.

This crisis risks to be bolder and more profound than before. The European Commission should not rely on CAP crisis management tools that have not worked properly in the recent past, and instead build new ones. The transition Regulation could be a legislative vehicle to quickly implement them. Let’s not miss the opportunity.