Ciolos in the eye of the storm
Feb. 1, 2011
by Chris Lyddon
With grain prices in Europe at record levels, Dacian Ciolos, the Romanian-born European Commissioner for Agriculture and Rural Development, finds himself at the eye of a storm. He faces the enormous task of reforming Europe’s Common Agricultural Policy at a time when budget constraints will be tight, markets will be volatile and wider society will be making more demands than ever, especially on environment and sustainability.
Grain producers in Europe are doing well from high prices, but livestock producers are facing a cost squeeze which threatens to put many of them out of business.
The governments of the European Union’s member states are faced with an extremely pressing need to save money and populations which may not understand any rise in farm budget when they face austerity.
“The Commission is keeping a very close eye on the market situation, and the way it’s affecting livestock producers,” the commissioner told World Grain. “We’ve had an enormous rise in feed costs. Barley is up by more than €200 a tonne at Rouen (France), for example. The removal from the market of supplies from the Black Sea has cut the amount of grain available on the E.U. market and increased demand for exports of European grain into the Black Sea’s traditional customers.
“However, the picture for the sector is not actually as bad as you might think,” he continued. “Prices are still well below the levels they reached in 2008, even if they do remain highly volatile. The euro is relatively strong against the U.S. dollar, which has limited price rises on the European Union market. Despite that volatility, we are in no way in any sort of crisis with cereals.
The world had a normal harvest, despite the problems in Russia and Ukraine, and stocks have been rebuilt after two good harvests.”
Europe is actually fairly well supplied with grains, which helps.
“Production this year is estimated at 276 million tonnes, which is an average level for the E.U.,” he said. “If you add back in the opening stocks, we’ve got availability of 60 million tonnes more than we need.”
The Commission still has control of a hefty slice of intervention stock, bought in to support the market.
“We’ve got 5.6 million tonnes of grain, pretty well all of it barley,” he said. “About 2.8 million tonnes of it is earmarked for the aid for the needy programme in 2011, and we’ve announced our attention to sell the rest on the internal market. There was a definite easing in feed prices when we announced this measure, and our first sales have already started now.
“But there is absolutely no need to take any emergency measures in the E.U. internal market, because there isn’t an emergency. Supplies are sufficient, and there is no sign of any shortage of grain.”
He pointed out that livestock producers do not have a price problem.
“Poultry prices are above the longterm average and do seem to be compensating for the extra feed costs,” he said. “Pig meat prices are in a seasonal downtrend, but they are actually slightly above last year’s level.”
France and Belgium have already raised their concerns about the pig meat market situation, but Ciolos has been firm, refusing these calls to use export refunds or private storage to support the market.
“There’s no need,” he said. “However, we shall keep watching the market closely and will react if we need to.”
Ciolos is at the start of a long process of piloting a new reform of the CAP through the negotiations in the Commission, the European Parliament and negotiations between national governments. The proposal follows a largescale consultation exercise.
“What do the citizens of Europe want from the CAP? Safe food, of course,” he said. “But they also want us to make sure that natural resources are being used in a sustainable way, and they want us to make sure that all of Europe’s territory is being developed with nothing left out.”
Making sure that agriculture policy is equal throughout the European Union is close to the heart of Dacian Ciolos, a Romanian. Until now, the latest member states — the former eastern block countries which joined in 2004 and 2007 — have not had exactly the same rules as the “old” member states. For example, they have only been allowed to allocate direct payments on a hectarage basis, whereas most of the old member states still allocate their Single Payment Scheme based on a historical reference period, or a hybrid, combining historic elements with regional hectarage amounts.
“The CAP must be fair,” he said. “We can not have a two-speed CAP.”
As well as enlargement, the other big change he identifies since the last time the E.U. took a close look at the CAP has been the increasing importance in the minds of policy makers and the public of climate change and the environment. He wants a competitive agriculture. “Let’s be clear, the meaning of the word competitivity has changed,” he said. “But you can have a competitive agriculture without the sustainable use of natural resources. In the long term, Europe will demonstrate its leadership in the world through its ability to create economic growth without wasting natural resources.”
It means changing the whole emphasis of policy.
“The CAP has to be all about sending the right signals to farmers in all of Europe,” he said. “That means integrating the environmental demands of policy completely into our new policy.”
It also means integrating the CAP into wider European policy strategy, including the Europe 2020 strategy, designed to revive the E.U.’s economy, adopted by the Commission in March 2010.
“Europe 2020 shouldn’t stop at the gates of our towns and cities,” he said. “That means we need an agricultural policy which gives our citizens what they expect. Agricultural policy has to be part of the overall E.U. strategy to create sustainable growth across Europe.”
KEEP AID TO FARMERS
He believes that direct payments to farmers will remain an indispensable part of the CAP, but also that the reform must make the system a lot fairer.
“We’ve got to share the money out in a more equitable way,” he said, underlining that “this should not mean a flatrate payment equal in all member states, but a system of payments allocations based on objective criteria which apply equally to all member states.”
While this is expected to see a shift in funds from the “old” member states to the new ones — basically from east to west — Brussels insiders believe that spending power will be one of the criteria used, so that there is not too significant a shift.
Ciolos is also raising questions about who receives funds — indicating that he will once again raise the concept of a cap on the amount of CAP funding a single holding can receive. It was an idea tried by his predecessors, MacSharry, Fischler and Fischler Boel, without any notable success. However, within the context of budgetary austerity, there may be stronger arguments this time — especially if there’s an alternative option of green payments coming parallel with the “basic payment” per hectare, which would not be capped. He’s also troubled that the CAP has come to a point at which a lot of support goes to people who aren’t actually farming.
“We must focus resources on active farmers,” he said. “It’s vital if we are to keep our policy credible with the people of Europe.”
Ciolos is also taking a particular interest in small farmers.
“They have a huge role to play in the environment and in the wider economy,” he said. “They need and deserve our attention and help. They are also tremendously important from a cultural point of view. They are the backbone of a great many rural communities across Europe. In a lot of places, protecting small farmers is vital to preventing the slow death of a culture.
“We must do more for less favored areas, to make sure that everyone in Europe is benefitting from growth. They are the areas with the greatest need but also the areas with the greatest potential.”
That means more support for local initiatives, designed to solve local problems in a way which works in that area. He also believes that it should be possible for the E.U.’s member states to make policy on a local basis to handle environmental concerns.
“Agricultural policy is the biggest environmental tool we have,” he said. “We should be making the best use of it. We’ve got millions of farmers, managing something like half the land area of Europe. The CAP can play an enormous role in achieving society’s wider environmental roles.”
MANAGING THE MARKET
Finally, he came back to the subject of managing the market. “Since the economic crisis, there’s been a lot of talk about making sure we have the right tools in place to manage financial markets,” he said. “We have to make sure we’re doing the same with the agricultural markets.”
Last year’s dairy crisis showed the importance of maintaining some form of public intervention as a genuine safety net, and there seems little interest in making major changes to that particular tool following the 2008 Health Check changes which removed automatic intervention buying for barley.
“We’ve seen the limits of the tools we have,” he said. “We have to make sure we have ways of dealing with volatility.”
He believes that action must be wider than Europe. “We need to get the G20 involved and make sure that we can work on a global scale to deal with price shocks.”
European agricultural policy will come under enormous budgetary pressure during the course of the coming negotiations. Clearly one of Ciolos’ aims is to make the current system more understandable to the non-agricultural population — in terms of the provision of greener, public goods — in order to justify such a large share of the E.U. budget. Ciolos believes that it’s vital to provide a supportive framework, and he also believes that he can persuade Europe’s politicians to accept that.
“If we want agriculture to remain a vital part of rural life, and we do, we can’t have any illusions,” he said. “We have to support it from public funds. The best way to do that is by having a strong and fair CAP which maintains a viable and sustainable agriculture throughout the European Union.”