Another major round of reforms to the EU’s ever-controversial Common Agricultural Policy (CAP) are planned for 2008, but will the changes mean that life becomes easier or harder for European food companies? Chris Jones asked Neil Parish MEP, who chairs the European Parliament’s influential agriculture committee, for his view.
Despite the constant reforms that have been made to the CAP since the 1990s, food production subsidies still account for by far the biggest share of EU spending, some 46%, or EUR55.7bn (US$81.9bn), of the 2006 budget.
While spending has fallen since the 2003 reforms to around a third of total EU expenditure, spending is still dropping too slowly for some, including the UK, and far too rapidly for others. France has resisted calls for change, arguing that it would be a fatal blow for EU food production and processing.
Faced with the need to reach some sort of deal on reforms, EU heads of government and the European Commission agreed in 2003 that those countries that wished to implement them could do so immediately while allowing others to move more slowly. They also agreed to produce a status report – the health check – during 2008.
EU agriculture commissioner Mariann Fischer Boel set out the Commission’s plans for the health check before the European Parliament’s agriculture committee on 20 November.
In an exclusive interview with just-food, British conservative MEP Neil Parish, who chairs the committee, welcomed the changes outlined by Fischer Boel – in particular scrapping the link between the amount of food created by producers and the subsidies received. Instead, the Commission wants a simpler system of one-off payments based on the land used to grow crops or rear livestock. This, Parish said, “should be a much more sensible way of supporting EU agriculture and, in turn, companies operating all along the food chain, because it will ultimately make them more competitive”.
Meanwhile, with the current high demand for various key commodities, partly as a result of the booming biofuel sector, EU food processors are already getting a taste of what the full impact of the changes to the CAP will be like, in the form of higher input prices and lower margins, and facing tough negotiations with their retail customers about passing those cost increases on.
And there’s the rub: once the CAP budget reforms go through, prices at the farm gate will naturally have to go up. For Parish, the current higher prices are good, because “they will help soften the blow caused by the scrapping of production subsidies”, even though they are certainly not welcomed by players further up the chain who are struggling to cope with the impact of higher costs on their margins.
Another part of the reforms that Parish supports – but will be less welcome to large integrated agro-business companies that control production chains from the field to the factory and even to the supermarket – is a proposed limit on CAP funding, which would otherwise just increase, according to the size of land controlled by a food producer.
Parish says a maximum limit would attract “concerns from some quarters about the concentration of food production in the hands of a small number of companies”.
“Bigger farms will receive more money under the new proposals, so there will obviously be an incentive to make farms as big as possible to get more support,” Parish says. “But, given the current climate of growing consumer concerns about food safety and quality, not to mention worries about the power of major retailers to dictate food prices, we need to be careful not to do anything to risk further imbalances. That is why I think a cap on the amount of money available would be a good idea.”
It would, Parish adds, “hopefully stop the market being carved up between big farms and big retailers”, who may also own farms themselves.
Parish welcomes another pillar of the recent proposed reforms – shifting subsidies away from production altogether and into marketing, notably for high-quality traditional denomination of origin products that are, by definition, made nowhere else in the world.
Neil Parish, MEP, current chair of European Parliament Agriculture Committee.
“The EU has chosen to focus on the promotion of quality foods, made in traditional ways, from specific regions, as the best way of supporting European food products,” he says. “We are seeing far greater consumer interest than ever before in where food comes from, and these denomination of origin marks are a clearly recognisable symbol that can help consumers make a choice.”
So far, so good. But Parish is concerned that the latest round of reforms to the CAP have been devised to some extent in isolation – looking at the food industry alone and not at the other sectors that are impacting on it in supply and demand terms, such as biofuels, or those that are integral to its operations, such as packaging.
Parish believes more ‘joined-up’ thinking is required. “We have entirely separate rules on packaging waste, biofuels production and so on, but these should all be linked far more closely because they all have knock-on effects on each other,” he said.
Looking ahead, Parish also warns that once Europe’s food production system is largely liberalised, there could be pressure on the European Commission to make sure large players do not dominate markets to such an extent that they could effectively set prices.
“Retailers have continued to squeeze margins as tight as possible,” he says, adding that it was frustrating that the Commission, in its role as EU competition watchdog, has little or no power to investigate retail groups like “the big four in the UK” over their potentially unwieldy dominance of price points and margins.
“That remains largely a matter for national authorities, so all we can do is try to put pressure on them to look at what the retailers are doing.