CHIL.ME

time of ice

In October 2018, I had the honour to resent my report to the Agricultural Committee on “The sectoral approach in the CAP beyond 2020 and possible options to improve the EU food value chain”. In this report, I explained some weaknesses of the current regulation which, in my opinion was not addressed in the Commission proposal of new regulation of Common Market Organisation for the next financial period and ended proposing several possible amendments.

The purpose of this article is to analyse if I was right in my analysis and if I have been able to contribute to convince (at least partly) the Honourable members of the COAMAGRI and  how close is the final report they have adopted to my proposal.

First issue: market transparency

As Tangermann (2011) underlined, “one fundamental ingredient in risk management on the farm is sufficient and reliable information”. We have now 4 European Agricultural Market Observatories. In order to consolidate them, and to better take into account the interlinks between cereals and oilseed productions on one hand and meat and eggs productions on the other one,  it make sense to merge them in a single European Agricultural Market Observatory (EAMO).

The is what I proposed in my report and this is what has been endorsed by the COMAGRI.

Second issue: Early warning system

Based on the reports of the EAMO, the COMAGRI has proposed, if market disturbances are observed,  that the Commission should present to the Parliament and to the Council, a report on the reasons behind those market disturbance and, when needed, the measures that should be implemented.

This early warning system was also one of my most relevant proposals.

2 other minor proposals have not been endorsed, as they were not directly related to the discussed market regulation. I was insisting on the need to have more statistical information on the structure of the whole industry and more specific information on organic products.

Third issue: the level of the current reference thresholds

EU intervention (and withdrawal) prices are frozen since 1982. Different CAP reform waves have even for many products abolished or at least decreased them. It is often argued that there current level is “unrealistic” and does not contribute enough to achieve their safety net role.

This argument has been, implicitly at least, partially accepted by the Commission when it increased withdrawal prices for many fruits and vegetables from 30% to 40% of the average EU market price over the last five years for free distribution (so-called charity withdrawals) and from 20% to 30% for withdrawals destined for other purposes (such as compost, animal feed, distillation, etc.).

Market orientation of the European agricultural sector and industry is one of the major achievements of the different waves of CAP reform. This is why EU agri-food trade surplus is at record levels (EC, 2019a).

I proposed then that the Commission could be invited to adopt, by the end of 2021, a report on the level of the current reference thresholds and their contribution to an efficient EU safety net. If needed, after a case-by-case analysis, the Commission should adopt the corresponding proposal of Regulation of the European Parliament and the Council”.

The COMAGRI has been aware of the problem and has amended the Commission proposal asking the Commission to update them every year “to take account of the inflation”.

For those who know the CAP history, this looks like the “objective method” followed in the first years of the CAP and like the coming back of the annual price negotiations. This past experience is rightly in my opinion qualified as negative by a large consensus of agricultural economists. Amongst other reasons, to include in the update the inflation and to forget about the productivity improvements seems not advisable.

Fourth issue: Crisis management measures

Bardaji et al (2016) in their report on risk management presented a layering model of agricultural risk management. Public crisis management is related to layer 5:  “the fifth layer corresponds to highest level of risk i.e. income crisis due to production crisis (climate or animal health and plant pests), market crises or both. Crisis often results in severe and massive revenue/income losses for the farmers of a specific sector o region. The crisis should be managed through public intervention and financing as the last resort for the agricultural risk management. It includes the crisis reserve; the EU safety nets (intervention purchases financed private storage or withdraws); the ad-hoc payments and the veterinary fund.”

Source: Bardaji et al (2016)

Today, Article 219 of Regulation 1308/2013 could be activated against “threats of market disturbance caused by significant prices rises or fall… and circumstances significantly disturbing or threatening to disturb the market where the situation … is likely to continue or to deteriorate”.

Article 221 focuses on “situation likely to cause a rapid deterioration of production and market conditions”.

As already proposed by Bardaji et al (2016) to afford farmers a sound risk management, especially in the third and fourth layers, “it is essential to setup clear and transparent rules for EU public intervention in the fifth layer (crisis management)”.

Therefore, I proposed that “the Commission could be invited to adopt, by the end of 2021, a proposal of regulation of the European Parliament and the Council to clarify, at least for the main agricultural products, when and how the Commission would activate public crisis management.”

The solution adopted by the COMAGRI is slightly different.

The first step is the request by 31 December 2019, of a report for the Commission to establish a guideline for characterizing agricultural market crises. Its shall form a basis for laying down a performance framework for the Commission and to enable it to intervene when necessary on the definition of the different types of agricultural market crises so as to lay down the Commission’s performance framework for a better dialogue with the European Parliament and the Council.

The second step is the “crisis management plan: “The Commission shall define an intervention strategy for each type of crisis. A SWOT analysis of each of the market management tools defined in this Regulation shall be made to identify possible synergies between the tools”.

The third step is to empower the Commission “to adopt delegated acts to set quantitative targets and milestones so that the tools in this Regulation may contribute to the attainment of the objectives stated in Article 39 of the TFEU. The Commission shall submit a draft crisis management plan by 1 January 2020 to the European Parliament and the Council“.

The fourth step is that the Commission shall lay down a performance framework for reporting, monitoring and evaluating the performance of the crisis management plan during its implementation. The COMAGRI report includes also some of the key elements that should be included in that report.

Obviously, the date of 31 December 2019 (or 1 January 2020) is completely unrealistic as, in the best case (and unlikely case in my opinion), the final position of the European Parliament could be approved by the end of the year. But this is a minor detail. In the bargain between speed and quality, the COMAGRI has chosen the speed. I prefer the quality. In my proposal of amendment, the date was “by the end of 2021”.

Fifth issue: To end the ceremony of the confusion on the Producers´ organisations issue

Commissioner Dacian Ciolos pointed the finger at the problem since his first day in office. His initial aim was to extend the fruit and vegetable scheme to the other agricultural productions. He faced a fierce resistance firstly from DG Competition but also from some important DG AGRI services.

On one hand, it is true that Regulation 1308/2013 has extended the use of POs as a common policy tool for market organizations in all agricultural sectors” (Bouamra-Mechemache and Zago, 2015). On the other hand, the regulation has introduced confusion and legal uncertainties.

On one hand, we have the “commercial” producers´ organizations, for instance in the fruit and vegetable sector. They are are commercial entities that have to market the production of their members. They are companies and not cartel, often cooperatives but not always. They are formed on the initiative of, and controlled by the producers but they can have non-producers members.

The French national competition authority (Autorité de la Concurrence, 2008) has analyzed the functioning of this regime and concluded that it is “a wide derogation from the general competition law”. This has been confirmed by the ruling of the European Court of Justice adopted on 14 November 2017[1] on the so-called “endives case ” which underlines the role of the commercial POs and of their Associations.

The years of ice in DG AGRI

Following  President Santer resignation, the Commission developed a culture of prudence which went hand in hand with a certain reluctance to take "at risk" measures, even if only potentially. There was also, undoubtedly, a “human” impact. In the case of the Directorate-General for Agriculture and Rural Development (DG AGRI) Jean-Luc Demarty was “the right man in the right place”, first as Director for Budget, then Deputy Director-General and later as Director General. The result was a strong culture of integrity and respect for procedures, which today remains one of the strengths of this Directorate-General. However, this also implied that DG AGRI became more "risk allergic" and less innovative.

This is why, for instance, in the middle of the 2009 dairy crisis, when € 280 million could be released to support milk producers, it was decided (amongst other measures) to distribute them among the beneficiaries as a bonus to their direct payments, instead of promoting Producer Organisations and the rebalancing of market power inside the food chain. This was simple, easy to implement even if useless from the market point of view. As Alan Matthews (2010) pointed, payments reached farmers after the crisis had passed and incomes were already recovering.

Producer Organizations in general, particularly in the fruit and vegetable sector with their operational programs, did not fit easily into this “simple and easy-to-implement” mold. This is why the 2006 fruit and vegetable reform was delayed almost by one year, in order to develop an alternative option, the transfer of all "this complication" to Rural Development. Cleverly, Commissioner Fischer Boel rejected this option in her first meeting with the Commission services.

Jos Bijman (2015) rightly underlined those tensions in its report to the European Parliament: “It seems there (were) differences of opinion within the Commission (DG AGRI) between the policy units on the one hand and the audit services regarding the interpretation of the regulation... One of the objectives of the 2007 reform was to make the fruit and vegetable rules simpler and to increase flexibility. During the discussions amongst the Member States and the Commission on the Commission regulation (EC) N° 1580/2007 laying down implementing rules, there was an emphasis on flexibility and creativity to be used by the Member State in implementing the Regulation. The flexibility was intended to address the wide variation in market conditions between and within Member States.

However, once the regulation was in place, the subsequent audits turned out to be very strict. Instead of allowing flexibility and creativity, the situation turned out to be of legal uncertainty. The interpretation by the audit service, for instance on the issue of outsourcing, has contradicted, maybe not with the letter of the Regulation but certainly with the spirit of the Regulation, as understood by the Member State discussing the new regulation in the management Committee”.

The spirit of the regulation was clear for all who participate actively in the negotiations. A PO is a business that can outsource all the activities that are better (and/or cheaper) done outside. Despite the fact that the Commission auditors participate actively in all the internal discussions and the management Committees meetings, they were instructed later on to apply stricter rules. “In some cases, auditors have questioned the democratic control of farmers over the marketing of their product when key activities were outsourced” (Bijman, 2015)

The "heterodox" nature of the regulation in force for fruit and vegetables did not stop there. The scope of activity of Producer Organizations coincides with some of the measures foreseen in the second pillar of the CAP. There was a risk of potential double financing. In spite of following the provisions of the Council Regulation, which opened the way for a certain degree of flexibility, DG AGRI services were instructed to favor (and impose if possible) an “exclusionary approach” (what is possible on one side  is forbidden on the other one) rather than an approach  of coherence and synergy.

Not only was the example of fruit and vegetables therefore "the one not to follow", but the support, in the context of the Rural Development regulation, to Producer Groups (a traditional measure resulting from the discussions that followed the Mansholt Plan[2]) was no more foreseen in the old Member States (Garcia Azcarate, 2016).

The 2009 dairy crisis helped set the record straight. One of the “new" initiatives proposed by the Commission and adopted later was precisely ... to finance Producer Groups also in the old Member States.

Commissioner Fischer Boel at the end of term, took full account of the situation and pointed: "we need to reflect some more on other ways of managing crises. Part of this will be about “helping farmers to help themselves[3]."

On the other end, we had the negotiating POs.  The «milk package”, following the milk crisis, marked the beginning of the confusion. It provides for written contracts between milk producers and processors and for the possibility to negotiate contract terms collectively via Producer Organizations”[4].

As defined in article 148 of Regulation 1308/2013, “a Producer Organisation in the milk and milk products sector may negotiate on behalf of its farmer members, in respect of part or all of their joint production, contracts for the delivery of raw milk by a farmer to a processor of raw milk, or to a collector”. Cooperatives are explicitly excluded from the scope of activities of those new “Producer Organisations”, which can only negotiate with the Investors Own Companies (IOFs).

Article 149 of regulation 1308/2013 imposes limitation to the maximum volume of raw milk that a single PO can negotiate: It should not exceed 3,5 % of total Union production; the volume of raw milk covered by such negotiations which is produced in any particular Member State should not exceed 33 % of the total national production of that Member State, and the volume of raw milk covered by such negotiations which is delivered in any particular Member State should not exceed 33 % of the total national production of that Member State

The same legal terms “Producer Organisations” has been used in the same regulation with 2 completely different meanings and 2 completely different treatments as far as competition policy is concerned.

This why I proposed in my report that The Regulation should clearly differentiate between Commercial POs and non-commercial POs, to reserve the wording “Producer Organisations” to the first one and to call (for instance) “Negotiating Groups” the other figures,

The solution adopted by the COMAGRI has been different and (in my opinion) less clear from a legal point of view but aims to achieve the same goal..

The COMAGRI takes note that, after the “endive case”, it is clear that producers´ organisations like cooperatives that sell the products of their members (we could speak of “genuine” POs as there are “genuine” farmers) are acting as a single entity. Therefore, there is for them a large exception to the competition rules. They are allowed to adopt measures to “ensure that production is planned and adjusted to demand, particularly in terms of quality and quantity” without any previous authorization of the Commission. The same apply for their Associations of Producers´ Organisations but do not apply to agreements, decisions and concerted practices between different farmers' organisations or between different associations which are not explicitly inside the scope of the Regulation.

Six issue:  A reinforced role for POs, APOS and Interbranches

There is a large convergence in this issue between my proposal and what has been approved by the COMAGRI. My starting point was the Commission Communication of 26 October 1990 (EC, 1990) to the Council on “organisations and agreements linking different branches within the agricultural sector”. It clearly stated that "the aim of the introduction of more flexible institutional instruments for market support is not to replace order by anarchy but to stimulate the establishment of new structures, in the preparation and operation of which farmers and their organizations will play a more active role".

From the COMAGRI report, the following point could be underlined:

• The extension to all products benefiting from a protected designation of origin or protected geographical indication of having their supply managed by a recognized producers, organisation or a recognized Interbranch;
• An Association of Producers´ Organisations (AOP) can not only be created at the initiative of producers´ organisations but also of other AOPs. This opens the door to European or transnational Associations of AOPs.
• It enlarges the scope of possible activities carried out by the recognized Interbranches. In particular, it clearly speaks about economic indicators, indicators on the valorisation of the products, price indexes and price reporting, quality criteria …
• It extended also the scope for extension of rules for POs, APOs and Interbranches.

Transnational POs

Some issues missing. The most important ones, in my opinion, are related to the role of the Commission in controlling transnational POs and APOs and on the possible role of the Interbranches in market crisis management.

Today, in the fruit and vegetable case for instance, «transnational POs need to have a recognition in one MS, that MS bears the full responsibility of compliance to the EU rules. While farmers from several MS benefit from the operational programme of the transnational PO, the authorities of only one MS need to do all the paper work for recognition, monitoring and evaluation. Thus, the financial responsibility, risk and liability are unequally divided over the MS involved. In addition, the recognizing MS relies on the other Member States involved for obtaining the proper information and doing some of the control activities. Here again, cultural differences (including public-private collaboration and consultation) may play a complicating role” (Bijman, 2015)

In Spain, if a PO is only active in one region, it is under the scope of the regional administration. If it is active on several regions, it is under the scrutiny of the national administration.  I proposed that if the transnational POs or APOs are of European relevance, for instance, bigger than a fixed value of the marketed production or involving more than 2 Member States, they should be under the direct control of the Commission. The Commission is strongly opposed to this possibility and the suggestion has not been taken on board.

Market management and

Private crisis management makes only sense as a preventive action. It seems that, after the “endive ruling” and even more if the final text is on line with what has been approved by the COMAGRI, the issue should be clear and clarify for “genuine” POs and their associations. The text does not extend this possibility to the Interbranches organizations.

Nevertheless, there is a least one case, the olive oil market, where private and preventive crisis management could make sense and there are even requests which go in this direction. The Spanish Interbranch has proposed several times to start (and finance) a private storage scheme in order to avoid dramatic prices cut in years where the harvest is important, like the current one, and skyrocketing prices when the harvest is short. Due to the special characteristics of the product and the market and due to the high impact of any Spanish move on the EU and word market, this proposal makes sense. It is not allowed by the current regulation and is still forbidden by the COMAGRI proposal

On the contrary, the COMAGRI report gives considerable powers to the Commission to intervene in crises. These powers are not described in more detail, but constitute a ‘carte blanche’. It enlarged the current list with possible reinforced import controls or downwardly or upwardly import duties.

Bibliography

Autorité de la Concurrence (2018) : Avis n° 18-A-04 du 3 mai 2018 relatif au secteur agricole http://www.autoritedelaconcurrence.fr/user/avisdec.php?numero=18A04

Bardaji, I;  Garrido, A. (2016): State of Play of Risk Management Tools Implemented by Member States During the Period 2014-2020: National and European Framework Research for AGRI Committee Directorate General for Internal Policies. European Parliament

http://www.europarl.europa.eu/thinktank/es/document.html?reference=IPOL_STU%282016%29573415

Bijman, J. (2015): Towards New Rules for the EU’s Fruit and Vegetables Sector Research for AGRI Committee Directorate General for Internal Policies. European Parliament http://www.europarl.europa.eu/RegData/etudes/STUD/2015/540347/IPOL_STU(2015)540347_EN.pdf

Bouamra-Mechemache, Z.; Zago, A. (2015): Introduction: Collective Action in Agriculture. European Review of Agricultural Economics, 42(5), 707–711.

https://academic.oup.com/erae/article/42/5/707/2367203

European Commission (1990): Organizations and agreements linking different branches within the agricultural sector, Commission Communication to the Council. SEC (90) 562 final, 26 October 1990

http://aei.pitt.edu/3693/

European Commission (2019a): Monitoring EU Agri-Food Trade

https://ec.europa.eu/agriculture/trade-analysis/monitoring-agri-food-trade_en

Garcia Azcarate, T.(2016): The "years of ice” (2000-2010) of the CAP and in DG AGRI

http://tomasgarciaazcarate.com/post/the-years-of-icee2809d-(2000-2010)-of-the-cap-and-in-dg-agri-133190

García Azcárate, T. (2018): “The sectoral approach in the CAP beyond 2020 and possible options to improve the EU food value chain”. Research for AGRI Committee Directorate General for Internal Policies. European Parliament

http://www.europarl.europa.eu/thinktank/en/document.html?reference=IPOL_STU(2018)617503

Matthews, A.: (2010): Lessons from the 2009 EU Dairy Market Crisis

 http://capreform.eu/lessons-from-the-2009-eu-dairy-market-crisis/

Tangermann, S. (2011): Risk Management in Agriculture and the Future of the EU’s Common Agricultural Policy ICTSD Issue Paper No. 34

[1] http://curia.europa.eu/juris/document/document.jsf;jsessionid=9ea7d2dc30dd40c3bb10989f43cd9660db7a5bd4ace8.e34KaxiLc3qMb40Rch0SaxyOahf0?text=&docid=196626&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=517023

[2] Regulation 1360/78 on Producers Groups and their unions, OJEU L 166/1

[3] http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/09/554&format=HTML&aged=0&language=EN&guiLanguage=en

[4] https://ec.europa.eu/agriculture/milk/milk-package_en.  Consulted on 20/07/2018, 15:50

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En una reciente comparecencia mía en el Comité Económico, Social y Medioambiental francés, varios consejeros subrayaron que nuestro sistema de seguros agrarios es una de las claves de la competitividad y la resiliencia de la agricultura española. Les respondí que sí, que es verdad, pero que es la respuesta que hemos sabido darnos para mantener una agricultura activa sobre el conjunto del territorio, cuando tenemos rendimientos cerealistas por ejemplo 4 o 5 veces inferiores a los suyos. Tuve la impresión que, detrás de estos comentarios, había una cierta dosis de envidia ante la consolidación del modelo español. Mientras en España, no faltan los que parecen dispuestos a tirar el niño con el agua del baño.

Presentamos en este capítulo del Anuario 2017 de la UPA de forma resumida los elementos principales del debate iniciado ya sobre el futuro de la PAC y sobre la PAC del futuro. Aunque las urgencias son siempre grandes y sea necesario inscribir cada reforma en una línea de continuidad con las decisiones del pasado, ha llegado la hora de enmarcar esta discusión en una visión más global para no perder ni el norte ni el hilo de las reformas.

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