In one of those delicious ironies, the United States and Europe continue to square off against each other in a war of words of future trade decisions. At the same time, farmers on both sides share so much in common. European farmers are just as concerned about rising input costs and profitability. They are just as passionated in defending their own country's trade proposals in WTO. And they are just as concerned about how to shift away from government payments to more market-oriented agriculture.
Tim Bennett, British farmer: "I don't think it's about protectionism in Europe."
I talked with English farmer Tim Bennett while in Hong Kong last December for the WTO negotiations. The cattle farmer from South Wales is president of the National Farmers Union in Great Britain and vice president of COPA, the umbrella organization for European farm organizations.
After listening to his views, I could have imagined some of the exact same quotes from an American farm leader. See what you think:
Farm Futures: The United States and European Union seem to be playing the blame game again. What would you say to the Americans if you were doing the negotiating?
Bennett: In the European Union, we've reformed the CAP (Common Agricultural Policy) in quite a radical way, which I don't really think the world has appreciated. CAP used to be well over half of the total EU budget. It's just over 40% at the present time and will be 30% by 2012.
Effectively 90% of our CAP budget has gone into the green box (non trade distorting subsidies). It's a massive change if you look at the CAP going back to the early 1990s. In the United Kingdom, we have no production support left at all from 1 Jan. 2005. Any support we get is decoupled. As long as you look after your land a certain way, the water resources, traceability and animal welfare — a whole list of things you have to comply with — then you will get a decoupled payment (from the government).
The payment in the UK is 90% of historic income provided you've endeared to the rules, then you got a 10% acreage payment. By 2012 it will all be based on an acreage payment, so that has brought more acres into the programs - so now it's about land management, not about food production support. After 2013 we don't know, but we'll be under pressure. Agriculture in the EU will have a static budget — it's been agreed to until 2012. So it's possible we'll have a cut in payments across Europe if new countries are coming into the EU.
The frustration we have is that the European offer, by historical standards, is quite sensational. We've agreed to let less developed countries in duty free; we've put 90% of our payments in the green box; we've offered to eliminate export subsidies as long as others do the same, and quite a big offer on market access through lower tariffs. So we feel others should now try to match that.
FF: What are the main concerns of European farmers these days?
Bennett: You've already got pressure on prices because of market access, duty free access to less developed countries as of 2009, no matter what the WTO says. So the pressure is on price.
The real issue back in Europe is that retailers, including Wal-mart, are very dominant and it's almost impossible to get cost increases through the supply chain. We've lived in a deflationary environment for food prices for the last 15 years. Consumers get a good deal but retailers are getting a bigger percentage of the supply chain. In fresh milk, the retailer share has probably increased from 15% to 40% in the last five years, and that's because they are very powerful and can beat down suppliers.
In Europe the regulators are very keen to add costs so they have very strict regulations on food safety, traceability and the environment. That adds quite a lot of cost to our production methods and of course, our labor costs are very high. So we tell regulators, you want to free up trade, that's fair enough, but if you want that you have to reduce the costs on us. Either that, or the WTO has to recognize that, but it doesn't.
FF: What about the complaint that the EU needs to provide better market access? We heard that all week at WTO.
Bennett: I don't think it's about protectionism in Europe. It's about whatever the trading conditions are. Our consumers do expect our products to be produced to the standards they are used to. That means imported food stuffs are brought up to the standards that we're legally obliged to produce at.
For example in New Zealand, they were complaining about costs growing in lamb production, because they supply a chilled lamb product into the UK market. The customers have said it has to be up to a high standard. It's still a good market for them. There are examples around the world where people have created a market and their standards are comparable to the Europeans.
FF: Are European consumers different than in other parts of the world?
Bennett: We've had a lot of genuine food scares, and some that are media hype. Consumers are very sensitive. If you get a scare over food brought in or not produced to a standard, that affects consumption of the domestic product as well, so we farmers have an interest in making sure consumers are very content. It's very important to us.
European farmers know that the only way we're going to survive is to actually produce exactly what the consumer wants and to be sensitive to the consumer needs. If we don't, we won't have a market. In other parts of the world I've heard farmers say we produce it and it doesn't matter what the consumers say. That's not possible in Europe.
BSE in 1996 was the start of consumer sensitivity. Foot and mouth was not a food safety or a consumer issue, but it did have an impact on the consumer - the fact that we lost so many animals and so many had to be slaughtered to get rid of the disease. Our consumers take an interest in what we do.
FF: Are European consumers any more at ease about food safety now compared to 10 years ago?
Bennett: Food safety was probably the number one concern 10 years ago. I think we've been successful in reassuring the consumer since then, because that concern is not at the top any more. They feel comfortable with the procedures we do, and that's a real success story. But you can never become complacent about it.
Consumers demand safe, traceable food. But there's another agenda that's growing — the nutrition and obesity agenda as the population becomes more overweight. I think there will be a swing back away from processed foods toward natural foods for some of the population. The governments, as well as consumers, will look to reduce sugar and salt in diets.
The challenge for us once again will be to produce the right product for that new market that's emerging over the next few years. I see it as a good opportunity.
FF: What's ahead for European agriculture?
Bennett: Farmers are very uncertain about the future. We've got a lot of change because of the CAP, and concern about the impact of the WTO agreement. And there's real financial pressure with incomes as tight as they've been in many years. This year costs have gone up - the price of gas has gone up four times this year.
However, we've got some great success stories in agriculture. It's tough, but people are developing good businesses. We've got world class performers in all our sectors. We've got new markets emerging to help the family farmers as well. The market for local foods is growing very quickly. There's evidence consumers want choice outside of the retail empires. It's a small market but it's growing very quickly, so if it continues to grow in ten years time it will be very large for us.
Because of the healthy eating agenda, the government procurement programs for schools and hospitals are targeting and demanding fresh food now rather than over processed food, so that's an opportunity if you're close to the supply point. If you live in that area you can get your supply in.
It's tough out there, and we're losing farmers, about 4-5% a year through retirements or consolidation. We're getting larger farms and smaller part time farms. Medium sized people are being squeezed.
Great Britain probably already has the best farm structure compared to the rest of Europe. France is losing farms faster than the UK. They have a policy of keeping as many people on the land as possible, but it's obviously failing.
British farmers envy the fact that the French consumer prefers to buy French products. We haven't got that loyalty. Some consumers buy British because they want British, but most buy value, so you have to supply the right product at the right price.
FF: What kinds of skills will the European farmer need to survive?
Bennett: We're very short on labor, for example, in poultry and meat processing. A large percent of that labor will be imported. Even on a dairy farm now, if the farm employs labor, they're increasingly using foreign labor. Labor availability is a big issue.
The marketplace will become more and more important and the direct payments will become a smaller part of the income. We have a long way to go. Now, some sectors have never had support, they've had to innovate and develop the skills to survive; the other sectors such as dairy, beef, cereals (feed grains) have to go through that skill transition and it's quite a change for them.
FF: What is the European attitude toward the American WTO proposals?
Bennett: We do feel the U.S. counter cyclical payments are market distorting. It encourages production in commodities because you always know you have a backstop on payment. On the American side, countercyclical payments and a genuine parallel deal on export subsidies is critical. We'll be lobbying the European commission to not accept a deal until others change. But it's not just the Americans. The wheat board in Canada is another example. You have to take out all the distortions.
FF: What do European farmers really think about free trade?
Bennett: Free trade on the wrong terms is very worrying for our farmers. It's certainly going to be better to have a sensible WTO arrangement with a decent set of trade rules. That's better than to go into the next few years with lots of bilateral, regional free trade arrangements that are frankly not subject to international trade rules. Frankly that will cause more distortion and probably make it quite difficult.
If this round fails, what you will probably see is literally hundreds of deals around the world. It will make the next round nearly impossible.
If WTO fails now will it ever regain credibility?