|
| | | “Fighting Price Volatility for Consumers, Processors and Producers”
Report of the French Economic, Social and Environmental Council (CESE)
Following a study on the determination of food prices1, conducted by then State Secretary Eric Besson in December 2008 and the January 2009 survey published by the consumer organization UFC-Que Choisir2 on the same topic, a recent report delivered by the French Economic, Social and Environmental Council (CESE) once again confirms that basic product prices and their fluctuations represent a major concern, now more than ever in the current context of the economic crisis and reduced purchasing power3.
Yet, contrary to previous reports that mostly aimed to make recommendations to smooth out the determination of prices throughout the agribusiness chain (front margins and yearly listing fees in retailing for instance), the CESE report takes matters to a new level. Entitled “How to Determine Food Prices: From Producer to Consumer” and presented by Christiane Lambert, the FNSEA4 Vice President, the document does not hesitate to conclude that when dealing with such a crucial issue as food, we cannot let agricultural production be ruled by the sole market laws, since these are historically and structurally volatile.
In addition to thoughts dealing with the need to curtail the opaqueness in the determination of consumer prices, the CESE’s first recommendations involve strengthening regulation tools of agricultural markets. While the organization is extremely critical of the latest evolution of the CAP–– “which is now powerless to confront the agricultural price volatility that is directly influenced by global market variations”––it advocates a review of regulation mechanisms and risk management, among which figures “the fight against the dismantling of CAP regulation mechanisms”.
We are presenting below excerpts of this report recommendations, as it confirms that, fortunately, agriculture and price volatility are increasingly listed as major topics in the national and international political agendas.
momagri Editorial Board
“Fighting price volatility in the interest of consumers, processors and producers”
Food is one of the fundamental rights written into the French Constitution. It is therefore acknowledged as a bare necessity and must be available to the greatest number of people, a situation that price volatility jeopardizes. Consequently, fighting volatility is a top-priority political issue.
Price volatility in agricultural commodities causes market disorders (turmoil for processors, disturbances in consumers’ behavior). When prices soar, a comprehensive repercussion leads to inflation of food prices and purchasing power anxieties; a partial repercussion implies the restructuring of agribusiness industries. In case of strong decline, investment in production is put off and the long-term survival of agricultural activities is threatened.
Following the text of the Treaty of Rome, which included the stability of agricultural markets as one of its major objectives, reducing price volatility will help secure production conditions and farmers’ income, stabilize operational requirements for primary processing industries and alleviate consumer prices.
1. Fighting the dismantling of the CAP regulation mechanisms.
Climatic and sanitary hazards weaken and jeopardize agricultural production. The best market regulator for agricultural commodities continues to be the policy of stockpiling when production is over target, so that prices do not fall below a manageable level for farmers. Conversely, the destocking achieved by returning certain production volumes to market allows reducing the risk of soaring prices. This safety net can take the form of public stockpiling through a bottom price, or intervention price. Financial incentives to businesses can lead to the implementation of private stockpiling. We must thus retain the tools available in the framework of the CAP, since they proved their effectiveness, such as public intervention on grain, butter and powder nonfat milk as well as assistance for private stockpiling for butter and meat.
(…)
As recommended by the Economic, Social and Environmental Council concerning agricultural commodity markets due to their recent evolution, we should, at the same time, reconsider the issue of strategic stocks: “We know that tensions on agricultural markets, on grain markets in particular, were fueled by the significant diminution of stocks at the international level. This should lead us to review the benefit of strategic stocks, with the goal to achieve the security of supply as well as stabilization, or decline, of price volatility.”
Indeed, the Economic, Social and Environmental Council emphasizes the regulating effect of milk quotas on milk production volumes, and thus on prices, while avoiding the accumulation of butter or powder milk inventories.
In spite of the resolve shown by the French Presidency of the European Union, the Council’s decisions took an additional step towards the dismantling of market management tools. Consequently, the Economic, Social and Environmental Council deems necessary for the impending negotiations––whether they cover financial prospects for the period 2013-2019 or the CAP future after 2013––to reaffirm, now more than ever, the strategic nature of agriculture and agribusiness, to return food security and sovereignty at the core of European policies, and then to develop appropriate means to meet these objectives.
2. Devising new tools for risk management
All economic activities are subjected to various hazards. Agriculture is particularly concerned by climatic, sanitary and economic hazards, which represent not only a risk for every farming unit but can also generate a systemic risk affecting a production and employment area, a region or an entire agribusiness activity. The dismantling the safety nets represented by the European Union intervention systems no longer allows agricultural firms to withstand the consequences of these hazards, nor does it permit affected industries to restart their operations after such a crisis. New tools must therefore be developed to reinforce the viability of farming activities.
In the framework of the CAP “Health Check” in 2008, France decided to use a share of economic incentives (first tier) to establish instruments to cover climatic and sanitary risks:
> The expansion of crop insurance through an additional fees to the payment of insurance premiums to cover financial losses due to climatic disasters;
> The creation of a sanitary fund to compensate the results of sanitary mishaps on animal and plant production (ovine bluetongue disease, BSE, avian influenza, corn chrysomela, sharka disease...) or events that altered the sanitary quality of products.
These innovative programs must be enhanced and prove their effectiveness during the coming years.
Still, the Economic, Social and Environmental Council believes that France should take additional steps––as it is already done in other countries such as Spain or the United States––and implement insurance tools that take into account economic risks through ventures combining output risk insurance with price risk insurance, not unlike insurance for “sales” or “operating margin”, thus addressing the risks tied to price volatility. With the goal of preparing for the 2013 deadline, France must therefore rapidly carry out extensive experimentation in insurance against economic risks for agriculture. In fact, in his address on the future of agriculture delivered in February 2009 in the western town of Daumeray, the President of the French Republic specifically requested it.
In addition, the use of practices for coverage against “price” risks is suitable for major basic agricultural products. Term markets should therefore be developed and promoted to professionals. These coverage tools, however, also generate their own risks if used by players lacking adequate training or solid financial ground. Consequently, the Economic, Social and Environmental Council estimates that the development of these tools must be associated with major training programs, particularly to the benefit of farmers. Just as what is done in the US budget, a government subsidy to coach agricultural producers in the use of term market could thus be implemented. Within this framework, synergies could be established with primary buyers (collection cooperatives, processors) that also develop the use of these tools.
Nevertheless, the current high volatility of grain prices raises the question of the role of term markets in the determination of prices and, consequently, the timeliness to strengthen their control, especially in Europe, in order to discourage purely speculative behavior. The December 2, 2008 study conducted by the Department of Research and Evaluation of the French Ministry of Agriculture, indicates that “if the presence of institutional investors is a must for the proper working conditions of financial markets, the escalation of purely speculative stakes challenges the capability of term markets to efficiently fulfill their purpose of determining prices, when less than 25 percent of the stakes are held by players who resort to term markets to cover real transactions. Following a spirited debate, the US Congress adopted the “anti-excessive speculation bill” on September 18, 2008 to restore the ceilings on speculators’ stakes that had been applicable up to the early 1990s.
The Economic, Social and Environmental Council wishes to implement this type of new regulation in the framework of decisions for international governance.
3. Toward the renovation of the European Union preferential treatment
Since the WTO’s 1994 Marrakech Agreement, the European Union preferential treatment has been significantly eroded due to diminishing customs tariffs. Likewise, market regulation is now weaker due to shrinking export compensations and the deterioration of Common Market Organizations (CMOs). Such trade liberalization and deregulation brought about higher price volatility within the European Union market, as well as in the rest of the world. This is the reason why for the Council, the European Union must regain a new international trade strategy and defend its right to food sovereignty and the durability of its model. The Economic, Social and Environmental Council believes that the European Union must devote its goal and mandate to make the WTO recognize the expectations of citizens regarding, among others, social, environmental and food security standards as well as animal well-being. These “non-trade” concerns could constitute the implementation of an improved preferential treatment for the European Union.
Defending an adequate level of custom duties remains necessary. The issue of unfair competition is also essential. Indeed, consumers have to buy agricultural products whose production standards greatly differ from French and European norms, while being totally unaware of this situation.
Additionally, the Economic, Social and Environmental Council emphasizes the need to standardize regulations, especially regarding plant care products, within European Union nations themselves.
| 1 December 2008 report on the determination of food prices by Eric Besson, the former State Secretary in charge of Research, Appraisal of Public Policies and Development of the Digital Economy.
2 “Beef, Pork and Poultry: Consumer Prices are Disconnected from Agricultural Prices”, UFC-Que Choisir, January 2009. This study corroborates the growing gap between agricultural prices and meat retail shelf prices during the past 18 years.
3 CESE, “How to Determine Food Prices: From Producer to Consumer”, March 25, 2009 http://www.conseil-economique-et-social.fr/
4 Fédération Nationale des Syndicats d’Exploitants Agricoles, the French National Federation of Farmers’ Unions.
| |
| |
| | |
|
|
Advocating for
agricultural market
regulation and global
food governance | |
| |
| | |
| |
|