A new vision for agriculture
momagri, movement for a world agricultural organization, is a think tank chaired by Christian Pèes.
It brings together, managers from the agricultural world and important people from external perspectives,
such as health, development, strategy and defense. Its objective is to promote regulation
of agricultural markets by creating new evaluation tools, such as economic models and indicators,
and by drawing up proposals for an agricultural and international food policy.
Focus on issues

The economic crisis and the agricultural sector

Thierry Pouch,

Head of Economic Studies at the Permanent Assemblies of Chambers of Agriculture (APCA)

The economic and financial crisis that began in the summer of 2007 had multiple and meaningful consequences on all areas of activities in the affected countries. In an article published in the Chambres d’Agriculture magazine, Thierry Pouch, Director of the Economic Studies Division of the French Permanent Assembly of Chambers of Agriculture (APCA), examines the origin, development and lessons of the crisis, especially its impact on agricultural activities. We highly recommend this article and are publishing below an excerpt1, which outlines the various channels of transmission of the crisis to agriculture––lowered growth rates, contraction in demand for commodities, declining global trade, banking disorders and especially increased risks on sovereign debt. As Thierry Pouch rightfully points out, “the current crisis is opening people’s eyes” and highlights how agriculture is integrated in economic channels and globalization. The increased financialization of agricultural markets since the 2000s also demonstrates and reinforces the integration of this economic segment, since agricultural products have become a financial asset class in itself and now represent an investment among others in portfolio management strategies. Yet, as clearly shown by the price hyper-volatility recorded in agricultural markets, the integration of the agricultural sector into economic channels and globalization only worsened the market intrinsic instability in a particularly unstable context. In light of the consequences of such instability on farmers’ incomes, on agricultural investment and production, it is now more critical than ever to break away from the rationale of dismantling of regulatory instruments that has been prevailing since the 1990s, and, as outlined by Thierry Pouch, pursue new directions in terms of public policy. Let us hope that the upcoming CAP will proceed in that direction. The future of a key sector for economic and social stability, food security and the European Union’s geostrategic independence depends on it.

momagri Editorial Board

The crisis has several transmission channels to the various economic sectors. With regard to agriculture, the primary one concerns pricing agricultural products. The patterns of growth rates impact the demand for agricultural products, and therefore for all commodities. The solid growth posted in 2006 and 2007, combined with more structural changes in some economies––such as China––have put upward pressure on agricultural prices. Conversely, the frequent recessions in 2008 and 2009 generated a drop in demand for basic products, and led to a sharp decline in agricultural prices that had repercussions for French and European farmers. In addition, the crisis hindered household food expenditures, and strongly impacted meats.

The second transmission channel concerns global trade. The severe shrinkage of growth rates in industrialized economies, together with a downturn in emerging nations, triggered an acute trade contraction, including commodity trade. Global trade declined by 12 percent in 2009, followed by a 13.8 percent recovery in 2010. For 2011, global trade recorded a small five percent increase. Recent WTO estimates for 2012 indicate a growth rate of barely four percent. In the absence of continued demand, the global imbalance between supply and demand increased during 2009, giving rise to declining agricultural prices. For its part, France incurred a meltdown in agricultural and food trade during 2009, which led to a significant adjustment to the usual agro-food foreign trade surplus (+€5 billion). Although the French agro-food foreign trade saw a noticeable recovery in the following years, the 2012 modest increase in trade flows could be detrimental to the continued strong performances recorded last year.

Agricultural activities might also have been affected by the banking crisis. The exposure of banks to risks linked to sovereign debt steered banking institutions into curbing credit to companies and households in order to secure cash reserves. This trend was confirmed by the freeze of the interbank market––as banks no longer lent cash to other banks. In spite of the two interventions by the European Central Bank in 2012, close to €1,000 billion were injected in banking channels, as euro zone banks are maintaining a restrictive approach to lending. The crisis has impacted the U.S. agriculture as well. American agricultural incomes declined by close to 40 percent in 2009. Livestock farming was hardest hit by the 2008/2009 crisis, due to lower meat prices and continued high feedstock costs. The American agro-food surplus also suffered from the consequences of the global trade shrinkage. While regular progresses are noted beginning in 2010, the USDA estimates for 2012 include a new downturn for economic performance in agriculture.

The current crisis is opening people’s eyes. In addition to a shift in the global order of nations, the crisis duly illustrates how an economic sector such as agriculture is incorporated into economic channels and globalization. As far as the sole euro zone is concerned, the crisis also reveals how the sensitive issue of sovereign debt and public deficits jeopardizes the conditions to set an agricultural budget for the 2014-2020 period, at least for some expenditures that would remain a national responsibility. Finally, if we add some aspects of the environmental downturn to the economic and financial crisis––such as successive droughts––the agricultural sector has indeed entered in a time of turbulence and uncertainty that calls for new directions in terms of public policies.

1 The complete text of the article is available from the website of the French Permanent Assembly of Chambers of Agriculture (Issue 1013 of June 2012) of the publication Chambres d’Agriculture), http://www.chambres-agriculture.fr/outils-et-modules/actualites/article/crise-en-agriculture-ou-en/
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Paris, 16 June 2019