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With a full review of the CAP arrangements for the period after 2020 under way, I have just read one of the best analyses of the declining competitiveness of EU agriculture.
The two graphs for wheat and dairying on the right say it all. The bulk of the world’s beef and dairy output is produced from grain and, of course, all of the pigmeat and poultry so, if grain production is disadvantaged within Europe, then the competitiveness of the whole sector suffers.
In Figure 1, we see how the gap between the price of wheat in the EU and the US has converged since the MacSharry/Fischler reforms. The reduction in EU prices is, of course, the justification for the whole system of direct payments which are now coming under such public and political pressure.
In a fascinating report by agricultural market intelligence firm Agbio Investor, based in Scotland, the authors digest the effect of the political obstruction in regulatory decisions in areas such as plant protection products and GM authorisations.
What is striking from the report is the static quality of cereal production in the 15 EU member states.
It has varied around 200m tonnes from 2001 to 2016 with yields also broadly static for the same length of time while US maize yields have steadily increased by 3%-4% per year.
Observers may argue and say that the direct payments are based on historical production and should be discarded – the facts would suggest the opposite. The milk example is equally striking.
There are limited regions of the world where milk is primarily produced from grass. Ireland and New Zealand are two of the outstanding examples. Again, the trend towards price convergence has been extraordinary (see Figure 2).
It can be said that this was the price of getting rid of quotas but the price reductions were imposed on all EU dairy producers even though they are smaller than for beef and cereals – a valid reason for the direct payment system.
The beef area is much more difficult as regional supply patterns can have a huge influence on price but the same principles apply.
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