1. Markets policy and risk and crisis managment measures - CAP post 20131 Markets policy and risk and crisis management measures CAP for after 2013 ? Vincent CHATELLIER INRA SAE2 Nantes (France) European Parliament Workshop COMAGRI 7 th February 2011 - Brussels

2. Markets policy and risk and crisis managment measures - CAP post 20132 A few words about the heart of the CAP reform Compatible tools (low intervention price, end of export refunds, income insurance) How to integrate considerations other than commercial? For the developing countries: future level of tariff protection? è CAP and WTO Face to strong ambitions : EU budget and CAP budget? To a new distribution of the CAP budget between Member states? A significant shift of support from Pillar I to Pillar II? Some modifications for co-financing and subsidiarity? è The European budget (2014-2020) The pragmatism of the EC is very important (no flat rate model for SFP) The reorientation of the SFP is necessary (volatility ; historical basis) The ceiling of direct payments per farm is justified (with subsidiarity) The issue of “beneficiaries” is not trivial The new architecture is to specify (indicators, LFA in the first pillar…) è Targeting and redistribution of support (« The devil is in the details”)

3. Markets policy and risk and crisis managment measures - CAP post 20133 DG Agriculture and Rural Development The CAP Budget (in % the total amount)

4. Markets policy and risk and crisis managment measures - CAP post 20134 Part 1 : Prices volatility, explanatory factors and effects on farmers income

5. Markets policy and risk and crisis managment measures - CAP post 20135 FAO – Food price index The FAO index for food price (general index : 55 products)

6. Markets policy and risk and crisis managment measures - CAP post 20136 FAO – Food price index The FAO index for food price

7. Markets policy and risk and crisis managment measures - CAP post 20137 Sensitivity of supply to climatic hazards (despite the technical progress) Supply is rigid in a short term (production cycle) Demand is inelastic (little variation depending on price) è Agricultural markets are unstable Agricultural production costs ; demand in countries with oil production è Oil prices More volatility in the short term…but what long term effects? è Speculation in agricultural markets WTO ; uncoordinated responses of countries to the volatility è The reform of agricultural policies and lack of coordination Corn grain (USA) and sugar cane (Brazil) è The development of biofuels Explanatory factors of the food price volatility

8. Markets policy and risk and crisis managment measures - CAP post 20138 INSEE – IPAMPA Index Average production cost in farms (example: France)

9. Markets policy and risk and crisis managment measures - CAP post 20139 SSP - FADN Farm income per family AWU (example: France)

10. Markets policy and risk and crisis managment measures - CAP post 201310 Risks in agriculture and the farms strategies Yes, but the CAP encourages the specialization Decoupling, economical efficiency, work simplification... The Pillar II measures may encourage diversification Short circuits ; agri-tourism ; crops / cattle breeding è The diversification of activities (agricultural or not) Risks related to production cycle (bad weather, accidents, etc.) Risks related to markets (price volatility) Risks related with marketing (product sales) è Agriculture : a risky activity More autonomous production systems Arbitration between autonomy, labor productivity and economic efficiency Purchase the intermediate consumptions in a collective way Stocks in a long term è Limit the volatility of intermediate consumptions prices

11. Markets policy and risk and crisis managment measures - CAP post 201311 Part 2 : Markets policy and risk and crisis measures

12. Markets policy and risk and crisis managment measures - CAP post 201312 Border protection through tariffs A loss to taxpayers (customs revenue, but…direct aid) A loss to producers (lower prices and competition) A gain to consumers (lower prices in short term…but security in a long term?) è The theoretical effects of lower tariffs An average cut in bound tariffs (developed countries: -54%) A tiered formula for reducing tariffs A small % of products declared « sensitive » è The WTO negotiations on tariffs Incorporate new dimensions to the debate: environmental, social,… In case of serious crisis: possible use of exceptional tariffs Sectors not really sensible : cereals (and also pork, milk : no import) One sector very sensible: beef (but some changes in Brazil since 2009-2010) Strengthen the EU standards, traceability and differentiation è What strategies for the EU?

13. Markets policy and risk and crisis managment measures - CAP post 201313 Export refunds All forms of export subsidies will be removed Export refunds ; disciplines for state commercial enterprise ; export credits Food aid: some stricter rules Encourage financial donations to purchase food in the bordering regions/countries è They are condemned by WTO rules Innovation and competitiveness of agribusiness Exchange rates in the long term (Euro / USD) Some hopes: growth of international trade ; difficulties in some exporters (Australia) Export refunds were helpful especially in times of crisis (milk, sugar, pork,…) This justifies to maintain intervention prices at low level è What strategies for the EU?

14. Markets policy and risk and crisis managment measures - CAP post 201314 Against volatility : stocks, flexibility, transparency Stocks are expensive and trade must play a role Priority for poor countries (difficult access to food) è Safety stocks by major areas: yes, but… A choice that would cost the industry…who will support? è An adjustment of biofuels production to the cereal market situation? A multi-year framework with some flexibilities from year to another è Towards greater flexibility for the budget of the CAP? Improve the quality of statistical information More transparency in transactions in derivatives markets Limit the number of positions by institutional investors è Towards a better supervision of financial speculation (G20)

15. Markets policy and risk and crisis managment measures - CAP post 201315 Public intervention and safety nets To cope with temporary market crisis For long-term crisis…it’s better (more efficient) to grant subsidies Their utilization should be rare Positive trends in international prices Small influence on incomes and their distribution Intervention prices are often lower than costs of production Productions are more or less concerned (extension to others?) - Beef: 1 560 €/t ; market deficit in the EU (95%) and in many countries - Sheep and goat meat: a private storage aid ; market deficit in the EU (80%) - Pork: abandonment of public intervention (not used) - Milk: butter (30 000 T / 2 218 €/t) ; WMP (109 000 T / 1 700 €/t) - Cereals: wheat (3 Millions T / 101.3 €/t) è The maintenance of safety nets, to a low level, is useful… Are we at the end of the road? è A long process of institutional prices decline since 1992

16. Markets policy and risk and crisis managment measures - CAP post 201316 The instruments of risk management Useful to anticipate the future margins (sale prices - costs) No impact on prices trends over the long term A tool which is especially built for standardized products An inexpensive tool for public policies Farmers : a need for training è Futures markets A collective tool…adapted in some sectors (ex : fruits et vegetables) Producer organizations ; few other regulatory instruments è Mutual funds To cover production risks against climatic hazards France : enhancing of the tool – Health check of the CAP 133 million euros / partial coverage (65%) of contributions è Climate insurance

17. Markets policy and risk and crisis managment measures - CAP post 201317 The instruments of risk management Tax policies have to be more suited to a context of volatility Avoid unnecessary investment, multi-year management of the economic performance Some systems already exist… In France : Provision for climatic hazards (DPA) ; Provision for investment (DPI) …but we must go faster and farther Transfer of direct aid from one year to another ; investment savings plan è The precautionary savings Use the opportunities offered by the WTO agreement Annex 2 : Income decrease > 30% ; compensation < 70% Benefit from foreign countries experiences Canada : “agri-Stabilité” ; USA (Average crop revenue Election) An optional system for member states and farmers Provide budgetary limits, and then set the thresholds and rates è Income insurance

18. Markets policy and risk and crisis managment measures - CAP post 201318 From public regulation (milk quota) to private contracts A good efficiency for supply control (price stability ; low cost for public policies) A contribution to the geographical distribution of supply (for some countries) è Milk quotas have/had some advantages A non optimal allocation of resources An artificial increase in costs (quota market) A rigid system face to the opportunities of international expansion An instrument of the past (abolishment of the other intervention instruments) è Milk quotas have/had limits A hope: a growing global market (Oceania : some difficulties to develop) Contracts: to consolidate the link between producers and industrials Price: balance supply and demand (competition between countries and enterprises) Key concepts: production costs ; transport costs of milk For disadvantaged areas: targeting support + « quality package » è Risks and opportunities

19. Markets policy and risk and crisis managment measures - CAP post 201319 Thank you for your attention…good work on the next CAP