House of Commons - Environment, Food and Rural Affairs

Select Committee on Environment, Food and Rural Affairs Ninth Report

COMMODITY PRICES

23. Despite the effect of the CAP, prices for agricultural products within the European Union are affected by worldwide price movements. International commodity prices for agricultural products are notoriously cyclical. At present the cycle has been downwards for some time. The Organisation for Economic Co-operation and Development described the last few years as a "prolonged period of downturn that has seen the value of many commodities reduced to historic lows",[35] made worse by massive surpluses in virtually every line. Figure 4 illustrates recent trends in two significant agricultural product prices.

Figure 4: Global commodity prices[36]

Notes:
Wheat, 'free on board', US Gulf;
Beef, Australian export, cif, US.

Moreover, such cyclical changes must be viewed in the context of a long-term decline in world agricultural prices - in general terms the application of improved technology over the long term allows products to be grown and transported more and more cheaply. Commodity prices are also influenced by the strength of the United States dollar.

24. Thus farming incomes in the United Kingdom are shaped by agricultural policies, by the wider financial context and the strength of sterling in particular, by domestic prices conditioned by the balance of power between producer and retailer, and by international commodity prices. The coincidence of a strong pound and lower commodity prices in recent years has played a major role in the dramatic reduction of farm incomes.

Changes in agricultural policy

25. The original objectives of the CAP were to raise agricultural production for the benefit of the farmer and the consumer, as well as for wider political and strategic reasons, including a desire for self- sufficiency, in food production, which Britain had abandoned with the Corn Laws. In basic terms the CAP set European market prices for agricultural goods at a level higher than those of the world market in order to stimulate increased levels of production. The European market was then protected from cheaper imports by import levies and tariffs. Over the years the CAP came to be seen as extremely expensive and wasteful, notably through the accumulation of surpluses which could only be disposed of at heavily subsidised prices on the world market. As a result two major reforms of the CAP were agreed during the 1990s. They began a process of reducing internal prices in many commodity sectors to bring them closer to prices on the world market. The price cuts made were compensated for by the introduction of direct payments to farmers.

26. The initial impact of the 1992 reforms of the CAP on United Kingdom farmers was to present them with a financial windfall. The depreciation of sterling within the ECU[37] in the mid-1990s meant that farmers in the United Kingdom were initially 'over-compensated' for the price cuts relative to other European farmers. Moreover the then-weakening pound meant that commodity prices did not fall in sterling terms. As we have already discussed, the situation was reversed in the late 1990s as sterling strengthened again and the Euro fell, and farmers were affected by falling commodity prices and falling compensation payments.

27. Since the mid-1990s both long-term trends in commodity prices and the short-term effects of the currency market have therefore joined together to bring about a sharp reduction in the level of income experienced by the United Kingdom farmer. However, the Institute of Agricultural Management suggested to us that the high levels of income of the early 1990s had been a chimera, and the rapid decline in farm income since the mid 1990s "really only returns the situation to the long-term [downward] trend".[38]

Diseases that have affected agriculture in the United Kingdom

28. As well as being affected by developments in commodity prices and in policy, United Kingdom farmers have faced a series of outbreaks of diseases affecting animals. In the worst instances these disease outbreaks have led to the destruction of large numbers of animals, restrictions on trade, and bans on the movement of livestock. In 2000 there was an outbreak of classical swine fever in East Anglia, which led to the destruction of 220,000 animals and limitations on exports.[39] The outbreak of foot and mouth disease in 2001, and the devastation it wrought both to farming and to the wider rural economy, remain fresh in the memory. In addition for many years the United Kingdom has had a persistent problem with bovine tuberculosis, a disease which has recently begun to appear in areas that have not previously seen cases. However, the most serious long-standing and destabilising disease to afflict British agriculture is BSE.

Bovine Spongiform Encephalopathy

29. BSE was first discovered in cattle in December 1986. It caused damage to the brains of the animals, and its effects were irreversible and fatal.[40] The disease did immediate harm to the cattle industry, but its most profound damage was delayed because the Government initially advised that there was no evidence that BSE could be transmitted to humans; it was most unlikely that BSE posed any risk to humans; and it was safe to eat beef.[41] However, in March 1996 new evidence came to light. The Government announced that its advisory committee on the disease[42] had considered work which suggested that there might be a link between BSE and cases of a human disease, Creutzfeldt-Jakob disease, and had concluded that

30. The advisory committee recommended a series of measures to reduce the risk to human and animal health from BSE. In particular it recommended that

However, the recommendation relating to deboning proved impractical, and so Ministers decided that meat from animals aged over 30 months old at slaughter, whether imported or produced domestically, should not be sold for human consumption. Their aim was to help to restore public confidence: in any event, due to consumer concerns, retailers and caterers stopped selling meat from animals over 30 months of age.[45]

31. The requirement to exclude cattle aged over thirty months from the food chain clearly placed additional burdens on the industry. Public reaction to the Government's announcement was immediately to stop buying British beef: sales of beef fell from 903,000 tonnes in 1995 to 732,000 in 1996.[46] A European Union export ban was also imposed, and beef exports of approximately 200,000 tonnes per annum stopped. More recently they have been allowed to resume, as long as the beef is de-boned and processed in specifically licensed plants under the Date Based Export Scheme, but exports remain a fraction of their previous levels.

Figure 5: United Kingdom beef exports, 1992 to 2001[47]

Note: during the beef export ban, from March 1996 to August 1999, some imported beef was re-exported and that is reflected in Figure 5.

32. Since 1996, more than five-and-a-half million cattle have been destroyed under the Over Thirty Month Scheme.[48] The difficulties caused by BSE have not only been confined to the United Kingdom (where, in fact, beef consumption has made a significant recovery[49]): the Organisation for Economic Co-operation and Development has said that it expects the whole of the European beef sector to continue to face a bleak outlook as BSE spreads on the continent. It has projected that within the European Union there is a "need to lower production following the sharp fall off in domestic [ie. European] demand and widespread import bans".[50] The shock to European consumers of BSE is probably the main factor leading some governments - notably the Social Democrat/Green coalition in Germany - to demand a radical recasting of the CAP.

Classical Swine Fever

33. Following the confirmation of a case of Classical Swine Fever in East Anglia on 8 August 2000, a further fifteen cases were confirmed by 4 November 2000 in the same area. Movement restrictions in the affected areas were imposed, and some limitations were placed on exports from the United Kingdom. Some 220,000 animals were destroyed, either under disease control measures or under a scheme intended to address welfare difficulties caused by the movement restrictions. The last remaining movement restrictions were lifted on 30 December 2000.

34. The impact of the outbreak of Classical Swine Fever on those directly affected is clearly apparent. But the longer term impact on the pigmeat sector has yet to be assessed. During 2000 there was a sharp acceleration due to the impact of the disease on the long-term contraction of the breeding pig herd in the United Kingdom. Home fed production of pigmeat fell by 12 per cent.[51] Some of this decline was replaced by increased imports: for bacon and ham a fall in domestic production of 8.4 per cent was more than offset by an increase in imports, resulting in a rise of 2.1 per cent in the volume of products available to the domestic market.[52] Whether these sales have been permanently lost to foreign producers will become clear over time.

Foot and Mouth Disease

35. The first case of foot and mouth disease was discovered at an abattoir in Essex on 20 February 2001. Over the following months a total of 2,030 cases were confirmed across the United Kingdom. Movement restrictions were applied across large areas of the country, and exports of British livestock were banned. Livestock was slaughtered on 10,512 farms.[53] A total of 4,202,304 animals were slaughtered on infected premises, contiguous premises or other situations considered to be 'dangerous contacts', and a further 2,048,769 animals were slaughtered under the Livestock (Welfare) Disposal Scheme.

A timeline of foot and mouth disease
20 February 2001	Foot and mouth disease discovered in a pig at an abattoir in Essex.
21 February 2001	European Commission confirmed a temporary export ban of meat and livestock products from the United Kingdom.
23 February 2001	FMD confirmed in pigs in Heddon-on-the-Wall, now regarded as the primary case. Livestock movements suspended initially for one week in the United Kingdom.
27 February 2001	Limited restrictions imposed on the use of footpaths.
6 March 2001	Special movement restrictions introduced to allows slaughtering to recommence.
9 March 2001	MAFF announced a 'local' livestock movement scheme to allow the movement of livestock for welfare reasons.
20 March 2001	Army logistics teams deployed in Cumbria and Devon.
22 March 2001	Welfare of Livestock (Disposal) Scheme launched.
1 April 2001	Highest weekly total of cases recorded in week ending 1 April, 303 confirmed cases.
9 August 2001	Announcement of the "Lessons Learned", Policy Commission on the Future of Farming and Food, and the Royal Society Inquiry into Infectious Diseases in Livestock .
23 August 2001	New outbreak began in the Hexham area.
30 September 2001	Final case confirmed in the United Kingdom.
14 January 2002	Northumberland reclassified as foot and mouth disease free, the last county in the United Kingdom to be reclassified, following completion of serological testing.
21 January 2002	The United Kingdom regained its foot and mouth disease-free status.
5 February 2002	Rules on the re-opening of livestock markets announced.

36. The long-term harm caused by foot and mouth disease is not yet clear. But it will be the result in part of the diminution of the stock of animals in the country, in part of the financial losses suffered particularly by those whose animals were not actually infected but who were affected by the movement bans and export restrictions, and above all of the effect on the reputation of British livestock farming and of its products. Exeter University has reported that "the 2001 FMD epidemic hit just when there were signs that the agricultural recession had bottomed out. Had it not occurred there is no doubt that farm incomes would have risen. ... Work carried out ... for Devon County Council estimated farm-level losses of between £1,348 and £12,057, depending on farm type and location".[54] Moreover the damage may well extend beyond farming: what the foot and mouth outbreak made abundantly clear was the links between tourism and farming, as tourists were dissuaded from visiting the British countryside first by the closure of footpaths by local authorities immediately after the beginning of the outbreak, and later by the images of burning carcasses shown by media all around the world.

37. We have published a report into illegal meat imports.[55] We do not repeat those recommendations here, but they are relevant to the future of agriculture in the United Kingdom.

35 OECD Agricultural Outlook 2001-2006, p. 7, (http://www1.oecd.org/publications/ebook/5101061E.PDF) Back

36 FAPRI, US and World Agricultural Outlook 2001, (http://www.fapri.iastate.edu/Outlook2001/outlook2001.htm). Back

37 European Currency Unit or ECU: a weighted basket of European Union currencies, used as the "currency" of the European Union before the launch of the Euro. Back

38 Memorandum submitted by the Institute of Agricultural Management, Ev 16. Back

39 See Agriculture in the United Kingdom 2000, pp. 42 and 43. Back

40 The BSE Inquiry, Volume 1 - Findings and Conclusions, para 1. See: http://www.bseinquiry.gov.uk/. Back

41 Op cit, para 2. Back

42 The Spongiform Encephalopathy Advisory Committee (SEAC). Back

43 HC Debates, 20 March 1996, cols. 375-376. Back

44 HC Debates, 20 March 1996, col. 387. Back

45 See the DEFRA website, at http://www.defra.gov.uk/animalh/bse/publichealth/otms.html#numbers. Back

46 Agriculture in the United Kingdom, Table 5.13. Back