Responding to price volatility: creating a more resilient agricultural sector
Chapter 1: Introduction
The challenges facing EU agriculture
1.The agricultural industry provides jobs for 22 million people across the EU who are directly involved in farm work and for many more in related sectors. While a secure supply of safe food is the industry’s most visible output, farmers also play an important role in the management of the land and the environment as well as in the wider rural economy.
2.Farms across the EU vary enormously in size and type, from family smallholdings to large commercial agribusinesses. Developing and implementing a common policy to meet the different needs of all farmers presents a serious challenge. The Common Agricultural Policy (CAP), launched in 1962, is the main framework within which EU agriculture is managed. The CAP has undergone incremental change since its inception and, over time, has reduced support provided through prices in favour of support unrelated to production decisions. As a consequence, many farmers are now more exposed to market prices and therefore price volatility.
3.The effects of price volatility are felt differently by different farming sectors and by farms of different sizes. The presence of support under the CAP for certain sectors can also affect levels of resilience, with some less supported sectors even emerging as more resilient than those with a history of substantial support. Price volatility can be an opportunity for some farmers, but for others it can severely affect their livelihoods.
4.In the face of pressure on their incomes, many farmers have turned to diversification to supplement their income and reduce their risk exposure, but not all are able to do so.
5.The capital intensive and long term nature of farming limits the sector’s ability to respond quickly to sudden market disruption caused by, for example, extreme weather events or unpredictable political decisions.
6.Against a backdrop of reports of an ongoing crisis in UK agriculture1, the Committee undertook an inquiry to examine the extent to which price volatility was increasing and how agricultural resilience to withstand price and other shocks could be strengthened.
7.As a global phenomenon, price volatility is here to stay, and is beyond the control of the individual farmers who feel its effects. Their best defence is to draw upon a range of mitigation measures to improve their resilience, and we have examined various options available in the EU and elsewhere in the world. We have also offered some thoughts on the future of the CAP.
The case for public intervention
8.Over the course of our inquiry, it became clear to us that public intervention in the agricultural sector is justified where it can be seen explicitly to support the provision of public goods, such as increased food security, high food safety standards, animal welfare standards, stewardship of the land and a contribution to a well-functioning rural economy.
9.On stewardship, the CAP recognises that much of the EU’s agricultural land has to be conserved and farmed in a sustainable manner. We expect farmers to manage hedgerows, woodlands, watercourses and footpaths as well as promoting biodiversity where appropriate, all of which have direct costs and can reduce profitability. We should rightly speak of farmers as ‘land managers’, and the concept of ‘natural capital’ should inform policy making. Public funds should support this work where it is already taking place and encourage it where it is not.
10.Global agriculture faces increasing challenges, including climate change. Extreme weather events are on the rise, while demand for available land is increasing. Productivity and efficiency are of the utmost importance if food production and environmental goals are to be secured in the face of global warming, and public policy should be mindful of the need to adapt to a constantly changing world.
11.Developing economies are increasing the competition for food, and it makes sense to focus on productivity and efficiency at both farm and industry level. In our 2014 report, Counting the Cost of Food Waste: EU Food Waste Prevention2, we argued that levels of food waste in the EU were unacceptably high. Approximately one third of the food produced in the world for human consumption every year—around 1.3 billion tonnes—is lost or wasted.3 The positive effects of advances in agricultural efficiency and productivity will always be undermined if produce is needlessly wasted at any point, from farmer to processor, from retailer to consumer.
12.Although we do not examine the distinct role of retailers in this report, it is important to acknowledge that co-operation throughout the entire supply chain can bolster agricultural resilience. Longer term contracts can provide stability, but problems arise when retailers use the contracts with their suppliers for their own advantage, sometimes cancelling orders with little notice or compensation. This remains an ongoing cause for concern.
13.The ongoing reform of the CAP provides an opportunity to shape future behaviour in agriculture. A revised CAP should be significantly less complex and should focus on public goods, natural capital and the creation of a more resilient sector.
14.Above all, we were conscious that our work should have a particular focus on the role of those at the centre of agriculture: farmers. They should be at the heart of any changes in public policy and developments in agricultural practice. The potential of UK agriculture is significant, and farmers should be willing to explore new techniques, acquire new skills and share best practice. Willingness to benchmark in order to understand the cost of production is key to enhancing farmers’ competitiveness.
The inquiry and the Committee’s work
15.We issued our Call for Evidence in October 2015 and took oral evidence from a range of witnesses, from the UK and beyond, between December 2015 and February 2016. We received 29 pieces of written evidence and took oral evidence from 22 witnesses, over 7 evidence sessions. In March we visited farms in Hampshire and Berkshire to talk with farmers about the evidence we had received and to gather their views on future public policy options. We would like to thank all who were involved in that visit for their candid comments and willingness to engage with our work.
16.This report is aimed at the UK Government, which is responsible for implementing much of the CAP, and which supplements EU policy with domestic measures to support agriculture. The UK Government must develop a unified approach to agriculture and the environment. We heard with interest that the Department for Environment, Food and Rural Affairs (Defra) is working on a 25 year plan for food and farming, and on a separate 25 year plan for the environment. We are concerned that dividing the two policy areas in this way does not demonstrate awareness of the interconnectedness of agriculture and the environment, or of the value of natural capital. We await the publication of the plans in the near future.
17.Our report is also aimed at the European Commission, who are tasked with initiating ongoing CAP reform and keeping current policies under review. We hope that the voice and experience of national parliaments will inform any preparatory work for the next round of CAP reform.
18.On 23 June 2016 the people of the United Kingdom will decide whether the country should remain in or leave the European Union. We have not, in this report, explored either the options for an alternative UK agricultural policy, were the electorate to vote to leave, or the process whereby the UK would negotiate exit from the CAP and the wider process of policy transition. We trust that the conclusions and recommendations contained in this report will be of value whatever the result of the EU referendum.
19.The members of the EU Energy and Environment Sub-Committee who carried out the inquiry are listed in Appendix 1; and their declared interests are also listed. We are grateful for the written and oral evidence that was submitted to the inquiry; the witnesses are shown in Appendix 2. We are also grateful to Professor Berkeley Hill and Dr Dylan Bradley, who acted as Specialist Advisers to the inquiry.
20.The Call for Evidence is given in Appendix 3. All evidence is published online.
21.We make this report to the House for debate.
1 ‘UK farming faces two more years of pain says Carr’s boss’, Daily Telegraph (11 April 2016): http://www.telegraph.co.uk/business/2016/04/11/uk-farming-faces-two-more-years-of-pain-says-carrs-boss/ [accessed 5 May 2016]
2 European Union Committee, Counting the Cost of Food Waste: EU Food Waste Prevention (10th Report, Session 2013–14, HL Paper 154)
3 Food and Agriculture Organization of the United Nations, ‘SAVE FOOD: Global Initiative on Food Loss and Waste Reduction’: http://www.fao.org/save-food/resources/keyfindings/en/ [accessed 5 May 2016]