Hogan faces biggest challenge as farm incomes crash

As farm incomes across the EU crash, European Commissioner for Agriculture Phil Hogan is facing one of his biggest challenges since taking up the post. In his address to the European Parliament on Monday, Hogan accepted that the crisis in farm incomes is much deeper than anticipated. His comments came a week out from what will undoubtedly be an extremely heated council of agriculture ministers meeting next Monday.

While incomes in the tillage and pig sectors have been under severe pressure for a sustained period, the intervention of the French government in response to a looming dairy crisis has pushed farm incomes up the political agenda. French prime minister Manuel Valls and agriculture minister Stéphane Le Foll met Hogan in recent weeks, with French president François Hollande also having met European Commission president Jean-Claude Juncker.

Worryingly from an Irish perspective, the French, traditionally allies in relation to agricultural issues, are pushing for the reintroduction of supply management measures in the form of a €200m package for farmers who reduce production. Part of the proposal would include binding measures effectively placing a superlevy on those increasing production.

An alternative arrangement put forward for the supply control measure is that it would be funded by channelling 50% of the €430m crisis reserve fund into supporting lower production. Using farmers’ money to prop up market prices in a dysfunctional supply chain would set a dangerous precedent.

Although the French proposal is likely to face stiff resistance from other member states, Ireland must be to the fore in mounting a strong defence to what would effectively mean the reintroduction of quotas. No other member state has made the investment we have in production and processing capacity in preparation for the abolition of quotas.

Meanwhile, Commissioner Hogan faces two major challenges in formulating a response to the farm income crisis. At a basic level, the budget scope to provide additional funding is extremely limited. The ongoing migrant crisis has already consumed €13bn in EU support, and further funding will be required.

In such an environment, securing the necessary funds to undertake major structural reform, such as the cull sow scheme being proposed by some member states, will be extremely challenging. Nevertheless, given the impact that the Russian import ban is having on the supply and demand balance within the EU, the college of commissioners cannot walk away from agriculture and the need for support.

Also, not only are the tools available to the Commission to intervene in the market significantly reduced, in the wake of the most recent CAP reform, there is no clear consensus among member states as to the best course of action. While the reintroduction of aid to private storage for the pigmeat sector has strong political support, increasing intervention price for dairy products is facing resistance from key member states such as Germany, the Netherlands and the UK. The lack of political appetite from Germany perhaps reflects the level of national support being provided to farmers through their renewable energy schemes.

Convincing the Commission to increase intervention price for dairy products at a time when there is oversupply in the market will require real political pressure. Increasing intervention threshold quantities beyond the 109,000/t limit, which is likely to be filled by mid-April, is the likely compromise.

There are of course a number of cost-neutral measures available to the Commission. One such measure includes revising the upper ceiling on the scope for state aid. Germany is calling for the ceiling of €15,000 over a three year period to be doubled. Ireland is also calling for an upward revision. The appetite from Government to secure increased scope to address farm income challenges using a range of national measures is certainly welcome in advance of the Dairy Forum, which reconvened on Wednesday. Any negotiations on state aid flexibilities should include the freedom to implement the necessary flexibilities around taxation measures to take account of income volatility.

There is also the issue of addressing the cost structure at farm level. The political appetite for abolishing anti-dumping and customs duties on non-EU origin fertilisers is gaining momentum. However, classed as an industrial product, Hogan will have to enlist the support of DG Trade and Commissioner Malmstrom. Interestingly, a political roadblock to such a move may be that one of the main benefactors could be Russia, whose decision to ban EU food imports is largely responsible for the collapse in dairy and pigmeat prices.

Longer term, the current state of EU agriculture and farm incomes exposes the fundamental flaws in the CAP. Negotiations around the future of the CAP post-2020 will begin in earnest in early June. Ireland must be ready.