The EU continues to seek ways of improving the functioning of agricultural supply chains, so the agricultural base in the EU is not undermined by unequal power relationships within supply chains. In November 2017 an especially convened Agricultural Markets Task Force called for: new EU rules and enforcement mechanisms to address unfair trading practices; mandatory price reporting to improve market transparency and increased support to EU farmers to improve their position within individual supply chains.
Given the role which powerful multinationals play in global trade and the unequal power relationships this gives rise to across ACP-EU agricultural supply chains, there is a strong case for extending EU policy initiatives to strengthen the position of agricultural producers within individual supply chains to ACP-EU agro-food sector trade relations.
On the 14th November an especially convened Agricultural Markets Task Force presented its report on the position of farmers in the supply chain. The establishment of the Agricultural Markets Task Force in January 2016 ‘reflected increased concern regarding global developments in the food supply chain and, in particular, the position of the producer in that chain’.
The establishment of the Agricultural Markets Task Force cannot be divorced from the process of CAP reform, which has seen the introduction of more market orientation in EU agricultural production. This has left EU agricultural producers more vulnerable to global market instability, with farmers now less supported by policy tools aimed at sustaining producer prices.
It is argued that farmers have now become ‘the main absorber in the supply chain’ when it comes to market risks. The work of the Task Force was firmly situated in the context of the on-going reform and evolution of the EU’s common agricultural policy. (3)
The Task Force was asked to explore issues which could improve the position of farmers in the food chain.(1) The recommendations aim to address ‘an imbalance of powers in Europe’s food supply chain’ (2)
The EC had earlier recognized ‘the need to strengthen the role of the farmer in the food chain with the objective of ensuring that he/she gets a fair return for their produce’. According to Agricultural Commissioner Hogan, the Task Force report will provide a basis for ‘delivering the appropriate policy response’ to the issues facing farmers related to the functioning of agricultural supply chains. The underlying concern is that ‘farmers are bearing the brunt of price volatility and prolonged periods of low prices’. (1)
The Task Force calls for:
- new EU rules to address certain unfair trading practices’ as well as the establishment and implementation of effective enforcement regimes at member states level, (1) including powers for the enforcement agency with regard to own initiative investigations; (3)
- measures and initiatives to increase market transparency, through ‘the introduction of mandatory price reporting and the provision of timely and standardized date’;
- support for enhanced cooperation amongst farmers and along the supply chain (1), with greater use of written contracts and even ‘ex-ante value sharing mechanisms’ which create firmer and fairer links between producer prices and the added value accruing in the chain; (3)
- improving farmers access to affordable finance, (1) including exploring the use of EIB financing to overcome the risk aversion in commercial banks when it comes to lending for farming activities; (3)
- improving farmers’ take up of risk management tools, (1) including through the promotion of ‘best practices’ with regard to risk management, including where appropriate the use of futures markets (3)
Copa-Cogeca in welcoming the report has called for the establishment of ‘an independent third party ombudsman’, capable of imposing ‘sanctions wherever there is non-compliance’. (2)
(1) Agricultural Markets Task Force presents recommendations on farmers in the supply chain’, press release14 November 2016
(2) Globalmeatnews.com, ‘EU proposes tough law to fight unfair trading practices’, 17 November 2016
(3) Executive Summary, Agricultural Markets Task Force, ‘Improving market outcomes: Enhancing the position of farmers in the supply chain’, November 2016
(4) Full Report Agricultural Markets Task Force, ‘Improving market outcomes: Enhancing the position of farmers in the supply chain’, November 2016
(5) Copa-Cogeca, ‘Copa & Cogeca urge EU Commission to improve competitiveness and to introduce EU legislation to fight unfair trading practices (UTPs) in food chain at high level forum’, 15 December 2016
(6) Agritrade, ‘EC proposes action to improve functioning of food supply chain’, 10 December 2009 http://agritrade.cta.int/en/Resources/Other/Key-topics/Market-access-and-market-developments/News/EC-proposes-action-to-improve-functioning-of-food-supply-chain
(7) Agritrade, ‘British Sugar/Associated British Foods – corporate profile’, 23 July 2014
(8) Agritrade, ‘Tate & Lyle/American Sugar Refining – corporate profile’, 23 July 2014
(9) Agritrade ‘The functioning of the banana supply chain’, 28 January 2010
(10) Agritrade, ‘Sustainability concerns go mainstream in Dutch fruit and vegetable sector’, 29 July 2012
|Comment and Analysis
The EC has recognized the implementation of EU agricultural reforms, which have increased the market orientation of EU agricultural producers, has also increased the vulnerability of EU agricultural producers to abusive trading practices, arising from inequalities in power relationships along food supply chains. Indeed, since 2009 the EC has been highlighting a ‘lack of transparency of prices along the food chain’ and the ‘significant tensions in contractual relations between actors of the chain, stemming from their diversity and differences in bargaining power’. (6) As a consequence since October 2009 the EC has been seeking to identify ‘concrete actions to improve (the) functioning of the food supply chain in the EU’. The report of the Agricultural Markets Task Force is the latest initiative within the EU’s evolving policy context.This seeks to address two distinct aspects of the policy challenge faced, namely:· how best to strengthen the bargaining position of farmers, within specific agricultural supply chains;
· how best to identify and address ‘unfair contractual practices stemming from asymmetries in bargaining power’, so as to improve the basis of participation of agricultural producers in specific supply chains. (6)
The concept of developing and utilizing policy tools to strengthen the functioning of commercial agricultural supply chains to the benefit of agricultural producers, would appear to be an important new area for policy development in ACP-EU relations. Processes of erosion of the value of ACP trade preferences, arising from EU agricultural policy reforms and implementation of the EU’s ‘offensive’ trade strategy are well underway, increasing the vulnerability of ACP agricultural producers to the adverse effects of price volatility.
Initiatives to strengthen the functioning of ACP-EU supply chains would appear to be particularly relevant in the sugar and banana sectors. For example, the concentration of ownership along many ACP-EU sugar supply chains, makes the concept of market price formation largely irrelevant. In this context the dominant corporate player is potentially able to set prices paid to ACP sugar cane producers in the light of corporate profit maximization considerations along the entire supply chain. (7 & 8)
Similarly in the banana sector European NGOs and ACP banana producers have long complained about abuses along banana supply chains. (9) In June 2012 this gave rise to a situation where ‘a coalition of consumer organisations petitioned the EC for the Code of Practice the Commission has promised to govern food retailers [to] be extended to cover the overseas suppliers’. This was seen as being a particular problem in the UK where ‘the supermarket practice of offering low priced bananas to attract customers was having an impact on the quality of life of many farmers and workers’. (10)
Clearly an extension of the EU’s policy approach to strengthening the position of agricultural producers in agro-food sector supply chains by reducing the scope for abusive practices, would appear to be appropriate for ACP-EU sugar and banana supply chains.
However, an increased policy focus on strengthening the position of agricultural producers in agro-food sector supply chains would also appear relevant in bulk commodity supply chains such as cocoa and coffee. In these sectors processes of product innovation and differentiation are yielding major commercial benefits to processors, manufacturers and retailers which are simply not shared with primary producers in ACP countries.
With regard to innovation a case in point is the development of ‘coffee pods’ for the delivery of single serve quality differentiated coffee. The retail value of these ‘coffee pods’ per tonne is commonly well in excess of $20,000 per tonne, compared to an international spot price for coffee in January 2017 of around $3,100 per tonne.
Similarly in terms of product differentiation in the cocoa/chocolate supply chain there is a major trend towards single origin chocolate bars, with major price premiums being obtained for such products (often more than a 100% more expensive). Yet these price premiums are not reflected in the price paid for cocoa produced in these individual geographically differentiated regions. This price premium commonly accrues solely to the industrial chocolate manufacturers and the retailers.
In addition the EU’s experience of policy development in relation to strengthening the functioning of supply chains in the context of a growing concentration of commercial power in the hands of retailers, would appear to be relevant to policy development in many ACP countries where efforts are underway to link local agricultural producers to major areas of higher value sales growth. However the policy scope allowed for such initiatives will be critically determined by the EC’s interpretation and application of commitments entered into by ACP EPA signatories under the provisions dealing with the use of non-tariff trade policy tools and specifically those dealing with ‘national treatment’.
The issue of the development of domestic policy initiatives in ACP countries to addresses abuses in dominant market positions within local supply chains is an issue which could usefully be taken up and addressed in the context of ACP-EU Post Cotonou discussion.
|Key words: Functioning of supply chains, Sugar, Bananas, Cocoa Coffee
Area for Posting: CAP, Sugar, post Cotonou, EPA General, SADC EPA,
West African EPA, central African EPA EAC EPA, ESA EPA,
Caribbean EPA, Pacific EPA