Summary
The EC has been far more modest in its market interventions in the agricultural sector in response to the Covid-19 crisis than to previous crisis situations. In many respects the EC is seeking to work with current trends, such as increased private sector stock holdings, with its measures being less likely to result it stock levels which will overhang global markets and depress future global prices to the detriment of ACP producers. However, a close eye will need to be kept on the impact of EU market intervention measures on trade flows in sensitive products to regions where this could exacerbate regional trade tensions. Of more general interest, the EC’s decision to re-deploy financing for longer term activities to short term emergency measures, offers a precedent which could usefully be applied to existing EDF financed cooperation activities in ACP countries, with the aim of assisting hard pressed ACP governments in responding to both the health and wider economic effects of the Covid-19 pandemic. However, this will hinge around an EC policy commitment to use future post-Cotonou financing instruments to reconstitute the budgets from which emergency funding has been re-deployed.
On 22nd April 2020, the EC announced a further package of support measures for the EU agriculture sector to response to the economic disruptions generated by the Covid-19 pandemic. This now includes:
- A package of support for private storage measures for dairy and meat products.
- The introduction of ‘flexibility in the fruits and vegetables, wine and some other market support programmes.’
- ‘The authorisation of self-organisation market measures by operators in hard hit sectors’, via a suspension of normal competition rules related to ‘collusion’ in market organisation measures (with all sectors where an exceptional derogation to competition rules is granted being subject to close monitoring of price movements ‘to avoid adverse effects’).
- Allowing higher levels of advanced payment to farmers under pre-existing EU support programmes.
- A relaxation of state aid rules to allow grants of up to a ceiling of €100,000 per farm to be financed through redeploying longer term rural development financing to direct aid programmes.
- An easing of administrative requirements for securing access to EU support programmes through for example, an extension of deadlines for the submission of payment requests.
- a modification to requirements for inspections and checks on agricultural and wider agri-food sector operations (1).
These assistance measures are focussed on those sectors most affected by ‘the almost complete loss of the food service and hospitality markets.’ The situation this has given rise to is being compounded by ‘increasing price volatility in global markets, which has left farm businesses and processors under increased pressure’ (2).
The Dairy Sector
In the dairy sector, given the scale of direct and indirect support EU milk producers receive, the cash flow of milk producers is being helped by the provision of higher levels of advanced payment to farmers under pre-existing EU support programmes.
Meanwhile the most recent measures will grant financial support to private storage measures for skimmed milk powder, butter and cheese for ‘the temporary withdrawal of products from the market for a minimum of 2 to 3 months, and a maximum period of 5 to 6 months’ (1). According to reports carried by Euractiv ‘the maximum budget for the PSA measures is overall set at €76 million’, with the allocation to the diary sector being sufficient to finance the storage of ‘between three and seven months for 330,000 tonnes of dairy products such as skimmed milked powder (90,000 tonnes), butter (140,000 tonnes) and cheese (100,000 tonnes)’ (3).
These measures are designed to take milk off the market via expanded storage operations, thereby supporting EU milk prices. In addition, the exceptional derogation to competition rules for a maximum of six months will allow milk producers to collectively take steps to restrict production without being in violation of EU competition law.
These initiatives fall short of the calls made by the European Milk Board for a more extensive programme of market intervention measures. This has included calls for: producers involved in voluntary production restraint being paid for every litre of milk not produced; the establishment of restrictions on other producers to prevent them from expanding their milk production (4); and the reintroduction of intervention buying into public stocks (5).
With the UK standing aloof from EU Covid-19 linked programmes, UK dairy farmers are calling for ‘meaningful’ UK government action ‘to avoid a national catastrophe in UK dairying’. It was pointed out ‘the UK dairy industry faces unprecedented disruption in the short term because it cannot furlough its dairy cows, and its farmers cannot make use of the considerable Treasury support measures like other sectors of the economy’ (6).
Specific measures called for in the UK included:
- A ‘targeted grant scheme for affected farmers … similar to the Retail and Hospitality Grant Scheme’ 65), which consist of cash grants of £25,000 to affected businesses (2).
- The convening by the UK government of ‘a ‘Supply and Demand Management’ roundtable under competition law exemptions to maximise the flow of available milk through the supply chain’.
- The initiation of a ‘national production reduction scheme’ (6).
- Commitments from all crown buying agencies (NHS, military, prisons) to purchase only fresh milk, thereby de facto locking-in this demand to UK only suppliers (2).
- Effective UK government engagement with the ‘EU Commission to access market support measures’ (6).
The Meat Sector
As in other sectors EU meat producers (except for poultry producers) will be assisted by the flexibility introduced for advanced payments through EU support programmes, with this easing cash flow problems to some extent. Meat producers will also benefit from the relaxation of competition rules for the duration of the pandemic. As in the dairy sector financial support is to be extended for private storage, in this case for beef, sheep and goat meat (1). Available funding should be sufficient ‘for a minimum 3 to maximum 5 months for 61,000 tonnes of beef steaks (25,000 tonnes) and sheep/goat meat (36,000 tonnes)’ (3).
Once again EU farmers organisations have called for the EU to go further, with Copa-Cogeca calling on the EU to manage TRQ allocations in a more targeted manner (5). The EU poultry producers association, AVEC, has also called for a temporary suspension of how the EU poultry meat import TRQs are administered, with the current approach encouraging traders to maintain established levels of imports so as not to lose eligibility for future TRQ allocations. Given the loss of EU food service and catering demand this imported poultry meat is going straight into storage. This will generate future problems on the EU market when these imported products are released from stocks, once the HoReCa sector reopens (see companion epamonitoring.net article ‘Restrictions on Poultry Meat Imports Called for in the Face of Covid-19 Impact on EU Poultry Market’, 7 May 2020). The Irish Farmers Union, meanwhile, went further calling for a halt to beef imports from beyond the EU’s borders considering the market effects of the Covid-19 pandemic (7).
Flower, Fruit and Vegetable Sectors
In the flower sector, the exceptional derogation to competition rules will allow operators to collaborate in withdrawing production from the market, without being in violation of competition rules and hence being subject to financial penalties (1).
In the fruit and vegetable sector the relaxation of regulations to allow higher levels of advanced payment to farmers under pre-existing EU support programmes would appear to be consistent with Copa-Cogeca’s calls at the beginning of April ‘for exceptional measures to be made available to all affected fruit and vegetable growers’ and for ‘adjustments to the administrative management rules of operational programmes of producer organisations to reduce the constraints that they are currently experiencing’. However to date the EC does not appear to have responded to calls from Cope-Cogeca for a more comprehensive ‘community aid scheme’ for the fruit and vegetable sector in the face of ‘serious disruptions to demand for certain types of production (strawberries, vegetables, etc.), from specific regions or for certain customers’ (8).
At the beginning of April Copea-Cogeca warned ‘the marketing of fruit and vegetables as well as the delivery of fruit and vegetables destined for the processing industry may become more complicated as a result of growing problems in the availability of labour, the transportation of goods and input, the movement of people and changes in demand and consumption’ (9).
| Comment and Analysis
The European Commission (EC) has been far more limited in its market intervention measures in specific agricultural sectors than in the past. This would appear to be linked to the generalized nature of the demand being placed on public authorities for financial support given the global nature of the Covid-19 related crisis. This lies behind the EC Agricultural Commissioners argument that there is at the present time no pot of money from which such measures could be financed (5). By limiting market intervention support to aid to private storage programmes, the EC is working with the more general trend towards the holding of larger stocks, as a means of hedging against future supply chain disruptions. The French supermarket chain Carrefour, for example, has moved from a stock holding of less than 30 days for essential items to 90 days. This private sector trend needs to be seen against the background of the ongoing nature of the Covid-19 pandemic and the prospect of a second and even third wave of infections in 2020 and into 2021. This move towards working with broader trends alongside the financial constraints faced across the EU, could mean the EC is able to avoid the reintroduction of intervention buying. This would reduce somewhat the scale of future global market distortions which high levels of EU public intervention stocks can give rise to (particularly for skimmed milk powder). The current limit of private storage aid to 90,000 tonnes of skimmed milk powder, would generate stock levels only around ¼ of those accumulated during the previous EU dairy market crisis. It remains to be seen if this ceiling will be retained or whether as in earlier cases it will be removed if the Covid-19 related market disruptions are sustained throughout 2020. This needs to be seen against the background of past EU dairy market interventions which while taking milk off the EU market accumulated stocks which for years depressed global milk powder prices in ways which set an extremely low benchmark price against which domestic ACP milk producers had to compete (see companion epamonitoring.net articles ‘EU Skimmed Milk Powder Stocks Empty, But for How Long?’, 7 October 2019 and ‘Ageing EU SMP Intervention Stocks See EU SMP Prices Discounted’, 6 July 2018). In some regions of the ACP, even the more limited EU market intervention measures being set in place could in the final quarter of 2020 see EU dairy companies seeking out increased export opportunities for skimmed milk powder, butter and even cheese. Depending on the export markets targeted this could serve to exacerbate regional trade tensions in the ACP, where imported milk powders have been reconstituted and exported to neighbouring markets where they have taken market share away from local milk producers (see companion epamonitoring.net article ‘East African dairy Sector Trade War Continues to Simmer’, 21 May 2020). Given the scale of the challenges the Covid-19 pandemic is throwing up across the ACP, one lesson from the EU’s agricultural sector response measures has a far wider relevance, namely in regard to the flexibility being shown in allowing funding from existing long term EU agricultural sector support programmes to be re-deployed to emergency measures in response to the immediate effects of the Covid-19 pandemic. These funds are being deployed on the understanding they will be duly reconstituted under future budgetary cycles once the Covid-19 pandemic allows the resumption of implementation of longer-term measures to get underway. This precedent could usefully be utilised under EU cooperation programmes in ACP countries financed under the 11th EDF. The application of such an approach could allow funding for longer term programmes, the implementation of which is being suspended because of the impact of the Covid-19 pandemic, to be re-deployed to address immediate emergency needs. While the EC is already taking steps in this regard in countries where budgetary support is extended, special attention will need to be paid to ACP countries where EU development assistance is extended through individual projects and programmes. Each ACP government receiving EU development assistance through individual projects and programmes could usefully review the primary commitments, secondary commitments and payments under existing EDF projects and programmes and the future schedule for commitments and payments under existing agreed projects and programmes, to identify areas where funding could be temporarily re-deployed to address short term emergency needs, without undermining longer term programmes, the implementation of which has been or will be interrupted by the effects of Covid-9 pandemic. This of course will hinge around a policy commitment from the EC to use future post-Cotonou financing instruments to reconstitute the budgets from which emergency funding has been re-deployed. |
Sources:
(1) EC, ‘Commission announces exceptional measures to support the agri-food sector’, 22nd April 2020
https://ec.europa.eu/commission/presscorner/detail/en/IP_20_722
(2) dairyreporter.com, ‘NFU seeks coronavirus crisis meeting to save dairy sector’, 9th April 2020
https://www.dairyreporter.com/Article/2020/04/09/NFU-seeks-coronavirus-crisis-meeting-to-save-dairy-sector
(3) Euractiv, ‘Commission backtracks on intervention measures in agri-food markets’, 23rd April 2020
https://www.euractiv.com/section/agriculture-food/news/commission-backtracks-on-intervention-measures-in-agri-food-markets/
(4) dairyreporter.com, ‘Dairy farmers call for immediate EU wide implementation of crisis instrument’, 16th April 2020
https://www.dairyreporter.com/Article/2020/04/16/Dairy-farmers-call-for-immediate-EU-wide-implementation-of-crisis-instrument
(5) CAP Reform, ‘Financing emergency aid to address market disruption due to COVID-19’, 22nd April 2020
http://capreform.eu/financing-emergency-aid-to-address-market-disruption-due-to-covid-19/
(6) dairyreporter.com, ‘NFU and dairy industry call for action’, 16th April 2020
https://www.dairyreporter.com/Article/2020/04/16/NFU-and-dairy-industry-call-for-action
(7) the dairysite.com, ‘Irish farmers petition European Commission to suspend non-EU beef imports’, 1st April 2020
http://www.thedairysite.com/news/55096/irish-farmers-petition-european-commission-to-suspend-noneu-beef-imports/
(8) freshplaza.com, ‘Copa and Cogeca ask European Commission for exceptional measures’, 3rd April 2020
https://www.freshplaza.com/article/9205558/copa-and-cogeca-ask-european-commission-for-exceptional-measures/