Sector (Alan Matthews)

Transcription

1 Chapter 11 : Agri-Food Sector (Alan Matthews) Public perception is one of farmers complaining about everything? Introduction Facts/Importance 8% of employment (16% if food processing included) 70% of land area; visual impact therefore huge 1

2 Exports: book at NET figures Also R-based, implies not mobile 30% of greenhouse gas emissions food and drink: 18% of C Huge government intervention; regulation and subsidies Central to WTO talks, environment and health Cannot exist without food and water 2 Characteristics of Agricultural Sector Unique Considerations (not in book) Supply factors: disease, weather, storage costs, and safety. Means 2

3 sudden and dramatic shifts in supply possible. Inelastic demand: cannot increase D by reducing price because those who can afford food reached limit of demand Large number of producers, implies weak bargaining power of farmers without strong farmer organisation Immobile factors of production: land has cosmic attachment. Huge change for farmers to move to other job. Small shopkeeper analogy: market forces allowed to apply there. Anthony Hopkins, Field and other stories. 3

4 Why not Market Forces in Agriculture? Farmer bogged down with hard work and limits to output: nostalgic image Sociological/cultural: family farm Security and safety of supply; essential like water and cannot just go to lowest-cost producer without guaranteed, safe supply Instability: disease, weather, health scares. Hugely affects farming. For 4

5 example, flooding, drought, and so on. Incomes/Production 30% farm income from market: rest subsidies Emphasis on livestock, Table 11.1 (72% of total); beef and milk Export orientation; 80% of beef and dairy output rely on access to export markets 5

6 Real price falling for 20 years Volatility of prices a real problem; huge swings and uncertainty that few other industries could cope with Much fewer produce same output; 20% farmers product 80% of output Number of farms falling steadily Income from farming v farm household income. Former accounts now for just 27% of latter Very uneven distribution of incomes in farming: destitute bachelor to very well-off farmers Wealth v income; farmers often rich in former and very poor in latter 6

7 3 Agricultural Policy Common Agricultural Policy (CAP) French/German deal Objectives: - increased Q -fair standard of living - stabilize markets: weather, disease, health scare issues again - guarantee supply 7

8 - reasonable prices to consumers Market price v target price v intervention price Tariffs, export subsidies, intervention purchases to prop up prices (in past now but good example of consequences of rigging markets) Consequences of A Rigged Food Market: Hypothetical Example Large Farmer Small Output (litres) 800K 40K Cost/litre 1 3 Total cost 800K 120K World price

9 Balance Breakeven - 80K Support Price Profit 1.6M Breakeven Inefficient (for large and small farmers), inequitable, high budgetary costs, damages world trade and environment Rather than prop up price give direct transfers to low-income farmers? 80K in above example Direct payments now: also very inequitable but do not distort market and being phased out 9

10 Does world price take account of safety/health issues and sustainability though? Reform of CAP Mansholt 1968: recognised all of problems of price support McSharry (Irish Commissioner) 1992: introduced direct payments EU enlargement : agreed in 1993 and happened in 2004: addition of 10 agricultural states changed dynamic Luxembourg Agreement payments (de-coupled) 10

11 - cross compliance - payments to be modulated - rural development emphasis WTO and Doha Accord - US v EU (proposed EU/US trade accord) Ireland a substantial net gainer Safety, reliability and sustainability: new emphases Energy from agriculture; e.g. wind, biomass CAP today and after 2013 Changed in last 10 years - Lower payments to some countries still - Increased role of European Parliament 11

12 - Emphasis on rural development: small industry, forestry, sustaining rural communities 4 Food Processing and Distribution Food Industry (food needs to be processed, treated, packaged and delivered) Few products sold directly to consumer; potatoes and strawberries mainly in summer or local markets For example milk: cow to farmer to creamery to wholesalers to retailers to customers Food industry value (Table 11.2): huge industry, e.g. Glanbia, 12

13 Greencore, Kerry Group, Danone, etc Distribution Wholesale franchisors Retail sector; e.g Tesco, Supervalu, Aldi, Lidl Concentration of market power, in both wholesale and retail sectors, the policy issue Changing consumer lifestyles 13

14 - 50% of food in US consumed outside home, 30% here - Easy to prepare food/take-away food - Safety, health, fair trade issues Exports to UK: exchange rate issue 5 Food Policy Growing Concern over Food Safety Always a concern; e.g. water in 18 th century, and indeed today Huge variety of issues 14

15 - diseased animals posing threat to human health (BSE and bird flu ) - to other animals ( foot and mouth and bird flu ) - sanitary conditions for animals; e.g. battery hens, veal story - labelling (e.g. horsemeat issue) - pesticides/hormone residues - food additives, e.g. to make salmon pink - GM food, etc Can lead to drops in demand: e.g. listeria in soft cheeses, salmonella in eggs Obesity (the next health crisis after smoking) 15

16 Not too little food (as 100 years ago, and much of world today) but too much and of wrong type the issues today Common eating areas (greater danger of rapid spread of viruses etc) Economic Considerations Need state agency for food safety asymmetry of information (customer cannot tell quality) reputational issues, implies self regulation? danger of fatalities: irreversible Zero risk not possible: not just in eating but also living 16

17 Perceived v actual risk: former all that matters for people Mass production : efficiency v safety. Farm of 2m cows maybe much more efficient but disease spread very difficult to control EU Framework New General Food Law 2002 New legislation. Key Principles: - whole food chain approach: farm to fork - risk analysis: zero risk not possible - operator liability - enforcement 17

18 New Food Safety Authority created (but will they miss ball like banking regulators did)? Food quality the big issue now also Irish Responses Food Safety Authority 1999 Market Power in Food Chain 18

19 Wholesalers Supermarkets (top 3 account for 50 per cent of sales) Farmer share of retail price South v N Ireland comparison: lower costs in former and economies of scale because part of large UK chains 6 Conclusions See summary in book: time of major change - EU budget ( ) - WTO negotiations and proposed US/EU trade deal - food safety - environmental issues and sustainability 19

20 Less price intervention but increased regulation Growth sector of future in Ireland? Special access for Irish beef to US and Russia, and lifting of milk quotes big boost Changing composition of food demand in China to more European patterns Also remember food industry is R based 20

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