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1 Contribution by LTO NEDERLAND to the Agri Markets Task Force Subject: market information and transparency 18 March 2016 Sent to: - Agri-markets-task-force@ec.europa.eu, oliver.sitar@eeas.europa.eu, maciej.krzysztofowicz@ec.europa.eu Introduction LTO NEDERLAND is a farmers organisation, uniting 32,000 farms and over 50,000 individual farmers in all of the Netherlands and across all agricultural sectors. On the 17th of March 2016, Koert VERKERK and Klaas Johan OSINGA met with Mr SITAR and Mr KRYSZTOFOWICZ to discuss the work of the Task Force. Several subjects were addressed during the meeting: - The Dutch guideline for the Dutch competition authority: sustainability and competition, example: tomorrow s chicken ( Kip van Morgen ) - Contracts - Margin protection programmes - Market information - Dealing with risks both from markets and from the environment (weather, biological) LTO is very willing to further explore the subjects we discussed and in this way, to contribute to the work of the Task Force. In this short paper we will answer the questions by the Task Force concerning agricultural markets transparency and market information. Answers to the questions about market transparency 1. What can be improved in setting standards and common frameworks in data collection in the EU? What can be improved in the role the European Commission and Member States have in the collection and dissemination of agricultural market data? The European Commission is already providing market information and that should continue. Other organisations, like USDA and FAO, are also publishing data. Besides, much other information is available on the internet. Private consultants also produce information. Farmers organisations like LTO produce information or publish information in their members magazine. We know from experience our members are always interested in information about the market. They want data and they always look for views. It is an important topic. What could be improved is the development of easy tools for market information. Farmers may use these tools to get access and to understand/interpret market data without having to spend hours in front of a computer. The dashboards are a good tool. The challenge is, however, to produce market intelligence. Connecting the dots. Farmers need help to understand, interpret and digest the

2 information. And then to translate this information into relevant questions they can discuss within the framework of their own co-operatives / producer organisations. So data could be accompanied by comments. Market commentary could be given in writing, but it also could be done by using video uploads. An important tool is the state of the demand-supply balance in the market: production, consumption, exports, imports, stocks. This allows for predictions about the direction markets will take next. While doing this, the Commission should be aware that farm prices are increasingly driven by world market prices. This is because markets are more open then ever. Retailers source fresh dairy products in a 500 km radius, but ingredients, lactose, milk fat etc. is traded world-wide. Deep frozen meat is also traded across Oceans. We export vegetables and flowers to Japan, and we may import these from Africa. So while the focus of the European Commission is Europe, there is a need to include data about important trading partners. China comes to mind: we export a lot to China, but it is difficult to understand the dynamic of the Chinese economy. How much is economic growth? How are consumption patterns developing? So to build on basic supply export data, information is needed regarding production circumstances (weather, state of crops, numbers of animals) and economic data, population growth and political developments (e.g. trade). Gathering data is not the main problem, more important is to add qualitative information: what does this tell us about the direction of the market? What are uncertainties for the next months? The European Commission is producing outlooks for the long term. This is important for long-term planning and policy making. But the output seems to be based on models which are not able to predict volatility. It is important to estimate average prices. For example, we may state: the average milk price for the next 10 years will be 32 eurocents per kg (4.2% fat). This is a figure a bank can work with. But for farmers it is important to know: will the price fluctuate between cents of between cents? And how long does a price cycle last? A word about contractualisation. This is seen by some as the solution to volatility helping to provide stability to farmers. It is questionable if this is helping farmers to become market oriented, since market signals may not be reaching them. If farmers are locked in five-year contract with fixed volumes, how can they respond to volatility? What is the use of market information if your position is fixed for a long time? We are not saying that volatility is bad. Volatility often means market forces are functioning. In a functioning market, volatility will sort itself out. However, extreme volatility, driven by factors from outside (weather calamities, Russian boycott, disease, speculation) is a problem. Just a comment about the role of governments and the role of the private sector. Successful farmers co-operatives usually have very good insights into the market. Their business departments usually employ a market intelligence unit. They have an advantage: they know actually the content of contracts and the actual volumes being traded real time. Usually this type of actual information is not available in public, or only by word of mouth. Information may also be used to spread roomers and to influence sentiments in the market. But what farmers need is independent, reliable

3 information. So there is a role for authorities to provide information. However, market intelligence can be improved by gathering more qualitative information. 2. What can be improved in the data of agricultural markets? Is it relevant? The question behind this question seems to be: how can the position of farmers in the chain be improved? Is the answer: more market transparency? When farmers (farmers co-operatives) work together with food chain partners, develop strong quality concepts and build markets, do they have a need for more market information? What we would suggest is take a step back and analyse the situation. Not all farmers may be in need of market transparency. If they work together with food chain partners, having established themselves in a clearly defined market, they may not be interested in so much transparency. Too much transparency may work against the most competitive farmers. - Which sectors are most in need of market transparency? However, we would say that in markets where farmers are less organised still, there seems to be a bigger need for independent market information because the farmers negotiating position is weak. Take for example the market for pig meat: prices are hardly moving. The slaughterhouses seem to dominate price identification. There is a lack of co-operation in the chain. Many farmers don t trust retailers. NGOs are critical. Farmers are hardly organised in co-operatives and can only accept what is being offered. What is being communicated in terms of prices, is coming from the slaughterhouses. The only way farmers can find out about real-time market information, is by making telephone calls to trusted colleagues. In markets with a many producers and many buyers, they organised public auctions. This is what was done a century ago when growers created vegetables and flower auctions in the Netherlands. Nowadays, a limited number of buying desks in Europe are able to circumvent the system, where there are still many producers. The only answer for farmers is to get organised in strong cooperatives through which the produce is marketed collectively. In some sectors this has already developed. Examples in The Netherlands are the co-operatives FrieslandCampina, Cosun and FloraHolland. In other sectors the situation is more fragmented, like in the Dutch vegetable sector. In the pork sector, farmers seem even more individualistic. To visualise the situation, the below figure (2012) may be helpful. It shows how 65,000 Dutch producers are supplying 16 million Dutch consumers. Almost all produce is channelled through only five buying desks (Albert Heijn, Jumbo, Superunie, Aldi and Lidl).

4 - Which data should be collected and disseminated? See the answer to question 1. - At which levels of the food chain should data be collected? Data about consumption and import requirements are important. In the USA, operators must provide such figures by law. For us, it is also important to develop our understanding of big markets like China and India. China, one of our biggest clients, is also one or our biggest question marks. How can farmers and their cooperatives be expected to invest if we don t understand what is driving our biggest clients? Further it is interesting to gather information about margins. But changing the division of margins along the chain can not be done by contracting of changing trading practices. It helps, but the root cause of the problem is not taken away: the weak negotiating position of many farmers vis-à-vis big traders and retailers. The only way this can be solved is, as stated before, getting farmers to combine their marketing in strong co-operatives. Competition rules should allow farmers to work together in co-operatives, preferably internationally like buying desks of main retailers have been doing for many years. Farmers who are well organised in strong co-operatives, may not be interested in too much transparency about margins and prices. This would be like punishing the most competitive farmers. - Is the level of product disaggregation satisfactory taking into account cost-benefit ratios of mandatory data collection? It is a bit unclear what is meant here, but we understand it like: milk is processed into many products. Pigs are slaughtered and the components end up everywhere. So gathering consumer product price information is difficult to translate into euros per kg milk. To do that, requires a lot of effort and understanding about how chains operate. The problem may be tackled by targeting a limited number of products or product lines. When an animal is sold for slaughter, it is possible to work out how the different carcass components are marketed and how big returns are. It turns out there are high value markets and markets for waste products. 3. What specific policy support is needed to support the use of market information (directly and indirectly) by farmers (targeted training, advisory network)?

5 See also our answer to question 1. It is not enough to produce large datasheets. What farmers require is explanations in simple language qualitative information video uploads for example. But also technical tools like apps they can use to scan the market real-time in 15 minutes or so.