Position Paper 02 May 2017

Transcription

1 Position Paper 02 May 2017 modernisation and simplification 1. The Common Agriculture Policy (CAP) is a major policy tool with wide implications for the competitiveness of the food supply chain. Retailers and wholesalers understand the difficulties that many farmers face, and have shown solidarity throughout recent difficulties affecting certain agricultural sectors. In order to best serve consumers, the food supply chain needs a modern CAP that continues to be market-oriented, that helps farmers meet the challenges of the future, and supporting dialogue among stakeholders about the long term future of the food supply chain. To achieve this, the CAP should support dialogue among supply chain operators, including providers of agricultural inputs, farmers, processors, wholesalers and retailers, to make it easier for farmers to match what they produce more directly to what consumers want to buy. 2. Retailers and wholesalers play a significant role in the food supply chain. Together, the 5.5 million companies operating in the sector (food and non-food), provide employment to 29 million Europeans and generate about 10% of total EU value-added. The sector is highly diverse: while there are a number of market leaders, the vast majority of the sector is made up of millions of small and very small companies. Retailers and wholesalers operate under huge competitive pressure, and have to fight to retain the loyalty of their customers by offering the best services, prices and choice of products. Digitalisation has generated a significant transformation in the sector, with the emergence of new business formats, allowing consumers immediately to compare prices, and producers and processors to compete with retailers and wholesalers by selling direct to consumers. 3. Consumers mostly buy processed products, and retailers purchase very little direct from farmers (less than 5% of their transactions). The bulk of farmers produce is sold to wholesalers, traders or processors 1. To be able to offer their customers the choice they expect to find on their shelves, retailers need sustainable and competitive supply chains, which of course start with the agriculture sector. This choice spans bulk products meeting certain standards, but equally important, speciality products, from which small farmers and retailers can both benefit from selling at a premium. There are already a large and increasing number of partnerships between retailers and farmers for premium products, or supporting alternative production methods. Retailers therefore have no interest in seeing the farming sector suffer, but rather, need farmers who understand the market, who are able to identify opportunities and adapt to exploit them 2. A Common Agriculture Policy designed to meet the challenges of the future 4. Agriculture is a significant sector in the European economy, producing the commodities that are necessary for the supply of food products to 500 million consumers in Europe. Agriculture also delivers a number of societal goals, which range from maintaining the landscape, keeping a diversity of jobs in rural areas, to contributing to sustainability goals such as biodiversity or maintaining the quality of the air, soil and water. A huge challenge facing agriculture over the long term will be generation renewal and making it easier and more 1 The food and drink industry buys 70% of EU agricultural raw materials to process them into safe and nutritious products FoodDrinkEurope statement on the CAP, 02/02/ For more details, see the EuroCommerce contribution to the Agri-Markets task Force, July

2 attractive for young farmers to join the sector 3. Over the years, the CAP has helped ensure food security, and turn Europe into a global net exporter of agriculture commodities and foods. 5. Retailers recognise the present situation of agriculture and the multiple challenges facing farmers today 4. These include globalisation, and a consequent exposure to world market volatility, the need to better match supply with changing consumption patterns, climate change and environmental pressure, and the need to provide healthy, safe and nutritious foods to Europe s citizens. The CAP should be adapted to help farmers meet these challenges. Maintaining a market oriented policy 6. The CAP has for many years shielded farmers from some of the impact of global forces of supply and demand. However, in line with WTO commitments, the EU has had to review its policy tools and open its markets. The previous CAP reform was a step in the right direction and we encourage Europe to maintain this course: in agriculture, as in any other sector in a market economy, prices are ultimately determined by supply and demand. 7. This does not mean that the CAP should abandon direct payments and other safety nets, such as market management and income stabilisation tools to help farmers manage market uncertainty. But public intervention should primarily aim to address objectives which the market alone cannot deliver, such as preserving the landscape, the environment, maintaining jobs in certain areas or ensuring sustainability in a broader sense. However, a return to quotas and prices set by committees in Brussels, or allowing Producer Organisations or Interbranch Organisations to fix prices or quantities, cannot create a sustainable future for Europe s agricultural sector, which can only achieve a stable footing if it is driven by meeting demand from the market, and above all, the consumer. Adapting to consumer trends 8. Another key objective of the CAP is to ensure that consumers have access to supply of agricultural produce at reasonable prices 5. Retailers are uniquely well-placed to pick up trends in consumer demand, which can change quickly. As already mentioned, the recent crisis did not affect all producers equally. Ever-increasing production of conventional milk and pigmeat over recent years fuelled a downward price spiral. Yet, in certain countries, retailers had to import significant proportions of organic products, which could be sold with a premium, as they could not find enough farmers domestically ready to supply it. Consumption of certain agricultural products is structurally in decline, including conventional drinking milk and meat (except poultry, which seems to be holding up) 6. Market research shows that, while price remains a priority factor for consumers 7, a significant and growing number of consumers are ready to pay a premium for products with certain specifications such as organic, local, quality logos (e.g. Label Rouge in France) or guaranteeing standards in specific areas such as animal welfare, fair trade or sustainability. In today s mature retail markets, these premium segments are generating the highest growth potential in retail sales. 9. As the last link in the chain, retailers play a significant role in passing on information related to consumer trends up the value chain, but equally in passing on information from producers to consumers, on such things as production methods or enhanced quality. Differentiation, segmentation and consumer information are critical for retailers facing increased competitive pressure but also for farmers who can get a better return for their products. Labels such as Protected Designations of Origin (PDOs), Protected Geographical Indications (PGIs) and Traditional Speciality Guaranteed (TSGs) play a key role in supporting local 3 One third of farm managers is aged over 65 and 56% over 55, while 6% of farmers are under 35 years (source: DG AGRI) 4 See in particular «Towards a common agricultural and food policy after 2020», Louise O. Fresco and Krijn J. Poppe 5 Article 39 (1)(e) TFEU 6 EU agricultural outlook, DG AGRI, Dec «the future of grocery» Nielsen, April 2015 Position paper 2

3 specialities and creating a recognisable identity for them which can attract a premium. Their development should be further promoted, while being mindful that multiplying such labels may create confusion among consumers, who need to understand them. 10. An improved and intensified supply chain dialogue, with all players involved including retail, through Interbranch Organisations or any other similar type of structure, would enhance the performance of the chain and ensure that production is better aligned with consumer trends. Those countries where such dialogue exists are also those in which the farming sector has done best in weathering recent challenges in the market. This dialogue should be structured to cover EU, national and individual company initiatives for the supply chain as a whole as well as covering specific sectors. A formal body such as the High Level Forum on a better functioning food supply chain- could provide a forum where wide-ranging issues can be addressed between policy makers and operators. These could include income stabilisation tools (e.g. insurance mechanisms, futures markets), transparency of supply and demand, animal welfare, exports strategies, addressing food crises and food scandals. Sector specific issues, such as contractualisation, sector specific animal welfare related issues, transparency in terms of supply and demand in one sector could be addressed in the framework of interbranch organisations or similar structures at European level and work in close cooperation with national sector specific dialogues or Interbranch organisations. 11. A modern CAP should encourage the development of supply chain dialogue as a means of exchanging information among operators in the supply chain and helping farmers match their production to what consumers want to buy. Supply chain dialogue is also a means to create more trust among stakeholders, as experience shows in the countries where this is taking place. Strengthening farmer s position in the food supply chain tackling fragmentation 12. In the supply chain, farmers are often faced with a significant degree of consolidation in input suppliers and in strong purchasers. Overall, and with a few exceptions in certain countries and sectors, the farming sector remains fragmented. The CAP should be adapted to make it easier for farmers to consolidate, and generate economies of scale. This means addressing issues such as access to land, investment capacity and facilitating generational renewal and innovation. 13. The CAP should also encourage better organisation of farmers as a key to a betterperforming food supply chain. We understand that this may be difficult in certain countries, but where farmers are able to organise themselves through cooperatives or producer organisations, they are better placed to negotiate with their - sometimes stronger - trading partners. Farmers in those countries have also tended to weather the recent crisis affecting certain agriculture sectors better. 14. Producer Organisations (POs) and Interbranch Organisations (IBOs) can play a significant role in strengthening farmers position in the chain. There is scope for some introducing more flexibility in the application of competition rules, but POs and IBOs should not be used to fix prices or quantities or adopt any other exclusive behaviour, to re-establish what in the past the CAP committees were charged with deciding. The Commission should resist arguments for simplifying competition rules for agriculture which could end up with price fixing cartels to the detriment of consumers, and ultimately likely to damage the long-term ability of the sector to address and survive increasing global competition. 15. The best performing cooperatives or producer organisations are usually business-driven and flexible, allowing trading partners to adapt to changing consumer expectations; they provide essential marketing skills and added-value services to their members 8. We are concerned that a large majority of cooperatives or producer organisations are still not sufficiently business-oriented and still retain complex decision-making processes. A modern CAP could provide incentives for them to become more entrepreneurial, service-oriented 8 Conseil Général de l alimentation, de l agriculture et des espaces ruraux (2012) "Rapport sur l organisation économique de la production agricole". Position paper 3

4 organisations, helping their members identify and meet changing consumer demand. Incentives should be created and present rules governing Producer Organisations (POs) amended to encourage collaboration among farmers and with other businesses wishing to invest in their supply chains. For example, current governance rules covering POs make it impossible for a business that wishes to invest in equipment for farmers in a PO to have a say on decisions of that PO. Addressing farmers incomes 16. One of the key objectives of the CAP is increasing the individual earnings of farmers 9. Over the past years, farmers incomes have increased (by 2.7% per year between 2005 and ) but not uniformly. Addressing income disparities 11 will be a key challenge in maintaining farming and employment in rural areas. Farmers are increasingly exposed to global trends which influence agricultural prices and create market volatility. Retailers ability to influence farmers income is limited: they have few direct relationships with farmers. Retail prices for food products, most of which undergo significant processing, are disconnected from producer prices. The latter essentially depend on global mechanisms reflecting supply and demand in agricultural commodity markets worldwide. Based on the work of the AMTF, we would recommend the Commission to consider: Contractualisation and other similar contract arrangements that make it easier to ensure that any premium paid for a particular specification or quality standard by the retailer at the end of the chain, is passed on to the farmer at the other end. The development of futures markets is an interesting tool, which should be developed on the European level to achieve scale and which farmers should be encouraged to join. However, these can only apply for commodity products produced on a significant scale and which allow a certain degree of standardisation; they are therefore unlikely to offer a proper solution to many small individual farmers.. Supporting local production of speciality products with a high level of added-value as a complement to large-scale production. Short, local supply chains and direct farmers sales to consumers or retailers can offer farmers a premium, respond directly to consumer demand and contribute to diversified consumer choice, although these activities will remain relatively limited. Supporting entrepreneurship among smaller farmers, allowing them to launch new businesses and add value to primary products in which they are not able to match the economies of scale of larger farms producing significant volumes of commodity products. Supporting the development of insurance or similar tools to help farmers smooth out the impact of market volatility. Ideally a European level initiative would be useful in providing greater scale and lower costs per farmer. Offering mutual recognition options to facilitate compliance with environmental and sustainability criteria by (e.g. compliance with credible private or third party schemes guaranteeing compliance with CAP greening obligations). 17. Regulating retailers trading practices, which principally involve negotiation with large multinational food processors - and not with the limited direct dealings retailers have with farmers, will do nothing to help stabilise farmers incomes or protect them from market volatility. We support a facts-based approach 12 and ask the Commission to refrain from jumping to hasty conclusions on regulatory action which risks undermining the capacity of retailers to negotiate with these large processors. Such action will shift margins towards already dominant and highly concentrated processors who enjoy already very high margins, and end up being passed on to consumers. However designed, such regulation will simply not deliver benefits to farmers. 9 Article 39 (1) (b) TFEU 10 Annual income per agriculture working units, EU agricultural outlook, DG AGRI, Dec On average, 20% of farmers receive 80% of EU direct payments; «Towards a common agricultural and food policy after 2020», Louise O. Fresco and Krijn J. Poppe 12 We are concerned that so far the discussion has been largely driven by the outcome of perception surveys but that no study has provided evidence of the existence of a significant issue or a significant obstacle to the Single Market. Position paper 4

5 18. Instead the Commission could work on establishing a non-regulatory framework, facilitating exchange of good practice among member states and supporting the take-up of this good practice by operators and the development of national supply chain dialogues as a means of building trust among operators, and by sharing market knowledge, help farmers in capturing more value in the chain by matching their products more closely to consumer demand. The Supply Chain Initiative (SCI) can provide a platform where issues can be discussed on the basis of agreed principles of good practice for relations in the food supply chain 13. The appointment of an independent chair will help enhance the SCI in particular in addressing complaints and issuing guidance of general interest. Ensuring a facts-based Common Agriculture Policy making and more transparency 19. EuroCommerce would support creating a better understanding of the process of value transmission in the food supply chain, generating more trust and greater understanding among stakeholder groups, as well as addressing some of the misconceptions about the role of individual sectors in this process. Discussion should be based on sufficiently aggregated data, supplied by recognised statistical or market-research bodies, while, of course, fully respecting competition rules. 20. As foods becomes highly processed, data shows that the original commodity price has less and less of an impact on the final retail price and vice versa. It is, therefore, no surprise that farmers share of total value-added has reduced significantly over time. Each stage of the food supply chain adds value and has an impact on the final price. Only where agricultural products are sold without any major alteration or processing, can the original commodity price have a higher impact on the final retail price or vice versa. For example, the price which a consumer pays for a frozen pizza will have little relation to, or influence on the price paid for the wheat, the tomatoes or the milk that went into the component parts of the final product. In this context, it is also important to recognise the difference between gross and net margins. The retailer s gross margin only reflects the difference between the cost of goods purchased by the retailer and the consumer price. It does not reflect all the operating costs incurred by the retailer (real estate, personnel costs, equipment, energy, taxes, transport logistics, etc.). When these are taken into account the resulting net margin is very small (on average 1-3%). 21. Full price transparency can generate a better understanding of the contribution of each link in the chain and alleviate some of the misconceptions about its functioning, even if it will not in itself help strengthen farmers position in the chain. Farm-gate prices are well-known, and what retailers charge consumers is completely transparent. Further price transparency can help explain the process of value transmission but will not enable farmers to negotiate on better terms as the price of a processed product has little to do with the price of agriculture commodities. We would suggest that policymakers be cautious in the requirements they impose; these must respect competition rules and not encourage collusive behaviour. They should also be mindful of the additional administrative burden this may impose on business. Ensuring a consistent approach to nutrition, health and sustainability challenges 22. The current CAP only partially addresses challenges resulting from a changing global context in areas such as food security and safety, climate change, water and energy use, and securing a healthy menu for life-long healthy living. 23. Consumers and society increasingly request higher standards relating to the environment, the type and quality of products. Consumers want more choice and greater variety. They want to know more about the physical properties, quality, and origin of products as well as how they are produced. This concerns issues such as animal welfare, the use of pesticides, veterinary medicinal products, additives in processed foods, safety of agricultural products. Consumers are increasingly interested in healthier options. Greater awareness will trigger 13 Position paper 5

6 consumers to change their food consumption habits and choices, and this should in turn have an influence on agricultural production. 24. The current CAP only partially addresses this. Thus, a broader and more integrated EU agricultural and food policy ensuring greater consistency between the health and agriculture agendas is needed. 25. Such an approach would ensure food and agriculture are looked at not only from the perspective of primary production but involving the entire chain. It would also help address challenges such as climate change and food waste, which demand huge efforts from all parties in the chain, including consumers. Conclusion 26. Retailers operate in a highly competitive market. They need a farming sector which is sustainable, able to adapt to changing market circumstances and meet changing consumer demand. A modern CAP should help farmers adapt to the challenges of the future, rather than cement structures which ultimately do not serve farmers long-term interests. It should remain market-oriented, help strengthen farmers position by encouraging better organisation and facilitate the development of market-based income stabilisation mechanisms. All parts of the supply chain will benefit from a healthy, competitive, forwardlooking agricultural sector, and the retail and wholesale sector is keen to contribute to this through an open and constructive dialogue. The CAP should support and encourage such dialogue in the interests of producers, distributors and, not least, consumers. Position paper 6

7 Contact: Christel Delberghe delberghe@eurocommerce.eu Transparency Register ID: EuroCommerce is the principal European organisation representing the retail and wholesale sector. It embraces national associations in 31 countries and 5.4 million companies, both leading multinational retailers such as Carrefour, Ikea, Metro and Tesco, and many small family operations. Retail and wholesale provide a link between producers and 500 million European consumers over a billion times a day. It generates 1 in 7 jobs, providing a varied career for 29 million Europeans, many of them young people. It also supports millions of further jobs throughout the supply chain, from small local suppliers to international businesses. EuroCommerce is the recognised European social partner for the retail and wholesale sector.