Europe rips up free-market rules to help farmers
Europe’s leaders are resorting to unusually radical weapons to help farmers fight off supermarkets and giant food companies in the cutthroat price war at the heart of the food supply chain.
Over the past decades, Brussels primarily supported farmers by paying generous subsidies. But the EU was always reluctant to go a step further and support them in sometimes lopsided negotiations with supermarkets such as Carrefour and processors such as Danone. Policymakers traditionally worried that helping farmers would drive up food prices, and many also had ideological reservations about tampering with the supposed free market inside the food supply chain.
That all changed last month, when the EU’s big guns rolled out a flurry of contentious measures that have long been anathema to free-marketeers and liberalizing competition officials.
Under new legal frameworks, farmers will soon gain the legal right to form cartels, while the European Commission is drawing up rules to help farmers’ bargaining power by formalizing their supply contracts with supermarkets.
France, where a suicide epidemic is plaguing the agriculture sector, is also mulling minimum guaranteed prices for farmers.
Europe’s collective change of heart is a recognition of the dire economic circumstances many of the Continent’s farmers face.
European Commissioner for Agriculture Phil Hogan signaled the new trajectory during a speech at Dublin Castle on October 6, when he announced Brussels would legislate to protect farmers against so-called unfair trading practices such as abusive contracts and late payments. The plan shattered the age-old defense among retailers that farmers were already sufficiently protected by national laws and didn’t need a raft of new rules from Brussels to bolster them.
In a stinging broadside against supermarkets, the Irish commissioner asserted it was time to give farmers, who already receive €58 billion a year in EU subsidies, a “fair share of the pie.”
Six days later, the European Parliament and national governments went a step further and challenged free-market taboos by allowing farmers far greater leeway to band together and shore up prices by forming cartels.
“The food chain is highly imbalanced,” said Christian Democrat MEP Michel Dantin, a key player behind the decision, who is famous for referring to competition hard-liners as “ayatollahs.”
Farmers lead their cattle from their mountain pastures to the valley during the so-called Allgäuer Viehscheid near the village of Pfronten, southern Germany | Christof Stache/AFP via Getty Images
Dantin rejected the idea that Europe was trying to undermine the free market, but said pricing structures have become unfairly distorted against producers. “We are not creating further imbalances, but trying to create a balance between all actors,” he explained.
Seizing on the new pro-farmer zeitgeist, French President Emmanuel Macron also announced on October 11 that he would introduce a national law early next year to allow farmers to demand that industry buy from them at the cost of production.
“I have never heard a farmer … ask for handouts, I have only heard women and men who don’t count their hours but who ask to live with dignity from the hours that they’ve worked,” he said in a speech at the Rungis agricultural market.
Banding together into cartels
Europe’s collective change of heart is a recognition of the dire economic circumstances many of the Continent’s farmers face.
Devastated by plunging prices in many sectors — most notably in dairy — thousands of farms have closed, sparking a social and economic crisis across broad swaths of Europe’s rural economy. The need for action has only been amplified by an impending budgetary crunch in the Common Agricultural policy, which is likely to squeeze EU subsidies.
Historically, the Commission propped up farmers by guaranteeing prices for some commodities such as dairy and sugar. These sectors are now liberalized, however.
“We have millions of operators facing only a handful of big players at the European level,” said Pekka Pesonen, secretary-general of Copa & Cogeca, Europe’s leading farm lobby. “The farming community doesn’t have real negotiating power.”
A farmer drives a combine harvester on July 4, 2017 near Monthodon, central France | Guillaume Souvant/AFP via Getty Images
According to Pesonen, buyers tend to lower prices the minute the market begins to fall but are much slower to raise them when it picks up.
Pesonen added that he knew from personal experience that farmers need to band together to receive a fair price. He said he was repeatedly thrown out of supply-contract meetings with buyers when he worked for Finnish dairy cooperative Valio but he could always return to the table because his co-op could deliver the large volumes that buyers desire. Individual farmers do not have the same luxury, he said.
Seeking to marshal the law behind farmers’ organizations and higher prices, the European Parliament and EU governments introduced more freedom to form cartels this month. Without taking their cue from the Commission — which almost always launches policy — MEPs and governments decided in secretive negotiations to allow farmers to coordinate on production and negotiate contracts together.
Food manufacturer and supermarket industry officials complained the move would lock in uncompetitiveness across the food chain by allowing price fixing — which they said would ultimately harm farmers since nothing would stop businesses outside cartel arrangements from undercutting newly high prices. Even the European Commission expressed concern “about changes regarding competition law, agreed by the co-legislators, which are substantial in nature and included without an impact assessment.”
Dantin, the MEP, sees it differently.
“Everyone shares the objective of strengthening the position of farmers in the food supply chain — but as soon as concrete proposals are on the table, the retailers or the industry says we are creating cartels,” he said. “Our proposal does not extinguish competition, on the contrary, it will allow better competition within the food supply chain.”
Guaranteed incomes
Farm incomes are also on the French president’s mind. French farmers have ransacked supermarkets and blockaded food-processing sites across the country over the past two years in protest of plunging prices. Their incomes dropped about 15 percent between 2015 and 2016, according to Commission figures.
Macron launched the so-called Estates General of Food in July, hoping to foster dialogue between feuding factions in the food chain. This month, in a speech to the stakeholders ranging from supermarkets to cheesemakers, he denounced “abnormally low” prices and promised to introduce a law in 2018 that would guarantee that farmers’ receive a fair minimum price.
“Stopping the price war means stopping the permanent devaluing of farmers’ revenues, it means allowing them live — or rather, allowing them to live again — from their work,” the president said.
Hogan decided to introduce legislation against the advice of some the Commission’s own experts.
While welcomed by the farming community, four French consumer organizations complained to Macron that the reform would inflate consumer prices and called the potential benefits for farmers “as hypothetical as they are weak.”
Neil McMillan, the director of advocacy and political affairs at Brussels supermarket lobby EuroCommerce, said “it’s gesture politics that won’t help farmers.”
“[France] has a retail law every year … it still doesn’t change the fact that the farmers are dying,” he added, explaining that retailers want farmers to sell produce more in tune with consumers’ wishes.
MacMillan said many farmers produce goods that supermarkets have trouble shifting, which contributes to the low-price phenomenon. He added that farmers need to add value to their produce to boost incomes.
Slashing subsidies
EuroCommerce was also quick to hit back against Hogan’s assault on so-called “unfair trading practices” — policy jargon that refers to business behavior that allegedly discriminates against farmers.
The lobby pointed out, in a letter seen by POLITICO, that farmers take about a quarter of the final sale value of what they produce, while food processors and food manufacturers each take about a third and that each stage of food production adds more value to a food product — an economic reality for which supermarkets aren’t responsible.
Hogan decided to introduce legislation against the advice of some the Commission’s own experts, who earlier advised against EU-wide rules, since national rules exist in 20 different countries, each tailored to uniquely organized supply chains.
European Commissioner for Agriculture Phil Hogan in Cournon, central France | Thierry Zoccolan/AFP via Getty Images
The Irishman broke from that advice by citing an independent study he commissioned last year.
Many people in the food industry suspect the sudden interest in farmers’ welfare is linked to the seeming inevitability of cuts to the EU’s annual billions in subsidies. The loss of Britain’s budget contribution, coupled with mounting pressure on the EU to settle refugees and boost more dynamic industries, means most expect farmers to receive less cash.
“It’s inevitable that we have to cut spending on the budget of the Common Agricultural Policy,” Former Dutch Agriculture Minister Martijn van Dam told POLITICO in May.
An industry official who declined to be named said: “The real story is about money and what happens to finance in the future. That’s really what has changed, not the debate about the supply chain.”
