Bad news? Is the price rise in some agricultural commodities really such bad news? The people who say it is may not have taken account of all aspects of the issue. Alongside some temporary disadvantages, the price rise may have a positive impact, both for the EU and at international level. In a world that is going to have ever greater need of food supplies to feed its growing population, the increase in agricultural revenue will help meet needs. In fact:
- in poor countries where the vast majority of the world's peasant farmers live, the increase in their resources will be a powerful factor in improving living conditions and therefore economic development, and will help reduce food crises;
- in Europe and other developed countries, the rising prices will increase income from actual farming itself compared with income from subsidies;
- a change of this nature will facilitate compromises in the agricultural wing of the current round of international trade negotiations underway at the WTO.
This positive impact would disappear if the price increases went too far and became generalised because that would lead to an overall rise in the cost of living, to the detriment of the less well-off sections of the population. But such a change could be generally controlled and managed to take account of the fundamentally different situations in rich countries and poor countries.
A tiny percentage. In rich and economically developed countries, the cost of agricultural commodities has a very limited impact on the cost of living. In the EU, the price of the basic agricultural commodity as a proportion of the final price of food is estimated, using calculations which I am assured are valid, to be around 5% (this varies, admittedly, depending on the product in question). The remainder of the price for consumers, the bulk of the price in other words, arises from two elements: a) the sometimes excessive margins imposed at various stages of the buying process; b) the rising cost of requirements (reassuring requirements) which food processors are subject to in order to take account of the quality of their products, consumer health, packaging, brand image, the need to respect the required use-by dates, etc, etc.
Without entering the eternal debate opposing farm producers and retailers, the above demonstrates that the influence of the basic farm product on the end price is very limited in Europe and in other rich countries. The competition authorities and farmers' organisations should monitor changes to ensure that food processors and retailers do not make undue profit from the price rises. At the same time, farmers' organisations should increase their presence in the retail chain. Moreover, the EU can scrap or alleviate certain barriers to farming like the compulsory set-aside of arable land or the production quotas that have given rise to shortages (of dairy products).
Advantages for poor countries. In developing countries, and particularly the poorest countries, most of the population are peasant farmers. As farmers and vendors, they should benefit from the rising prices of their farm products, on one condition - countries have to move away as far as possible from reliance on a single cash crop for export. The people who let themselves slide down this hazardous slippery slope run the risk of facing a doubly whammy: depending on a cash crop whose price is not increasing (the current price rises are neither uniform nor generalised); and being forced, because cash crops dominate land use, to import staple food products to feed their population at rising prices. This is yet another reason for poor countries to prioritise meeting their food needs, and resist the pressures of big trading companies and multinationals which are fighting to achieve total opening-up of global farm trade to the benefit of a few big farm exporting countries and the detriment of the poorer countries.
Beefing up two requirements. The above remarks lead to an awareness that the changes seen on international agricultural markets both reinforce and facilitate two requirements which, to my mind, are unavoidable -namely safeguarding European agriculture in viable conditions; and concluding the Doha Round on the basis of reasonable modalities, and rejecting the destruction or radical decline of farming in Europe and elsewhere. I will be further exploring this fact and its repercussions tomorrow.
(F.R.)