Market symptoms of ‘severe’ EU-wide drought begin to dawn

Market symptoms of the prolonged EU-wide drought may already be appearing, the EU Commissioner for Agriculture and Rural Development, Phil Hogan, has stated.

Speaking at the 25th anniversary of the Irish Cattle Sheep Farmers’ Association (ICSA), the commissioner outlined his views on the Brexit withdrawal deal, the implications of the EU-wide summer drought, reform of the Common Agricultural Policy (CAP) post-2020 and the commission’s legislative proposals on Unfair Trading Practices (UTPS) in the food chain.

The event, held at the Hotel Kilkenny, was also attended by the Minister for Agriculture, Food and the Marine, Michael Creed, Ireland South MEP Sean Kelly, well-known RTE sports broadcaster Marty Morrissey and various elected representatives of the ICSA including the president of the farm lobby group Patrick Kent.

Addressing the drought that hit Ireland and other parts of Northern Europe in recent months, Commissioner Hogan said the issue was “severe” and put many farmers under “real pressure”.

In response to the prolonged period of extreme heat and dry conditions, he said the commission “acted with speed and efficiency”, using all the tools available.

The derogations from certain greening rules, coupled with greater flexibility for higher advanced payments, will provide some relief to improve farmers’ cash flow situation.

“The key issue we managed to progress is the use of fodder for low-input permanent pasture. As you know, this is a Rural Development Programme (RDP) measure and the farmer is paid on the principle of the cost incurred, and income foregone.

“The Department of Agriculture will be proposing a modification to the Irish RDP allowing vegetation for silage or hay production during the period September 1 to November 30 2018,” he said in his keynote address.

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However, the commissioner outlined that the full economic impact of the drought will not become evident until this winter.

In the meantime, we can draw two conclusions from this spell of adverse weather. The first is that the European Commission will always defend and support our farmers in good times and bad.

“The second is that weather-related difficulties arising from climate change are here to stay, and we have to take action now to be prepared for the future,” he said.

From a market perspective, he explained that while the drought will “unquestionably” have an impact, the Irish beef market situation “is still better” than the EU average.

“Beef prices in Ireland are about 4% higher than the EU average and, to give one example, 13% higher than France. That is not the case, however, for sheep prices where the Irish price remains 8% below the EU average for heavy lambs.

“Some market symptoms of the drought may already be appearing: Beef production has increased both in the EU (+2.2%) and in Ireland (+1.5%); while the slaughter of cows and heifers – and prices in the EU – have been in a clear declining trend during the summer,” he said.

Sheep trade

In relation to sheep, the commissioner highlighted that EU production has declined by 4%; but remained stable in Ireland (+1%).

He pointed out that prices have also registered a declining trend in the first half of 2018.

“We expect that the effects of the drought will be visible in the autumn and winter where the lack of fodder may intensify the de-stocking of herds with the consequent effects in depressing prices.

“The price decline, together with the production cost increase, may put pressure in the margins.

“External trade, including the export of live animals, remains in good health and helps to keep the market in balance,” he said.

Unfair trading practices

The commissioner also raised concerns about trade with Turkey, as the Turkish lira has collapsed against the US dollar, which, he stressed, has “huge implications” for their buying power.

When giving an overview of the work he is involved with in Brussels to support the beef sector, Commissioner Hogan pointed to his work in strengthening the position of the farmer in the food chain.

“Specifically, we have moved to ban a number of unfair trading practices. This is something the ICSA has been a vocal supporter of for many years, and I am pleased that the commission was able to deliver.

Taking action of this kind has been mooted for many years, and now we have finally gotten something concrete over the line.

As part of the legislative proposal, the commission is proposing specific and targeted measures that will make an impact at the weakest points in the food chain.

“A chain is only as strong as its weakest link – so these measures are in the interests of the food supply chain as a whole – from the farmer in the field to the consumer in the supermarket aisle, he said.

The unfair trading practices to be banned are: late payments for perishable food products; last minute order cancellations; unilateral or retroactive changes to contracts; and forcing the supplier to pay for wasted or unsold products.

Other practices will only be permitted if subject to a clear and unambiguous upfront agreement between the parties: a buyer returning unsold food products to a supplier; a buyer charging a supplier payment to secure or maintain a supply agreement on food products; or a supplier paying for the promotion or the marketing of food products sold by the buyer.

The commission’s proposal requires that member states designate a public authority, or watchdog, in charge of enforcing the new rules. In case of proven infringement, the responsible body will be competent to impose a proportionate and dissuasive sanction.

“Regarding market transparency, DG AGRI is currently analysing the issue to decide on the best way forward,” he said.

International markets

Turning to the international markets, Commissioner Hogan said the EU’s strong and ambitious trade agenda will be maintained through the “forging of deals all around the world” to provide new market opportunities for our exporting producers.

“Today, thanks to the increased market-orientation and competitiveness of our producers, the EU is the world’s largest agricultural exporter as well as importer.

“The annual value of EU agri-food exports in 2017 reached a new record level of €137.9 billion, while imports accounted for €117.4 billion.

The trade balance in agri-food has now been positive for the eighth year in a row with a surplus of more than €20 billion in 2017.

“The freedom to respond to consumer demands and tastes – within a legal framework that guarantees key standards – has helped make sustainably-produced, safe, high-quality and innovative food the EU’s calling card worldwide.

“This has brought benefits to the sector and there is huge potential to do even more. EU trade policy can help EU farmers and food producers to make full use of these opportunities,” he said.

In conclusion, the commissioner congratulated the ICSA on its anniversary.

“On this important milestone I wish you the best of luck for the next 25 years to come,” he concluded.

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