Dr Donal Murphy-Bokern presented an overview to about 200 Forum participants at the opening plenary meeting. The following is a summary of his talk.
The purpose of this presentation is to support discussion about the role of public policy, particularly policy at the European level, in addressing the challenge of optimising Europe’s access to supplies of plant protein.
The presentation starts with a reminder of the difference between ‘politics’ and ‘policy’. ‘Policy’ is a professional activity that turns political vision into change in the real world. The European Union policy system is similar to that in the UK in that there is a clear separation of function between politicians and policy makers, with the policy-making process using science (including economics) and other sources of evidence to test political ideas and develop programmes that deliver on political aspirations. In practice, this means that political ideas alone, no matter how compelling, are not enough. These ideas are tested using science in an apolitical environment. This applies to the CAP too, and the role of science and economics used was noticeable in the political debate leading to the recent reform of the CAP.
Nearly 70 years ago, just about 2 km from where this presentation was made, Berliners were farming the Tiergarten in front of the destroyed Reichstag. Their priorities to increase food production in Europe recovering from war were shared by the founders of the European Union. This flowed into the Common Agricultural Policy established in 1962. That policy not only met basic food needs, it succeeded in achieving self-sufficiency for a larger population eating well beyond nutritional requirements, particularly for livestock products. Exploitation of the high cereal crop yield potential in Europe provided the backbone of this performance and cereal-based feeds were optimally complemented by imported soy, So by 1984, the problems of oversupply were clear and heightened then by a record cereal harvest in Western Europe. That was the year that dairy quotas were introduced, marking a turning point to efforts to align production to demand.
The food crisis of 2007-2008 reminded us how successful CAP reform was in reducing surplus production and reminded us too of the importance of food security. Food security has been supplemented by other goals, particularly the protection of the environment. Agri-food is now also increasingly recognised in many countries (e.g. the UK and Ireland) as an important part of the economy that was relatively resilient in the economic crisis from 2008. Policy development has been influenced by broader expectations on the EU, particularly subsidiarity (slide 5). Economic liberalism , has left its mark too and many Member States look first to markets to optimise the allocation of resources and provide solutions to challenges. This at least partly underlies the move towards decoupling in the 2003 reform.
The question here is what implication has the general direction of the CAP for a policy on plant protein or protein crops. The map of trade in soy provided by Danube Soya very clearly shows that the trade in soy is one of the world’s most significant inter-continental resource flows with well understood consequences in both the exporting and importing regions. Considering that protein is about 16% nitrogen, then this is a trade in organic nitrogen with very significant consequences to the global nitrogen cycle and environment. FAOSTATdata for the EU reveal the driver behind this resource flow to Europe: a combination of production technology changes and increased income has led to a large increase in meat consumption in particular that has been met mostly by livestock production in Europe. This increase is most notable for the monogastric animals (pigs and poultry) that rely largely on cereal and oilseeds. It can be said that European agriculture exploits comparative advantage in producing carbohydrate rich cereals and combines this with imported soy to deliver the remarkable achievement of self-sufficiency in most foodstuffs that can be grown in the EU. We even have a net cereal export. In addition, despite the very large trade in soy, the EU is also more self-sufficient in plant protein than is sometimes suggested in political circles. While 71% of the protein crop commodity that we use is imported, The EU is actually 71% self sufficient in tradable plant protein, 75% of this is fed to animals, and 90% of imports is soy. The protein content of our cereal crops is twice that of the protein in imported soy. So given that we have comparative advantage in cereals, that we are about 85% self-sufficient in plant proteinis (when protein grom grassland is considered), and that our consumption of meat and dairy products exceeds health recommendations, is the use of imported plant protein really a public policy problem?
The European Commission recognises that there is a protein challenge, and is reasonable to say that the answer to this provocative question is yes. There are a complex range of reasons behind this recognition: environmental (both in the EU and in exporting countries); supply security in a resource-constrained world; and concerns about agronomic imbalances in European crop production.
With the recognition by the policy community of a protein challenge, what effect are new CAP reform policy measures likely to have. To address this, these policies were simulated with the Common Agricultural Policy Regional Impact (CAPRI) model. It is a partial equilibrium model for the agricultural sector and, as the name indicates, it is capable of specifying the impact of CAP measures on farmers’ behaviour for each region. Like most economic models, CAPRI is designed to simulate effects of individual measures in the short and medium term. Therefore, we have modelled 2020 as the target year. The model contains parameters for all crops that are grown in a region, not for those that might perhaps be grown.
The results show that with a continuation of current trends (business as usual) with no policy action, the area under pulses will decrease further by 327,000 hectares or 24%. However, cultivation of soybean will increase by 213,000 hectares or 70%, meaning an overall net loss of 114,000 hectares for grain legumes, or 7% of the grain legume area in 2009. Strong increases are due to an expansion of soybean cultivation in countries where the climate is suitable. These increases are particularly noticable according to the model in the Danube Soy region. This simulation does not take into account the effects of efforts to improve farm practice or the effects of declines in the competitiveness of other crops due to the effects of monoculture etc.
For assessing the effect of the Voluntary Coupled Support (VCS) as a policy approach, we have defined the premium in such a way that up to 2% of the CAP budget for direct farm payments (Pillar 1) in any one region is allocated to legumes. We have constrained the model so that the premium cannot be higher than the average direct farm payment per hectare at national level. The resulting annual payments simulated here range from € 70/ha to €425/ha. Our results indicate that such a policy will lead to an increase of the area under grain legumes of 12% in 2020 compared to the reference scenario. The effect differs between regions, with some regions even experiencing a decrease in the area under legumes. Reductions probably due to price changes: as more legume products come onto the market, the price will be reduced and this will make cultivation unattractive to some farmers. In our simulation, this is the case in Romania and Bulgaria because we simulate that direct farm payments are lower to begin with, so the premium may not be sufficient to offset the lower price for the produce (slide 24). In interpreting this result it must be remembered that it is a model simulation about one specific policy measure; it is not a prediction of production change which may be affected by other factors, particularly production technology improvements and changes in the productivity of competing crops. These countering factors are currently important in some countries, notably Romania and Bulgaria.
Apart from the increase in area under legumes, the policy will have other effects on land use. Firstly, cropland expands by about 42,000 hectares compared to the reference scenario, but some land in some places will be taken out of production and converted into woodland. This will occur on 27,000 hectares, or 0.015% of the total utilized agricultural area (UAA), mostly in Scotland and Spain (according to this simulation).
Economic effects of the VCS include lower imports of soya and pulses; redistribution of direct farm payments in favour of farmers who grow legumes at the expense of those who do not; an increase in overall farm income by 0.08%; a slight advantage to consumers (€36 million) due to price effects. There is a cost to taxpayers (€ 50 million), and since consumers are also taxpayers there is no net gain. The net effect on the economy is a positive €139 million.
Our analysis indicates that measures which can be included in the Common Agricultural Policy with relative ease are unlikely to reverse the trend of declining legume cultivation in Europe. Only much bolder policies, such as an ambitious climate change strategy, could achieve that.
Concluding from our research, the most promising way to promote grain legumes would be through a policy taxing greenhouse gas emissions at a fairly high rate; that policy would not be restricted to the agricultural sector, and produce a much wider impact than analysed here. An additional policy would be needed to promote forage legumes in grassland; we have shown only one example of such a policy, but inventive policy-makers may well come up with better ones. Our modelling exercise did not discuss management practices such as rotation patterns with legumes. CAPRI is not equipped to deal with them, but legume-friendly policies may well consider such aspects.
We know from recent research in Legume Futures that grain legumes crops are more profitable at farm level than is indicated by simple crop gross margin analysis (slide 33). An integrated policy pproach that combines public and private efforts and public and private gains is required. Financial incentives are only one way of influencing farmers’ behaviour. Progress in research on legumes, and the application of this knowledge to local conditions (as is supported by the European Innovation Partnership under the CAP) and farm improvements such as is promoted by Danube Soya may well make them more attractive than they are today. The message here is that promoting technical change so that the economic yield of grain legumes rises faster than that of competing crops will over years provide a sustainable basis for reducing reliance on imported soy.