Pekka Pesonen is secretary-general of Copa-Cogeca, an organisation representing European farmers and agri-cooperatives.
He was speaking to Outi Alapekkala.
What concession would you be willing to make on direct payments?
It's simple - none.
But you realise that you need to be doing some, so what can you do? What would you need to compensate for them?
First of all, if you talk about direct payments as such, it is a part of the whole CAP package. So you cannot separate direct payments out of the package and say that either we maintain or delete them. We need to talk about the CAP as one framework.
We want to maintain the CAP, it has to be strong and commonly financed. And it has to respond to the objectives that we have had over the years – these are not a fixed set of objectives and there is variability in them, though. We have 1950s objectives and 2000 objectives.
Our main priority is to maintain the political framework. The second aspect is that we very much favour the structure [two pillars] as it stands. We have the first pillar and its cross-compliance requirements to make sure that all agricultural activity remains sustainable. In addition to this, we have to have targeted measures bringing in specific added value, especially for the environment and rural development.
But environmental organisations say that cross-compliance is not really delivering.
In respect of all the major objectives of the CAP, cross compliance is a good tool to ensure that while we produce food in big enough quantities, it is safe and produced in a sustainable manner. This means that cross-compliance requirements already have certain environmental reflections that need to be respected.
So for you, the current cross-compliance measures are enough for the environment?
It depends what the objective is. If the current set of objectives stay the same - then yes. We are not saying that they should be diminished. They should be maintained because there is a reason for that.
But then again if we talk about the economic and financial side of it, the reality is that if we remove the first pillar payments, this will have a major impact on the farming economy in Europe. The sustainability criteria and first pillar require that all agriculture has to be sustainable and guarantee that the land is not exploited. We don't have industrial agriculture.
In the worst-case scenario, if we go to eliminate the first pillar payments, that would most probably lead to having two-fold agriculture in Europe, or two extremes: on the one hand, extremely competitive, industrialised, efficient agriculture most probably in the few best land areas and on the other, by far bigger land areas in rural areas that would be basically emptying, abandoned. And this is not in the interests of European citizens.
Imagine that we keep the first pillar payments. Who should they go to? How would you like to see them 'reorganised'? Do you think that it is fair that very rich landowners, who would definitely be competitive and get income without any subsidies, still receive CAP money at all?
I'm very happy that you asked this question because Copa-Cogeca has clearly said that we would like to have a CAP that is directed to active farmers – to active and entrepreneurial farmers who produce food and services.
This means that landownership as such cannot be and should not be a basis for any kind of payment. You have to have return, and especially from a farmer's perspective: an active farmer needs to be the beneficiary of support – only then we can talk about what kind of services farmers deliver to the food chain and to society.
Preferably we would like to see this as a policy that encourages farmers to use natural resources in the most efficient manner.
Who is not an active farmer and currently gets money from the CAP?
Land ownership doesn't qualify for support as such.
We want the support to be given to farmers who are active and entrepreneurial. And we are very much interested in developing this entrepreneurial side. Because we know that we need to get more income from the market. At the moment, market returns are far from sustainable.
If you are a landowner and you lease your land and you tell the tenant that 'no matter what, I'm going to increase the rent because of the changes in the CAP support schemes' – well, that is something that we simply don't understand.
Changes in the support schemes should be linked to the services and activities on the farm. Because the changes in the support schemes are always linked to the services and activities on the farm and this has nothing to do with the ownership of the land as such.
So, currently, if a farmer gets more subsidies from the CAP, landowners automatically raise the cost of renting the land, and you're saying that they should not be able to do that?
Yes, if they don't do anything for it. If the farmer has to provide the added value or the added services that are requested, and then the landowner takes the change in the support scheme from between, then it is not normal.
Can we say that CAP subsidies are driving up the value of land?
All economic activity will have an impact on land. And the value of land can indeed reflect the economic activity linked to the land. To a certain extent we have to say that the CAP has had an impact on the value of land.
Are you farmers afraid of the rhetoric around public goods, which are being promoted, among others, by the European Landowners' Organisation (ELO)? Do you feel that they are going to hijack your CAP money?
We are not afraid of anything. Because in the end we know that we are on the right track in what we're doing. We produce food and services for society. We have to develop that in a more entrepreneurial approach. That's the reality.
We have become more dependent on support over the past 5-6 years. And the political objectives clearly stated by the Council and the European Parliament and everybody else have been absolutely the opposite. The market should have delivered more to the farmers’ income.
Therefore we are concerned for two reasons.
The reality is that if the farmers did not deliver the basic activity that everybody is expecting from them - producing food and services - it would not be sustainable. This in particular when we have more and more open markets. Therefore we are worried that the farmers are given more responsibilities and more functions and tasks to perform, and we are opening our markets.
If we add to these two things a third one – which is the possibility of cutting the budget - this would be completely out of the question, completely unacceptable. Because that would mean that farmers would be more at the mercy of the market and then they would be told that 'by the way, despite the third country imports, you have to perform this and this additional service to society'. I can assure you that we will have farming, but that it will definitely perform on a lot lower level when it comes to expectations from society.
All the farmers I've spoken to have told me that they would much rather live from their work and what they produce than get subsidies. Why can't you do that? Is there any way of going back to a situation where farmers get fair money from the market?
We think that agricultural support is also support for consumers. I can assure you that we would not have such low price levels in EU supermarkets that we have currently without the CAP and its tools. Because it provides that we have a sufficient supply. We as farmers don't particularly like the oversupply on the market.
So the CAP is also there for the consumers, so that they can have a choice. You can imagine what would happen if we were completely at the mercy of third country imports.
Quite recently, the Russians clearly said that they would be very much interested in using their energy sources as a strategic tool. The same applies to Brazil when it comes to food. Look at the Americans or the Japanese – they've clearly said that they are not going to let anybody outside dictate their food market. The US and Japanese administrations both told us that this spring.
Meanwhile, the EU opens its trade – 'everybody is welcome here'. OK, we are one of the biggest exporters, but we have, by far, been the biggest importer of foreign food as well. And this is going to be a fact also in the future.
The reality is that European farmers simply cannot compete with the standards that are applied in third countries. In most EU member states it is simply impossible to develop a 10,000 hectare farm, a million poultry facility or have 30,000 dairy cows.
There is currently a plan in the UK, in Lincolnshire, to have some 8,000 dairy cows and there is a huge outcry saying 'this is too big for the UK'.
But at the same time we fully accept that products from these kinds of facilities would come across our borders with no restrictions.
Fine. We can compete, but we have to have a level playing field with regard to what the EU citizens expect and what the farmers are required to do.
Would you be in favour of community preference?
Yes, we are. But we can't build a fortress around Europe, as we are dependent on international trade.
Meanwhile, the reality is that we need to keep our strategic independence when it comes to decision-making. That's what the Americans and Japanese do. The Japanese, for example, want to safeguard their rice production even though everybody, them included, knows that it is extremely uncompetitive. There is no way to compare the Japanese rice production method to Californian rice paddies, which you can't even actually call rice paddies but rather massive production facilities.
But we also know that if we take that away, it will have a profound impact on Japanese culture, rural areas there, social matters and also food security.
For the EU it is a bit of a dilemma as we are so dependent on third country production already. Up to 70-80% of our consumption of protein crops comes from third countries. We have outsourced our supply of oilseeds for feed to the extent of millions of hectares to third countries.
As a farmers' organisation we are very supportive of increasing our independence, not through closing our borders, but we should have a higher degree of our own production - in particular in proteins.
But currently, production standards in third countries are simply not at the same level as in the EU and EU farmers cannot compete with the imports.
So, as a farmer there is absolutely no way you can make a living without EU subsidies?
The simple fact is that currently an average family farming income in the EU is on average about 50% of the income in other economic sectors. And of that 50%, two-thirds comes from support and one third from the market.
What could you do to increase even a little bit your market share? It is just so amazing that I pay such a lot for my food and you're hardly getting anything for it.
Well, you actually just answered my question. Historically the share of the farmer in the value added within the food chain has been in decline.
But why do you still keep on selling anything, if you don't get a fair price for your produce?
Because it is about cash flow and you need to respect your commitments when it comes to your loans and capital costs. So, basically as long as the variable costs are covered, then we have to live with it. It is not a favourable option, because it does not cover all the costs.
But the point is that at the moment, agricultural income and especially the prices for commodities in several cases do not cover all the production costs.
In Denmark, for example, while the agriculture has become very competitive, it has in no way alleviated the farmers' income situation.
So you are merely efficient providers of cheap raw materials for the food industry.
Yes, but that's what everybody wants.
Consumers. We all want to pay less for our groceries.
Unfortunately the major part of the cost improvement or improved competitiveness has been absorbed by other operators in the food chain.
Strangely enough, when agricultural commodity prices went up in 2007 in Belgium, agricultural income fell. And when prices came down, prices in the input industry did not, at least not to the same extent.
So we are currently squeezed between the two – on the one hand consumers are reluctant to see any major increase, and between farmers and consumers there are several stakeholders, in particular retailers, who have used the opportunity to squeeze their buying-in prices from industry so much that the industry has in turn squeezed the farmers.
Industry tells farmers that 'sorry – we can't pay more for your milk than 20 cents, because we need to sell it to the supermarkets with 30 cents and we need to process it in between'.
Of course, another reason is that the food production chain is becoming longer and longer and consumers don't actually recognise the link with agriculture any more in the products that they consume. It is so highly processed.
But as a consequence, if a farmer gets on average 5-10% of the price of bread, and if cereal prices go up by 20% the millers and bakeries are very anxious to say that we need to increase the price of bread and put the blame on farmers. But surprise, surprise, when the prices went down, nobody talked about decreasing the prices.
What do you think of these rural development people who talk about how farmers could increase their income by processing their produce themselves?
Farmers can sell directly to consumers. However, not all farmers across the EU can do that. Therefore we need to work together with other partners in the food chain, too.
Recently, I talked to a friend of mine who went into meat processing. She had fattening pigs, which were slaughtered on the farm and processed to sausages, thus consumer goods. The business faced a high level of bureaucracy and a high level of entrance thresholds to the retail market. Not surprisingly, they are not in business any more.
It's complete nonsense to say that we save European agriculture and rural areas only by selling and processing directly from the farms. I'm afraid that consumers are not going to pay for it, because it will be too costly and time-consuming for them.
Of course, in some cases the most efficient way to reach consumers may be direct sales, but it is not the global answer. We need to work together with all partners in the food chain, but the efficiency of the ever-expanding food chain needs to stand the test of direct sales from farms to consumers.
We have to increase farmers' involvement within the food chain and the farmers' joint action. And this is what the Commission has said very clearly as well - that farmers should join forces, but of course within the legal framework, competition policy.
And in too many cases, at the moment, these opportunities have been denied from the farmers for various reasons – be they political or national legislation, for example.
But farmers should be given the same opportunities as the retailers have. We have a handful of multinationals who actually say that 'well, I'm going to sell 15 million litres of milk and the price is this – take it or leave it'. Do you think that that is a real negotiation? Those 15 million litres will go around and somebody will take it.
We can't do the same. Therefore, we need to join big enough forces, big enough units for the farmers in one way or the other – be it through business, coordination or cooperation through another body.
The Commission is coming out in December with proposals on the HLG [High Level Group] on milk and we hope this will bring opportunities for farmers to join forces when it comes to voluntary contractual arrangements, or for example integration of the food chain, so that farmers would have a bigger say.
The reality is that the impact of direct support is not going to increase, at least not in absolute terms. What we fear is that it is becoming bigger in relative terms. And that the support will dictate completely what we do. And then at some stage the question remains: what is left to the market?
What if more money is directed to rural development programming?
Politically it is very popular, but in real life it is less. In 2005, when member states decided on the financial framework for the current rural development planning period – in the end it did not make any difference what there was in the rural development basket.
The final discussions among member states were 'How much do I get from it?' – what's the return to different countries? And that was the guiding principle of the member states: how much do I get in return? Nobody talked about rural development and what's in it in the end. So it is about hard facts, financial returns and the financial commitments of member states.
So therefore, also from farmers' perspective, we feel very strongly that going into the second pillar is perfectly all right - but to what extent does it support our primary role as producers and how much does it improve our economic viability? If it brings in, let's say, environmental goods or societal goods of any sort and at the same time at least maintains our competitiveness so that we wouldn't lose too much money while doing something in favour of other objectives - that would be fine.
But in most cases the impacts that the farmers are experiencing through the second pillar measures actually weaken their ability to compete.
What do you mean?
In the EU, in general we produce in the best cases in a sustainable and environmentally-friendly way – even if it may cost a bit more.
But if you as a consumer go to the supermarket and you see two poultry filets, one coming from the EU and the other from some third country and there is a price difference of 15 cents, some 5%, I can guarantee to you that from a sample of 1,000 people, more than half will opt for the cheaper third country import product. And that is bad for us.
So, it is about the additional cost to production. And we always come to the same issue: we have to be competitive on the market place. Because in the end it is the consumers deciding, and if they don't see or know the added value of paying more for EU products, they will always choose the cheaper one. So in the worst cases, you lose the market returns of the product, in relative terms.
Of course the absolute test would be to abolish direct support altogether and see how much EU products would cost. If the price difference between an EU product and a third country product would rise to 30%, I'm sure that the share of people opting for the cheaper one would rise significantly.
So, even without support we would still have agriculture in Europe, but we would not have it to the same extent and it would be much more concentrated. And we believe that in the long run it cannot be sustainable.
Do you think we're heading towards co-financing of the CAP? While this might require member states to find fresh money to do so, at least some future net payers like France, one could say that the money they'd pay for their agriculture would stay in their own country.
I don't think so. Member states are not so keen on doing that.
But I can't deny that you are completely wrong with your statement. The reality is, however, that the French government is already a net payer. It pays more than their returns are. And they will become even more net payers in the future.
Theoretically you could then argue that it would be a cheaper way to finance one's agriculture by saying that 'l'état c'est moi'. And it would make perfect sense for certain member states. But what comes to the France and Germany, they also have the reality of the common market. And they need to think what is the importance of having common decisions in the EU.
Because if we go to co-financing, it would also mean that the decision-making goes to the member states. And we, from the farming community perspective, would be against it because that would clearly distort competition on the market to the detriment of the farming community as a whole. Because in some member states there would be more political will or capability to co-finance.
But this would have to be mandatory co-financing.
The point is that if we have on the member-state level room for manoeuvre, we will automatically have a number of member states that would exploit it for various reasons and then others who wouldn't be able to do it or wouldn't like to do it. And this would clearly distort the market and be unfair, because the farmer cannot change the location of his farm.
And especially for the European institutions, the financing is the key question. If we lose the financing, especially if you lose the overall financing - what's the importance of the EU?
That's why the European Parliament and the Commission are very keen to maintain the budget.