Copa-Cogeca: New export markets did not increase EU farmers’ income

Pesonen: "We were hugely disappointed when the Russians imposed the embargo more than two years ago on us, but we felt that we would find alternative markets for our high-quality products." [European Commission]

This article is part of our special report Agricultural trade.

The EU found new niche markets to balance the losses of the Russian embargo but this has not translated into increased income for farmers, Pekka Pesonen told euractiv.com.

Pekka Pesonen is the secretary-general of Copa-Cogeca, the association of European farmers and agri-cooperatives.

He spoke with euractiv.com’s Sarantis Michalopoulos.

Do you fear that the rise of the extreme-right across Europe could have a direct impact on agricultural trade?

First of all, it is in everybody’s interest to ensure that these common policies, in agriculture in particular, actually perform. That is the starting point because we still sell most of our products to European consumers. So those added values that our citizens want need to be remunerated, need to be paid by the consumer, and primarily in the EU.

That’s the starting point. We need to develop a policy line that actually delivers, and on this, we agree with all other stakeholders in the EU value chain and NGOs and everybody because we see the risks of the populist movement affecting European Union common policies. They must deliver better and that is a fact.

Second, when we take a look at the trade I would like to underline the importance of the growth factor because, as we know, the European population is stagnating. We don’t have an increasing number of people here. We are losing our general global market share in many sectors, almost all sectors, because of the general population development. It’s about an ageing population; it’s about investment; everything. And in this respect, this is why we are so interested in agriculture, in exports, because we know we can deliver niche-value, high-quality European product that consumers are interested in.

Therefore, the key factor, the key term for us is that when we go for trade agreements with the third parties, is that it should be trade based on goals, not free trade agreement by definition, because even our trade partners don’t want this. This is about trade based on rules, fair rules. And that is why we are so interested especially in the Canadian agreement (CETA), the possible United States agreement (TTIP) and the Japanese agreement. We want to be equal partners especially when it comes to food safety. There is some potential there. And we strongly believe that the Canadian agreement is a good start. It is not a perfect agreement all round; we definitely see some risks when it comes to certain meats, particularly beef and pork.

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And what about the geographical implications of these deals?

The geographical implications are one of the biggest issues that the European Commission managed to get into the agreement [CETA]. This is the first time that we have managed to have geographical implications as such recognised by our major trading partners. Of course, it is not a perfect match.

Does this set a precedent for TTIP?

Yes. And of course, the Americans disagree. But, sorry, if a big part of the American population comes from Europe, of course, they bring their traditions with them. But is it fair that they should milk the European traditions dry in their market when we have the genuine products here? So they have to accept that we want some protection for original Greek, Spanish, Italian and even Swedish or Finnish products.

Of course, culturally, this is variable among the EU member states. But then, as a whole, we see that we have a good package on the table, but we also have to ensure the proper implementation of this package. And by this, I mean that we really need to make sure that those standards are respected and, for instance, that market access is organised in such a way as not to cause major market disruption.

This should be the case in the European beef market, for example. And this is what the European Commission has recognised. And we are going to push the Commission to take this into account because allowing access to the European beef market for 50,000 tonnes from Canada is a considerable risk. The market for high-quality EU beef is roughly one million tonnes, so this Canadian competition will account for about 5% of the market.

And European-owned beef production accounts or only two-thirds of this total, roughly 600-650,000 tonnes. The new imports of high-quality Canadian beef will actually represent closer to 10% of the European-owned high-quality beef market. Clearly, it needs to be managed. We do not simply live happy ever after once we have the agreement. We have to make sure that it is properly implemented and monitored.

If TTIP comes to nothing, is there any talk of making sectoral deals in the EU farming sector? 

If we take a look at the horizontal standards across the sectors and our European ways of organising our agricultural production, our objectives and goals are best served by a horizontal global agreement. So, it would be more difficult to make a sectoral agreement. Of course, we have seen some developments in the past, but they have been hindered by the fact that we don’t have a collective global agreement on trade. We do see some good examples; I am not saying it is completely useless. But in general we can say that it would be better served if we had an overview of all the European and American production models, or those of whoever wants to deal with us, and then we decide on the basis of that.

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This goes so far that we actually favour a multilateral trade agreement because we feel that it would be better for European agriculture in general if we have higher safety standards. We would talk about security and certain issues that are very dear to European consumers, such as animal welfare, environmental concerns, etc. They would most probably be better served with a multilateral agreement than a bilateral one. And the more narrow your aim, for example going for sectoral agreements, the more complicated this becomes.

How do you evaluate the Commission’s efforts to open up to niche markets for agricultural exports?

We were hugely disappointed when the Russians imposed the embargo more than two years ago, but we felt that we would find alternative markets for our high-quality products. And this is to a large extent what happened. Unfortunately, because this was such a sudden move, and of course you can’t just suddenly find new markets for all your products, it has taken more time. And certainly, the benefits coming all the way down to farm level have not been what we were hoping for.

So, we have seen a very strong growth in our exports despite the Russian embargo. We haven’t seen any major decline in our exports. The big question mark for farmers is why recent developments have not delivered results all the way to farm level. We have to trade, we have to export and to continue exporting, but those larger export markets came at a price. In order to open these markets, we had to cut prices, and the pinch has of course been felt most acutely by farmers. That is why agricultural income fell in 2016 compared to 2015, which was already a difficult year.

The same trend applies to EU agricultural income: while exports have continued to grow, imports have remained stable, yet the surplus has stayed in the range of €14-16 billion per year. We are a net exporter in the agri-food sector, which means that we make a huge contribution to the overall EU trade balance sheet. For instance, in France, their national exports have been huge and they have developed favourably. Agriculture comes second to the aircraft industry.

This is also reflected at the European level. And we are happy to see some specific selling points in our products. Southern European exports have been popular in third countries because of their special characteristics. I think once we get into new markets we have to ensure that some of those gains also come back to farmers. After all, farmers are the first producers of food.

On a political level, there is a rapprochement between Washington and Moscow which could potentially result in lifting sanctions against Russia. Do you see this as a “window of opportunity” for the EU farming sector?

We have been majorly disappointed that the European agricultural sector is paying for international politics. However, of course, this is linked with the wider political situation now, especially with the Crimean situation in eastern Ukraine and internal relations between EU member states, as well as with the Russian government and the US. Of course, during the US election campaign, there were some high-profile statements, but it seems now that there is a continuation of the political commitment to the EU and NATO, so we would expect that politically there wouldn’t be much of a change because these are sensitive issues for everybody, not least Russia.

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I’m not an expert on international politics, but we certainly hope that we would be able to lift the Russian embargo, or the Russian federal government would lift them. It seems that they also have some internal justification for themselves, that maybe they are using the embargo to build up their own production capabilities. But then we are quite confident that Europe’s high-quality products will once again find their place in the market. From our perspective, we don’t see any reason why these sanctions shouldn’t be lifted. But then this is very much linked to international politics.

What should the post-2020 Common Agricultural Policy look like in order to be competitive, environmentally sustainable and profitable for farmers all at the same time?

It’s very difficult. Some of the drivers that come to mind: the first is that when you take a look at agricultural income, how much the direct payments and CAP support actually represent in the amount of money that the farmers receive, once the cost of external labour, financing and credit is deducted, we are quite dependent on support, and that has to be taken into account. We do not like this because we would very much prefer to be producing for the market and getting our revenue from the happy consumer rather than the reluctant taxpayer.

But this is the reality. It has been going on for the last 15-20 years. We have become more dependent (on support systems). This is a huge disadvantage to the farming sector itself. Of course, we have a large number of part-time farmers; that needs to be taken into account. We also know that the CAP is a matter of compromise between member states and quite a lot of these decisions are based on EU financing.

And, as you probably know, the last round of negotiations ended in a fairly differentiated CAP implementation at national level. We can justifiably say that we have an EU-28 Common Agricultural Policy: the CAP implemented in 28 different ways. It’s a real challenge for us. I think the biggest single issue we need to address is market volatility. But then the question is how to effectively organise this at European level, to make sure that farmers are interested in using, for example, the Commission’s proposed risk-management tools?

So we have a huge task ahead to make sure that farmers become more resilient to market volatility, while maintaining our sustainable production methods and, in some cases, the very important social fabric that the farming community and farmers provide to their rural communities. I think we all agree that European farming can never be completely industrialised, but the sheer fact is, how can we ensure that the relatively small size of an average farm in Europe can provide sustainable income opportunities for a farming family? And I think this is the crucial element.

We see some opportunities in, let’s say, strengthening the farmer’s position in the food chain, getting more revenue from the market, setting up cooperatives and joining forces with other farmers who are too small to have any individual market impact from a farm, and we see some opportunities in promoting European high-quality products. This is why, like I said, we are so interested in promoting our high-quality products to international farmers.

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How do you see the precision farming practices in the new CAP? Is there any room for them? 

Well, we see precision farming as a combination of various technology and economic factors, as well as consumers. When we talk about precision farming, we are most productive and most efficient if we also look into which specific market we are producing for, so the product specifications can use natural resources efficiently. So that is probably the true nature of precision farming. It’s like targeting the farming and the cultivation processes already taking into account the market demands and consumer preferences. We need investment.

That’s why we have been so actively promoting starting a European fund for strategic investment. It’s available for the farming sector, especially in Central and Eastern European countries where infrastructure is lagging behind, but also in member states where we see clear bottlenecks in, say, stocking storage capacity for crops. Typically, in protein crops, we are too much at the mercy of market fluctuations. We also need to improve our resilience.

Precision farming can also include water management, like drip irrigation. It also pays to make sure that we have proper analysis in place, for instance, on what edible crops we need. We have to have a sufficient toolbox available for, let’s say, plant protection products. We have to have infrastructure available so that, for instance, when we have a good haul of protein crops, we have a proper market.

So precision farming, from our perspective, is very much starting from the marketplace, using our imports and natural resources efficiently, but then also using our resources downstream in the most effective manner.

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How do you see the Commission’s proposal for the use of renewable energies in the transport sector after 2020?

Well, first of all, you can’t climb the tree from the top. You have to start somewhere. And especially when it comes to those targets for the transport sector, on the sustainability of the transport sector as a whole, we have to ensure that we play our part. We certainly see some opportunities there. We have some investments in place. We can deliver. We talk about millions of tonnes of raw material or the biofuels that we produce and, to a large extent, this provides a co-product to the agricultural sector, especially when it comes to oilseeds and crop-based biofuels. These provide protein-rich co-product for animal feed, which is hugely important for us because we can actually source that from European outsources cultivated in accordance with European Union common agriculture policy.

This is hugely important, and it seems the Commission has pushed that aside. We bring in millions and millions of tonnes of perfectly good raw protein material for feed, and we feel that these should also be taken into account. And of course we have nothing against the second generation advanced biofuels; we are very happy with the advances there. But then the reality is that, for the foreseeable future, we are still quite dependent on liquid fuel, and you can’t reach for those sustainability targets if you don’t have the biofuels available. 3.8% in total is an understatement from our perspective.