The EU agriculture policy is a complete failure, favouring industrial farming and concentration in the food processing industry, thus supressing the prices of farm products. Niall Monaghan explains the economics of EU farming in the case of Ireland.
Niall Monaghan is a Sinn Féin policy advisor in the European Parliament, working on the Agriculture and Rural Development Committee
Cross-posted from Irish Broad Left
For what toil the sons of Róisín, is it pennies?
In this period of increased focus on the climate breakdown, our primary producers are often perceived as holding back progress. They are commonly viewed as another polluter that must be challenged to change their ways.
But farmers are generally not multinational corporations solely focused on selling us things that we either don’t need or are bad for us. Farmers are workers at the bottom of a supply chain, which produce the most essential things for our survival. They are price-takers not price-makers because they have very little bargaining power.
Like any other body of the Irish workforce, they deserve respect and a fair standard of living based on their labour. Even in places like Tubbercurry, County Sligo, or Glenties, County Donegal, they have not been insulated from the scourges that affect the rest of the modern economy and political thought – neoliberalism and globalisation.
A common misconception has arisen in recent years that farmers are making money hand over fist as they not only profit from their products but also are directly supplemented by EU funding. However, the reality is that these payments are not a supplement but rather a drip-feed fund to keep an industry on its knees from collapse; it is the outworking of a failed system.
Subsidies keeping farming industry from collapse
The reason farmers are supported is not EU generosity but more so that we depend on this system and cheap labour to keep food prices down. In fact, the surplus left between the prices farmers were paid for their products and their costs shrunk by 16.1 per cent in 2018, resulting in a 15 per cent drop in farm incomes.
Here is the chilling reality for the average farmer in the west of Ireland – let’s call him ‘Joe’. Joe is a beef farmer, receiving the industry average EU payment for his region, €9,881. Not unusually, this makes up about 103 per cent of his income.
Put simply, after everyone is paid Joe is making a loss consistently and depends on his EU Common Agricultural Policy (CAP) payment to cover his losses and to be able to survive. This equates to less than half of the living wage in 2019. Those on the right will assume Joe is a bad businessperson and we should not be subsiding his loses. However, since Joe earns the average salary for his sector the problem is not Joe but rather the market, right?
Supermarkets and food giants suppress prices
Let us take a closer look. Joe sells his carcasses to the beef processor who in turns sells them to the supermarket. The retail price of his product can be broken down to 51 per cent for the supermarket, 29 per cent for the processing factory and the remaining 20 per cent for Joe, who does the vast majority of the work.
The two actors above Joe in the food chain are constantly doing their upmost to ensure they pay as little as possible for his product. Supermarkets, for example, do this by below-cost selling. This involves selling Joe’s products below the purchase price. The aim of this practice is to undercut the competition. That competition is usually small, independent retailers that then pressure Joe to lower the price of his products or they will just purchase them from the nearly supermarket.
After this is achieved the objective, or fair price, of the product has been lowered and becomes the new norm, affecting the price Joe is offered in future. This practice is also designed to push competitors completely out of the market so he will have fewer options of who to sell to, thereby weakening his bargaining position further.
While the supermarket is focusing on the sale price, the food processing factory is focusing on the price they buy the product for. The food processing industry in Ireland is highly concentrated: the three biggest factory groups in Ireland had started out by owning single factories and they now control 60 per cent of the kill in Ireland and Britain, as well as further factories in Eastern Europe.
This allows them to act as a cartel and often offer farmers a price below the cost of production. The farmer has a perishable product, which leaves them little scope to negotiate. Traditionally the only weapon available to the farmer is his or her ability to negotiate in times of short supply.
Have the food processing factories been cunning enough to find a solution against this rebalancing of the scales? You can bet your bottom dollar they have. In recent years, they have established their own feedlots, which are grassless industrial factory farms where animals are grain-fed to fatten more quickly and be ready for slaughter.
Feedlots now constitute 18 per cent of the weekly kill in Ireland. These are used strategically by factories to release cows into the market when supply dwindles, thereby out-manoeuvring the farmer. The reason factories do not use these all year round is because the Irish public prefer pasture-reared animals for animal welfare reasons, and rightly so.
Government ignores cartels and market manipulation
Now that we understand how the food chain acts to squeeze the farmers, we would assume government intervention would have put in place measures to combat such exploitation. But this is wishful thinking at best.
The approach of the Irish government and the EU has been to ignore the market manipulators and plaster over the issue by subsidising the beef farmers’ losses. We all need to think long and hard about what this means: instead of putting in place measures to protect farmers from such exploitations, we have taken the approach of watching the farmers make a loss and then sending them money to cover those losses and just about survive.
EU money comes from European taxpayers; therefore the EU is facilitating a system where public EU funds are used to allow supermarkets and processors make a greater profit from paying unsustainably low amounts to farmers. This is effectively taxpayer-funded aid to multinational supermarkets.
Free trade deals will devastate Irish farmers
The European Commission is also negotiating and agreeing free trade deals to facilitate the export of things like German car parts in exchange for the import of cheap beef. The proposed EU-Mercosur free trade agreement is a perfect example of this: the EU will allow 100,000 tonnes of beef, mostly from Brazil, which will cause the price of EU beef on supermarket shelves to plummet.
Those on the neoliberal right are supporting such free trade deals and coming out against a ban on below-cost selling, when they are fully aware that such positions make deep EU intervention in the market essential, in the form of cash subsidies to protect farmers from bankruptcy.
Some have even gone as far as supporting a financial cut to the CAP. This radical position has been taken knowing that without protection, regulation or subsides, European farmers will be something you have to learn about in a museum.
The logic of this position is clear – there is an entire developing world sector just waiting to be exploited, so why waste money keeping in place a system, EU agriculture, with a higher cost base? They are quite happy to have all food imported from places where production is not burdened by animal welfare or environmental laws. For them, not only would food get cheaper but we could remove agricultural emissions and preach to the rest of the world how Europe has moved closer to our climate targets.
How can Irish farmers fight the tide?
As Clann na Talmhan emerged in 1939, farmers themselves must be at the fore of resisting this system and fighting for change. Two organisations have emerged in recent years that are fighting for those farmers on the edge of bankruptcy, the Irish Natura And Hill Farmers Association (INFHA) and, more recently, the Beef Plan Movement.
The Beef Plan Movement have now have amassed 15,000 members and hope to get to 40,000. This would be a big enough portion of the weekly kill, 50 per cent, to have a major impact on production and make a shortage unmanageable for the factories. This would allow them to create a supply crisis if the factories refuse to play ball.
Further to this, they are examining setting up cooperative processing factories to bypass the industry completely and negotiate directly with supermarkets, which would give them a significantly bigger chunk of that per euro percentage.
Whether they are conscious of this or not, these organised farmers have seen the flaws of the system they operate in and came to the same conclusion that we have come to on the left: the market needs regulation to curtail exploitation of the workers and those businesses at the bottom. Not only have they identified the problem but have realised what they can achieve if they band together. Talk of sending empty cattle trailers to the factories, as a message, sounds to me like the kind of direct action Connolly or Larkin could have got behind.
What should the government do?
In terms of legislation, we must as a matter of urgency ban below-cost selling and even look at the feasibility of banning a company offering a farmer below an agreed cost of production, outside of times of great oversupply. Fine Gael, which is committed to non-interference, has flatly rejected these ideas, which begs the question as to why such a high percentage of farmers vote for them?
Farmers cannot continue to vote against their interests if they are to survive. Voting for Fine Gael because they are seen as the traditional party of rural Ireland is like taking up smoking because Benson and Hedges sponsor the local GAA team.
Finally, if we fail and agriculture is fully shifted to the developing world to be exploited, it is not only Joe that will be out of business but the town that depends on him. This was confirmed by a recent study, which stated every €1 of direct support for cattle and sheep farmers underpins over €4 of aggregate output in the rural economy.
The health, housing and homelessness crises should give you an indication of how likely it is that the neoliberal Fine Gael would be wading in to replace that output in the rural economy.