Food prices are high. Why are farmers angry?

Farmers' protests ?swept Brussels, blocking the European district and crashing Place Luxembourg in front of the European Parliament. The protests were also happening in other countries: France, Italy and earlier in January in Germany. The range of farmers' complaints is wide: red tape from the EU and governments, the EU Green Deal, high fuel and fertiliser prices and competition from cheap imports. Many say they are being squeezed, as they struggle to pass the input cost increases on to their customers – food manufacturers and retailers — amid depressed wholesale prices. Belgian Prime Minister Alexander De Croo said EU leaders tasked their agriculture ministers to devise a plan to reduce the administrative burden by the Agriculture Council on 26 February. Though very welcome, this step is clearly not enough.

There is an obvious contradiction in the situation: how come farmers are squeezed while food prices have increased so much? The food value chain is extremely distorted. The whole value chain, including food processing, trading, shipping, storage and financing is highly concentrated. For example, four companies, so-called ABCD – Archer-Daniels-Midland (ADM), Bunge, Cargill and Dreyfus –?control 70-90?per cent ?of the world grain market. In 2021-2022 these companies made stellar profits (see the Figure below).

On top of controlling the food supply chain, these companies engage in speculation on the food commodity markets,?without being regulated .?Most of them conduct their food trading activities in?Switzerland , where they enjoy a lax tax regime.?Notably, in Europe, most food commodity derivatives trading (95 per cent) takes place over-the-counter, that is, almost unregulated. Then there is the global fertiliser market, which is also highly concentrated and controlled by a handful of companies. For instance, just four companies?control 33 ?per cent?of all nitrogen fertiliser production. Their profits also shoot out in 2021-2022, driving the profit margins to a massive?36 per cent in 2022 .

This is where all the 'upside' of food price inflation ended up.?Farmers likely benefited from the price surge initially, when wholesale commodity prices shot up, but their gain was limited due to high energy and fertiliser costs.?Now that the wholesale food prices are falling for almost a year, farmers find themselves particularly squeezed.?

To mend the situation, serious reform of the food sector is needed.?The immediate first step is to limit the speculation in the food commodity markets.?Food commodity price volatility cannot be totally avoided, as shocks happen because of adverse natural conditions. The 2021-2022 food price shock was triggered by high energy prices, the war in Ukraine and adverse weather conditions in Europe. But these factors do not explain the wild fluctuations in wholesale prices. As the United Nations Conference on Trade and Development (UNCTAD) shows in its?2023 TDR report , there was a clear link to commodity speculation. This problem is not new, and after the food price shock in 2008, some measures have been taken to regulate commodity trading, but obviously not enough. There is no lack of good proposals (for example, from the European Economic and Social Committee,?EESC ) on how to protect food prices from speculative attacks, including the prohibition for index funds to invest in food commodities, the introduction of a financial transaction tax on operations with commodity derivatives and others.?To smoothen the shocks,?state strategic reserves in basic foods need to be created or increased.

The second major stream of work must deal with the de-monopolisation of the food supply chain.?This means stricter merger control, especially for vertical integration. Price-gauging practices must be punished. The state needs to facilitate new entrants in the whole value chain – in fertilisers, processing and shipping. The challenge with fighting monopolisation in the food value chain is that the companies operating in it are international. Trying to break their monopoly power at a single-state level will have only limited success. Much more can be done at the EU level, using its competition policy. Ultimately, however,? there is a need for a global mechanism to enforce competition.?

Third, the whole concept of industrial agriculture needs to be rethought.?The industrial mode of agricultural production, with its focus on monocultures, makes it more vulnerable to adverse weather events,? weeds and pests. This makes agriculture energy-intensive and dependent on pesticides, not to speak of its massive harm to the environment and human health. The recommendation to move away from this mode of food production is also not new, and many alternative farms have been pursuing more natural ways of production. The current crisis points to the need to speed up this transition.?

As a very basic first step, the transparency of food prices and of the value added all along the value chain needs to be increased, especially for food processing companies. The Eurostat statistics on profits also need to be enhanced: they are published once per year and with a huge delay – as of February 2024, its?most recent data ?on corporate profits was for 2022, uploaded in November 2023.?

Coming back to the farmers, their frustration is being used by all sorts of political actors who tell them that it is 'Brussels and the Green Deal' that must be blamed for their plight.?Clearly, Brussels has work to do, not curbing the Green Deal, but getting serious about fighting speculation and monopolistic practices in the food value chain.

This article was written by Anna Kolesnichenko, Policy Analyst on Economy at the Foundation for European Progressive Studies (FEPS).

POLICY BRIEF

Just transition and revitalisation

A new EU strategy for rural areas

by? Cristina Vaquero Pi?eiro and Robin Huguenot-No?l ?

How can the EU support the revitalisation of rural areas and remote areas and put them at the centre stage of the just transition?

After reviewing some of the potential risks facing the EU’s strategy for rural areas as it stands, the authors put forward concrete policy and governance recommendations to make rural development in the EU both environmentally and socially sustainable.

It also identifies ‘best practices’ that can be scaled up and replicated in order to:

?? bolster sustainable agriculture & champion the energy transition

?? attract investment

?? nurture innovation systems

?? promote community ownership

?? boost social vitality.

Read more .

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