upton-on-line

March 15^th 2001

So here we go again!

Direct from Paris’ 6^th Arrondissement comes the first edition of upton-on-line for 2001. Upton-on-line has been off-line for two months now trying to furnish an unfurnished apartment (which in France means supplying everything from curtain tracks to light bulbs), doing battle with France Telecom (an agency devoted single-mindedly to causing maximum customer despair) and explaining to the children that their tantrums are exquisitely audible for the lucky folks above and below us in the building. All in all, very character building.

But the time has come to re-connect, this time from far beyond the cultural asteroid belt that separates New Zealand’s diaspora from Godzone: where wines have manifest fruit characteristics (big tick – I’ve begun to yearn for them: sorry, Rumble) and cheese can’t be made from unpasteurised milk (big cross – whatever the microbiological risks, the taste’s worth it).

Stringing for Kim

Upton-on-line cannot maintain last year’s hectic pace – nor its ever-so-reasonable partisan bias (you didn’t really notice it, did you?). Instead, it has entered into an association with the Kim Hill Programme.

The plan is to produce an edition of upton-on-line every three weeks on a Wednesday night (NZ time). The next morning (Thursday if you’re not very chronological), upton-on-line will discuss the subject with Kim on her programme. Kim, like upton-on-line subscribers, will receive it the night before so it’s a bit of an experiment in linking radio and internet media.

It’s fair to say that Kim’s programme is less enthusiastic about the potential for this idea than upton-on-line is. (Indeed, Radio New Zealand said that most of upton-on-line’s subscribers already listened to Kim. Upton-on-line knows for a fact that – much as you all love Kim - many of you are far too busy coping with the Inland Revenue, shifting electric fences or battling with the latest glitch in your software to be really concentrating on Kim. And if some of you are listening, then someone had better be checking your time sheets…)

Whatever the merits, the hope is that the potential synergies benefit both the column and public radio which, almost alone, soldiers on trying to provide more than just animal stories, opinion polls and scams. As ever, upton-on-line welcomes feedback - as does Kim’s programme – and looks forward to confirming the existence of life after politics.

In Re: Mad Cows v. Sacred Cows. New Zealand’s trade prospects in the wake of Europe’s agricultural crisis

Walk into McDonald’s here in Paris and you can’t miss the reassurances of food safety. Or, more specifically, beef safety. Prominent notices underline the strenuous efforts McDonald’s have gone to, to guarantee the traceability and the quality of every animal that ends up being McSizzled.

But just to make sure that nervous parents have the necessary room for manoeuvre, Happy Meals (which our two consider the gastronomic equivalent of haute cuisine) provide the option of beef, chicken nuggets or Croque Monsieur.

(This last choice – basically cheese grilled over ham on a slice of bread – seems to be McDonald’s way of waving the white flag in the face of unrelenting Gallic suspicion of American cultural hegemony.)

I don’t know whether McDonald’s has managed to turn the tide on boviphobia, but the numbers for Europe look pretty glum. Consumption down, since October, by 45% in Germany, 45% in Italy, and 28% in France. Together, these three account for nearly 60% of European beef consumption. Only Britain has managed a small come back – 3%, but that’s after a 30%% fall since the crisis first broke almost five years to the day in March 1996.

Upton-on-line is unsure how much this reflects a complete distrust of national regulatory agencies and/or agri-business operators - (there have been sufficient incidents to puncture unthinking confidence) - and how much it reflects a deeper risk aversion at the heart of European culture. Certainly, Europe exhibits none of the laissez faire that exudes from the sidewalks of America (although what Europeans let their dogs do on the sidewalks is another matter again…)

But a sense of disquiet isn’t hard to understand with the way the mad cow crisis has evolved, not to mention scandals like the dioxin-laden fuel sludge mixed with animal feed in Belgium. Foot-and-mouth disease seems almost wholesomely ‘natural’ in comparison. After all, Europeans have lived with it since its first appearance in 1546. But coming as it does in the wake of a series of events that have shaken consumer confidence it seems finally to have ignited a political tide for change that had long seemed incombustible.

Has the CAP met its match?

Everyone has been saying for years that the Common Agricultural Policy (CAP) is unsustainable. It already consumes US$36 billion per year. And that the entry of a raft of new member states from Central and Eastern Europe will compel change. Countries like Poland are such big agricultural producers the subsidies they would be entitled to under current rules would break the bank. But thus far, attempts to pare back the excesses have made heavy weather of it. The Germans tried, during their Presidency in the first six months of 1999, but met stout opposition, especially from France.

Now, the climate of general alarm seems to have undermined the CAP’s foundations in a way that the laser beams of economic rationality have never been able to. And leading the fray are three female ministers of agriculture from northern Europe - Margareta Winberg from Sweden, Ritt Bjerregaard from Denmark and Renate Künaste from Germany, the last, a Green Party minister catapulted into office by the discovery of mad cow disease in Germany and the resignation of her predecessor.

All three seem determined to take ‘green’ seccateurs to the CAP. The case for reform is being argued on ecological rather than fiscal grounds, and in the climate of public alarm, the message seems to have fallen on fertile ground. Certainly, these Ministers seem to be determined to change the shape of European agriculture. Sweden has already adopted a target of converting 20% of its arable land to organic production systems by 2005. The German minister has similar plans. With Sweden currently holding the Presidency of the EU, the issue is going to be kept to the fore. But let’s not get too excited about the prospect for change. France has already signalled that it will not consider any fundamental reform of the CAP until after the 2002 Presidential elections. This apparently ‘set-in-concrete’ position has wider ramifications than CAP. It affects the prospect of a launch of the trade round later this year.

So clean green, ever-so-remote New Zealand suddenly falls on its feet?

Would that things were so simple. It would be hard to think of a more complex tangle of prejudices, unknowns and conflicting agendas than that facing an agricultural exporter like New Zealand. Upton-on-line has come close to a neural melt-down trying to sort the strands out for readers. And he is no expert. But here are a few thoughts.

If the world was a simple place…

It often helps to start (as economists habitually do) with the world as it exists only in theory. Suppose there was free trade in agricultural products (subject to sanitary and phytosanitary controls). A collapse in consumer confidence in any product would provide a market opportunity for the producers of alternative products that could provide the reassurance that was lacking.

So in Europe’s case, New Zealand producers would look at the ways in which they could differentiate their products and expand their market share. So, making appropriate judgements about not being seen to make tasteless capital out of others’ misfortunes, you might expect New Zealand exporters to reinforce the environmentally and consumer friendly properties of their own products (assuming they could verify them – in itself a very interesting question: more of that later).

But how about the world as it really is?

Needless to say, things could scarcely be more different. The trade in agricultural products would have to be the most politicised market there is – and nowhere more so than in Europe. The simple expedient of expanding market share is, to start with, impossible. As every New Zealander has learnt by the age of 10, Europe has tied itself – and everyone else – in knots designed to protect European farmers at the expense of all other producers and at the expense of its own consumers and taxpayers. If anyone thinks farmers captured the NZ National Party, take a look at Brussels.

Depending on the product, non-European producers face a bewildering array of quotas and tariffs. New Zealand’s celebrated butter deal with the EU imposes a mere 67% tariff. (The out-of-quota rate is a more muscular 146%). We get luckier on sheep meat – a large quota – 226,700 tonnes or 70% of the total imported into the EU – with zero tariff. But out-of-quota the sledge-hammer comes down with 50% or more - just in case anyone gets too successful.

But even within these straight-jackets, there are sensitivities about politicised markets that are just as important. Basically, you don’t upset the locals – hence the careful monitoring that our exporters do to avoid being too visibly successful in sensitive markets. Furthermore, given the fact that no-one expects the Europeans to be anything other than limpet-like in resisting change, there’s a strong sense that departing from the status quo carries even higher risks than staying with the security of a hard-fought niche.

Take the so-called quota rents that accrue to countries with special access arrangements. To the extent that European prices are jacked way above the world price, special access deals (like ours for butter or sheep meat) create ‘rents’ (or super profits) – being the margin between the world price and the European price less any tariff. One of the wonderful ironies about the CAP is that it makes allies of its opponents. To argue for lower overall tariffs is to argue for the destruction of those lucrative quota rents. Now it wouldn’t matter so much if the quota was eliminated because you could sell more. But then again, others might beat you to it. So there’s something distastefully cosy about supping with the Devil - even if we have been using a long spoon!

So would a greening of the CAP benefit anyone outside Europe?

That’s the $640 million question. My guess is probably not, but there are possibilities either way.

On the one hand, a move away from subsidies that favours the intensive, large scale agri-business operators could significantly reduce Europe’s self-sufficiency in some agricultural commodities. That would improve the chances of larger import quotas – assuming the political courage could be mustered to face down the vested interests. The sensitivities of different parts of European agriculture to a differential phase-down of subsidies is the sort of thing exporters in countries like New Zealand should be funding - it’s crucial market intelligence in terms of future access negotiations. Needless to say, it’s not being done.

On the other hand, the flavour of recent comments from the politicians most interested in reforming the CAP makes it clear that they’re not CAP busters. The prospects for a country like New Zealand are at best equivocal. Take this comment from Margaret Winberg quoted in the Financial Times recently:

Well, New Zealand certainly farms extensively but there’s more to it than that. There’s the production system as a whole that would inevitably come under the spot-light. And what questions might be asked about the sustainability of other countries’ production systems if this became the benchmark for European agriculture – bearing in mind that the politics of shielding Europe’s small farmers – organic or otherwise – will be just as intense as it always has been.

Needless to say, the indefatigable Europeans have been working away on these issues. Upton-on-line recalls that they were canny enough to retain Anton Meister, a respected economist at Massey University, to do some work on what sorts of costs New Zealand farmers faced in meeting environmental requirements. The results are contained in a paper that examines the relative competitiveness of EU agriculture vis-à-vis its main competitors in the world market when health and environment standards are factored in.

It’s not quite clear what the EU intends to do with this research, but it doesn’t take a degree in agricultural economics to see what’s coming next: a European claim that competitors like New Zealand ‘subsidise’ their agricultural sectors by not requiring them to bear the full (ecological) costs of their use of resources like soil and water. The CAP could be artfully re-constructed to meet the true environmental costs of sustainable agriculture and – along the way – just happen to generate a whole new set of reasons to keep other countries’ exports at bay.

Apoplexy or opportunity?

It remains to be seen whether European agriculture will head off down this path. There are rafts of imponderables. Would a truly sustainable approach to agriculture generate the volume of food consumed by Europeans? Would they be prepared to pay the higher prices for food that could result from less intensive production systems – or would farmers accept lower returns?

It seems hard to imagine a world in which a radically organic agriculture is imposed in Europe any time soon. But it is bound to get greener. And if it does so with the assistance of European taxpayers – as seems inevitable – New Zealand won’t find any silver green lining inside the near-impenetrable clouds of agricultural policy debate in Brussels. But one thing is clear: a green CAP would command much greater moral support from European citizens than the present trough of subsidies. At least in terms of its domestic marketability, the greening of the CAP could be its political salvation.

This is certainly the line taken by the outspoken French leader of the Confédération Paysanne, José Bové who has labelled the latest foot-and mouth (fièvre aphteuse in French) outbreak as "la crise d’une système" and called for "une réflexion approfondie sur le système d’agriculture qui a été mis en place en Grande-Bretagne mais qui se généralise malheureusement partout en Europe".

Bové’s organisation is aligned with the Via Campesina movement that purports to speak for 50 million small farmers globally. At the recent World Social Forum in Porto Alegre (Brazil) organised as a counter to the rich and famous who descend annually on Davos (Switzerland), Via Campesina’s leader Rafael Alegria of Honduras declared not only that traditional agriculture could not survive without protection but that –

Europe is unlikely to return to this model. But it is equally unlikely not to make sympathetic parallels between the concerns of such groupings and its own concern for a greening of the CAP. In the context of trade talks it could all be somewhat problematic for Cairns Group strategists trying to head off a new round of trade protectionism just when they thought the old rationales for barriers had finally started to crumble.

So do we all just switch off the electric fences & throw the tractor keys in the creek?

That might be a little extreme. After all, there are other markets and we’re doing rather well in some of them. But it does raise the question whether New Zealand farmers have thought long and hard enough about how to meet sustainability arguments that are likely to be pushed with greater force in the years ahead. New Zealand has for long traded, in a quiet way, on its clean green credentials. And in many respects, they are good. The ambient environment in which much of our food is produced is very clean

We’re not bombarded by an invisible hail of air borne industrial pollutants as most European countries are, notwithstanding their remarkable clean-up efforts on some fronts. Millions of dollars of research has confirmed in a very precise way that we produce our food in an environment that has some of the lowest ambient levels of dioxins in the world. Low population density and brisk maritime winds keep the air pretty clean. Geographical and ecological isolation has meant the absence – so far – of a host of pathogens that lurk in many other markets. And we don’t have the intensive animal production systems that dominate Europe and North America.

But that’s not the end of it. Who knows what questions the Europeans may decide to ask or what further research they might commission. It wouldn’t take too much digging on water and soil issues to draw attention to some agricultural impacts that don’t look quite so pretty. Worse, New Zealanders haven’t been assiduous enough about doing the monitoring needed to verify the claims we might need to make if the sustainability of our systems came under fire.

It seems reasonably clear that consumers – at least those in rich markets which can afford to pay premiums – are going to go on taking a closer and closer interest in what they eat, how it is produced, and how safe it is. The positions they take won’t necessarily be rational. For instance, the German reaction to mad cow disease has been to turn away from beef regardless of its source. If the consumer is truly king, then producers have to think about being able to cover themselves against a rising tide of public concern about the safety and sustainability of the food chain – and the inevitable spill-over that will have for trade talks.

Like so many New Zealanders in Europe before him, upton-on-line finds himself marvelling at the tantalising opportunities of this rich and fabulous continent and exasperated by how its political intrigues manage to keep us just out of reach. Those mythical golden apples hang there still, one branch beyond arm’s length…