The 2016 EU Agricultural Outlook

Conference

Structural change in EU agriculture: past drivers and emerging challenges

Tassos Haniotis

Director - DG AGRI.E European Commission

Brussels, 6-7 December

Outline

1. The policy impact on structural reforms…

2. …main lessons from past drivers…

3. …and main emerging challenges

2

The long drive of CAP reform…

Source: DG AGRI.

0,0%

0,1%

0,2%

0,3%

0,4%

0,5%

0,6%

0,7%

0,8%

0

10

20

30

40

50

60

70

80

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

% GDP billion EUR

Export subsidies Other market measures Coupled support

Decoupled support of which direct payments of which green payments

Rural development - environment/climate Rural development - other measures CAP as share of EU GDP

EU-10 EU-12 EU-15 EU-25 EU-27

outlook 2015-2020

3

4

…bridged the gap between EU and world prices…

Source: AGRI calculations based on European Commission AGRI and OECD data.

0%

50%

100%

150%

200%

250%

300%

350%

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Percentage gap between EU and world price

Wheat Milk Beef (US) Beef (BR) Sugar

…turned the EU into a net agro-food exporter…

Source: COMEXT.

-150

-100

-50

0

50

100

150

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Commodities Other primary Processed (incl. wine)

Food preparations Beverages Non-edible

5

…and a major agro-trade player…

6

7

…while providing relative income stability…

Source: AGRI calculations based on ESTAT and ERS/USDA data.

50

75

100

125

150

175

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

EU and US nominal farm income (2010=100)

EU net cash income US net cash income EU entrepreneurial income US net farm income

8

…and some positive environmental externalities

Source: AGRI calculations based on ESTAT data.

60

80

100

120

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

EU fertiliser use (average 2004-06=100)

Nitrogen Phosphorous

9

The evolution of EU farm income indicates challenges…

Source: AGRI calculations based on ESTAT data.

400.000

300.000

200.000

100.000

0

100.000

200.000

300.000

400.000

500.000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

EU agricultural income (nominal terms)

Crop output Animal output Product subsidies Other subsidies

Other output Seeds Fertilisers Plant/animal protection

Energy Feedingstuffs Labour Rents

Interest Other costs Entrepreneurial income

million Euro

Source: EUROSTAT

Revenues

Costs

…especially in the EU's farm cost and revenue structure

10

Source: AGRI calculations based on ESTAT data.

0%

20%

40%

60%

80%

100%

2000-2002EU-27

2013-2015

Cost Structure

Taxes Other costs

Interest Rents

Labour Feedingstuffs

Energy Plant/animal protection

Fertilisers Seeds

0%

20%

40%

60%

80%

100%

2000-2002EU-27

2013-2015

Revenue Structure

Other subsidies Product subsidies

Non-agricultural secondary Agricultural services output

Animal output Crop output

EU agricultural productivity grows slowly but steadily…

80

85

90

95

100

105

110

115

120

125

130

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Overall and partial productivity

growth in the EU

3-year moving average (2005=100)

TFP

Land

Labour

Capital

Intermediate inputs

• Productivity growth is key to meet the challenge of feeding more people, better, in a resource constrained world

• Annual TFP growth in the EU 0.8%

• Labour productivity gains are due to labour outflow…

• …substituted by capital prior to economic crisis

• …but now growing without increasing capital inflow

• EU-N13 show higher growth but from lower level

11

…under the influence of economic and policy drivers

• Innovation, investment and technological change

• Horizon 2020, EIP-AGRI, … (A B)

• Efficiency gains through better farm management

• RD programs (C A)

• Decoupling (A D)

• Efficiency changes from regulations

• Greening

• Nitrate directive, Sustainable use directive, …

• Enabling rural environment

• RD programs

• Structural change

• Decoupling

• Climate change

• Greening, cross-compliance

C

A

D

y/x

f

f'

0

Quantity of outputs y

Quantity of inputs x

Technical efficiency increase

Technological progress

Allocative efficiency

B

12

13

The "take away" messages

The main impact of CAP reform on structural change was on competitiveness

• The narrowing of the gap between EU and world prices was part of the policy design…

• …and the relative stability of farm income the result of strong income support…

• …but the improvement in agro-food trade is indicative of long-term strengths in EU value-added

Addressing productivity challenges becomes increasingly knowledge-driven

• Best farm practices spread fast with precision farming, but a knowledge gap exists

• Up-stream, down-stream and horizontal linkages are potentially growth- and job-enhancing

• Technology and innovation will determine net employment and environmental effect

Main challenge for future policy reform will come where bottlenecks exist

• Land remains a constraining factor for EU agriculture – and this will only get more difficult

• Input use challenges reflect the global deterioration of the terms of trade for agriculture

• Climate action is key to bring policy coherence and perspective to sustainability in agriculture

Investment and generational renewal are the key in addressing these challenges

Reports and data available at:

http://ec.europa.eu/agriculture/index_en.htm

http://ec.europa.eu/agriculture/markets-and-prices/index_en.htm

http://ec.europa.eu/agriculture/policy-perspectives/index_en.htm

http://ec.europa.eu/agriculture/trade-analysis/index_en.htm

Thank you for your attention!

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