Market Instruments

- appropriate instruments for farmers to make markets work better in a global food system dominated

by a few large multinational companies

 

OECD Committee for Agriculture and Secretariat Consultations
with Civil Society Organizations

 

Paris, 5 December 2005

Statement by the International Federation of Agricultural Producers (IFAP)

 

IFAP appreciates being a part of these annual informal consultations with the Committee for Agriculture of the OECD. For this session, we were invited to give views on “the single most important policy issue of interest” to our constituency today; and “actions that could be taken by national governments, or the OECD, to respond to this policy interest”.

 

For farmers this big issue is how to deal with the substantial concentration of the industry upstream and downstream of the farming sector. A few large firms now dominate both the distribution side and the input side of the agri-food chain.

 

In the past, national agricultural policies in OECD countries provided a stable environment in which farmers could invest and work. Today, government are withdrawing from agriculture, and so farm families have to increasingly face the market power of the multinationals on their own, in an ever more liberalised, global market. These markets do not function on the classic model of many seller and many buyers. Often farmers have little choice in their particular market sector as to where they buy their inputs or sell their products.

 

Facilitating the organisation of farmers in the market is therefore a key concern of IFAP.

 

I would like to give some examples in the dairy sector of how certain OECD countries have addressed this problem. First Australia. In Australia, two retail firms account for 80 percent of food sales. After the dairy sector was partially deregulated in 1998, dairy farmers had to take care of their future destiny. In March 2002 (1), dairy farmers were granted an exemption to competition law allowing them to form collective bargaining groups to negotiate with dairy plants on price and conditions included in delivery contracts. There are four areas in which farmers are allowed to negotiate collectively:

• Price
• Quality standards – premiums and penalties
• Transport arrangements
• Supply arrangements

The groups are mechanisms for farmers with no choice in where to sell their milk to voluntarily join together to negotiate; the processor also has to agree to negotiate.

 

(1) This was challenged by one dairy company and an agreement was made with them in August 2002 and later approved by the Australian Competition and Consumer Commission (ACCC).  The government made a review of this question in 2002, and when the report came out in 2003 the government accepted all the recommendations. A new law is before parliament.

 

This exemption from competition law in Australia recognises that competition policy does not cater for the situation of farmers and other small businesses.

 

Another example is in France, where the domination of food sales by multiple retailers (la grande distribution) and hard discount stores, as well as CAP reform, led to an income crisis in May 1997. Farmers blocked all food distribution centres for 24 hours. The government brokered an agreement in 1997 that established a relation between the farmer’s price and the price paid by consumers in the supermarkets. Every two months farmers went to check the prices on supermarket shelves to monitor this agreement. In July 2003 following another reform of the CAP, the companies broke the agreement. Dairy farmers re-started their protest actions and a temporary agreement was reached on 13 September 2005; a new system should be in place before the end of the year.

 

In Canada, national marketing legislation allows dairy farmers to manage the supply and price of milk to meet national consumer requirements. The courts have developed an interpretation of competition law that say that the competition act is not meant to prosecute agricultural marketing boards which were set up by legislation in the public interest.

 

Marketing boards are under pressure in several quarters. They were abolished in developing countries under World Bank structural adjustment programs. They are under attack in the WTO as ‘state trading enterprises’. In New Zealand, the single-desk selling Dairy Board structure has been replaced by a large private cooperative structure called Fontera, which maintains producer market power through its monopoly situation in export markets.

 

In the USA, the Capper-Volstead Act of 1922 provides an exemption for farmers to anti-trust legislation, for setting up cooperatives etc. However, the Secretary of Agriculture can intervene to put limits on producer action under this Act.

 

Agricultural cooperatives play a key role in Northern Europe to balance market power for producers. But competition authorities are increasingly looking over their shoulder.

So what can farmers do to strengthen their situation in a highly-concentrated food system?

The International Federation of Agricultural Producers requests OECD to document and analyse the different market instruments that exist in OECD countries and bring together the different experiences in a policy document.

 

IFAP requests national governments to governments to bring in appropriate legislation or professional frameworks to strengthen the position of the farmer in the food chain. Effective regulation is necessary to:

 

• Allow farmers to organise themselves, to group their products for sale, to participate in marketing schemes and to consolidate their economic power, through means such as farmer co-operatives, producer groups or direct marketing

• Facilitate inter-professional agreements among producers, manufacturers and distributors of food and agricultural products

• Fight against abuse of market power and unfair trading practices

• Improve price transparency of products sold throughout the agri-food chain

• Draw up production and marketing contracts between farmers and their food chain partners that are based on a fair sharing of the risks, the value-added and the guarantees, while avoiding, or minimising, the complete integration of farmers into industry structures

• Promote quality criteria for farm products through certification schemes that have been established in cooperation with farmers

• Encourage farmers to regain the initiative in the area of defining good agricultural practices.

 

IFAP considers that the consequences of concentration of the industry upstream and downstream of agriculture constitute a real challenge for preserving the profession and lifestyle of family farmers as entrepreneurs responsible for their own decisions and their own choices. IFAP does not want to see farmers become just another part of the integrated value chain of the retail distribution sector.

 

This statement has focused on market instruments to strengthen the power of the farmer in the food chain. However, instruments are also needed to help farmers to manage risk in a situation of deregulated and liberalised markets.  OECD is also requested to examine the different instruments that exist in OECD countries to manage risk, and bring these together into a policy papers. They include such measures as farm insurance schemes, calamity funds, flexibility within farm credit schemes, social and fiscal arrangements.