Economists warn no easy fix for low farm prices as EU launches agrifood observatory

The newly established EU Agri-Food Chain Observatory, aimed at improving transparency in prices and the distribution of value in the agri-food supply chain, held its inaugural meeting on Wednesday (17 July).

The initiative will gather 48 operators from across the supply chain, EU, and national authorities around the same table, responding to widespread demands from farmers for better prices.

During the observatory’s first meeting, EU Commissioner for Agriculture Janusz Wojciechowski said farmer protests in early 2024 highlighted significant discontent with the functioning of the food supply chain.

“It is precisely this lack of trust and confidence that the Commission wishes to address by establishing” the observatory, said Wojciechowski in a press release.

The launch of the forum is one of several measures announced by the European Commission in March, addressing the growing dissatisfaction among farmers over what they perceive as unfair compensation for their work.

Among these measures is the Commission’s plan to ensure fair remuneration for farmers, improve price transparency in the food supply chain, and step-up the enforcement of the EU rules against unfair trading practices (UTPs), affecting farmers and small food producers.

The implementation of the UTPs directive varies across member states, with some enforcing stricter rules than others.

For instance, the Spanish food chain law includes a clause against “sales at loss,” which prohibits paying farmers below their production cost. Spain’s Agriculture Minister Luis Planas has called on the EU to adopt a similar model, a move loathed by farmers but opposed by retailers.

France and Croatia are other countries cited as examples of strict implementation of the EU rules.

The Commission plans to propose measures after the summer to ensure cross-border enforcement of the UTPs directive and prevent companies. There is scepticism, however, within the EU executive about the feasibility of establishing minimum prices for agricultural products.

The silver bullet

Agricultural economists argue that there is no single solution to the problem of farmer remuneration, as the issue is tied to market structure.

Professor Jack Peerlings from Wageningen University, and the secretary general of the European Association of Agricultural Economists, explained that agriculture operates under “perfect competition,” where many suppliers face high demand, forcing farmers to accept the market price.

Peerlings noted that while price transparency is crucial and can be achieved through initiatives like the EU observatory, it will not necessarily solve the problem of low margins for farmers.

“Even if you would improve price transparency, that would still be the case (…) Farmers will always complain about the fact that prices are low,” he added.

In the worst months of the farmers’ protest, the French president Emmanuel Macron hinted at introducing ‘floor prices’ (prix plancher) for the agricultural sector, i.e. minimum prices for producers imposed on manufacturers and distributors.

The Dutch economist warned against any price-fixing for agricultural products, arguing that it could lead to overproduction and market imbalances, reminiscent of the “milk lakes” and “butter mountains” Europe experienced in the 1970s and 1980s.

“If you have this extra production in the market it will push prices down again, or it will force you to dump products on the world market,” he added.

Technological advancements, though they help farmers increase their margins temporarily, create a ‘market treadmill,’ noted Peerlings, where continuous innovation leads to price drops and financial strain on those unable to keep up.

A way out?

An agricultural economy professor José María García Alvarez-Coque from the Universitat Politècnica de València highlighted the complicated implementation of floor prices due to the EU’s stringent competition rules.

García pointed to the unbalanced bargaining power between farmers and the retail sector as a major factor in low prices. He emphasised the need for better integration of farmers into large cooperatives, to enhance their negotiating capacity.

“In general, we have a lot of very small farms in Spain and they do not have the power to negotiate, also the cooperatives are not sufficiently integrated,” García told Euractiv.

The Spanish economist proposed improving product traceability, to help consumers choose European products over imports and creating alternative sales points, such as farmers’ markets, to promote local goods.

“You are either big or different,” stated García, stressing that farmers need to find ways to stand out in a competitive market.

Though Peerlings agreed that short supply chains and niche markets could be profitable for some farmers, he stressed that these solutions cannot be the general rule.

“Farm sales alone are not feasible,” he stated. “This approach might work for smaller farms, but not for everyone,” he added.

* Maria Simon Arboleas contributed to this article

[Edited by Angelo Di Mambro and Rajnish Singh]

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