MEP
IN ACTION
THE EUROPEAN PARLIAMENT
SEMINAR: WHICH RISK MANAGEMENT TOOLS FOR FARMERS TODAY?

Please find here the full speech pronounced by Jean Arthuis at the opening of discussions at the “Euronext” conference focused on futures market as a risk management tool for farmers-entrepreneurs.

I am really glad to welcome this workshop in European Parliament’s premises today. It is a timely discussion as the Commission’s legislative proposal on the reform of Common Agricultural Policy’s main texts is currently discussed in the Committee on Agriculture and Rural Development.

We thank you for the enlightenment you will bring on our reflection on the eve of the next multiannual financial framework 2021-2027’s adoption.

As an introductory remark, I want to explain you why I have decided to sponsor your conference.

First, I want to underline the report of the working group « Agricultural Markets Task Force » which triggered a real interest in the European Parliament during its presentation in November 2017. The experts appointed one year earlier by the Commissioner Phil Hogan have then made proposals to “improve the position of farmers on the food supply chain”.

Among the numerous aspects addressed by the Task Force, the analysis focused on the future of the CAP and particularly on the risk management tools.

The subsequent reforms of the CAP have progressively open the European agriculture to international markets. Since 1992, they all went in the same direction without any exception: a reorientation by the markets. Therefore the drop-out of a markets management policy by the European Union and Member States has put agricultural prices and farmers’ revenue at risk of brutal and recurring fluctuations of raw materials prices. Should the CAP remain therefore neutral, or unconcerned about the urgency of risks management? Is the farmer, who takes care of the risk on his farm alone, helpless against market hostility?  Your conference will try to answer those questions. I have no doubt you reject fatality.

In the recent reforms, evolutions have given to direct payments the role of a revenue stabiliser. Even though it was clearly useful, they have proven their insufficiency trough the crises. And the revenue insurance tools or collections introduced in the CAP since 2014 are barely used by farmers for the time being.

The Task Force’s report recommended the Commission to make them more attractive by forcing Member States to include them in their regional development programmes for instance. Moreover, the report recommended the implementation of “follow-up and assessment systems mapping all the relevant data linked to risk occurrence”, and minimum thresholds applicable for harvests’ losses should be reviewed. Finally, the Commission was invited to implement a European platform - gathering Member States and stakeholders - allowing the exchange of the best practices for the management of agricultural risks, also recommending a fight against Unfair Trading Practices (UTP).

The conclusions of the report have raised awareness on the necessity of managing the risk in agriculture, whether it is sanitary, technical or market-related. In parallel to their publication, at the end of 2017, the adoption of the Omnibus regulation has finally given the strongest political signal by asking European political authorities to go towards efficient risk management tools. With the entry into force of this text at the beginning of January last year, the Omnibus regulation opened the way towards a decrease in the triggering threshold from 30 to 20% for the harvest insurances and sectorial revenue insurances (it still remains at 30% for the general revenue insurance tough) and makes possible the co-financing, thanks to the CAP’s second pillar, of bonuses up to 70% (instead of 65%).

If the Commission has decided to withdraw from markets’ management, it is therefore up to downstream actors to take their responsibilities and gain control over prices and costs volatility, thanks to the knowledge and the anticipation of market movements. Through the crises, and while the economic and political context is taking place in agricultural minds on that topic, the market risk management is the price to pay in order to let the farmer-entrepreneur be involved in the economic and financial stability of his production on a mid to long-term vision. This is a condition for autonomy and resilience.

The farmer is not totally alone and helpless against the market. He is encouraged to increase his knowledge in order to enlighten his decision. The producers’ organisations can find here a way to develop their expertise and their added-value.

The market offers a lot of tools by the way. One of them, and it will be the topic discussed this morning, is the futures market. Its development has almost become indispensable. It would be advantageous for producers.

Futures market seems to be a great first level for risk management. It gives visibility on markets and enables the commitment of prices for a future production. By giving reliable forecast indicators, it gives the opportunity to have risk management contractual tools more operational, relevant and credible.

I think one of the solutions to consider for the next CAP is the development of futures market. The agro-economist Jean Cordier is also convinced. I allow myself to quote him when he writes about the dairy crisis: “in 2015, if we had known the prices corresponding to the production development plans of countries two years before, would those plans become reality? Futures markets offer a synthesis, they give the vision of a great region like Europe in a global frame of exchanges.”

Futures market do not target the same products. They can concern goods of a fungible nature only, which certainly restricts the scope of proposals that you are going to mention.

With the insurance systems, they give the opportunity to mitigate the detrimental consequences of prices volatility and increase the trust of those who invest their financial capacities and work on a daily basis for our security and food sovereignty.

With my gratitude, I express my warmest wishes for you and the success of your conference.