Up in arms: understanding the French agricultural crisis

The question of what constitutes fair remuneration for farmers is a global topic and increasingly fraught as globalization and competition from producers in emerging markets continue to cat away the profits of traditional family farmers in developed markets.

In France, farmers and producers have taken to the streets to protest against the fall in prices for agricultural produce and declining incomes, in respect of which they are demanding a reassessment of the heavy burden of increasing environmental standards and high social charges, irrespective of the availability of State aids.

The agricultural industry is fraught with tension, even though the period for commercial negotiations between distributors and large industrials (during which an agreement is intended to be reached in relation to the setting of the price of agricultural produce) is drawing to a close.

An industrial sector in crisis

The crisis for French farmers has a number of causes

• Failing world prices and overproduction. The meat and milk markets have been particularly affected by overproduction, which results in failing prices worldwide. The excess of pigs is directly linked to Russian sanctions embargo in relation to European pork, which has closed an important commercial outlet., Overproduction is a global issue for the milk market. However its effects have been especially felt in Europe, in part because of anticipation of an increase demand from China, which has gone unrealized as a result of China’s economic slowdown.
• Liberalization of the economy. This increasing trend in Europe is having a significant impact on French agriculture, which has difficulty adjusting. French agricultural labour is 20 per cent to 50 per cent more expensive than the equivalent labor for its European neighbors and is affected by negative social dumping. Furthermore, imports at low prices are increasing, with other European countries receiving social benefits which are not available to French producers.
• Increasing burden of environmental standards. Although such standards are the same across Europe, they are applied in France in a more ad hoc way. The pork sector is a particular source of concern: with activities concentrated in Brittany, it is the focus of attention from environmental authorities.
• Health and safety crisis. There have been many such crises in the last few years, mainly concerning the meat sector. The most recent was the avian influenza outbreak, which erupted by the end of 2015,
• affecting the entire poultry market. The sector expects a loss of 30 per cent of its income over the coming year.
• Indebtedness of French formers and producers. Encouraged by the drop in interest rates since 2010, and advised by banks and other financial institutions, farmers and producers have been tempted take out loans to meet the huge costs of modernizing their equipment and growing their business. However, in times of crisis, as is currently the case with falling prices in international markets, many are no longer able to meet their repayment obligations and are finding themselves in serious financial difficulty.

It is an unprecedented crisis that has affected the French agricultural industry. According to the press, conditions have become so serious that attempted suicide is becoming common amongst French farmers.

Today, the main aims for the French farmers are a reduction in social charges and an increase in the sale price for agricultural produce, which according to press reports, had fallen below the cost of production by the end of 2015. It has been estimated that the price of agricultural raw materials in some cases accounts for just three per cent to five per cent of the final consumer price.

The retail price war carried out by supermarkets

The main cause for anger of French farmers involves the French Law on the Modernisation of the Economy (LME). With a liberal orientation, this law has been accused of having totally deregulated the negotiations between distributors and industrials regarding the fixing of agricultural prices. Worse still, it is argued that this law does not take into account the interests of producers, who are completely excluded from negotiations.

The key impact of the law includes

• Freedom of pricing between distributors and industrials: The LME law introduces freedom of negotiation between suppliers and supermarkets in order to set the price of agricultural products sold to final consumers prices.
• Loss of balance of power: In order to be able to buy more brands and become more competitive, the large supermarkets have grouped together around four central purchasing centres which share the distribution market. Faced with this, farmers and producers, through fear of losing business from large supermarkets, are not able to effectively negotiate prices.
• Result: An increase in the margins of distributors to the detriment of producers.

This situation is not new. Adjustments to the LME had been envisaged in 2013/2014, to include the renegotiation of clauses in contracts between farmers, processors and distributors. Those clauses were intended to take into account the increase in production costs, which are highly dependent on fluctuations in the commodities market.

Certain players in the crisis ridden agricultural sector have argued that the envisaged adjustments have not been respected by distributors.

Government responses

During the Salon de l’Agriculture, the French President François Hollande announced on February 27, 2016, that the LME will be reviewed, if no agreement is reached between distributors and producers at the closure of the current negotiations. The LME would in such case be amended before the summer, in order to obtain a better balance of power and ensure that farmers and producers are better paid. In particular, there has been a proposal to indicate the “producer price” on the final products.

In parallel, the French Prime Minister Manuel Valls has announced to the National Assembly, a reduction in social charges for all producers, along with a year without social charge contribution for low income farmers.