The EU agro-food system in transition

Linking the Common Agricultural Policy (CAP), research and innovation

Bologna18 September 2013

Pierluigi Londero

DG Agriculture and Rural DevelopmentEuropean Commission

Outline

1. Main drivers of world and EU agriculture

2. Structural change vs. productivity 3. Linking the CAP, Research and Innovation

2

3

The shifting balance of constant needs…

Food

Feed

Fibre Fuel

Population, incomeand demand driversPopulation, incomeand demand drivers

Policy challengesin globalised

markets

Policy challengesin globalised

markets

Supply constraints and productivity

Supply constraints and productivity

4

Domestic and trade policies (from G-2 and 3 pillars to G-20 and

export bans)

Weather variability increased due to climate change

… and the new realities of agricultural markets

Food supply and demand interaction

Financialisation of

commodities

Energy links (high energy prices,

biofuels)

Domestic and trade policies (from G-2 and 3 pillars to G-20 and

export bans)

Weather variability increased due to climate change

Macro linkages (GDP, interest

rates, exchange rates)

Macro linkages (GDP, interest

rates, exchange rates)

Energy links (high energy prices,

biofuels)

5

Long term commodity price trends1948

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

0

50

100

150

200

250

300

350

400

450(World Bank MUV-deflated indices, 2005 = 100)

Agriculture Polynomial (Agriculture) Fertilizers Energy

Metals & minerals

Source: World Bank..

2.Impact on structural change and productivity in EU agriculture

6

The agricultural area has stayed stable

7Source: Eurostat, Farm Structure Survey

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

180,000,000

200,000,000

2005 2007 2010

ha U

AA EU-27

EU-15

EU-N12

EU-27: -0.05% / year

… but the number of farms in the EU continues to decrease

8Source: Eurostat, Farm Structure Survey

14,482,01013,627,230

12,014,570

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

2005 2007 2010

Num

ber

of

farm

s

EU-27

EU-15

EU-N12

EU-27: -3.7%/year

And agricultural* employment is still declining, but at a lower rate

9Source: Eurostat, National Accounts* Branch A of NACE R2: agriculture, forestry and

fishing; employment in number of persons

-3.00-2.93

-2.32

-1.78

-2.24

-1.78

-3.50

-3.00

-2.50

-2.00

-1.50

-1.00

-0.50

0.00

European Union (27countries)

European Union (25countries)

European Union (15countries)

% d

eclin

e i

n a

gri

cu

ltu

ral

job

s (

pers

on

s)/

year

2000-2006

2006-2012

And labour use in agriculture is declining …

10Source: Eurostat, Farm Structure Survey

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

2005 2007 2010

Annual

work

unit

s (A

WU

)

EU-27

EU-15

EU-N12

EU-27: -5.2% / year

In countries most affected by the debt crisis, people try to hold on to their farms

11Source: Eurostat, Farm Structure Survey

-3.67

-2.22

-4.70

-1.70 -1.87 -1.93-2.46

-3.12

-4.00

-5.85

-8.39-9.00

-8.00

-7.00

-6.00

-5.00

-4.00

-3.00

-2.00

-1.00

0.00

% loss o

f fa

rms p

er

year

(20

05

-20

10

)

Farms that remain are bigger in both ha UAA/farm…

12Source: Eurostat, Farm Structure Survey

11.912.7

14.3

21.422.3

23.6

5.5 6.07.1

0

5

10

15

20

25

2005 2007 2010

ha/h

old

ing

EU-27

EU-15

EU-N12

EU-27: +3.8%/year

… and in economic terms (Standard Output/farm)

13Source: Eurostat, Farm Structure Survey

0

10,000

20,000

30,000

40,000

50,000

60,000

2005 2007 2010

Sta

ndard

Outp

ut

(EU

R)/

farm

EU-27

EU-15

EU-N12

EU-27: +5.2% / year

…but slow down in labour productivity* growth

14

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

60

70

80

90

100

110

120

EU-27EU-15EU-N12

Labour productivity annual growth

1995-2002 2002-2011

EU-15 +3.1% +2.1%

EU-N12 +4.2%

EU-27 +2.2%

* Labour productivity index, 2005=100, 3 year moving average, 2011 = avg(2009,2010,2011), calculation based mainly on the EAA

…while most TFP gain comes from labour productivityand capital productivity decreases in the EU-15

15

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

60

70

80

90

100

110

120

Int. cons. Labour Land Capital TFP

2011 = avg(09/10/11)

…yields are already very high in the EU-15

AT BG DE EE ES FR IE LT LV PL RO SI UK

EU-1

2-1%0%1%2%3%4%5%

0

2

4

6

8

10

Cereal yield, avg(09-11) Annual yield growth, btw 00-02 and 09-11

16

Cereals

Milk

AT BG DE EE ES FR IE LT LV PL RO SI UK

EU-1

2-1%0%1%2%3%4%5%

0

2

4

6

8

10

Milk yield, avg(09-11) Annual yield growth, btw 00-02 and 09-11

t/ha

t/ha

Still some large margins of improvement of TFP in the EU-N12

17

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

80

85

90

95

100

105

110

EU-15 EU-12 EU-27

And already a higher TFP growth in the EU-12…

18

LV RO SI AT SK PL UK NL BE FR DE IE

EU-1

5

EU-2

7-1%

0%

1%

2%

3%

4%

Annual growthbetween 2000-02 and 2009-11

…mainly driven by an increase in labour productivity

19

LV EE LT RO DK CZ HU SK EL SI FI AT BE NL SE PT DE FR UK PL ES LU IT IE EU-

15

EU-

12

EU-

27

-1%

1%

3%

5%

7%

9%

Annual growthbetween 2000-02 and 2009-11

3. Linking the Common Agricultural Policy (CAP), research and innovation

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From linear to complex innovation systems

• Old linear model of science push: basic science leads to applied science which causes innovation and wealth – popular approach in post second world war years. This approach established a link between the flow of new knowledge and economic innovation

• However, innovation often does not come straight from science. Actually, sometimes it comes before science (steam engines and thermodynamics)

• Innovation uses a vast pool of existing knowledge, recent or old, whether it is with scientists or practitioners or in other places

• In this context, Research and Development should not be seen as a process of discovery that initiates innovation but as a problem-solving activity within already-existing innovation processes

• Hence the linear model has to be replaced by complex innovation systems implying a variety of actors interacting in networks

• In agriculture this implies to recognise the importance of various actors, to acknowledge the importance of tacit knowledge, the importance of networks, the role of facilitators of innovation (brokerage activity) and the importance of putting (part of) agricultural research into a problem-solving mode

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European Innovation Partnership (EIP)Closing The Innovation GAP

Research

Farming Practice

Interactio

n

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EU research in agriculture

• EU funded research represents less than 10% of agricultural research done directly by the Member States

• About €2 bio spent on agriculture and forestry, food chain and biotechnologies in 2007-2013, of which roughly €700 mio for agriculture and forestry

• Proposal by the Commission for 2014-2020 to double the above amount (€4.7 bio for the Societal Challenge 2)

FP 1

FP 2

FP 3

FP 4

FP 5

FP 6

FP 7

H2020

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

Total budget of FP (€ bio, H2020 Commission proposal)

24

Europe 2020 Priorities

Tackling Societal Challenges- Health, demographic change and wellbeing- Food sec., sust. agri., mar. res. & bioeconomy- Secure, clean and efficient energy- Smart, green and integrated transport- Supply of raw materials, resource efficiency

and climate action- Inclusive, innovative and secure societies

Creating Industrial Leadership and Competitive Frameworks

- Leadership in enabling and industrial technologies (Biotechnology,…)

- Access to risk finance - Innovation in SMEs

Excellence in the Science Base- Frontier research (ERC)- Future and Emerging Technologies (FET)- Skills and career development (Marie Curie)- Research infrastructures

Common rules, toolkit of funding schemes

European Research Area

Simplified access

International cooperation

Coherence with other

EU and MS actions

EIT will contribute to addressing these challenges

Shared objectives and principles

Framework Programme for Research and Innovation

Horizon 2020

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Horizon 2020Societal Challenge "Food security, sustainable agriculture,

marine and maritime resources & the bioeconomy"

• Sustainable agriculture and forestry

• Sustainable and competitive agri-food sector for a safe and healthy diet

• Unlocking the potential of aquatic living resources

• Sustainable and competitive bio-based industries

• Cross-cutting marine and maritime research

What's new with Horizon 2020?

• Covers research and innovation

• Larger topics, more challenge-based and less prescriptive

• SME instrument

• Financial instruments

• Rules for participation:• 100% of direct costs, 20% of direct cost envelope to cover indirect costs

• Up to 100% co-funding in case of primarily research, up to 70% when it is primarily innovation activities

• One project = one rate of funding

• All entities participating refunded at the same level (NGOs, Research Organisations, SMEs, big businesses, farmer organisations, Universities, etc.)

26

Fostering innovation with the EIP

•Rural Development programmes

• Cooperation (Article 35), including pilot and demonstration projects "OPERATIONAL GROUPS"

• Knowledge exchange, training and advisory services

• Business development

• Investments in physical assets, quality schemes, etc.

•European Union Research policy (Horizon 2020)

• Basic and applied research enhancing the knowledge base

• Close-to-user activities (farm experiments, demonstrations and pilots)

• Collaborative projects with a "multi-actor approach" and networks

27

Some concluding comments

• Challenges (to be) faced by agriculture call for ambitious research and innovation at national and EU levels

• The new CAP and Horizon 2020 are coming with instruments and resources to contribute to this endeavour

• Innovation is a priority in the new rural development policy. Due attention to the relevant measures by MS is necessary (in particular Article 36 on cooperation)

• AGRI will be directly involved in management of part of the resources of Societal Challenge 2. "Phasing in" in 2014 and 2015

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Thank you for your attention!