Farmers are on a razor’s edge. We can’t make mistakes.
By Paolo Riva, Luca Quagliato, and Razvan Zamfira | 10.01.2023
In 2022, droughts and rising costs squeezed Italian farms dry. But will the EU’s latest Common Agricultural Policy help farmers at the expense of the environment?
“It won’t grow,” says 24-year-old Nicholas Fusar Poli, as he caresses a tiny alfalfa seedling, creeping out of the dry ground.
It is the second half of July and this young Italian farmer shows the damage caused by lack of water to his farm in Arluno, west of Milan.
The experience of Fusar Poli, who comes from a family now in its fourth generation of farmers, is exemplary of the difficulties many Italian farmers are experiencing, squeezed between the climate crisis, rising prices and the fallout from the war in Ukraine.
This year marks the start of the new Common Agricultural Policy (CAP), which is a key support for farmers in many parts of the continent, especially in Italy. This comes after one of the driest summers in the last 500 years.
“We have 91 hectares of land and 110 dairy cows,” adds Fusar Poli, who’s tone veers between disconsolate and angry. “I had planted more alfalfa. so I could buy less protein feed, but then there was the drought. The alfalfa did not grow, and the maize will be much less than usual.”
On Fusar Poli’s farm, the animals are fed by what is grown locally. This is mainly maize but also barley, sorghum and alfalfa. If the harvest is bad, the cows still need nourishment. This means the farmers have to buy feed on the open market. This year, the prices have been high. “The agricultural market goes up and down. Prices had already risen before 2022, but with the war in Ukraine, they went up, up, up…,” says the farmer.
Italian Livestock: American Diet
In 2022, the world food market reached record levels. This price increase affected goods which Russia and Ukraine export in large numbers, which was on top of a “price rise driven by post-pandemic growth in demand for goods,” states the Council for Agricultural Research and Agricultural Economics Analysis (CREA) in a recent report. Meanwhile, the rate of production “grew more slowly”. This phenomenon, which has multiple causes and a global reach, has affected Italy.
“The international crisis,” CREA continues, “has focused greater attention on Italy’s dependence on foreign imports for certain products that are important for the agri-food industry, including cereals, vegetable oils and animal feed.”
Last year, according to the national institute of statistics (ISTAT), Italy imported 15% of the maize for animal feed from Ukraine, totaling 785 million kilos. A quota that, after the outbreak of the conflict, was largely replaced by produce from countries such as Brazil or the USA. America, writes the Institute of Agricultural Food Market Services (ISMEA), is not among the country’s main suppliers. However, in the six months under review, the U.S. has increased shipments with three-figure growth rates in both value and volume.
In the first six months of 2022, this reached around 24 million euros for 70,000 tonnes.
Feeding animals, therefore, has become more expensive. But this was not the only price increase that farmers like Fusar Poli had to deal with.
In September, CREA estimated that cost increases for the average farm rose by 29,060 euros, while on dairy farms, it rises to 90,129 euros.
The summer of 2022 will be remembered throughout Europe for the lack of water.
The drought, especially in northern Italy, added to the other problems that agriculture was already facing.
In the case of durum wheat, for example, at the end of July, ISMEA estimated that Italian 2022 production “could be around 16% lower than the previous year, mainly due to the water deficit…and the high temperatures”. The drop concerns many regions, albeit with different intensities, and also other EU countries such as France.
This lead to these cost increases this year:
Arable Italian farm cost increases
Source: Coldiretti: report
Maize: no money to be made
As far as maize is concerned, the picture is even bleaker. Cesare Soldi, an agricultural entrepreneur Cremonaand president of the Italian Maize Growers Association (AMI), tries to do the math.
“This year, as an association, we estimate a 35% drop in maize production compared to 2021,” he says. This is a national average that hides a great deal of variety, but the figure is worrying.
“On the one hand,” Soldi adds, “there is the drought and, on the other hand, there is the uncertain Covid situation and the war, which have led to an increase in costs. It is an explosive mix that leads us, for the umpteenth time in recent years, to produce below cost.”
In practice, despite high food prices, maize producers receive less for their product than they spend on growing it. It is an unsustainable situation due to reasons related to the type of crop, but this year risks affecting other growers.
Italian Farms: 30% could fall into the red
The current international cyclical crisis may result in one in ten farms failing to have “the direct expenses necessary to carry out a production process”, the CREA study concludes. “30% of farms on a national basis” could “have negative net income”. Before the current crisis, the two figures were 1% and 7%, respectively.
“Companies with low capitalization are at risk of exiting the market. There could be a reorganization in terms of efficiency, with no small social impacts,” argues Alessandra Pesce, director of CREA’s Policy and Bioeconomy Centre. In practice, according to the researcher, farmers without sufficient economic resources might not make it through such a challenging period. Their farms could be taken over by others or go bankrupt.
For Pesce, the most significant impact is on the “costs of managing and procuring energy raw materials, fertilizers and feedstuffs”. On Fusar Poli’s farm, for example, he did not grow enough alfalfa due to the drought.
Therefore, he had to buy more protein feed, the prices of which had risen sharply in the meantime. He turned to Cargill, one of the world’s major players in the sector. “I would like to be less and less dependent on these companies, but that was not possible this year,” he says.
The same happens in the province of Cremona, not far from the Po river and its waters, which were extremely low in July due to the lack of rain.
Agricultural entrepreneur Stefania Soldi observes the large combine harvester passing over the maize field belonging to her livestock farm.
“We try to be autonomous, but with this unprecedented weather, we had to buy some of the feed,” she explains. And even then, prices went up. The growth had already started before the conflict and accelerated after the Russian invasion of Ukraine, also due to financial speculation. Like Fusar Poli, Soldi turned to Cargill to buy maize for her cows, which has a plant not far from her farm.
Italian farms: rising dependency on multinationals
Italy is one of the seventy countries in which Cargill operates, employing a total of 155,000 people and with a global turnover exceeding 134 billion USD in 2020. The company is a trader of agricultural commodities and involved in all stages of the production and trade of these products: from origin to processing, from marketing to financial instruments, and from risk management to distribution.
According to a recent report by the NGO ETC Group, Cargill is the leader in this sector, followed by China’s Cofco, the US-based Archer-Daniels-Midland (ADM) and Bunge (third and fifth, respectively in terms of turnover) and Singapore-based Wilmar.
Companies such as Cargill and Cofco clearly represent the ongoing process of consolidation in global agribusiness, through both horizontal and vertical mergers and acquisitions. This, ETC also writes in a 2017 report, reinforces “the industrial food and agricultural model, exacerbating its social fallout and… existing power imbalances” and making “farmers increasingly dependent on a handful of suppliers and buyers”. Five years later, ETC founder Pat Mooney confirms that the situation has not changed. On the contrary.
“The level of concentration has further increased,” he says, “and the industrial system is showing huge problems in the supply chains that are not only dependent on the situation in Ukraine and were already seen during the pandemic.”
In recent months, Cargill reported a 23% increase in revenues to a record 165bn USD for the year ending 31 May 2022. ADM posted the highest profits in its history in the second quarter of this year, while Bunge’s sales rose 17% year-on-year in the second quarter, although profits were impacted by previously incurred charges.
According to some observers, given the current context, these are logical results for companies in the sector, which played no role in the price increase. According to others, including several NGOs, these giants are taking advantage of the situation and could have done more to avert the current crisis.
What is certain is that farmers like Fusar Poli find themselves embedded in an industrial agri-food system that does not favor them, exposed to international price repercussions and crushed by the effects of the climate crisis, which in summers such as 2022 has manifested itself with particular force.
“You have to adapt constantly. You’re on a razor’s edge, you can’t make mistakes,” says Fusar Poli.
However, it is also the farmers themselves who are tigTerra!htening the grip in which they find themselves. Especially those who produce cereals for animal husbandry.
In Itay 58% of arable land in Italy is used to feed animals, according to NGO. With Italian maize, 82% of the available product is destined for livestock use.
Livestock farming produces a large amount of greenhouse gas emissions, which contribute to the climate crisis. In 2020, the agricultural sector generated nine per cent of all Italian emissions, while, according to the NGO IATP, the top twenty European meat and dairy companies produce the equivalent of more than half of the emissions of the UK, France and Italy.
This is also why the new EU Common Agricultural Policy (CAP), which comes into force in 2023, has a significant objective to make European agriculture more environmentally sustainable.
EU Subsidies: New green focus
On 1 January 2023, after a series of postponements caused by the pandemic, the new Common Agricultural Policy (CAP) has begun and will continue until 2027. Among the main novelties of this latest version are a greater focus on the environment and more autonomy for member states.
The first aspect is embodied in eco-schemes, which are economic subsidies for farms that use eco-sustainable practices. The second can be found in the National Strategic Plans, in which member countries agree with the EU Commission to spend CAP funds in the way that suits them best.
Italy’s was approved in early December.
“The European Commission approved the Italian Strategic Plan for the CAP, with about 37 billion euros for the next five years to support the competitiveness and sustainability of the agricultural and agrifood production sector. This is excellent news for a measure that has been long awaited by the entire sector,” said the Minister of Agriculture, Food Sovereignty and Forestry, Francesco Lollobrigida.
The plan is the work of Stefano Patuanelli, a minister with the previous government led by Mario Draghi. The fall of the Draghi executive and the subsequent elections delayed the approval of the document, creating problems for farmers. CAP funds are vital for the budgets of many farms and understanding how they are allocated can guide their choices in terms of crops or practices.
“Until now, CAP direct payments have guaranteed those who produce maize 360 euros per hectare, which gives them a chance to move into the black,” explains Cesare Soldi of AMI. In his opinion, producing maize in Italy without EU money is not economically viable.
With the new CAP, however, the picture is set to change.
The Italian National Strategic Plan has a mixed reaction from Italian farmers’ organizations.
Coldiretti President Ettore Prandini, while stating that “it is certainly not the agricultural reform of farmers’ dreams”, called it “a useful compromise to hold together the economic, environmental and social sustainability of our farms”.
Soldi is less satisfied. “Arable crops, such as maize, soft wheat and barley, are being penalized [by the National Strategic Plan],” he says. The support for these types of crops has been modulated differently compared to the previous CAP and has decreased overall. For Giuseppe Romano, agronomist and president of the Italian Association of Organic Agriculture (AIAB), “throughout the CAP, arable crops come out fatigued”.
Instead, this favors livestock farms. In Romano’s opinion, practices required by eco-schemes for livestock farms “are not difficult” and guarantee “significant economic contributions per head of livestock”.
According to AIAB, historical differences in payments per hectare have not been addressed, and the redistribution mechanisms introduced in favor of small and medium-sized farms could have been much more ambitious.
For Romano, “the CAP has responded far too much to the demands that arose after the invasion of Ukraine”. The agronomist refers to the “super conditionality”, the start of which has been postponed until 2024 due to the consequences of the conflict triggered by Russia. The mechanism increases the environmental practices that farmers must perform to receive direct payments, including crop rotations.
According to Romano, these are “positive agroecological practices that should be done regardless of CAP”.
For Soldi, however, they are an additional difficulty that will make maize cultivation even less sustainable. “There are fewer farms, less maize has been cultivated, and there are more imports,” he says, explaining what has happened in recent years in Italy.
Prices of cereals, fruit, oilseeds “in decline”
Positive signals could come from the markets. Last November, ISMEA announced that the prices of cereals, fruit, oilseeds, and wine “recorded a cyclical decline in the third quarter of 2022” and that “the cyclical increase in prices of current inputs was lower than in previous quarters, and for the first time there was a cyclical decline in energy prices (-4.6% compared to the second quarter)”.
This is good news, but limited in scope. “Price increases, however, do not fully compensate for higher producer costs,” the institute added.
The difficulties for farmers, therefore, do not seem likely to abate. Not least because of the environmental crisis.
“Climate change has never been such a problem,” Fusar Poli reasons. “Maybe it rained less, but it rained. This year, on the other hand, it didn’t. Even my father and grandmother have never seen anything like this.”
But the young farmer is still worried about the impact of climate change on his work.
“Every now and then,” he says, “I think about it and wonder if I’m safe to go on with this job here, when you don’t know how it’s going to turn out.”
Credits:
Text: Paolo Riva
Photography: Luca Quagliato
Infographics: Razvan Zamfira
