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December 10, 2008

Why this Communication?

Between 2007 and summer 2008 the prices of agricultural products such as cereals and milk increased at an exceptionally high speed. This price increase was largely reflected in higher prices for food. As a result the purchasing power of the average European household declined by around 1%, with low income household being hit even harder. In light of this, the European Council asked the European Commission to investigate the causes of this surge in food prices. The Commission promised to report back to the European Council in December.

> Communication COM(2008) 821 final "Food prices in Europe"
> Working documents:
>> SEC(2008)2970: "Monitoring prices developments"
>> SEC(2008)2971: "Task force on the role of speculation in agricultural commodities price movements - Is there a speculative bubble in commodity markets?"
>> SEC(2008)2972: "The functioning of the food supply chain and its effects on food prices"

Prices of agricultural products are currently declining rapidly, but will remain volatile

Prices of agricultural products have decreased sharply over the past months and prices of food products are expected to follow suit. However, structural factors like the growth in global food demand and the decline in food crop productivity growth are likely to keep prices high up over the medium-term. It is possible that speculation played a role in determining prices, and a continued surveillance of markets for agricultural products is therefore required.

To put global supply and demand for food back into balance, agricultural production should respond to market signals and an open trade policy should be promoted. By agreeing to the Health Check of the Common Agricultural Policy (CAP), the EU has already taken decisive steps to allow farmers to better respond to more volatile market conditions. The Doha Round of WTO trade talks promises the opening up of agricultural markets to developing countries.

Against the background of the economic slowdown, it is more important that consumers benefit without delay when agricultural prices fall. This is fully in the spirit of the European Economic Recovery Plan put forward by the Commission on 26 November 2008, which highlights the need to act swiftly to stimulate demand and boost consumer confidence.

Identifying and resolving problems in the functioning of the food supply chain in terms of regulation and competition is key to achieving this objective. This examination is part of the market monitoring exercise launched by the Commission as part of the Single Market Review.

Further steps

Drawing from its analysis, and in the light of the current economic slowdown, the Commission envisages the following roadmap:

• Promote the competitiveness of the food-supply chain to increase its resilience to world price shocks.
  The High Level Group on the Competitiveness of the Agro-Food Industry will make recommendations in early 2009.
• Ensure a vigorous and coherent enforcement of competition at EU and national level through the European Competition Network and target those practices and restrictions that are particularly harmful.
• Ensure a vigorous and coherent enforcement of consumer protection rules. In particular, it is particularly important for consumers to be able to compare prices easily.
• Review potentially restrictive regulations at national and/or EU level. A permanent European monitoring of prices will be set up.
• Discourage excessive volatility in commodity markets. The Commission will examine how to make markets more stable with regulators of commodity markets.