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EU leaders are gathering in Brussels today for the first day of their regular summer council, in what could mark at least a partial revival of the bloc’s dormant enlargement policy. We’ll explore what this decision will mean not just for Ukraine and Moldova, which are set to become EU candidate countries, but potentially also for the Balkan countries whose leaders are meeting with their EU counterparts later this morning.
Lithuania is enforcing sanctions on the transfer of goods from Russia to the Baltic exclave of Kaliningrad, so we’ll explore why both Vilnius and the European Commission are standing their ground despite retaliatory threats from Moscow.
In climate policy news, the European parliament yesterday finalised its negotiating position ahead of talks with member states and the commission on measures including carbon allowance trading and the adoption of a carbon border tax on certain imports from heavy polluting countries.
It is being billed as a “geopolitical summit”, in the words of one senior EU diplomat. As EU leaders gather in Brussels today, the central outcome from their meetings is charged with political symbolism given the war raging to the east, write Valentina Pop and Sam Fleming in Brussels.
Both Ukraine and Moldova are expected to win EU candidate status — a landmark moment, even if both will have to meet tough conditions before moving to the next stages. This is no small feat, given that just a few years ago, Ukraine was specifically told it had no EU membership perspective and Moldova was barely registering on anyone’s radar in Brussels.
Georgia, which also applied for membership within days of the Russian invasion of Ukraine, will still have to pass more reforms before being given candidate status. But leaders will at least give Tbilisi the consolation prize of having its European aspirations acknowledged.
Leaders are also making the effort to revive the European perspective for western Balkan nations, though that is difficult to agree upon. The day will kick off with an informal, and potentially “quite heated” session between EU leaders and their six western Balkan counterparts, according to a second EU diplomat.
The prospects for Albania and North Macedonia to advance to the next stage on their EU path (the formal start of EU membership talks) briefly lit up yesterday, when one of the opposition leaders in Bulgaria signalled support for that step.
But hopes were squashed later in the evening after the Bulgarian prime minister, Kiril Petkov, lost a vote of confidence in the national parliament.
Petkov had been in favour of dropping his country’s veto on starting accession talks with North Macedonia, but that decision was fiercely fought over in the Bulgarian parliament, which has now put the country on the path for early elections — the fourth in little over a year.
Diplomats and EU officials are not giving up, and will continue to press Sofia to finally unblock Albania and North Macedonia’s forward movement. While some are advocating for decoupling the two, given that Albania is basically held hostage by Bulgaria’s history and education-related issues with North Macedonia, most EU capitals would not favour such a move.
“The negative impact of being seen as abandoning North Macedonia would be greater than the positive news of opening talks with Albania,” said the second senior EU diplomat.
Leaders in the evening will also discuss the ideas put forward by France’s Emmanuel Macron and European Council president Charles Michel about a new structure, called the “European political community” that in addition to aspiring EU members could include other non-EU countries that do not want to join, such as the UK or Switzerland.
“It’s a first discussion: it’s not very concrete. One thing that is clear to everyone is that this structure is not replacing the enlargement process,” the diplomat said.
EU capitals are becoming increasingly worried about the escalating feud with Russia over its shipments of goods to the Baltic exclave of Kaliningrad, write Sam Fleming and Henry Foy in Brussels.
This week Lithuania began implementing sanctions that ban the transit of certain goods through EU states. The checks have triggered a furious response from Moscow, which has accused the EU of starting a “blockade” of the Russian territory of Kaliningrad and has threatened Lithuania with serious consequences.
Some EU officials and diplomats questioned the breadth and intensity of Lithuania’s efforts to check Russian trains, people briefed on the discussions told Europe Express. Others questioned the wisdom of clamping down on movements of goods between two parts of Russia — even if the products move through an EU territory.
The European Commission has made it clear it believes that Lithuania is correctly executing the sanctions that were unanimously agreed by the 27 member states. But the commission, which drafted the measures, is planning to issue guidance on the topic as soon as today, giving it the opportunity to clarify how tight the checks need to be in practice.
Vilnius has additionally asked for the issue to be formally discussed in the summit, but some capitals have pushed back against that initiative, for fear of further inflaming tensions over the topic.
Lithuania denies it has imposed any kind of “blockade” on Russian goods, saying “the transit of passengers and non-sanctioned goods to and from the Kaliningrad region through Lithuania continues uninterrupted”.
“Lithuania is complying with the sanctions imposed by the EU on Russia for its aggression and war against Ukraine,” Prime Minister Ingrida Šimonytė said yesterday.
The EU sanctions regime “means that Lithuania has to apply additional checks on road and rail transit”, agreed EU commission spokesman Eric Mamer. “Of course, these checks are focused, proportionate and effective. They will be based on smart risk management, to avoid sanctions evasion while allowing free transit.”
Mamer added that the commission was in touch with the Lithuanian authorities and that it would provide “additional guidance as we go along”.
The railway line across Lithuania and Belarus is Russia’s primary supply link to Kaliningrad. Trade in key products such as iron and steel has already been hit by the EU measures. A wider range of Russian goods such as cement will be affected as the grace periods for later rounds of sanctions lapse.
While there may be scope to narrow the focus of border checks being done by Lithuania, some diplomats insisted they were not expecting the overall scope of the sanctions to be changed.
“The assumption is that the commission and its legal service have studied the matter before actually coming out with it,” said one EU diplomat. “Those goods that are sanctioned should not transit through EU territory.”
Read more here about a paradox in trade policy: the countries that matter most in trade are the ones to which trade matters least. Smaller countries are more dependent on trade than the US or big EU countries, which set the tone on global trade rules.
It has taken somewhat longer than expected, but the EU parliament yesterday approved its negotiating position on the bloc’s flagship climate policy, writes Alice Hancock in London.
Earlier this month, an unlikely coalition of socialists, greens and far right lawmakers rejected revisions to the EU’s emissions trading system, which allows polluters to trade permits for carbon output. They also rejected the introduction of a carbon border tax known as CBAM, designed to charge importers for their carbon emissions.
The dramatic rebellion by MEPs at parliament’s plenary pushed the proposals back to the committee stage where lawmakers worked (almost) through the night last week to agree a compromise deal, which was retabled yesterday.
One element of the compromise — and a key sticking point — means that the carbon border tax will not start to be phased in until 2027 — later than 2025 as originally proposed by parliament’s environment committee, but one year earlier than the commission had suggested.
Esther de Lange, vice-president of the European People’s party, said that the group was “happy with the current compromise” and that it was “a reasonable deal that keeps the same level of climate ambition and provides breathing space for EU industry”.
Bas Eickhout, a member of the European Green party, said: “It’s good to see that our hard ‘no’ two weeks ago, together with other progressive parties, on the watered down climate plans resulted in a lot of pressure on other parties to come up with an improved proposal”.
He voiced concerns, however, that parts of the deal on CBAM still needed to be improved to be compliant with World Trade Organization rules.
EU leaders meet Western Balkan leaders in Brussels before reconvening for the European Council
President of Zambia, Hakainde Hichilema, speaks in European parliament
Split stars: Italy’s Five Star Movement, the largest party in Mario Draghi’s national unity government, is splitting after its leaders fell out over Russia’s invasion of Ukraine and Rome’s provision of military aid to Kyiv.
Drone attack: A fire broke out at an oil refinery in southern Russia’s Rostov region after a drone attack, state media said, in what military experts suggest could be part of apparent Ukraine-backed strikes behind enemy lines.
For decades, China’s expanding middle class had but one option to get ahead: neijuan, or joining the rat race of relentless competition.
Then, a surprising strain of resistance sprouted among the young last year: tangping, lying flat and doing only the minimum to make ends meet.
Now, after a return to gruelling lockdowns under President Xi Jinping’s zero-Covid policy, a third trend has emerged: runxue, the study of how to get out of China for good.
In late March, as more than 300mn people found themselves under fresh restrictions, searches on Tencent’s WeChat platform for “how to move to Canada” surged almost 3,000 per cent, a study by US think-tank the Council on Foreign Relations (CFR) found. In early April, WeChat searches for immigration jumped more than 440 per cent. Relocation consultants in China and abroad say they were also hit by a torrent of phone calls and emails.
The runxue phenomenon highlights that ordinary Chinese are deeply frustrated. Their day-to-day freedoms hinge on the results of mandatory Covid-19 tests, often taken every 48 or 72 hours. Their minds are occupied by the immediate risks of strict quarantine in state-run facilities, separated from their families, as well as deeper anxieties over job security and falling household incomes as the economy teeters on the edge of recession.
Earlier hopes that the severe lockdown imposed on Shanghai in March would be a one-off are fast fading, despite the glaring economic and social costs. Instead, Xi and his leadership have explicitly reaffirmed their commitment to the controversial zero-Covid playbook of relentless snap lockdowns, fastidious mass testing and closed borders.
Yet the longer zero-Covid persists, experts say, the more the leadership risks a longer-term fraying of the Chinese Communist party’s “social contract” with Chinese society, especially the fast-growing urban middle class which the party has so far managed to keep onside.
The legitimacy of the CCP and its leadership has long been underpinned by the extraordinary rise of China’s economy since the 1980s, which pulled the country out of poverty and propelled hundreds of millions of Chinese people into the relative prosperity of the middle-class.
But the return to sweeping lockdowns this year has demonstrated to many people that no amount of prosperity trumps political power in China, says Kathy Huang, a researcher with the CFR who has been tracking the spread of runxue.
Shanghai is gradually reopening but the shock of the returns to lockdowns has sparked a “shift” in the attitudes of Chinese people, Huang says.
Previously, many blamed the local officials for the haphazard implementation of the zero-Covid strictures. Now most are sympathetic toward those caught up enforcing the bureaucracy, “a recognition of how powerless everyone is under central policies,” she says.
Not since the one-child policy has a national strategy touched nearly every individual in China. Trapped in a web of unpredictable and chaotic lockdown rules, many Chinese are now dreaming of a permanent escape.
“For many elites, emigration had been a viable and popular option long before the lockdowns,” Huang says. “But the sudden spike in interest indicated by the search engines and the immigration consultancies tells us that a much bigger population, most likely those in the middle class, is starting to consider it after the lockdown.
They are looking for a long-term, not temporary solution to their unsatisfactory life in China.”
The economic reality and strict border controls means that the vast majority of the Chinese middle class have little hope of turning runxue from a study into practice.
Many economists expect China’s gross domestic product to contract this quarter — the second time it has entered recessionary territory in 30 years. Full-year growth forecasts have so far been revised down to about 4 per cent, half the 8.1 per cent growth recorded last year, and below Beijing’s aim for 5.5 per cent, which was already a three-decade low.
A resulting squeeze in living standards is rippling from low-paid labourers through to the professional classes and into boardrooms.
Eko, an export industry professional with a multinational company in Changsha, central China, says “most of my friends are experiencing some decline in their incomes and increased financial pressures, including government employees”. He wants Beijing to pivot to a “full opening” to rekindle the economy.
Andy Zhu, a 30-year-old computer programmer based in Shenzhen, China’s southern tech hub that was briefly locked down in March, says while there has been “a massive impact for all industries” he has been personally forced to rethink how he manages his own finances. “The pandemic has raised my awareness of recessions . . . we need to save more,” he says.
One 24-year-old accountant in the eastern city of Nanjing, who asked not to be named, expects her income to be halved this year as the downturn bites. Her parent’s plan to buy a new car was recently put on ice.
Nomura analysts have cautioned that “some fundamentals” might be worse than China’s official data suggested. The Japanese bank’s analysts point to China’s road freight index, a closely watched gauge of economic activity, down almost 20 per cent year on year, and sales volume of new homes slumping nearly a third.
They also note contractions in output across key commodities and products including power, cement, crude steel, cars and smartphones, adding that “although the worst appears to be behind us for this Omicron wave, there is no guarantee that a new wave will not hit in coming months”.
As the lockdowns drag on economic growth, Beijing is pledging economic support including a reversion to large-scale infrastructure projects and tax breaks. But economists, also worried about rising inflation, are not optimistic that the scale and delivery of the planned stimulus will be enough to prime a “V-shape” recovery from the world’s biggest consumer market and factory floor.
Job statistics will also be worrying Xi and his economic planners in Beijing. Unemployment among workers aged between 18 and 24 has hit a record high of 18.4 per cent. The rise in youth joblessness already has put China on par with Slovakia and Estonia. The problem will soon worsen with more than 10mn university students graduating in the coming weeks.
The zero-Covid policy is also taking a toll on people’s mental health. Although official data are in short supply, academic research into earlier stages of the pandemic are troubling. A survey of almost 40,000 students in 2020 showed the prevalence of depression, anxiety symptoms and suicide risk at double digit rates, a group of Chinese researchers wrote in a paper published by academic journal Current Psychology.
Logan Wright, who leads China markets research at Rhodium, the think-tank, notes that many people are now comparing this crisis to some of the darkest days under Communist party rule.
“China’s own citizens . . . are discussing the current crisis by likening it not to Sars or another epidemic, but to the Communist party’s political campaigns from China’s history — particularly the history of the 1960s,” Wright wrote in a recent policy analysis.
“There are frequent discussions of the overreactions of local officials to a few cases and the overreporting of economic data during the current slowdown using the context of the Great Leap Forward, and others comparing the ‘Big Whites’ (newly recruited medical volunteers assisting with the lockdowns) to the Red Guards of the cultural revolution,” he added.
For Chinese at the lower end of the economic ladder, the leader’s refusal to budge from the policy of completely eliminating coronavirus is starting to erode years of progress.
One year ago, Xi claimed personal responsibility for eradicating poverty in China, a proud yet unprovable boast at a time of global economic pain with much of the world in the throes of the pandemic.
The issue is highly politically sensitive. Xi has personalised the state’s long-running anti-poverty campaign. Last year he also made equality a hallmark domestic policy under the “common prosperity” banner, which has included cracking down on the power of big business, cultural vice and excess among China’s ultrawealthy.
Research shows that Chinese living in, or on the edge of, abject poverty were among those hardest hit when the initial coronavirus outbreak emerged from Wuhan in early 2020. Academics from Chongqing University and Sun Yat-sen University said in a report analysing the initial nationwide lockdown in early 2020 that homeless people were hit by a “substantial decline in incomes” and “humanitarian aid from local governments of China decreased, whereas inhumane efforts to drive the homeless away intensified”.
Samantha Vortherms, a China expert at the University of California, Irvine, notes that in factories across the world’s second-biggest economy local staff are considered the “core employee base”. China’s 380mn itinerant migrant workers are “periphery”, she says, which means they are the first to be laid off when companies are hit by downturns, a problem exacerbated by unequal access to social security provisions.
“Migrant workers are much less likely to have formal labour contracts that allow them to pay into social insurance schemes that protect them if unemployed,” she says.
Gao Qin, an expert on China’s social welfare at Columbia University, says that the fallout from the latest lockdowns in densely populated urban areas will also hit rural households as more and more migrant workers are unable to keep up regular remittances.
Migrant worker livelihoods depend on mobility — moving between factories and towns looking for work — meaning that during the pandemic they risk not only losing work, but also being targeted by officials for spreading coronavirus, Gao says. “The pandemic has changed almost everything,” she says. “I think we all understand poverty [in China] . . . is an issue.”
The state’s promises of support have provided little solace nor cause for celebration among the workers themselves. “I sometimes listen to the news on the radio. It is all bullshit,” said a labourer surnamed Du who spoke to the Financial Times at a market in Guanzhuang, in Beijing’s eastern outskirts. Out of work and unable to send money to his children, Du planned to return to his farming plot in the country.
Those who can afford to leave the country completely are finding it more difficult to do so. One Chinese entrepreneur now in Washington DC, who asked not to be named for safety reasons, considers himself among those “lucky” to escape before Beijing cracked down on people fleeing the country.
“I flew from Guangzhou to JFK in February . . . Even then it took me four hours to get through all the checks. At the first checkpoint I was interviewed by public security bureau policemen asking me ‘reason for travel’ and how much I was carrying. They were checking people’s baggage.”
Others weren’t so lucky, he adds. “A friend of mine wanted to go to New York to drop her child off at college, but the passport office refused to issue her a passport. They said dropping off her child at college wasn’t a valid reason to leave China.”
The issuance of Chinese passports — both new and renewals — was already down 95 per cent in the first quarter compared to before the pandemic, according to official data.
Then in May, the National Immigration Administration doubled down, announcing it would “strictly limit” unnecessary travel amid fears of infections caused by international travellers. But it denied it was completely suspending passport issuance.
A Singapore-based wealth management consultant in the city-state says in recent months she has effectively been moonlighting as a travel agent as her wealthy Chinese clients try to skirt the official edicts against all “unnecessary travel”.
“Even if people can’t leave, they are drawing up plans to do so. They want to feel like they have that choice,” says the consultant, also asking not to be identified.
She adds that, even for wealthy clients, finding lawyers in China who will notarise or translate documents required for overseas travel was also becoming more difficult. “A lot of lawyers won’t take these cases . . . If your passport has expired, then it’s a disaster,” she says.
Beijing’s rules might well have stifled a larger exodus. However, CFR’s Yanzhong Huang says people’s attempts to leave illustrates they are “losing patience and confidence”.
“They don’t feel like there is a future with the repressive political atmosphere and weak economy. They’re voting with their feet.”
The collective angst — from migrant workers up to the elites — adds pressure on the party leadership just months out from the 20th CCP congress expected in November, when Xi is set to break from term limits to cement unrivalled future rule.
Experts warn that if economic conditions worsen and social controls are ratcheted up again, faith in the Chinese leadership will be further undermined.
Yet Beijing shows no sign of changing course. A new layer of zero-Covid infrastructure is even now descending on cities across China. Officials are racing to erect testing sites no more than a 15-minute walk apart while a construction drive ramps up for new hospitals and centralised quarantine facilities, signs of Beijing’s commitment to using mass testing, contact tracing and quarantines to suppress further large-scale Covid-19 outbreaks through 2023.
Dissent, vanishingly rare in China, may yet bubble up. The staging of nightly protests in Shanghai, during which residents banged pots and sung from their balconies, as well as occasional clashes between Beijing students and other groups with police is evidence that, even in China, frustration can quickly erupt.
The state remains on high alert to guard against it. Most reports critical of the zero-Covid policy are swiftly stamped out by Beijing’s censors and tech platforms such as Tencent and Weibo, so too are episodic waves of memes and other social media commentary reflecting the dissatisfaction.
But China-watchers are looking to the autumn party summit as a potential crunch point. “In the best of times, such political meetings of party elites are seen for what they are: political pageantry,” says Diana Fu, an expert on China’s domestic politics with the Brookings Institution think-tank. “During times of crisis, they may serve as a focal point for social unrest.”
Beijing’s unwavering dedication to suppressing the virus in spite of the signs of frustration and alienation can be seen as a sign of things to come, says Kerry Brown, a professor of Chinese Studies at King’s College, London and author of Xi: A Study in Power, as Xi embraces an “imperial” style of governing.
“The Covid lockdowns are a clue as to where you get to when that sort of power is invested in one person,” he says.
Additional reporting by Maiqi Ding in Beijing. Data and visual journalism by Andy Lin in Hong Kong
Nato is to agree an overhaul of its plans to offer better protection to the alliance’s eastern flank, tearing up a model that could have meant relinquishing Baltic states and then attempting to recapture them in the event of a Russian invasion.
Jens Stoltenberg, Nato secretary-general, told the Financial Times that the military blueprint, to be agreed at an annual leaders’ summit that begins in Madrid tomorrow, would drastically upgrade the alliance’s eastern defences, shifting focus from deterrence to a full defence of allied territory.
Estonia’s prime minister has claimed that under the current doctrine, Baltic states would be “wiped off the map” by a Russian assault before Nato attempted a counter-attack to liberate them after 180 days.
The alliance will “significantly reinforce” its defences in eastern Europe, Stoltenberg said, pledging that Russia would not be able to capture the Estonian capital Tallinn “just as they have not been able to seize the city of Kirkenes in northern Norway or West Berlin during the cold war”.
Military developments: Russian missiles struck residential buildings in central Kyiv yesterday. Ukraine’s retreat from the eastern city of Severodonetsk was a “tactical” move to avoid a repeat of the siege in Mariupol, the country’s military intelligence chief said.
Energy politics: G7 leaders meeting in the Bavarian Alps are seeking a deal to impose a “price cap” on Russian oil to curb Moscow’s ability to finance its war.
Thanks for reading FirstFT Europe/Africa. To start your week, here’s the rest of the day’s news. — Jennifer
1. EY valued NSO Group at $2.3bn The Big Four accounting firm valued the secretive Israeli spyware company at $2.3bn, months before the maker of the Pegasus cyberweapon needed emergency bailout funding. By contrast, Berkeley Research Group, which represents NSO’s private equity owners, said this year that the company’s equity was “valueless”.
2. BIS: leading economies at risk of high-inflation trap The Bank for International Settlements warned yesterday that major economies were close to “tipping” into a high-inflation world in which rapid price rises dominate daily life and are difficult to quell, and urged central banks not to be shy about inflicting short-term pain and even recessions to prevent it.
3. RWE: UK windfall tax could risk £15bn in renewables The head of one of the country’s largest power producers has warned that Germany’s biggest utility will reconsider £15bn of investment in the UK’s renewable energy sector if the country imposes a windfall tax on electricity generators.
4. UBS courts US investment heavyweights The Swiss lender, the world’s biggest wealth manager, has begun courting investment houses to become top shareholders as it tries to improve its market value to be closer aligned with Wall Street peers and project an image as a global bank.
5. UK Treasury takes stake in sex party planner The British taxpayer has become a shareholder in Killing Kittens, known for its exclusive and hedonistic events, under the Future Fund, a scheme set up by Chancellor Rishi Sunak to support innovative firms during the pandemic under which loans are converted into equity.
UK lawyers on strike Members of the Criminal Bar Association begin a walkout in an escalating dispute with the government over funding, which is expected to cause widespread disruption to hearings across England and Wales.
UK changes N Ireland trading regime MPs will have their first vote on Boris Johnson’s legislation to unilaterally rip up parts of Northern Ireland’s post-Brexit trading arrangements, despite fierce criticism from Brussels.
Economic indicators The annual European Central Bank Forum on Central Banking begins in Sintra, Portugal. In the US, durable goods orders may show whether inflation, rising interest rates and economic uncertainty weighed on demand in May. (FT, WSJ)
UN Ocean Conference The week-long conference on ocean conservation and sustainability starts and is co-hosted by Kenya and Portugal.
Companies developments Nike posts fourth-quarter results. Disney’s board meets for two days less than a week after giving under-fire chief executive Bob Chapek a vote of confidence.
Wimbledon begins The tennis tournament starts at the All England Lawn Tennis and Croquet Club in south-west London without the men’s top player or women’s reigning champion. Daniil Medvedev is ineligible after a ban on Russian players, while Ash Barty has retired. “Retiring aged 25 seems like filing for divorce while on honeymoon. But Barty’s decision reveals various truths,” writes Henry Mance.
Grim times lie ahead for UK The country is in the throes of the kind of labour unrest not seen for decades. The explanation for it is clear. Unanticipated inflation delivers losses everybody wants to recoup. This triggers social conflict, writes Martin Wolf. Yet if inflation is bad, so is the cure.
The road to rolling back Roe vs Wade As the Supreme Court overturns the landmark 1973 ruling enshrining the constitutional right to abortion, Lyz Lenz documents the rise of the Christian right and how it reached this historic moment. In response to the ruling, Democratic lawmakers are stepping up efforts to establish “sanctuary states” for reproductive rights.
Crypto and meme corporate bonds follow their own path The crash of some of the flagbearers of the equity bubble has been painful for investors. Less noticed are the losses of their bonds. Such gaps illuminate differences in the ownership and returns for stocks versus bonds, writes Ellen Carr at Barksdale Investment Management.
How the beauty industry left tortoise-like Revlon trailing Once a behemoth of the beauty industry, Revlon has been sidelined by modern influencer- and social media-driven make-up brands. The 90-year-old group’s bankruptcy filing reveals how competitive and fast-paced the sector has become.
There’s no such thing as an accidental plagiarist The acclaimed Australian novelist John Hughes claims that many of the 58 instances of plagiarism in his new book were by accident. Everyone steals when they write, but where does “good” theft end and clumsy rip-off start?
Whether you are looking for a book on urbanism, a literary thriller, a tome on the royal family or something else unexpected, you will want to take a look at these must-read titles recommended by FT writers and editors.
Anyone who wants to better understand the costly economic and political externalities that come with cheap food should spend some time in America’s Midwestern farm country. I did last week, driving from Wisconsin to Missouri through hundreds of miles of corn and soyabeans, the vast majority of which is grown not as food but as feed for cattle.
It was easy to find fast food and red meat in the small towns I passed, but it was often tough to find a decent supermarket with fresh fruits and vegetables. What a terrible irony that some of the richest farmland in America is often where you are most likely to find a “food desert”, or a place where it is challenging to source the components of a healthy diet.
Nearly a century on from the Great Depression, we still farm as we did then, trying to produce cheap calories for growing numbers of hungry people — and using huge amounts of fossil fuels — rather than providing better nutrition for an overfed yet undernourished population in ways that might support the planet and local communities.
Consumers have become used to cheap food. But it’s a model that makes little sense environmentally, and has led to tremendous consolidation on the production side.
Consider that in the middle of the biggest commodity price spike since the 1970s, some farmers are still struggling to stay in the black. Texas A&M University research shows that two out of three rice farmers will lose money this year, since input costs including fuel and fertiliser are rising even faster than commodity prices. Corn and soyabean producers will make money, but not as much as you’d think.
As Joe Outlaw, a professor at Texas A&M, put it in his testimony on the topic to the House Agricultural Subcommittee, consumer inflation may be 8.5 per cent but farmers have been hit with price increases at double that rate on seed. For other inputs, inflation is even higher. Herbicide is up 64 per cent from 2021 to 2022, and nitrogen fertiliser, perhaps the most important input of all, is up a whopping 133 per cent. Corn, meanwhile, is up only 4.84 per cent per bushel, and soyabeans are up a little over 7 per cent year on year.
Farmers have tried to hedge and hoard to account for these spikes, but they are outgunned by large, highly concentrated companies that control much of the agriculture supply chain. As Outlaw explained: “Simply put, the input suppliers would not lock in a price until the producers [meaning farmers] agreed to take delivery.”
The result is that many farmers, particularly small and medium-sized ones, will scale back on inputs this planting season, which will in turn hurt their future harvest. Grain trading giants such as Cargill are getting rich, as are many multinational energy companies. But growers themselves are barely in the black.
All of this speaks to a model that no longer works. Farming in America has been about cheap food for nearly a century. The New Deal encouraged the production of massive amounts of subsidised cereal grains to feed an influx of urban dwellers. The Reagan revolution encouraged further consolidation — as an illustration, consider that four companies control up to 85 per cent of the meat market.
Democratic President Bill Clinton then passed the “Freedom to Farm” act, which eliminated any government management of supply and demand. This is one reason farmers were dumping milk after the pandemic; overproduction encourages boom and bust cycles. It also makes it difficult to get food inflation under control now. While the US has strategic petroleum reserves, it has no grain reserves for domestic buyers despite being one of the world’s largest producers.
The “pile it high, sell it cheap” paradigm assumes that simply driving down prices will create a healthy market. But it comes with obvious costs for the planet, our health, and in some parts of the country, for politics. One would think that a state like Missouri, for example, would be fertile ground for Democrats campaigning on a message of corporate greed. In fact, the state voted for Donald Trump in the last election — in part because the failed industrial farming model hasn’t been replaced by much else, creating a disenchanted population that’s ripe for the former president’s dog whistles and his brand of populism, with its empty promises of help for the white working class.
Plenty of neoliberal economists might shrug at all this and note that farmers make up less than 2 per cent of the labour force (the agricultural sector as a whole is slightly over 10 per cent). They might even shrug at the fate of a state like Missouri, since they tend to think about overall numbers, not individual people in so-called flyover states. But in America’s electoral college system, states like this still matter — a lot. Taken together, they can make the difference between winning or losing.
So, what’s to be done? The Biden administration is correct to go after concentration in agriculture and energy, as in other industries. Indeed, the discrepancy between input costs and raw commodity prices makes me think that the White House has a point about corporate price gouging. If the commerce department gets its way, more rural broadband would help too. But ultimately, we are going to have to rethink the entire way we farm in America. Like so much of our economic system, it was built for a different era.
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