Contents Acronyms 1 Introduction 1.1 Policy and legal background 1.2 Types of market information systems 2 The EU’s Market Information Systems 3 The food supply chain in the EU 3.1 Key facts and figures 3.2 Market structure of the FSC 3.3 Implications of the structure of the FSC for market transparency 3.4 Asymmetry in price transmission 3.5 Challenges from increased market orientation 4 Market transparency and the functioning of the food supply chain 4.1 Benefits to agricultural producers and other FSC operators 4.1.1 Increased operator efficiency and a better functioning of the market 4.1.2 Better risk management 4.1.3 Increased trust between operators 4.1.4 Unfair trading practices and asymmetries in bargaining power 4.1.5 Producer organisations

4.1.6 Agricultural producers and SMEs 4.2 Market transparency and the work of public authorities 4.2.1 Better policy-making 4.2.2 Improved enforcement of competition rules 4.3 Other benefits of market transparency 4.3.1 Increased knowledge basis for analysis and research 4.3.2 Consumers 4.3.3 Environmental sustainability and food waste 5 Implementation issues in increasing market transparency 5.1 Costs to public administrations 5.2 Costs to operators in the FSC 5.3 Costs to price reporting agencies 5.4 Competition and confidentiality 5.5 Third country effects 5.6 Data quality and data communication 57 6 Options 60 6.1 Policy options 60 6.2 Option ‘packages’ 64 7 Preferred option 66 8 Annex I - Inception impact assessment (IIA): Summary on the market transparency element 69

9 Annex II – Open public consultation 70 10 Annex III - Results from the questionnaire to Member States 75 11 Annex IV - Results from the specific questionnaire to undertakings 92 12 Annex V - Results from the specific questionnaire to consumers 108 13 Annex VI – Workshops 111 14 Annex VII - Costs to operators in the agri-food supply chain of data reporting related to market transparency 112 15 Annex VIII - Administrative burden 144 16 Annex IX - Existing and proposed data collection on agri-food products 147 17 Annex X - Market transparency in the FSC: Sector information on key sectors 149 Acronyms AMTF – Agricultural Markets Task Force CAP – Common Agricultural Policy EU – European Union F&V – fruit and vegetables FSC – food supply chain GI – geographical indication HVA – high value added

ISAMM - Information System for Agricultural Market Management and Monitoring JRC – Joint Research Centre LMRA – Livestock Mandatory Reporting Act MIS – market information system MS – Member State MT – market transparency SME – small and medium-sized enterprise TFEU – Treaty on the Functioning of the European Union US – United States UTP – unfair trading practice 1Introduction 1.1Policy and legal background Economic theory suggests that competitive markets require free and widely available information. A market with a high level of free information availability is said to be a transparent market. The Commission currently collects and publishes market-relevant data from agricultural producers and some food industry operators in the EU’s food supply chain (FSC). These data include price information (on a weekly or less frequent basis) and production information, such as planted areas and estimates of future planted areas, production levels and estimated production levels, quantities supplied, stocks, etc. (on a monthly or less frequent basis). While market and production data on agricultural products is widely collected and made publicly available by the Commission (and Member States (MSs)), less data are available on processed and traded products downstream in the chain. There are calls from many stakeholders in the FSC and from public authorities for increased levels of information at the different stages of the FSC, including from the European Parliament and from the Council of the European Union. Developments in EU and world agricultural markets, as well as changes in the structure of the FSC and in the design and operation of the Common Agricultural Policy (CAP), have led, and will likely continue to lead, to an increasingly market-oriented agricultural sector. On average, the greatest share of EU agricultural producers’ income comes from the market, rather than from public support. International competition and changes in consumer demand are ongoing challenges for the EU’s FSC as a whole. These developments in agri-food markets are also changing the role of public authorities that are responsible for market regulation. In this context, actionable information about the operation of the market is of increasing importance to agricultural producers and other operators in the FSC, regulators, and researchers focusing on FSC issues. There have also been calls for a more symmetric sharing of information along the FSC among some stakeholders to increase trust between operators at the different stages of the chain. In December 2016 the Council of the European Union (EU) called on the Commission ‘to address, in a reasonable timeframe and in a coordinated way, the issue of lack of transparency and information asymmetry in all levels of the food supply chain, where possible, including at consumers level’. The Council also noted that ‘in order to secure a better functioning food supply chain, it is crucial to reduce information asymmetry and increase market transparency, including at consumers level, in particular as regards timely information on prices or margins at every level of the food supply chain, where feasible, while minimizing administrative burden and costs’ and encouraged market observatories at the EU and national level to ‘cooperate and exchange data in order to enhance market transparency and better assist farmers in making informed decisions’. In June 2016 the European Parliament called on ‘on all stakeholders involved in food supply chain management to step up transparency in the overall food supply chain’ and ‘for increased transparency and provision of information within the supply chain and for the strengthening of bodies and market information tools (…), with a view to supplying farmers and POs with accurate and timely market data’. In 9 April 2019 the Council, Parliament and the Commission made a joint statement, stressing that ‘the transparency of agricultural and food markets is a key element of a well-functioning agricultural and food supply chain, in order to better inform the choices of economic operators and public authorities as well as to facilitate the understanding of operators on market developments’. The Council and the Parliament encouraged the Commission ‘to continue its ongoing work to enhance market transparency at EU level. This may include the strengthening of the work on EU market observatories and improving the collection of statistical data necessary for the analysis of price formation mechanisms along the agricultural and food supply chain’. In 2016 the Commission set up the Agricultural Markets Task Force (AMTF), a group of twelve independent experts on agri-food markets, tasked with providing recommendations on how to enhance the position of agricultural producers in the FSC, in view of the Treaty on the Functioning of the European Union (TFEU) objectives for the agricultural sector. Among a number of other recommendations made, the AMTF recommended the EU to act to increase market transparency (MT) in the FSC, with the objective of fostering competition along the chain. The AMTF defined MT as “the availability of relevant market information (e.g. concerning prices, weather, production, trade, consumption and stocks) for all market participants’. In particular, the AMTF report recommended that the Commission:

§expand mandatory price reporting to cover information gaps in the FSC, especially in the meat, fruit and vegetables (F&V) and dairy sectors; §collect price data in a timely and standardised manner; and §disseminate the data in a duly aggregated form so that the confidentiality of the operators that are supplying the data is ensured. The AMTF report also recommended that the Commission: §consider whether consumption data and producers’ input prices could be integrated into EU information systems (see Box A); §create a forum for exchange of best practices between MSs; and §support agricultural producers and producer organisations to make better use of existing data. The AMTF also recommended that the calculation of a ‘food euro’ for all major food products (akin to the ‘food dollar’) could be useful at the level of the EU and at the level of EU MSs. The ‘food euro’ would offer an accessible representation of what share of each euro spent on food in the EU goes to each stage of the FSC, and how that share evolves over time, as well as expert explanation for why such changes may be taking place. Work on this issue is being conducted by the Commission, in consultation with stakeholders, in parallel to the initiative to improve the FSC. The Commission’s Work Programme for 2018 stated that ‘the Commission will propose measures to improve the functioning of the food supply chain to help farmers to strengthen their position in the market place and help protect them from future shocks’. The proposals by the Commission for the future CAP post-2020 list as part of their objectives to ensure a fair income to farmers, to increase competitiveness and to rebalance the power in the food chain. The Communication on the Future of Food and Farming confirms market orientation as a key element of the CAP, adding that ‘the most important role for the policy is therefore to help farmers anticipate developments in dietary habits and adjust their production according to market signals and consumers' demands. (…) [and] furthermore address citizens' concerns regarding sustainable agriculture production’. The Communication Towards a Stronger International Role of the Euro states that ‘the Commission will also favour the recourse to futures markets and contracts in euro (e.g. through awareness raising and training) and increased market transparency for agricultural and food commodities in euro’, adding that ‘an increasing number of price references expressed in euro are now published through the EU market observatories since they were established in 2014 (…)’ and that ‘this will be further consolidated with the proposal ensuring more market transparency, planned for adoption in 2019’. The basis for the proposal to increase MT can be found in the Common Market Organisation (CMO) Regulation, which describes the rules for the operation of the markets in agricultural products and is one of the legal acts implementing the requirements for the agricultural sector that are set out in the TFEU. The CMO Regulation includes provisions on MT, which provide the legal framework for the existing systems of MT for agricultural product markets at EU level. Article 223 of the Regulation states that the Commission may adopt the necessary measures for the communication of data by undertakings and MSs, including with the aim of improving MT and monitoring, analysing and managing the market in agricultural products. A delegated and an implementing regulation currently determine these data communication requirements. As such, this report sets out analysis focusing on the current level of MT in the FSC, its effects on agricultural producers and other FSC operators, the strengths and weaknesses of the current system of data collection and dissemination, and on how this system may usefully be improved through a targeted intervention. The report also considers the challenges presented by varying the level of information availability in the FSC, notably on the costs that increasing MT may entail (such costs include, for example, the costs of data collection and reporting by operators, and the possible anti-competitive effects that increased MT may have where there is unequal market power in the FSC). Given that the proposal has a limited and targeted scope with no significant expected economic, environmental or social impacts, a full-fledged impact assessment was not required. However, this staff working document presents the analysis, including an assessment of costs, and the stakeholder consultation that prepared and preceded the proposal. 1.2Types of market information systems There are frequently varying interpretations of what is meant by ‘market transparency’, and these are reflected in the variety of market information systems (MISs) that exist. Some MISs have a greater focus on providing relatively high-frequency information on market operation to FSC operators, while others aim at providing a more structural view of the FSC (and publish information on a less frequent basis). Under the heading of MT there are several types of information that can qualify as relevant for a MIS to focus on. These can be broadly divided into types of information pertaining to market operation and pertaining to market structure. Price formation will result jointly from market operation and market structure conditions, but the process by which a public MIS aims to increase efficiency in price formation is different according to whether it has a greater focus on market operation or market structure. There are many elements that can influence how prices are formed, both conjunctural and structural, and one of the key challenges for existing and future MIS is to go beyond simple price reporting (‘what the prices are’) towards decomposing the reasons behind price developments (‘why prices are what they are’). This was a key outcome of the Commission’s workshop on market transparency where a main message from technical experts and stakeholders was that there is a need for more structural information and for data collection that goes beyond farm-gate and consumer prices 1.2.1Market operation information Those MIS that offer market operation data with short time delays aim to improve the fluidity of the FSC, based on the principle that better-informed decisions are likely to be decisions that are more economically efficient. High-frequency and detailed data are expected to allow agricultural producers and other market operators to make better marketing, production and investment decisions. Market operation information thus refers to the type of data that operators in any market will make use for their production, marketing and investment decisions (abstracting from how that particular market is structured – see below). A key variable here is price data for the operators own products, as prices in well-functioning markets offer a synthesis of overall market conditions. There are other indicators of value beyond prices, however. Other elements include quantity-related data, prices in other markets, input prices and costs, margins, general economic conditions, or operating conditions throughout the business cycle. As different indicators of value provide different types of information to market operators, it is important to consider not only price data but also other dimensions: for example, while a the production of a product may have low yields or low production volumes, the product may command a premium in the market place or may be experiencing high demand growth. Changes in the prices for a product alone may mask these underlying dynamics. Box 1 shows an example of a MIS with a significant focus on market operations aspects of the FSC. Box 2 provides an illustration of the different elements that can be considered in the analysis of a market (in this example the dairy market). 1.2.2Market structure information

MIS that offer structural information about the FSC also seek to improve the fluidity of the FSC, but here with a greater focus on promoting evidence-based dialogue and increasing trust between operators in the FSC. The very nature of the FSC makes it likely that there is, in the absence of public information systems, a structural asymmetry of information between the agricultural sector and other parts of the FSC. In an economic sense, a higher level of trust is expected to result in lower transaction costs between operators (as it becomes easier to establish a basis for agreement between operators, including in contractual relationships). These systems often use rich datasets, provide significant amounts of interpretation of the data, and offer platforms for stakeholder to discuss the information they make available. Market operation information on its own is thus not enough to build a full picture of a market; the structure of that market also matters. The need to observe not only price developments (and related price and quantity determinants of prices) has been well established: “A better understanding of price formation (and relevant costs incurred at every step of the food supply chains) is crucial (…). in particular, price formation should be assessed against the backdrop of the structure of the different supply chains’. Market structure information refers to the way a market is organised, how the operators in that market interact between each other, and how these elements change over time. The type of variables that are of relevance to describe market structure include the number and size of the buyers and sellers in the market and in related markets (indicators of the level of competition in the market), the types of contracts in use (and the way in which those contracts are agreed upon between the parties), the barriers to market development (such as to the development of futures markets, access to credit or to insurance), the ownership of producing units by economic groups, or private label penetration in the market. As market structure affects market operation, including price formation, MT that seeks to improve the evidence base for agricultural producers and other operators in the FSC, for regulators and other public authorities, and for the research community should increase the availability of information on structural aspects of the FSC. Box 3 shows an example of a MIS with a significant focus on structural aspects of the FSC. This MIS was developed following the observation that over time fewer data on market transactions was available to be published, as bilateral contracting and vertical integration (ownership of several production stages of the FSC by the same entity) were replacing the model of open market transactions for several key agricultural products in the USA As a consequence there were growing concerns about price reporting, price discovery, and efficient transmission of market signals in the USA’s livestock and meat sector. In 1999 the USA introduced the Livestock Mandatory Reporting Act (LMRA) , which went into effect in 2001. The act is meant to address the lack of market information that was available to livestock producers – at a time when downstream operators realised strong margins and there was a record high farm-to-retail price spread that raised suspicions of non-competitive behaviour in the meat-processing sector . According to the US’ Secretary of Agriculture, the rationale for introducing the act was the ‘need to ensure that small farmers and ranchers have a full and fair opportunity to compete in an increasingly concentrated agricultural economy. This new mandatory price reporting program will help producers by making the market more transparent, giving them better information about what is happening in the marketplace’ . The LMRA authorised the US Department of Agriculture (USDA) to require federally inspected slaughterhouses (that slaughter more than 100,000 hogs, 125,000 cattle, or 75,000 lambs per year) and importers (with annual average imports of at least 5,000 metric tons of lamb) to report their transactions two (cattle, lambs, boxed beef cuts) to three times per day (swine cuts). The act obliges the slaughterhouses in particular to report detailed price and quantity information. This is something that slaughterhouses had done already on a voluntary basis, but only for negotiated spot trade information; as more transactions were carried out under marketing arrangements where little information and no final purchase prices were publicly disclosed, it had become more difficult for producers to determine the actual prevailing purchasing price for livestock . Regarding enforcement, the act stipulates that refusal or failure to report the information on time or to misreport it results in a civil penalty of not more than USD 10,000 for each violation. It also requires a quarterly audit and reviews. To preserve confidentiality of individual slaughterhouses, the act also stipulates that information will be published only if (a) three slaughterhouses report 50%of the time, (b) no single slaughterhouses provides more than 70% of the information, and (c) no single reporting slaughterhouses may be the sole reporting entity from an individual report more than 20% of the most recent sixty-day period . The French ‘Observatory of prices and margins in the food chains’ was created by law in 2010 with the objective of measuring and explaining the differences observed in the value accruing to each stage in the FSC and, on this basis, to produce and disseminate factual information, with a view to improve trust between the different stakeholders in the FSC (also see section 6.1.1.5). Among the issues that are investigated and reported on by the Observatory are the divergences in price variation between upstream and downstream stages of the FSC, the sharing of value between stages in the FSC for different sectors, market concentration at retail level, and regulatory aspects. The issues to be studied by the Observatory are defined by a steering committee that is presided by an academic and includes members from government, stakeholders in the FSC (including consumer groups), and technical experts. The technical work is managed by FranceAgriMer, a public body tasked with the implementation of government policy in the area of agriculture and fisheries. The Observatory collects prices at retail level for an extensive list of agri-food products and disaggregates these prices upwards into the FSC into gross and net margins for the agricultural, processing and retail stages (including input costs and other costs at each stage; excluding food services). The following figure illustrates the type of output the Observatory publishes, showing, for example, that in 2015 and 2016 profits before tax were negative in the retail sector for meat (one possible explanation being that retailers often use meat products as a ‘loss leader’, a product sold at a loss in order to attract customers into shops). Prices and margins in the French beef meat sector (2018 annual report) 2The EU’s Market Information Systems The Commission’s information systems disseminate agri-food market information, analysis and forecasts to the public at large and to stakeholders in the FSC, including agricultural producers and other market participants. The EU agriculture dashboards offer a web-based, single-page overview of all available and most recent EU market data for various sectors, with more detailed data easily accessible through links. The dashboards have been well received and are extensively used by stakeholders (with several stakeholders reporting making use of the dashboards in their responses to the questionnaire and in various position papers, see Annex IV). Among the stated aims of the EU agriculture dashboards are to provide agricultural producers and other stakeholders in the FSC the information in a centralised and clear manner, and to assist them in making informed choices, including on how to better deal with volatility in agricultural markets and to better plan their production, marketing and investment decisions. The Commission is currently developing a tool to improve the data usability compared to the current systems, including improved data visualisation and the possibility for raw data downloads: the Agri-food data portal. In terms of market data specifically, the Agri-food Data Portal currently covers the pig meat sector, cereals, and oilseeds and protein crops, with the beef and rice sectors under development. More sectors will follow, as the portal will be the single entry point for all relevant agri-food market data for the Commission. The portal also includes data on tariff rate quotas. It is expected that the Agri-Food Data Portal will reduce time-to-publication for some of the data, as certain procedures will be automatized. The EU market observatories provide more in-depth information on market developments, and include an important component of stakeholder engagement, notably in frequent meetings with representatives of the various stages of the FSC and of civil society organisations to discuss ongoing market developments and perspectives for the market. To date four market observatories have been set up: for milk, meat products, sugar, and crops. The EU agricultural markets and prices webpage offers extensive analyses by the Commission based on public and private data, as well as expert input. Several reports on key issues of interest to agricultural markets are published throughout the year, including short- and medium-term outlooks. The Commission has also set up the Food Price Monitoring Tool (FPMT) to observe developments of food prices over time at the level of agricultural producers, processors and consumers. At present fifteen supply chains are covered. There are also attempts at analysing price transmission in the different sectors using the data available (experimental at this stage) The rationale for public sector intervention to increase market transparency typically rests on the notion that significant asymmetries in a market constitute a type of market failure. Public MISs seek to correct this under-provision of information through the market, so as to increase overall social welfare or the welfare of certain groups that enjoy specific legal protections under certain conditions (as is the case of agricultural producers or of consumers in the TFEU). In some cases, the public MIS is funded by a specific levy, compulsory to all stakeholders, to overcome coordination issues and address possible free rider behaviour. Besides MSs and EU MISs, there exist a number of private data services and market intelligence companies that collect market information from private and public sources but, for the mostly part, sell it to their clients. There are also data that are publicly available coming from private sources, such as sectoral associations or others (for example, some slaughterhouses publish their buying prices to inform suppliers).

The academic literature identifies four main reasons for public administrations to design and develop public MISs: 1.Improving efficiency in the FSC through better decision-making by operators; 2.Increasing trust between operators by offering a common, independent and factual basis for stakeholder dialogue on FSC developments; 3.Rebalancing bargaining power of smaller operators in the FSC through reductions in information asymmetries along the FSC; 4.Improving policy-making and public enforcement through an expanded evidence base. At EU level, these reasons are framed by the existing objectives for the Common Agricultural Policy, as well as by the objective of protecting and developing the internal market for agri-food products, as established in the TFEU. Regulation (EU) 1308/2013, defines the objectives for EU action on the collection of market data (Art. 223 (1)): “For the purposes of: §applying this Regulation, §monitoring, analysing and managing the market in agricultural products, §ensuring market transparency, §[ensuring] the proper functioning of CAP measures, §checking, controlling, monitoring, evaluating and auditing CAP measures, and §complying with the requirements laid down in international agreements concluded in accordance with the TFEU, including notification requirements under those agreements, the Commission may, in accordance with the procedure referred to in paragraph 2, adopt the necessary measures regarding communications to be made by undertakings, Member States and third countries. In so doing, it shall take into account the data needs and synergies between potential data sources’. These aims can be broadly divided into two types: aims that contribute to a better functioning of the FSC (by the effect that market transparency has on the operation of undertakings in the FSC); and aims that contribute to an effective work by public authorities. As such, EU-level MISs, among others: 1.Guarantee a minimum common level of availability of information across the EU, through the Commission’s data collection activities; 2.Support a minimum common level of access to that information across the EU, through the Commission’s data communication activities; 3.Support policy-making and the monitoring and enforcement of legislation in the areas of agriculture and of the FSC more generally. The EU’s MISs therefore contribute to levelling the playing field across the single market for agri-food products for all FSC operators, with benefits for competition between different types of players in the market. This minimum common level of transparency offers advantages in particular to agricultural producers and other smaller operators downstream in the FSC (which likely have fewer resources to acquire privately held market data). More generally, MT can facilitate the EU objectives as defined in the TFEU by increasing production efficiency (‘to increase agricultural productivity’); supporting increased demand for agricultural products (‘ensure a fair standard of living for the agricultural community’); reducing volatility (‘stabilise markets’); improving the matching of supply and demand (‘assure the availability of supplies’); and by stimulating innovation, increasing production volumes, and creating competitive pressures that can lead to lower prices (‘ensure that supplies reach consumers at reasonable prices’). These benefits are further detailed in section 4.

The MT situation in the EU varies by sector of the FSC and by MS (see Annex X). Still some general observations are possible: 1.While there is information at both ends of the FSC (agricultural producer and consumer), there is little information at the intermediate stages, including on some inputs and on costs (the so-called ‘black box’ of the FSC); 2.There is a wide variety of MS and regional approaches to MISs, with the result that depending on where agricultural producers and other operators are located within the EU they will have access to different levels of MT; 3.The degree of MT at the EU level varies between FSC sectors. Still, information is generally not available beyond first stage processing (and, even then, only to a limited level of detail beyond agricultural producer level). The overarching system for data collection on the FSC at EU level for agricultural producers and first-stage processing is established in the Implementing Regulation (EU) 2017/1185 (the so-called ‘ISAMM regulation’) , which has as its basic act Regulation (EU) 1308/2013 (the so-called ‘CMO Regulation’) . Data collected is then, together with other available data, reported through the Commission’s own communication platforms for agri-food markets, in particular through the EU agriculture dashboards , EU market observatories , and EU agricultural markets and prices . Figure 2 shows an example of an existing dashboard, for the dairy sector. The system is frequently used by MSs and by stakeholders in the FSC (see Annexes III and IV, respectively). At a sectoral level in the EU, market data (notably price data) is available at agricultural producer level and, in some instances, at first-stage processing level. The AMTF recommended in particular that MT be increased through mandatory price reporting, especially in the meat, dairy, and F&V sectors (still, other sectors may also face significant problems with low levels of MT). The meat sector comprises, most notably, beef and veal meat, pig meat, poultry meat, and sheep and goat meat production, processing and trade. While there is a significant amount of data on both quantities and prices at the producer stage (and some information is available at the retail stage), there is little information available at the processing and manufacturing, and meat wholesale stages. Although much of the already existing information that is collected on quantities and prices in the meat sector is producer-level information, in practice the data are collected and reported by slaughterhouses (part of the processing stage), which have ongoing notification systems in place. The dairy sector produces a wide variety of products for the retail and food services sector, for industrial processing into higher value added-products, and for use as ingredients in the food (and other) industries. In most MS there is a particularly strong presence of producer organisations in milk deliveries (compared to other sectors), and producer organisations are frequently involved in some of the processing of milk. There is already some information at EU level on processed milk products for the main uses of raw milk (such as cheese and butter), with some disaggregation by type for cheeses (Cheddar, Gouda, Edam, Emmental), while market data are not available at EU level on different types of fresh dairy products, certain key quality cheeses, and for high-growth niche markets (such as organic dairy products). First purchasers (in the case of raw milk) or the manufacturer (in the case of processed milk products) currently collect the producer-level market data and processed product market data in the dairy sector. Fresh F&Vs have typically short supply chains, with a significantly greater share of fresh F&Vs being sold directly by agricultural producers or producer organisations directly retailers. In the F&V sector, market information reported at EU level is currently at the level of packaging stations (following sorting, packaging and, where applicable, placing on pallets of the fruit). The data currently collected at EU level is used by operators in the FSC, by policy makers, and by the research community. As explained in greater detail in Annex IV on the results from the specific questionnaire to undertakings, most respondents (71%) say they already use existing information on markets and prices provided by the Commission, 63% use market information from national authorities, and 63% of respondents also use other market information. About half of all respondents use data from market observatories and dashboards by DG AGRI, while only 8% of respondents did not know about the Commission data sources. A large group of respondents (41%) stated that they pay for price and market information from private sources, which gives an indication of the usefulness to operators of having access to more and better data – an avenue that is more likely to be open to larger enterprises than to individual farmers and SMEs. The importance of MT and market information services in general to agricultural producers and other FSC operators can also be illustrated by the decision in the USA to designate parts of the market information services of the US Department of Agriculture as critical and to remain in operation in the event of a government shutdown (when there is an unforeseen interruption to government funding in the USA system). This decision was taken following the disruption caused by the ceasing of operation of these services during a shutdown. This point is illustrated in a Report to Congress, which states that ‘during the October 2013 Federal Government shutdown, the agricultural supply chain experienced an absence of LMR [Livestock Mandatory Reporting] data. Industry was left without a benchmark to accurately evaluate markets. Wholesalers and retailers appeared more cautious in making purchases, having to negotiate contract terms without reliable data. Commodity traders slowed or halted trading and adjusted settlement terms. The CME Group temporarily suspended its feeder cattle and lean hog indexes. Industry trade organizations could not provide their members with economic analysis and forecasting, and market analysts were without the basic agricultural commodity data needed to conduct their work’. There are 29 public MISs in operation in the EU at MS level that collect and publish data on the FSC. These different MISs vary significantly in terms of their organisation; their coverage of the FSC; how data are collected (e.g., using existing or new data); the extent of market data coverage (prices, margins, etc.); methodological approach (i.e., data are not harmonised across MSs); the frequency of data publication; the way data are presented upon publication; whether data analyses is also provided and, if so, how it is provided; and, consequently, in their costs. Still, there are some common characteristics of MISs at MS level. These include a primary focus on the agricultural producer level and on consumer prices, and little coverage of prices, quantities, or costs for the intermediary stages of the FSC. Most initiatives cover the dairy, meat, F&V, and crops sectors (but some only one or a few of these). There is little or no observable coordination in MIS initiatives between MSs. An accompanying analysis or interpretation of the data is often not present. 3The food supply chain in the EU 3.1Key facts and figures There are about 11 million farms in the EU, providing work for roughly 22 million people (both full time and part time, or around 9 million full-time equivalent). These farms produce primary products for processing by about 300,000 enterprises of the food and drink industry. These food processors sell their products via the 2.8 million enterprises within the food distribution (wholesale and retail trade) and food service industry (restaurants, catering, etc.). Food distribution and food services deliver food to the EU's 500 million consumers . As a whole, the FSC employs around 44 million people in the EU. The total turnover of food distribution and food services amounts to close to EUR 1,600 billion (2015 figures), representing around 14% of total consumption in the EU. Turnover in the food distribution and food services sector grew annually by 2.2% on average from 2009 to 2015. EU households spend, on average, 14% of their expenditure on food and beverages.

Gross value added generated in the whole FSC amounts to about 7% of the total value added of the EU economy. GVA generated in the FSC grew by 2.4% per year since 2008. GVA in the agricultural production part of the FSC grew on average at a slower pace in the same period, year-on-year (1%) than in the other segments of the FSC (2.5% for the processing sector; 3.2% for the food retail and food services sector). These differences in growth between these key stages of the FSC reflect longer-term trends in the FSC. Following increasing consumer demand for convenience food and beverages products and services, the processing and retail stages of the FSC have added additional features to basic agricultural products. These sectors have expanded their share in the total GVA in the food chain, while the share of agriculture (now at around 25% of the total GVA created in the food chain) has decreased by around 0.14 percentage points per year over the period (2008-15), and more so in a longer timeframe. 3.2Market structure of the FSC While there is variation by country, there are high levels of industrial concentration at both the food processing and the retail stages of the FSC in the EU . No current data by product is available for the food processing stage, but data from the literature from the mid-1990s showed already high levels of concentration for several processed food products. The tendency since then will have been for further concentration in the food processing industry, including cross-border mergers and acquisitions. The existing data are presented in table 1. Increasing concentration at any stage in the FSC will tend to lead to a decrease in MT in the chain . These figures are likely to underrepresent food processing industry concentration at a local or regional level, where fewer food processors may be available as buyers of agricultural products. The local or regional level is where the market analysis of most of the relationships between agricultural producers and buyers of their products is relevant. Ireland Finland Denmark Italy France Spain UK Germany Average Baby Food 98 100 99 96 93* 54 78 86 88 Canned Soup 100 85 91 50 84 - 79 41* 76 Ice Cream - 84 90 73* 52 84 45 72 71 Yoghurt 69 83* 99* 36 67 73 50 76 69 Chocolate Man 95 74 39 93 61 79 74 - 74 Pet Food 98 80 40 64* 73 53 77 87 72 Breakfast Cereal 92 - 70 88 70 82 65 67 76 Tea 96 90 64 80 82 62 52 55 73 Snack Foods 72 70* 78 71 50 56 73 48 65 Carbonates 85 50 - 60 69 79 55 60* 65 Pasta 83 97 61 51 57 65 37 49 63 Wrapped bread 85 44 59 80 70 96 58* - 70 Biscuits 83 73 44 55 61 53 42 50 58 Canned fish - 70 49 68 43* 33 43* - 51 Mineral Water - 100 70 37 - 31 14 22 46 Fruit Juice - 70 65 62 26 38 35 46 54 Canned vegetables - 68 50 36 29 - - - 46 Average 88 77 67 66 62 63 55 58 67 * Two-firm concentration ratio. At the retail stage concentration ratios in food retail are frequently between 40% to 70% across the EU (medium levels of concentration) but rarely above 70% (high level of concentration; see table 2 – shaded where concentration ratios are above 40%). The trend in food retail concentration is however for the most part increasing. As was the case for food processing, the retail figures are likely to underrepresent retail sector concentration at a local or regional level, where fewer retailers will be accessible within practical distance from individual consumers. 2004 2006 2008 2010 2012 Austria 62% 62% 66% 66% 67% Belgium 51% 55% 57% 58% 59% Bulgaria 5% 7% 10% 17% 19% Croatia 17% 20% 31% 40% 44% Cyprus 10% 14% 17% 21% 25% Czech Republic 26% 32% 38% 41% 44% Denmark 51% 50% 54% 57% 58% Estonia 48% 59% 73% 71% 76% Finland 46% 43% 45% 48% 50% France 56% 57% 58% 59% 60% Germany 52% 57% 57% 60% 61% Greece 18% 21% 25% 26% 28% Hungary 26% 29% 30% 30% 30% Ireland 36% 37% 37% 37% 39% Italy 19% 19% 20% 21% 21% Latvia 27% 33% 39% 43% 43% Lithuania 49% 49% 53% 58% 60% Luxembourg 54% 55% 55% 56% 54% Netherlands 51% 47% 46% 53% 58% Poland 13% 16% 23% 28% 32% Portugal 37% 38% 44% 49% 54% Romania 4% 7% 10% 15% 20% Slovakia 19% 31% 39% 41% 42% Slovenia 34% 43% 48% 51% 51% Spain 34% 38% 45% 45% 46% Sweden 52% 51% 48% 49% 50% United Kingdom 46% 44% 42% 42% 39% 3.3Implications of the structure of the FSC for market transparency The FSC can be thought of as an hourglass, where many agricultural producers sell to a small number of buyers (primarily the food processing industry or their intermediaries), who process and sell the processed agricultural products on to a small number of retailers, who sell these on to very many consumers (see figure 4). The levels of industrial concentration in the FSC mean that for agricultural producers there are very few buyers, and for consumers very few sellers. These situations are described, respectively, as oligopsonies and oligopolies. Where oligopsonies and oligopolies exist there is the potential for the larger firms in the concentrated sectors to exert their power in ways that are not beneficial to the efficient operation of the market. From the perspective of farmers and consumers the relevant number of buyers or sellers is typically largely determined in a relatively small geographical area (limited by reasonable travel distance), and this tends to increase the oligopsony or oligopoly power of concentrated industries. In addition, highly concentrated buyers of agricultural products and highly concentrated sellers of consumer food products trade among themselves, and the dynamics at these nodes of the FSC can have important consequences upstream to agricultural producers and downstream to food consumers. MT in the FSC tends to follow the same structure as that of concentration along the chain: there is a high level of transparency at the level of the agricultural producer, where there is also a very large number of operators. There is then little information at the intermediate stages of the FSC, where there are high levels of market concentration. There is then more information again available at the level of the consumer, where there are again many agents. This is not a coincidence and, from this perspective, low levels of MT can be seen as the natural result of high levels of concentration in the market. The lack of MT in the intermediary stages of the FSC is then an element of market power, and reinforces that power. This explains the position of some stakeholders that call for increased transparency as a means to rebalance asymmetries in bargaining power. Compounding the issue of reduced transparency at the food processing stages of the FSC, operators at the intermediary stages of the chain are better positioned to gather their own data on transactions. In addition, larger companies tend to have a higher frequency of transactions with other agents than smaller operators (such as farmers or SMEs), which allows them to gather a greater number of data points. In the EU the FSC is characterised by large asymmetries of market information between actors at different segments of the chain, as well as between smaller and larger actors in the same segment of the chain and actors at the same level of the chain in different MSs. Asymmetry of information is not a problem per se. In every market in the real economy some agents will hold more information than others, and still the market may be deemed sufficiently competitive not to cause major concerns with efficiency, price formation and the transmission of price signals. However, where key market information is missing, at least for some agents or groups of agents, this can lead to distorted market signals and inefficient marketing, production and investment decisions in the private sector, as well as to reduced trust and less effective public policies. Ultimately, this leads too to avoidable negative externalities (for example, affecting environmental sustainability or levels of food waste). Should these issues occur to a significant extent a negative impact on social welfare can be expected.

3.4Asymmetry in price transmission One empirical observation from existing price data is that sectoral supply chains are often characterised by asymmetric price transmission: processor or retail prices tend to go up more, and more quickly, when agricultural producer prices go up, but be less responsive when agricultural producer prices go down. Equally, when retail prices go up, there is a slower or incomplete transmission of these changes up the FSC, but when they go down, the transmission if faster and more complete (a phenomenon known as ‘rockets and feathers’) . Over time, these processes with price transmission tend to lead to widening mark-ups between agricultural producer prices versus processor and retail prices. This widening has resulted in claims by agricultural producers that downstream operators are using their greater bargaining and market power to extract value from smaller operators, namely farmers, leading to ever decreasing shares of the food expenditure by final consumers going to agricultural producers. While there is evidence that asymmetric price transmission is common, why it occurs is less clear . Public authorities and researchers currently do not have a sufficient understanding of how prices are determined and how price shocks are transmitted in the FSC. In part this lack of understanding is due to a lack of data on key market operations, and on data that allows taking into account structural change and the complexity of relations in the FSC (with interlinked markets and dynamics within and between these markets simultaneously at play), as well as on data allowing internationally comparable studies of price transmission . Data are particularly lacking on processor selling prices and retailer buying prices . This processor-retailer nexus is of particular importance as price transmission in the FSC needs to be seen a system-wide phenomenon, but there is a lack of information on which to develop a factual understanding of these dynamics. For example, it is possible that buyer power at the retailer stage is mitigated by seller power at the processor stage, whereby agricultural producer prices are de facto suppressed for the benefit of consumers, through an anti-competitive route rather than through the mechanism of effective market competition (the ‘countervailing power’ effect) . Should this occur it is also possible that otherwise non-competitive market structures at the intermediate processing and retail stages can coexist with little harm to consumers, but with harm to agricultural producers. Behavioural aspects may also be important in explaining price transmission asymmetry in the FSC. For example, there is evidence that consumers react relatively more strongly to price increases (disbenefits to consumers) than to price decreases (benefits to consumers), and these behavioural patterns may have effects up the length of the FSC, especially if they are of sufficient magnitude to affect volumes demanded in the market. Increased availability of detailed consumer purchasing data could shed light on these effects. 3.5Challenges from increased market orientation After successive reforms to the CAP and the concomitant revision of public support schemes and opening of the EU market for agricultural markets to international competition, agricultural producers in the EU have become increasingly market-oriented. Public support has been decoupled from production, and most farm income in the EU now comes from selling on the market. Reforms to the CAP have been accompanied by the gradual removal of trade barriers for agricultural products from third-countries. The prices for agricultural products in the EU are generally aligned with prices in world markets. The reforms towards a more market-orientated EU agriculture have offered EU farmers opportunities for entering new markets and resulted in a shift to more value-added production. The EU has been a net exporter of food and drink products since 2009, with the value of EU agri-food exports rising to EUR 131 billion in 2016 (compared to EUR 60 billion in 2005). The agri-food sector represented 7.5% of total EU exports in goods in 2016. With a surplus close to EUR 19 billion, the agri-food sector is a major contributor to the overall trade surplus of the EU in goods (EUR 39 billion in 2016). Export activity is a strong contributor to the creation of jobs, on farms as well as in the downstream food sector. The move to a more market-oriented production has presented new challenges to the EU agricultural sector and for the FSC as a whole, as well as to public sector regulators trying to maintain rules that are fit-for-purpose, and to the research community aiming to understand and offer reflections on change. Among these challenges is the increased complexity of consumer demand, be it in the way food is acquired (a shift from ‘bricks and mortar’ retail to online retail and to an increasing share of food services), or in the product characteristics demanded (organic, local, GMO-free, animal welfare standards going beyond legal requirements, fair trade, geographic origin, etc.). Consumer demand can shift quickly in some sectors and products, while in others trends are observable but the rate of change is unclear, posing problems for planning and adjustment throughout the FSC. Simultaneously, global population and income growth is leading to increasing demand for food, but also to significant changes in the patterns of food consumption (for example, there is an increasing demand for high quality agri-food products, on which the EU has a strong competitive advantage). Future trends are expected to see a continuation of demand for increasing product and retail channel diversification (including increasing demand for convenience in acquiring food products). Increasing levels of concentration in the FSC as a whole, but in particular at the processing and retail stages, have raised concerns that abuses of buyer or market power are occurring that damage the efficient functioning of the FSC as well as undermine trust between operators in the chain. This happens in a context where increases in industrial concentration compound the market power of buyers in the intermediary stages of the FSC, and where information asymmetries favour operators in those same, already powerful, intermediary stages. Agricultural producers observe price developments at farm level that often appear dissociated from prices at consumer level. This means that for farmers it is unclear whether observed changes in prices are due to fundamental changes in demand or to the expression of buyer power by their counterparties, which adds to mistrust and calls by farmers and their representatives for more MT. On the other hand, processors fear anti-competitive developments in the chain if MT is increased, while retailers refer to their relatively low margins as evidence of high competition at their stage in the chain, while pointing out that higher margins and less MT exist in the processing sector. These tensions and mistrust in the FSC can lead to unnecessary friction in the operation of the chain, with real economic consequences. Trends towards increased food processing and retail industry concentration are expected to continue. Price volatility is also increasingly an issue of concern, in particular for agricultural producers. The integration of markets around the world is leading to specialisation on the basis of competitive advantage, which, while providing greater economic benefit (on the basis of production efficiency), has led to increases in systemic risk and the risk of contagion. A greater frequency of unfavourable climatic events, pests or other high impact phenomena in high-production volume areas of the world can send ripple effects throughout the food system, driving up prices of commodities. Political responses, such as embargos or sudden steep increases in duties on agri-food products, seem to become more common (even if international free trade also offers the possibility of shifting production to new markets as a coping strategy). On the other hand, particularly favourable production years can lead to significant price drops in all regions. Such volatility can have an effect on agricultural incomes the world over. Although EU farm incomes have stabilised, after several years of a downward trend, there is still significant variability around the average. Every year about 20% of EU farmers see their income vary by 30% or more, which can have significant implications on the ability of farms to stay in business (for example, on farmers’ ability to avoid defaulting on loans due to a liquidity squeeze in a bad year). Increased MT may help mitigate the effects of volatility by increasing the ability to observe changes at an early stage, by facilitating the management of risk, limiting speculation, or better anchoring expectations from governments and economic operators.Experts in agricultural policy draw attention to barriers to effective management of risk at the level of agricultural producers that add to the challenges posed by increased market integration. These include difficulties in developing futures markets and forward contracting, given the need for market information for effective contract settlement, and difficulties in accessing finance as opacity in the market drives up credit risk for agricultural producers and SMEs in the FSC. The effective use of value-sharing agreements, i.e. of contracts whereby gains or losses are distributed between FSC operators on pre-determined terms, can be compromised by a lack of transparency at individual stages of the FSC. The operation of producer organisations can be negatively affected by a lack of MT, which reduces their effectiveness as a buffer to risks for their members. On current trends, public financial support for agriculture at the EU level is expected to decrease in the long run, as other political priorities gain relevance. Within the support that is available priorities also shift, towards lower levels of income support and greater levels of payments for the provision of public goods. These developments expose the income of agricultural producers to greater uncertainty, which affects the welfare of agricultural producers and rural populations in the EU. To balance these changes, ensuring that clearer market signals are passed upwards the FSC, can help farmers reduce the costs of reacting to the market and adjust investment. The increasing complexity of the environment in which the FSC operates, and of the FSC itself, poses then challenges at various levels, and multiple policy interventions may be useful to facilitate the more fluid operation of the chain (competition and other market regulation rules; support in training and development of the agricultural community, including on the operation of the markets; adapting public support to agricultural producers; etc.). Note that MT can also affect the effectiveness of other EU public policies, working as a multiplier. For example, the success of policies increasing the market orientation of agricultural producers will depend on the availability and accessibility of MT data to those producers. The successful promotion of professional management structures in producer organisations requires that these managers can get actionable information on the market. The EU’s budget for research and innovation is increasing, including for FSC-related research, and the availability of evidence for researchers to analyse the functioning of the FSC is key for insightful research. Ultimately, better research should benefit both operators in the FSC and policy-makers. 4Market transparency and the functioning of the food supply chain According to economic theory, MT is a prerequisite for the efficient functioning of a market, which ensures the optimal allocation of available resources and allows the maximisation of social welfare. For agricultural producers this means lower search costs to find the best deals, geographically as well as intertemporally , and to be able to make better marketing, production and investment decisions. However, in all real life markets there are certain distortions (imperfect competition) and transparency can raise concerns (e.g. where the market is organised around only a few buyers or sellers and, thus, there is a heightened risk of collusion – see section 5) . Essential elements to consider when seeking to improve the operation of the FSC are the level and nature of MT. Public policy can contribute to increased MT by disseminating existing information and by accessing privately held data, including in voluntary arrangements with stakeholders (for example, exchange of information in the context of market observatories). MT at EU level has been increasing in recent years, particularly on the aspect of communication with stakeholders (as described above). By now, there are significant amounts of data available on agricultural commodity markets, and some public data exist already on a limited number of processed agricultural products. The question to consider at this stage is whether the status quo is sufficient, whether the communication of existing data at EU level should be improved but no new data should be collected, or whether further data collection would be useful and contribute to a better functioning of the FSC . This section addresses the potential benefits of increased MT. If increased MT is deemed desirable, it is then necessary to analyse the implementation challenges that arise with an increased effort of collecting, processing and reporting data (both at private sector and public sector level), including the associated costs of doing so. There are also concerns that MT can increase the risk of anti-competitive behaviour in the FSC (to the detriment of consumers and agricultural producers), among others. The potential challenges of increasing MT are discussed in the next section (section 5). Increasing MT in the FSC, and in particular at its intermediary stages, can bring benefits to different groups. The main potential beneficiaries are operators in the FSC (agricultural producers and producer organisations, and other private enterprises, including SMEs), public authorities (in their role as regulators and policy makers), as well as other groups, such as the research community (as data users) and consumers (under certain conditions). If increased MT results in increased efficiency, there may also occur other benefits, for example to the environment through a more rational use of resources. 4.1Benefits to agricultural producers and other FSC operators 4.1.1Increased operator efficiency and a better functioning of the market

Lack of MT leads to low allocative efficiency , whereby operators have high costs in gathering information about the markets they operate in (price, supply and demand, capacity, stocks of products, etc.). This affects their decisions on when to harvest, and when or where to buy, to sell, to invest, or to disinvest. Where there is greater MT, better-informed operators can adjust their production and investments to changing market conditions (for example, to shifts in consumer preferences towards organic food, or to food mindful of animal welfare). However, improvements in MT can have public good characteristics, whereby agricultural producers and other operators in the FSC can benefit from increased information availability but fail to do so due to own-coordination problems and competition rules to avoid anti-competitive behaviour. In markets with highly inelastic demand and supply , such as the agri-food market, the social welfare costs of an inefficient allocation of resources are higher than in other markets . Over time, if MT contributes to better decision-making in the FSC, greater access to information can be expected to lead to greater market integration (convergence between prices in different markets) and to a more effective matching of supply and demand (due to improved price signals), with lower costs and greater social welfare . As it improves market signals, MT can also contribute to the development of new products and niche markets (which have low overall market shares but often high growth profiles). MT can also inform decisions to more quickly disinvest from products in waning market segments (with reduced adaptation costs). However, by stimulating competition and efficiency in the FSC, some firms may see reduced profits, and these firms have a disincentive to share information . Figure 5 shows how price comparisons over space and time are possible with existing data at EU level. Much of the evidence in the literature on the efficiency effects of increased MT in the FSC comes from the US experience with mandatory reporting in the livestock sector, in the form of the LMRA (see box X) . The LMRA was introduced by the US government as a response to increasing difficulties in gathering data on market operations in the livestock sector in the late 1990s. The act requires meatpacking plants (slaughterhouses, meat preparation or meat product manufacturers) to report prices of carcasses and individual cuts (as well as minced meat) . Failure to comply with the mandatory reporting requirements of the LMRA comes with a penalty of USD 10,000 per violation. There are, in addition, provisions for gathering price data from the retail sector for meat, including prices for representative food products made from beef, pork, chicken, turkey, veal, or lamb (including conventional and organic). The USA also introduced mandatory reporting in the dairy sector in 2010. Data are available for several processed products on a weekly or monthly basis, both conventional and organic, and for several separate US regions (reporting differs across regions, depending on the significance of each product for local production). Mandatory reporting in the US dairy sector applies to manufacturers of dairy products. The effects of the LMRA on the operation of the meat sector in the USA have been studied from different perspectives, since the entry into force of the Act, and continue to be a subject of research. While findings vary across studies, in part due to methodological issues, the latest empirical findings (2018) suggest that the LMRA had a pro-competitive impact on US livestock markets. According to these findings, by 2010 the average degree of exercised market power in the US meat-processing sector had decreased by 27% in the US beef processing industry and by 18% in the pork processing industry, as compared to before the entry into force of the LMRA in 2001 (even as concentration ratios in the industry increased) . One mechanism for how more transparency can improve competition had been elucidated in earlier theoretical analyses: increasing information on transactions reduces uncertainty, and, to the extent that operators are risk averse, greater certainty promotes competition and results in higher livestock prices . Increased levels of MT that lead to increased market competition in the FSC can be expected to increase production volumes or to reduce rent-seeking by operators with market power. The positive effects of increased MT is likely to be maintained for as long as the additional information is made available, and can represent a structural shift in the operation of the FSC. In the EU, increased MT has the potential to promote cross-border competition, with the associated positive effects of internal market integration . Increased competition and production volumes can be expected to benefit consumers and agricultural producers (see below). On the other hand, other studies concluded that reporting too much information about rival pricing could facilitate coordination and foster (at least tacit) collusive behaviour among slaughterhouses. However, the analysis of such effects is complicated by confounding factors: while rising economic profits of slaughterhouses after the introduction of the act can be an indication of their greater oligopsonistic power, there were also other changes taking place in the market during that period that could have led to similar effects. For instance, increased market concentration makes it difficult to attribute changes solely to the LMRA . In terms of the ability of slaughterhouses to tacitly collude and exercise market power at the expense of livestock sellers, the USDA argues that already before the act slaughterhouses had high levels of information about other firms’ bids, which means that the LMRA provided less new information to the slaughterhouses (as buyers) than it did to livestock sellers. Hence, rather than increasing the possibilities of slaughterhouses to collude, the act reduced asymmetric information; this benefits livestock sellers, and should also benefit consumers . Competition issues are further discussed in section 5.1.4. While information sharing tends to benefit consumers and agricultural producers, it has ambiguous consequences for firms’ profits. Information sharing allows firms to increase the precision of estimated future demand, but because each firm receives the same information, transparency can lead to a convergence of firms’ strategies . However, consumers typically have little knowledge about sellers’ actual costs and profit margins. Therefore, delivering a clear, complete, and comprehensive overview of prices can increase customers’ price fairness perceptions by indicating that the company has nothing to hide. Price fairness, in turn, increases perceived consumer satisfaction . 4.1.2Better risk management Agriculture is an exceptionally risky business activity. In addition to conventional business risk, there is a significantly greater exposure than in other sectors to environmental risk (meteorological, and animal and plant health risks) that affects market outcomes. There are also linked climate change risks that affect agriculture in a structural way. In addition, agriculture is particularly vulnerable to political risk – agricultural products are often the first targets of politically motivated embargos and tariff increases. These risks compound market risk, and make insights into likely future price movements that can help mitigate market risk particularly important . In the longer run, better production and investment decisions can also reduce farmers’ overall business risk, as more effective investments make the agricultural sector more resilient . For agricultural producers to assume their share of responsibility for risk management they need the informational tools to manage that risk. Besides having the potential to contribute to better marketing, production and investment decisions, MT can support better risk management in the agricultural sector through an increase in the availability, and in the better functioning, of insurance and mutual funds, as well as through the facilitation of new or improved contract types, especially through price transparency (including value-sharing agreements, and forward and futures contracts). By lowering information costs, MT can contribute to the development of better insurance instruments and policies for the agri-food sector . Most clearly, this is the case for price insurance schemes, which require easily verifiable price data for the assessment of losses in the case of an insurable event. Revenue insurance contracts can be linked to prices in futures markets, but these need to be further developed in the EU . MT can help reduce contract ambiguity, for example by linking contract results to publicly available prices (instead of prices communicated between parties). For example, linking value-sharing agreements along the FSC to product prices that are publicly available may be more effective and lead to higher levels of trust between the parties than depending on parties’ communication of downstream sales prices to settle the contract. Ambiguity in contracts can increase transaction costs (for example leading to costly litigation to settle disputes). Forward contracts are private agreements that define the conditions for buying and selling of a product (including the price) at a date in the future. Forward contracts are used to remove uncertainty from transaction prices. In combination with other types of contracts (including spot market sales), they allow for some, but not excessive, exposure to risk (and to the positive returns from the upside of risk). MT helps reduce the transaction costs of forward contracts by setting, at a low cost, expectations of price developments for both parties. When sufficiently standardised, forward contracts can be traded in open markets (exchanges), in which case they are called futures contracts . For futures markets to develop, it is important that there is sufficient MT in spot markets: the parties may agree that at the date of the settling of the futures contract there is no delivery of the commodity, but instead to settle the contract through a financial transaction with reference to the commodity’s spot market price (‘cash settlement’) . In turn, futures markets themselves offer FSC operators information about expected future prices, which is a form of increased MT (that is, where they exist, futures markets provide the dual function for operators in the FSC of risk hedging and price discovery). While it is possible to develop futures markets on the basis of price data that are privately held, certain rules might apply that are restrictive when compared to settling contracts on the basis of publicly available prices.

A review by the USDA of research on the LMRA finds that the Act not only contributes to better MT (in the sense described in the previous section), but also that futures and cash prices respond to new information better after the introduction of the Act than before. Because it provides futures market participants with information to which they otherwise would have no access, the LMRA improves the functioning of product markets and allows for more effective risk management through futures markets. After the introduction of the LMRA there is also greater convergence between spot and future market prices, an indicator of increased efficiency of futures markets (including in their function of contributing to price discovery) . A particular aspect of risk is price volatility. Price volatility is damaging to agricultural producers as it can cause significant variation in incomes (as mentioned before, every year about 20% of EU farmers see their income vary by 30% or more), which can impact, among others, business viability and the potential for farmers to invest (including making it difficult to have access to credit or to repay outstanding loans). Agricultural commodity prices can be volatile for several reasons, such as stock levels (e.g., lower stock levels can increase volatility), changes in oil prices and exchange rates, demand and supply shocks, etc. Prices for agricultural products are typically significantly more volatile than prices downstream in the FSC, as exemplified in figure 6 comparing agricultural commodity prices with prices for consumer products. MT can have a dampening effect on volatility in the market (if the volatility in a market is due to lack of information that leads, for example, to herd behaviour by operators or other inefficiencies). However, the persistence of high and increasing levels of volatility (even where there is a high level of price transparency ) indicates that MT beyond prices may be needed to reduce such volatility. Experts point to the need to understand costs (and cost structures) and margins to understand volatility and price transmission in the FSC, but very few MISs collect this type of data (in the EU only France and Spain do so) . Different public policies and private sector initiatives have been introduced to try to address concerns with price volatility, including contracting (vertical coordination), attempts at creating frameworks for the development of futures contracts, creating flexible credit instruments, etc. Increased MT can support these initiatives, as well as lead to more informed marketing, production and investment decisions, which should have a moderating influence on the effects of price volatility on agricultural producer income. Increased MT can in addition provide the basis for more informed policies to handle price volatility, especially when large price swings occur and there are calls for ad hoc policy responses. 4.1.3Increased trust between operators Increased transparency has the potential to contribute to increased trust between operators in the FSC. Where transparency is lacking, farmers are more likely to suspect unfair treatment by the buyers of their products, regardless of whether that suspicion is justified or not. For instance, providing farmers with information about prices can force middlemen to make better offers, thus demonstrating that price transparency can benefit farmers in situations where trust was lacking. Farmers can also perceive conflicts of interest when it comes to the rating or grading of their products by traders and slaughterhouses. Yet, integrity and trust in the grading system are essential, given its role in determining prices received by producers. In such contexts, gains can be achieved through greater transparency. Otherwise, producer distrust in the grading system can reduce its usefulness as a feedback mechanism of market signals that might encourage producers to adjust their operations to market requirements, which leads to distinctive inefficiencies . This lack of trust stems from an information imbalance: while typically there is ample data on farmers, and on their products, publicly available, this is not the case for data on downstream operators and on processed products. Once this imbalance is redressed, the problem can move downstream, though: after the introduction of the LMRA in the US, there is now support within the industry for extending mandatory reporting to wholesale prices because lack of trust in voluntarily reported prices implies greater costs for firms to collect reliable market intelligence on prices. However, farmers generally also have fewer resources to acquire commercially available data. Moreover, they typically engage in much fewer commercial transactions for their products than the buyers of their products and, thus, they have a narrower view of overall market developments and less first-hand experience than their counterparts do. Lack of trust between trading partners increases transaction costs (e.g. longer negotiations to provide for greater contractual protections to be put in place, or for lawyers that double-check the contracts), as it becomes more difficult to establish the basis for agreement. Increased transaction costs can be especially harmful to smaller operators, who have fewer resources to bear these costs and arrive at an agreement. Increased MT can also reduce the cost of finding new business partners or markets (reduced search costs). In this sense, increasing MT can also contribute to increased market efficiency. Increased market transparency (for instance through the mapping of gross and net margins and related discussions) has the potential to create greater consensus between operators at the different stages of the FSC on what information their negotiations should build on. This means that greater market transparency can improve trust within the chain. Not least, greater market transparency can also help operators expose misleading or biased arguments by supplying better evidence to double-check and validate claims made by stakeholders or policy-makers. 4.1.4Unfair trading practices and asymmetries in bargaining power Increased MT can redress unequal bargaining power in the FSC that specifically derives from asymmetric information. Asymmetries in bargaining power in the FSC that are related to asymmetries in information tend to harm those operators that are already in a weaker bargaining position, typically due to sheers size or a lack of alternative trading partner for their products. The lack of MT in the FSC thus compounds existing power imbalances in the FSC. Increased MT would thus tend to benefit above all agricultural producers and producer organisations and SMEs in the FSC. Market power helps explain price developments, interacting with other relevant factors such as perishability of products or seasonal effects, etc. Active anti-trust policies can help improve the functioning of food supply chains, including improving price transmission. Increased MT that leads to increased market competition in the FSC can be expected reduce rent-seeking by operators with market power. Lack of MT, inequalities in bargaining power, and anti-competitive practices lead to market distortions with potentially negative effects on the competitiveness of the FSC as a whole. Greater MT gives more bargaining power to farmers, including vis-à-vis middlemen who facilitate sales, and creates a more open trading environment, fostering a more efficient market system for all stakeholders. In particular, supplier bargaining power can be strengthened by improved MT. Asymmetric information (in combination with incomplete contracts, switching costs and asymmetric enforcement costs) allows firms with significantly greater bargaining power to inflict unfair trading practices (UTPs) onto their commercial partners. Lack of transparent prices may also contribute to price discrimination, which can cause weaker parties to get worse deals. Thus, a lack of MT generally benefits the party that already holds greater bargaining power (frequently due its sheer size), i.e. it contributes to a weaker position of farmers and SMEs and can make them more vulnerable to UTPs. Consequently, some MSs’ prohibitions of UTPs include general clauses and principles that require, for instance, compliance with principles of transparency and respect for free market competition. However, practices that are commonly considered UTPs are difficult to measure due to poor and incomplete data. Much of the relevant information is private and companies involved in UTPs are not willing to reveal it. Therefore, there is an urgent need for increasing transparency within the FSC. This would not only be of great importance for policy-makers – and the effectiveness of UTP regulations – but also for researchers. Because currently the knowledge accumulated on UTPs has scope for improvement there is an imperative for additional research on the topic and for measuring more precisely the economic effect of such practices. Data are especially lacking at the processing and trading stages of the FSC. It is precisely at these intermediate stages (for example, where large processors contract with large food distributors and retailers) that transparency is critically necessary if research is to cast light on questions of concentration, competition, and price transmission. And while price data are clearly of special importance in this regard, data on quantities transacted, market structures, and contractual arrangements are also required to link price transmission results to underlying causes and to assess their distributional implications. Yet, the available data do not permit addressing many of the most pressing questions about food prices and the performance of the FSC in a consistent manner across commodity sectors and MSs. 4.1.5Producer organisations Agricultural producer organisations – groups of farmers that have formed on their own initiative and are controlled by them, such as cooperatives – are important players in the FSC. By having their members work closely together and carrying out a wide array of activities, producer organisations strengthen farmers’ position vis-à-vis other, more powerful, operators.

Producer organisations can assist their members by making forecasts for future market demand (quality and volume). This can help farmers adapt their production and, for the longer term, make better investment decisions (in anticipation of structural changes). The effective fulfilment of these roles relies, among others, on a clear and comprehensive view of the direction for downstream demand for their products. Producer organisations can also achieve synergies and realise economies of scale when processing and marketing the products of their members. Regulation (EU) 1308/2013, offers agricultural producer organisations the possibility of becoming recognised producer organisations. This offers benefits in the form of a derogation from the application of EU competition rules (namely of the ‘cartel prohibition’ of Article 101 (1) of the TFEU). To be recognised by MSs, producer organisations must, among others, pursue the adjustment of production to demand, the stabilisation of producer prices, research on economic competitiveness, the development of markets, or the provision of technical assistance for the use of futures markets – all of which can benefit from greater MT. On the other hand, as producer organisations can also provide market information to farmers, balance bargaining power in the FSC and increase farmers’ competitiveness and welfare. Similarly, in the EU recognised interbranch organisations – which are self-organised, vertically integrated entities created by different players and branches of the FSC – can play an important part in allowing dialogue between operators and in promoting MT120. Indeed, this is one of the five objectives of such organisations in the EU, which may increase the bargaining power of farmers. However, while information sharing tends to benefit consumers and farmers, it has ambiguous consequences for profits of other operators in the FSC: while the sharing of information allows operators overall to better estimate future demand, each operator on their own has an incentive not to disclose all their information. In this context, cooperative bargaining can be a solution, and producer organisations can be institutional responses to market imperfections. Communication – including the exchange of information by farmers in producer organisations – is thus integral to trust and the improvement of the functioning of the FSC, not least because it aids transparency in the business environment and in price formation. Moreover, by facilitating the exchange of information also between producers and end-users (in situations where there is a growing importance of quality variability in the marketplace), producer organisations can help farmers capture income gains. By making the market more transparent and thereby reducing transactions costs, producer organisations support the economic well-being of their members. However, even where markets are transparent, most individual producers are too small to obtain interesting trading partners, resulting in a lack of market opportunities or an adverse bargaining position. In this case too producer organisations can be a solution to identify and offer new markets to their members. According to a consultation by the Commission, producer organisations themselves consider MT important for their work. For instance, the General Committee for Agricultural Cooperation in the EU (COGECA) as well as various national associations of cooperatives agreed that collecting and publishing information on agricultural markets at EU level brings benefits, compared to what the national public or private systems of information collect and publish. According to their responses, precise and timely information on market signals is necessary for operators to counter information asymmetries, anticipate market developments, react to market imbalances, enable the functioning of futures markets, and ensure better and more stable prices. In their view, related data collection should cover the entire FSC, and not only prices but also margins. 4.1.6Agricultural producers and SMEs The CMO Regulation offers the legal structure within which markets for agricultural products operate in the EU, with the aim of meeting the objectives in the TFEU. Notably, one of the objectives for EU policy in the TFEU is to ensure a fair standard of living for the agricultural community (Article 39 TFEU). It is to this purpose and to ensure that CAP interventions are effective that the CMO Regulation includes provisions to ensure MT in the FSC. It is thus important that the effect of measures that increase MT in the FSC on the agricultural community be understood. Given the frequently small size of agricultural producers, similar considerations may be relevant to other smaller operators in the FSC (SMEs). The effect of increased MT on agricultural producer prices has been considered in some of the literature. Among the possible effects of increased MT are increased competition in the FSC, the reduction of uncertainty for operators, and generally increased efficiency in decision-making. Increased MT leading to increased market competition in the FSC can be expected to increase production volumes and have a reduction in rent-seeking by operators with market power, which benefits farmers through increased demand for their products and higher prices. Increased MT can also reduce the perception of risk for processors, which, for risk-averse processors similarly results in increased demand for agricultural producers’ products. Understanding market developments downstream can also allow agricultural producers and producer associations, as well as SMEs, to seek opportunities for disintermediation, to shorten the supply chain and obtain a greater share of value added from sales to consumers. In general, producer organisations can assist small farmers to benefit from increases in market transparency. Similar positive effects can be expected where there is a pro-competitive impact in markets for SME products from increased MT. Studies in other policy areas of the effects of increased MT that take into account operator size have found that increased MT has benefitted proportionally more smaller operators than larger operators in the same market segment, with relatively higher reductions in transaction costs for the former. In the stakeholder questionnaire, 80% of SMEs state the current level of market transparency has a negative impact in their sector to a large (60%) or some extent (20%). The remaining 20% assessed the negative impact as minor. No SME respondent mentioned there was no negative impact. 96% of agricultural sector respondents state that the current level of market transparency has a negative impact in their sector to a large or to some extent. 4.2Market transparency and the work of public authorities An adequate level of MT allows policy makers to design effective policies for the FSC through an improved knowledge basis (improvements to evidence-based policy), monitoring of policy and evaluation of impacts, and improvements to the enforcement of competition rules. In addition, increases in MT can lead to the positive effects of related market-oriented public policies being greater (the ‘multiplier’ effect). 4.2.1Better policy-making Access to market data is a key element for an evidence-based regulatory framework. Increased access to MT information can inform better public policy aimed at improving the functioning of the FSC. MT can offer a better understanding of market operation to policy-makers and improve the focus of public market development activities; better preparing and responding to market crises; allowing for better monitoring of the impacts of public policy; lowering the risk of negative unintended consequences of regulation; and by increasing the effectiveness of other policies that promote the market-orientation of farmers. There is also a reduction in the risk of regulatory capture occurring through asymmetries of information between the regulator and the regulated industry. There is evidence that a lack of MT in the global FSC contributed to high volatility and market crises in the past. Increased transparency would allow operators to better manage volatility and this would serve as a preventative measure against pressures for public intervention, for particularly damaging downside effects of volatility. In the event of a market crisis, the ability to access relevant market data quickly can be crucial in forming an effective response by public authorities. Increased MT also assists public policy by communicating more effectively market signals to agricultural producers of structural shifts in demand at consumer level, including through public policy (for example public interventions in support of health and nutrition policies or changes in consumer preferences for certain types of products), which reduces pressures for public intervention or assistance to mitigate structural changes and improves the coherence of agricultural policy and other public policies. Some structural changes can occur within relatively short timeframes and the ability to observe such changes occurring downstream in the FSC in a timely manner can benefit public authorities and agricultural producers (e.g., for some types of products and in some MSs there were significant shifts in demand from conventional to quality-differentiated products, such as demand for certain organic products, taking place in short periods of time). Outlook analysis •The short-term outlook: origin, change and impact •The long-term outlook: the internal preparation cycle and outreach •Stakeholders: MSs and the management committee process; OECD/FAO outlook cycle Analysis •Impact Assessment of main CAP reforms •Ad-hoc analyses: trade agreements, market crises, other (e.g. risk management) •Internal AGRI analyses and specific requests Public information •Data and the dashboards: market management and potential crisis anticipation •Statistical briefs, factsheets, FADN •Outlook Conference process; Workshops

Generally, a much wider set of data than what is available to public authorities is necessary for effective policy analysis, and the current piecemeal access to those data is impeding the design of effective food and agricultural policies. How to increase access to data by public authorities, both through mandated increases in MT and through ad hoc arrangements with stakeholders, needs to be discussed (while addressing concerns with confidentiality). In general, there is a mutual interest between the public and private sectors in the design of effective policies to support productivity, sustainability and resilience in the FSC. Box 6 offers an illustration of how market data collected in Hungary is put to use through the Hungarian MIS (AKI). The Hungarian Research Institute of Agricultural Economics, founded in 1954 with the objective of supporting policy-making, has been managing a MIS for the last 20 years. The system collects information on operators along the FSC (producers and processors, wholesale markets and livestock auctions, as well as, trough external contractors, consumer prices) for 13 FSC sectors. As of 2018, the system had received close to 36 thousand transmissions. The Hungarian MIS meets the objective of complying with mandatory reporting of price information to the European Commission, supplying up-to-date market information to operators and professional organisations, and generally allowing the follow-up of the latest market developments. Other significant benefits of the information provided include helping determine land lease rates, easing access to agricultural credits, and helping operators in operational/marketing/strategic decision-making. The system has also yielded significant benefits to the Hungarian government and to public bodies. The system has, for example, been used as a basis for ex ante and ex post impact assessments of VAT reductions in Hungary. The prices collected are used by public bodies in diverse areas, such as: -defining reference prices for the Hungarian Agricultural Risk Management System, which is a mandatory scheme for farmers; -defining reference prices for calculating the value of grains in interventions; -providing prices needed for consumer price comparability studies; -providing benchmarks for the evaluation of public procurement bids; -providing prices needed in cases of tax controls and court processes; -helping discover deficiencies in displayed prices on retail shelves; -helping define new minimum prices for bread. The cost of managing the system has been estimated at about EUR 13.5 thousand per sector of the food supply chain. The Research Institute deems the administrative burden of supplying information marginal compared to the above-listed benefits. FSC operators in Hungary are supportive of the MIS. Currently the possibility of linking the existing data with other datasets to enrich the analytical potential of the data is being explored. Prices Stock Trade Production & Economics Food Safety Analyses Legal Links Graphs Several agricultural policies in the EU are aimed to supporting agricultural producers to a more market-oriented type of production. Examples of these include the establishment of POs, farmer training, or public support for certain types of investment or disinvestment activities. Other public actions support the same objective of improving market-orientation through co-financed public investment in rural infrastructure, for example to better link producers in rural areas to their buyers. Increased MT may thus contribute to a greater impact of these policies, by allowing operators to achieve a greater return on their investments to become more market-oriented, be it in terms of developing their market operation education and skills, physical investment to become more efficient, or others. In this sense, MT can benefit other public policies through a multiplier effect. 4.2.2Improved enforcement of competition rules The level of MT in the FSC affects the ability of competition authorities to effectively maintain competition in the market. Competition authorities face asymmetric information vis-à-vis firms operating in the market, and the larger that asymmetry the larger the possibility that anti-competitive behaviour goes unnoticed. Possible anti-competitive practices in the FSC through increases in MT (e.g. cartels) are only a risk where there is already a significant susceptibility for such practices. It is possible that anti-competitive practices already exist but are difficult for the regulator or for researchers to observe, in particular due to a lack of data. In these cases there can be said to be ‘internal transparency’ (cartel members have access to each other’s price data in some non-public form) but no ‘external transparency’ (those outside the cartel, including competition authorities, are purposefully cut off from relevant information by the cartel). It can also be expected that in industries where such anti-competitive practices exist, operators that benefit from them will oppose publicly mandated increases in MT. Information on prices alone is unlikely to constitute proof of cartel behaviour, and more precise evidence is needed to demonstrate collusion. However, price data can offer competition authorities a useful screening mechanism that can help target future investigations. In a recent report on the application of competition rules to the agricultural sector, it was found that, in the FSC, processors were most frequently subjected to investigations by competition authorities and also frequently found to be infringing competition rules, incidentally this is the segment of the FSC where there is typically less MT. 4.3Other benefits of market transparency 4.3.1Increased knowledge basis for analysis and research Besides FSC operators and public authorities, a third group with links to the FSC typically benefits from increases in MT, the research community. Researchers can offer a better and rigorous understanding of the fundamentals of price movements and of the structural characteristics of the FSC. Better and more research on the nature of price movements in agri-food products, in turn, can help policy makers develop better public policies, and understand better the nature of market volatility and of market crises. Better knowledge on the structural nature of the FSC can result in a better understanding of the relationships between operators in the FSC, from farmers to consumers, in terms of market and bargaining power, which can be an important input to build trust within the FSC. For instance, a review of the literature on the LMRA highlighted the usefulness of being able to rely on economic research to support policy change discussions. At the same time, the USDA found that the data obtained through the LMRA facilitates research on related topics, which helps future decision-making. To the extent that market transparency helps reveal the composition of food prices, it can e.g. also contribute to improving macro and micro research, which currently is limited to (mainly) using aggregate price information as an input into econometric models. Such information can be of key importance for sound decision making, especially in the context of competition law. Likewise, analyses of market structure and behaviour issues in the FSC could be improved with better data on procurement transactions, operating costs and revenue, and contractual arrangements. If sustained, such analyses provide a good opportunity to generate timely, meaningf