Winning the European CAP (Common Agricultural Policy)

By: Dr. Sam Vaknin

Also published by United Press International (UPI)

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Written January 16, 2003

Updated June 2005

According to a June 2005 OECD report, and contrary to popular, media-fostered impressions, farm subsidies are being phased out almost everywhere. Turkey is an exception. It spent in 2002-4 (wasted, more like it) more than 4% of its Gross Domestic Product (GDP) on aiding and abetting its inefficient agricultural sector (compared to 4.3% in 1986-8).

Other figures: Switzerland almost 2% (4%), Japan - 1.5% (2.2%), European Union - 1.2% (2.8%), Mexico - 1.2% (3%), USA - 0.9% (1.3%), Canada - 0.8% (1.8%), Australia - 0.3% (0.8%), Poland - 1.2% in 2001-3 (2.2% in 1991-3). On average, farm subsidies declined from 2.3% of GDP in 1986-8 to less than 1.2% of GDP in 2002-4.

Farm protection in OECD countries fell from 37% of farm receipts (1986-8) to 30% (2002-4) - still around $279 billion. This statistic masks yawning disparities between countries. In New Zealand and Australia, producer support amounts to less than 5% of farm receipts. It stands at 20% in North America and climbs to 34% in the EU and 60% in Japan.

Virtually all subsidies linked to production levels are being phased out everywhere, albeit glacially. Their distorting and pernicious effects on the allocation of scarce economic resources in the farm sector is widely recognized. They now comprise less than 75% of all compensation in the EU (compared to 90% in 1986-8) and 90% in Japan and Korea (compared to 100%). Compensation is now more commonly linked to acreage, number of cattle heads, and average historical prices.

Still, the farm lobby in rich countries is formidable. In the USA, for instance, Bill Clinton's 1996 farm bill which meant to gradually eliminate farm protections was all but reversed by George Bush's 2002 package of laws that nearly doubled agricultural subsidies.

The WTO has recently taken a more active role in fighting discriminatory practices. Brazil won cases against American cotton subventions and EU sugar protections. The EU reacted by announcing a cut of 39% in its average sugar subsidy.

Yet, nothing much has changed in the last three years (2002-5). It is instructive to study a speech given in January 2003 by Herve Gaymard, then French Minister for Agriculture, Food, Fisheries and Rural Affairs to the misnamed "Real Solutions for the Future" Oxford Farming Conference. Gaymard drew the battle lines and made clear that the French resistance is alive and kicking - at least with regards to the European Commission's proposed reforms of the European Union's Common Agricultural Policy (CAP).

France - and six other EU countries - intend to stick religiously to a deal struck, tête-à-tête, between the French president and the German chancellor in 2002. The CAP - which now consumes close to half of the EU's budget - will not be revamped until 2013 at the earliest, though outlays will be frozen in real terms and, starting in 2006, gradually diverted from subsidizing production to environmental and other good causes ("decoupling" and "modulation" in EU jargon).

This upset the EU's ten new members, which joined it in May 2004. With spending capped, they are unlikely to enjoy the same pecuniary support bestowed on the veterans, even after 2013. As it is, their agricultural benefits are phased over ten years and face an uncertain future when the CAP is, inevitably and finally, scrapped.

Moreover, France's recalcitrance imperils the crucial Doha round of trade talks. Both the EU and the USA revealed their hands by March 2003. The USA called for a total elimination of all manner of farm subsidies. The EU fudged. The developing countries are already up in arms over promises made by the richer polities in the protracted Uruguay round and then promptly ignored by them.

Agriculture is arguably the poorer members' highest priority. They demand the opening of the rich world's markets, whittling down export and production subsidies and the abrogation of non-tariff trade barriers and practices, such as the profuse application of anti-dumping quotas and duties.

Gaymard proffered the usual woolly mantras of "farm products are more than marketable goods", "France, and Europe in general, need security of food supply", "food cannot be left to the mercy of market forces". Farmers, unlike industrialists - insisted the Minister counterfactually - cannot simply relocate and agrarian pursuits are a pillar of the nation's culture and its attachment to the land.

Yet, it cannot be denied that Gaymard advanced in his speech a few thought-provoking and oft-overlooked points.

He convincingly argued that farm products covered by EU subsidies are rarely in direct competition with the crops of the poor in Africa and Asia. The cotton, rice and groundnut oil subventions generously doled out to growers in the United States - the EU's most vocal critic - harm the third world smallholders and sharecroppers it purports to defend. The IMF - perceived in Europe as the long and heartless arm of the Americans - has dismantled the coffee regime and marketing structures causing irreparable damage to its indigent growers, Gaymard said.

The CAP, insists Gaymard, does not encourage environmental ills. The policy does not subsidize the husbandry of disease-prone poultry and pigs, nor does it support genetically modified crops. The CAP is also way cheaper than portrayed by its detractors. Food constitutes only 16 percent of the family budget - one third of its share when the CAP was instituted, four decades ago. The CAP amounts to a mere 1 percent of the combined public spending of all EU members. The comparable figure in America is 1.5 percent.

This last argument is, of course, spurious. It ignores the distorting effects of the CAP: exorbitant food prices in the EU, double payments by EU denizens, once as taxpayers and then as consumers, mountains of butter and rivers of milk produced solely for the sake of finagling subsidies out of an inert and bloated bureaucracy and deteriorating relationships with irate trade partners.

Gaymard is no less parsimonious with the full truth elsewhere in his counterattack.

He claims that the EU provides tariff-free and quota-free access to farm products from the world's 49 Highly Indebted Poor Countries (HIPCs). This is partly untrue and partly misleading. Important commodities - such as sugar, rice and bananas - are virtually excluded by long phase-in periods. Non-tariff and non-quota barriers abound. Macedonian lamb is regularly barred on sanitary grounds, for instance. Health, sanitary, standards-related and quality regulations render a lot of the supposed access theoretical.

Still, it is true that the EU's larger economies are more open to international trade than the United States. Gaymard flaunted a telling statistic: the EU absorbs well over two fifths of Brazil's farm exports. The USA - in geographical proximity to Brazil and a self-described ardent champion of free trade - takes in less than 15 percent.

The problem with farming in the developing world is its concentration on cash crops, whose prices are volatile. This subverts traditional agriculture. Gaymard implied that the destitute would do well to introduce a CAP all their own and thus underwrite a thriving indigenous sector for internal consumption and more stable export revenues.

They can expect no help from the industrialized nations, he made crystal clear:

"(The rich countries) are not ready to eliminate their support for agriculture. They have not committed themselves to doing so in international forums and do not believe that, as far as they Are concerned, it would be to the developing countries' advantage. Therefore," - he concluded soberly - "let us stop dreaming." This was received with a standing ovation of the 500 conference delegates.

The conspiracy minded stipulate that France was actually merely seeking to strengthen its bargaining chips. Finally, they go, it will accept decoupling and modulation. But recent policy initiatives do not point this way. France all but renationalized its beef markets, proposed to continue dairy quotas till 2013, sought to index milk prices and defended the much-reviled current sugar regime.

These are bad news, indeed. Agriculture is a thorny issue within the EU no less than outside it. A recessionary Germany (and a more dynamic UK) have been bankrolling sated and affluent French and Spanish farmers for decades now. This has got to stop and will - whether amicably, or acrimoniously.

The new members - most of them from heavily agrarian central and east Europe - will demand equality sooner, or later. Poor nations will give up on the entire trade architecture so laboriously erected in the last 20 years - if they become convinced, as they should, that it is all prestidigitation and a rich boys' club. It is a precipice and France has just taken us all one step forward.

Also Read:

Europe's Agricultural Revolution

Russian Roulette - Russian Agriculture

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