Bridges Weekly Trade News Digest • Volume 12 • Number 40 • 26th November 2008
EU Ag Ministers Hammer out Farm Subsidy Reforms
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European agriculture ministers agreed on changes to EU farm subsidies last week that will phase out quotas for milk production and divert some of farmers’ direct payments toward rural development projects.
In what was billed as a ‘health check’, the ministers made several updates to the EU’s Common Agricultural Policy, or CAP, which doles out support to EU farmers and comprises more than 40 percent of the EU’s total budget.
”The Health Check will modernise, simplify and streamline the CAP and remove restrictions on farmers, thus helping them to respond better to signals from the market and to face new challenges,” the EU Agriculture Commission said in a press release.
The announced changes represent the most significant reforms to EU agriculture subsidies in five years, but some say the new measures do not go far enough to liberalise the sector.
The CAP reforms were announced after a marathon negotiating session that lasted through the night of 19 November. The talks were reportedly quite contentious, with France, Germany and Italy fighting for stronger protections for farmers, while the UK reportedly argued for deeper subsidy cuts.
To provide a ‘soft landing’ for the expiration of milk quotas in 2015, the officials agreed to increase the current caps by one percent per year between 2009 and 2014. Italy, which has struggled to stay within its quota in the past, was allowed to drop its production restriction immediately.
The quota regime was enacted 25 years ago in an effort to sustain prices and counter over-production in the dairy sector, which was then flooded with an excess of milk. But now officials say that the caps are no longer relevant, and that they serve only to prevent farmers from responding to market signals, at a significant cost to the EU.
”In my opinion, quotas do not sharpen competitiveness; they stifle it. They should go,” European Agriculture Commissioner Mariann Fischer Boel told a meeting of the European Dairy Association in January 2007.
The agriculture ministers also agreed to shift some of the money that goes toward direct aid payments to rural development. The announced changes mean that farmers who receive more than €5,000 through the CAP will have their payments reduced by 10 percent - instead of the current 5 percent - by 2012. The additional funds will be put toward programmes related to climate change, renewable energy, water management and biodiversity.
In a move that some say will soften the distortionary effect of subsidies in the market, the ministers agreed to ‘decouple’ aid to farmers, meaning that - with some exceptions - payments will no longer be tied production levels.
But even with the changes, some call the EU’s subsidy program bloated and say that it discriminates against small producers within Europe, artificially raises food prices on the continent, and hurts farmers in the developing world.
Critics point out that the CAP constitutes more than 40 percent of the EU’s budget, even though only 5 percent of the bloc’s citizens’ work in the agriculture sector and farming contributes just 1.6 percent to EU gross domestic product.
And some say that the payments favour large-scale producers over the small farmers who are most in need of government support. Such criticism is not too far off the mark: 70 percent of all EU support goes to the biggest and richest 25 percent of farmers, according to the Organisation for Economic Cooperation and Development, while tens of thousands of small producers get little benefit from the subsidies.
Britain’s Queen Elizabeth II and Prince Charles received more than £1 million in CAP subsidies in 2003 and 2004, according to a report by The Guardian newspaper, and 17 UK farmers and agricultural businesses were given more than £1 million each in the same period.
This top-heavy distribution remains largely untouched by the measures agreed last week, some critics say. German Green MEP Friedrich-Wilhelm Graefe zu Baringdorf called the reforms a “victory for the agro-industry lobby,” saying that agribusiness had successfully defended “the status quo of subsidies with minimal strings attached.”
Peter Kendall, President of the UK-based National Union of Farmers called the changes “less of a health check, more of a further fix for addicts of distortive measures.”
”While some of the measures…move us forward to our goal of a simpler, more level, and more market focused CAP, others lead in precisely the opposite direction,” Kendall said.
Other critics argue that, no matter how the money is distributed within the EU the government support will still hurt producers in developing countries, who struggle to compete with subsidised agricultural products, both at home and in the European market.
But proponents of the CAP say that the programme is vital to the preservation of the European countryside and that the subsidies it administers will help European farmers meet new challenges. France, for instance, which receives around €9 billion annually from EU farm subsidies, opposes an overthrow of the subsidies system and argues that the rising food prices highlight the need to give robust support to farmers.
The current CAP reforms will expire in 2013 when a new multi-year EU budget will take effect. France, which currently holds the rotating EU presidency, has reportedly invited the bloc’s farm ministers to a meeting this Friday to begin discussions of what reforms might look like in the next budgetary session.
ICTSD reporting; “Royal farms get £1m from taxpayers,” THE GUARDIAN, 23 March 2005; “EU reaches deal on farm reforms,” BBC NEWS, 20 November 2008.
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