European agriculture. Cap it all

Date: 28/06/03

The European Union's farm reforms need to go a lot further and faster

TO OBSERVERS of the European Union's insane farm policies, the pattern is depressingly familiar. A modest proposal for change is followed by threats from the French and others to veto even that; marathon talks are held that last days, nights and even weeks; and then a much-hyped “breakthrough” waters down the original proposal but is lauded on all sides as a truly radical reform. In the early hours of June 26th, bleary-eyed European farm ministers duly trumpeted their agreement to the biggest shake-up of their notorious common agricultural policy (CAP) since its inception.

As always with the CAP, the devil is in the details, and it will take time for the European Commission and national governments to work out precisely how these will now change. But several points are immediately clear. One is that, as France and Germany agreed in a bilateral stitch-up last autumn, there will be no change in the size of the CAP budget, which at some €50 billion ($58 billion) a year will continue to take up nearly half of all EU spending. The second is that cereal prices, which the commission had proposed should be cut by 5%, will remain unchanged. A third is that France has secured agreement that it can put off applying the new terms of the CAP for two years, until 2007, even though other countries can bring in the rules in 2005 if they wish (precisely how this can be made compatible with the free movement of farm products inside the European single market remains fuzzy).

The worst dilution of the commission's original plan, however, is that the link between subsidy and production is only partially severed. The most damaging feature of the CAP is not that it shovels ludicrous amounts of money down the throats of often well-off farmers - if Europe's hard-pressed taxpayers are willing to stomach this, that is their problem. Rather, it is that the money is tied to production, with surpluses dumped on world markets via the payment of export subsidies. The commission had proposed to break this link, paying farmers instead for caring for the countryside. But, in a sop to large farmers in France and elsewhere, EU farm ministers have chosen to prolong many production-linked subsidies.

That will imply also keeping the system of export subsidies. The sufferers are mainly developing countries, many of whose economies depend heavily on agriculture. Not only will their exports to rich-country markets still be heavily obstructed; even their domestic markets will continue to be distorted by the dumping of EU surpluses. That is why the rest of the world insisted that the Doha round of trade talks should aim to phase out all farm-export subsidies. For most countries, indeed, this is the biggest single objective of the round.

The Doha talks are already way behind schedule, mainly because everybody was waiting to see if the Europeans were serious about CAP reform. By keeping in place both production-linked support and export subsidies, the EU has shown that it is not. Unless it can come up with a more genuinely radical reform before the next ministerial meeting to review the Doha round, which takes place in Cancun in September, the EU will doom the round to fail. The effect of that on the world economy - and especially on the biggest trader of all, the European Union - would be grim indeed.

Critical editorial reviews the latest agreed proposals to reform the CAP, June 2003.

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