Brian Gardner's Blog

The European Commission’s approach to yet another upcoming reform of the common agricultural policy is largely devoted to the continuation of the current policy with a few added concessions to green pressures on the side. This approach is increasingly irrelevant at this stage in the development of European agriculture and in an increasingly unstable world food system. It also has no relevance at all to the need to reduce taxpayer expenditure on farm subsidies.

In its November Communication on future development of the CAP the Commission set out three major objectives for policy: to improve food security; to protect the environment, combined with moderation of climate change, and to improve ‘territorial balance’. To meet these undoubtedly major challenges the Commission suggests a mish-mash of minor adjustments. What it does not do is to question fundamentally the present structure of the policy based firmly on handing out €45+ billions a year in direct subsidies to farmers.

What is certain is that none of the stated objectives of European agriculture policy are likely to be aided by continuation of the direct payment system. They are unlikely to make any significant contribution to increased food security, since by definition they are production neutral they will not stimulate extra production in Europe – even if that were a justifiable contribution to either domestic or global food security. As Professor Stefen Tangermann pointed out in his recent report to the European Parliament’s Agriculture Committee: “If more production in Europe’s agriculture is required to satisfy growing food demand, then rising market prices will signal that to farmers.” Since prices on world markets for food are expected to be significantly higher in the future than they were in the past, “There is no need to make direct payments or provide any other policy support in order to stimulate extra production in Europe, nor will decoupled payments be expected to have that effect”.

What was originally conceived as a short term transitional measure has become a permanent and expensive keystone of policy. Direct payments were originally introduced to compensate farmers for the perceived loss in income resulting from a radical reduction in European Union market support levels. In their original form they were production linked payment designed to compensate for an average 15% cut in intervention prices for cereals and other major commodities made to fit the rampantly inefficient CAP of the 1980s into the new policy parameters imposed by the GATT Uruguay Round (the Marrakech Treaty 1994).

Under further international and domestic political pressure against subsidised production, the subsidies metamorphosed into the ‘decoupled’ single farm payment. These were more comprehensive and wide ranging, but again designed in the Fischler reforms of the last decade, to compensate the entire farming industry for further dismantling of the previous interventionist price support policy. Their central position in the ‘new CAP’ was further consolidated by EU enlargement when they were extended to farmers in the twelve new member states. This was a matter of political expediency rather than economic rationality, since application of the CAP to these countries resulted in a rise in prices, not a reduction (the original reason for the payment of direct subsidies) .

As Professor Tangermann points out, the EU should now be considering abolition of direct subsidies and their replacement with policies targeted at specific environmental, social and economic problems focused on the most needy regions.

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