[ Comment ]

EU agricultural reform:
no good news for the poor

The European Union has been causing losses to developing countries’ farmers for years through the overproduction encouraged by the subsidies it pays to its own farmers. Now, just in time for the WTO talks at Cancún, the EU member states have agreed to changes in European agricultural policy. The reform is so half-hearted, though, that it is unlikely to do much to ease the pressure on the world’s poor countries.

The member states of the European Union have been talking for years about reforming Europe’s Common Agricultural Policy (CAP). But it took the prospect of turning up empty-handed at the upcoming world trade round in Cancún to prompt the farm ministers to craft a compromise on June 15. NGOs have long been calling for European farm subsidies to be dismantled because they put producers in poor countries at a disadvantage in both international trade and domestic markets. Will the reform that has now been approved make any difference?

The principle central to the reform is ‘decoupling’. In the past, Europe’s farmers received direct payments directly coupled with production volume to make up for the lowering of intervention prices – the prices the EU guarantees in the single market for European farmers’ products – which was decided within the framework of the EU’s Agenda 2000 programme. So the largest and richest farms received the biggest subsidies. That practice in the past led to serious overproduction of European farm produce and was repeatedly criticised in the World Trade Organisation (WTO) as trade-distorting intervention. In future, therefore – in principle at least – every farm will receive a certain sum a year regardless of the farm’s output based on the subsidies received in the period 2000 to 2002.

The EU hopes that decoupled subsidies will be accepted by the other member states of the WTO. As a matter of fact, subsidies independent of production are likely to have a lesser impact on trade than the form of subsidies paid in the past. But it is by no means certain that overproduction of cereals and beef – and thus cheap exports to developing countries – will significantly decrease in the wake of the present reform. For one thing, at France’s insistence the EU compromise contains a large number of exemptions, so EU member states are still allowed to couple roughly a third of farm subsidies to production. Indeed, in the case of slaughter cattle, subsidies can continue to be up to 100% coupled. For another thing, the reform does nothing to change the practice of the EU buying up unsold agricultural surpluses at intervention prices and dumping them on international markets. In the past, that too was an incentive for Europe’s farmers to produce as much as possible, although in recent years they have had less reason to do so because of intervention prices being lowered.

How inconsistent the compromise is can be seen from the rules relating to milk products, for which production quotas are in place. Under the reform, intervention prices for milk products are to be lowered; at the same time, though, the production volumes the EU guarantees to buy will be raised. So Europe will continue to export large quantities of cheap milk and butter, snatching business from local producers in poor countries and putting competitive developing countries such as India at a disadvantage abroad. This is a problem to which Germanwatch, for example, has long been drawing attention.

The European Union has a perfectly legitimate interest in supporting its own agriculture. What is not legitimate, however, is that such support should create butter mountains and milk lakes which are then exported all over the world to the detriment of farmers in the developing countries. EU Agriculture Commissioner Franz Fischler sought to change all that. The reform he proposed would have turned far more subsidies into rural development promotion funds. But not much of the original concept is left: only five percent of direct payments are to be re-routed for this purpose. It is unlikely that the European Union’s offer will be enough to get the United States to change its own no-less-harmful system of subsidisation. In Cancún, the Europeans will not do much to help swing the tide of farm talks in a direction which favours the developing countries.