Global Policy Forum

European Subsidies Stray From the Farm


By Doreen Carvajal and Stephen Castle

July 17, 2009

Arids Roma is a gritty Catalan construction company in the northeast of Spain that paves highways and churns out dusty gray mountains of gravel from several sprawling factories.

It is also a beneficiary of €1.59 million in farm subsidies from the European Union, which last year doled out more than €50 billion, $71 billion, from the largest agricultural aid program in the world, one that provides financing to a wide variety of recipients beyond the farmers who plow the soil - German gummy bear manufacturers, luxury cruise ship caterers and wealthy landowners ranging from Queen Elizabeth II of England to Prince Albert II of Monaco.

Arids spreads gravel instead of seeds, but it received a farm subsidy for contributing to rural development - money well spent, according to the Catalan regional government, which requested the payment and then distributed it to the company.

"Paved roads connecting the villages aid the mobility of tractors," said Georgina Pol Borràs, a spokeswoman for the regional government of Catalonia.

This year for the first time, all of the 27 nations in the European Union were forced to disclose how they distribute the money from farm subsidies, with Germany the only nation failing to comply in full. A computer analysis by The New York Times and the International Herald Tribune of recipients in major countries has provided the first detailed look at who receives the money.

The data underscore the extent to which the subsidy program has evolved beyond its original goals of increasing food production and supporting traditional farmers as they dealt with market fluctuations. It also illustrates how the European Union has moved to emphasize rural development instead of price support and production incentives, and in the process has decentralized the system, giving countries more discretion over the dispersal of subsidies.

The data showed that the biggest share of aid, about €37.5 billion, still goes to landowners and farmers, distributed in thousands of individual payments across the Continent.

But it also showed that hundreds of millions of euros are being paid to individuals and companies with little or no connection to traditional farming. And the heftiest sums flow to multinational companies like food conglomerates, sugar manufacturers and liquor distillers. In France, the single largest beneficiary was the chicken processor Groupe Doux, at €62.8 million, followed by about a dozen sugar manufacturers that together reaped more than €103 million.

The sugar processors do not run farms and Groupe Doux outsources the task of raising chickens to thousands of contract breeders. But they qualified for agricultural export refunds, government rebates to cover the difference between the European price of a commodity and its lower world market price. That is how the German candy maker Haribo qualified for €332,000 in subsidies for the sugar in its gummy bears.

With so much money available to exporters, some companies reached to the skies and the high seas to qualify. For example, Ligabue, a Venice caterer that serves airlines and luxury cruise ships, received €148,000 in export subsidies in 2008 - for sugar and dairy creamer sachets that it "exported" out of Europe literally in the stomachs of passengers.

European officials and some economists believe that much of the cash from those subsidies ultimately trickles down to local farmers, since without them companies might buy cheaper food elsewhere. But the rebates have a powerful effect on global trade by depressing world prices and undercutting poor farmers outside Europe, whose incomes are damaged. It is another form of price support, economists say, a vestige of an old system that encouraged overproduction of food and one that the E.U. authorities hope to end by 2013.

It is difficult to know exactly how much subsidy money goes to nonfarmers. Some of the information the 27 countries provided was vague, with the real recipients hidden. The E.U. itself says it would be too complicated to calculate how much nonfarmers receive.

But E.U. officials say they have simply adapted the model to support agriculture in all its modern forms.

"Rural development is not just about farms, it is also about environmental projects and boosting the rural economy," said Michael Mann, a spokesman for the European Commission, the E.U. executive branch that has significant responsibilities for agriculture. "So it is perfectly O.K. that nonagricultural businesses get money for a project that generates jobs and prosperity in rural areas."

But critics, including farmers' unions and some analysts and politicians, say the E.U. has created a ramshackle structure of grant-giving that is driven by a wide variety of national interests, and that it has opened the money pipeline to wealthy aristocrats who own land but do not farm it: Companies like Arids, whose connection to farming appears tangential, and to large multinationals hauling in tens of millions of euros in export subsidies in addition to the huge profits they generate.

Agricultural economists for the O.E.C.D., the organization for economic and social policy, criticize this flow as "leakage" because much of the subsidy money is handed out to "unintended beneficiaries" who do not need it.

Harald von Witzke, professor of agricultural economics at the Humboldt University of Berlin, argues that the system has become more bewildering, and in some sense has lost its bearings.

"Justification for it keeps on changing," Mr. von Witzke said of the subsidy program. "First they said it was compensation for reducing support for prices, then they said it was to pay for the competitive disadvantage of high European environmental and animal welfare standards. They are now changing the argument again and saying that this is social policy, though the problem with that is that the big guys don't need it."

He added: "I think we need a complete review of the Common Agricultural Policy, including whether farmers should be subsidized at all."

Politicians' sacred cow

Farm subsidies are a controversial economic tool - a sacred cow for politicians in the United States and Europe. But some economists view them as trade-distorting instruments that hit the pocketbooks of taxpayers and destroy the livelihoods of farmers in some of the world's poorest countries by prompting Western states to dump surplus food there while also reaping the benefit of subsidies.

The E.U. pays out more than half its annual budget, around €53 billion, in farm subsidies, four times as much as the United States. The subsidies cost each European Union citizen around €110 a year, according to the European Commission, a healthy chunk for a family of four. The money is raised from customs duties, sales taxes and a contribution made by each E.U. country based on its wealth.

"Individual families are paying double for their food - one for their higher prices in the stores and then for the taxes that they pay out for subsidies," said Stefan Tangermann, an agricultural economist.

Europe has moved steadily away from the production incentives it promoted in the 1960s, when its goal was to increase the food supply and help farm communities still recovering from the ravages of World War II.

The practice of tying subsidies to food production, which led to vast surpluses in the 1980s, was eliminated in a series of reforms, and grants to landowners are now based on the amount of land farmed, rather than how much is grown on it.

At the same time, the E.U. was shifting more funds away from farmers to a rural development plan that paid out €8.5 billion last year. The idea was to wean the countryside off its addiction to subsidies by encouraging it to diversify.

The money, according to E.U. guidelines, could flow to any number of development objectives: organic farming, farm tourism, infrastructure, renewable energy products and rural businesses. National governments were given great leeway in choosing recipients.

That is how a gravel manufacturer like Arids qualifies for farm subsidies, as did Pasquina, which collected €1.13 million for its new asphalt factory in Spain. The Spanish utility Endesa also was eligible - it received €466,000 for installing electrical connections.

Although some economists and politicians are critical of this extension of farm subsidies, it does have its proponents. David Blandford, an agricultural economist at Pennsylvania State University, said he thought the E.U. had acted wisely, even if it meant spending farm subsidies on projects like building roads. "Improving the economy is the key," he said. "In many rural areas, the future of agriculture and the economic status of farmers really depend on the entire economy."

Large landowner handouts

Overall, the biggest slice of the farm subsidy cake still goes in direct payments for farmland. But even in this category, there is controversy.

Providing the land is cared for and meets environmental standards, it does not need to be farmed to qualify for a subsidy. Mere ownership is enough, and therefore the wealthier the landowner, the larger the handout is likely to be.

The queen of England qualified for £473,500, or $778,812, in total farm aid in 2008 for Sandringham Farms in England, a 20,000-acre royal retreat that has been a private home to four generations of British monarchs since 1862. A pet project of Prince Charles to preserve the Transylvanian countryside also qualified for a nominal sum. Prince Albert II of Monaco collected €507,972 in 2008 for his wheat farms in France.

The duke of Westminster - the third richest person in Britain with a fortune estimated at £6.5 billion - collected £486,534 for his farm. Top Farms, the duke's Polish distributor for his bull breeding company, Cogent, collected more than €8 million in subsidies from 2006 to 2007 for its dairy farms in Poland.

The system also benefits the Roman Catholic Church through many of its ancient abbeys and convents scattered through Italy, Spain, Austria and France. At the headquarters in Burgundy, France, of the Cistercien monks - an ancient international order that takes a vow of silence - the cheese-making brothers qualified for €52,000 for its farms.

A typical small farmer in Romania might qualify for about €400 in subsidies, and that sum ranges upward for farmers in more prosperous countries.

Another stream of money goes to big multinational firms, which can collect subsidies from different E.U. nations, as long as they operate in Europe. One of them is Cargill - the mammoth food producer that is the largest privately held company in the United States, with revenues of €120 billion in 2008. Last year Cargill received at least €10.5 million, collecting subsidies in eight E.U. countries.

Some economists say the E.U. can address potential inequities by establishing a threshold over which people or companies would not qualify for aid.

"If the objective of subsidies is to supplement farm income, then we think it should be means tested - that is, going to people who have low incomes based on taxable income or revenue," said Catherine Moreddu, an economist with the O.E.C.D., who is studying how benefits are distributed for a report she is preparing. "But at the moment there is nothing like it."

European governments have resisted the idea of a threshold, agreeing only to very minor reductions in subsidies for the biggest farms.

Mr. Mann of the European Commission said changes had made the farm subsidy system more effective but conceded that some countries had stretched the guidelines, leading to what seem to be anomalies among the recipients. But he said that giving nations greater freedom was better than controlling the process too strictly.

The safety net stretches far and wide. One grateful recipient is Heiligenkreuz, an ancient Cistercian order in Austria known for its monks' Gregorian chants, their "You Tube" promotional video and their hit album, "Music for the Soul."

Last year the monks struck a half-million dollar record deal with Universal Music. Then they struck gold again by collecting €581,000 in farm subsidies. The money helped pay down the debt on the restoration of their 12th-century monastery. The Heiligenkreuz order manages 18,000 hectares of land, or 44,000 acres, and employs locals to cultivate crops.

"I think this is just a question of justice," said Father Karl Wallner, dean of the monastery's faculty. "The land that is owned by a monastery is being given the same support as everybody else."

It may not be what European leaders envisaged when they set out to feed a continent almost five decades ago, but E.U. cash ensures the survival of this community committed to a life of poverty and chastity.

It is an act of "providence," Father Wallner said. "I have a small room, a bed, no TV. I live poorly, but the monastery has enough money to keep running."



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