By Mark Tran
October 11, 2011
Proposals for reform of the EU common agricultural policy (CAP) will do little to reduce huge subsidies that hurt farmers in developing countries, according to trade campaigners.
The European commission is set to announce proposals on farm subsidies this week, but leaked documents show that in real terms the CAP budget is set to rise from €330bn in 2000-07 to €371bn for 2007-13.
The documents obtained by the Trade Justice Movement suggest that total spending for 2014-20 will increase further, to €435.6bn. European support to farm incomes has fallen substantially over the last 20 years. Farmers earned 22% of total annual receipts from government support over the 2008-10 period, down from 39% annually over the 1986-88 period.
High commodity prices, which automatically push down income support, as well as 25 years of CAP reform have slashed EU spending on agriculture. Despite the decline, it still absorbs almost half of the EU budget. Last year, the CAP came close to swallowing 45% of the EU budget in 2010 (down from 70% in 1985), or about €53bn for a sector that generates only 1.6% of EU GDP.
Long a contentious issue and a source of high-profile rows between the EU and the UK, notably during the Thatcher years, the CAP aims to promote European agriculture by increasing farmers' incomes and supporting the provision of public goods such as the environment. Funded from the European commission budget, it is divided into two pillars. Pillar 1 includes direct payments to farmers and market management measures. Pillar 2 focuses on improving the structural and environmental performance of agriculture and on promoting local and rural development. Currently, three-quarters of the money in the CAP budget is handed out in direct payments to farmers.
EU member states agreed in 2002 that spending on agriculture – though not rural development – should remain steady in real terms between 2006 and 2013, despite the admission of 10 new members in 2004, taking membership to 27.
CAP reform comes against the background of the EU's commitment to what it calls policy coherence for development, which seeks to ensure that all policies, not just development, promote growth in developing countries. The continuing high level of farm subsidies will make it hard for EU policymakers to square the circle.
This attempt at reform is but the latest round of changes going back to at least 1992, when the MacSharry reforms reduced the level of market-price support. Reforms in 2000 and 2003 "decoupled" most payments to farmers from production to give clearer market signals to farmers.
Britain believes the proposals do not go far enough. "We're in a situation where there are global problems with food security, economic uncertainty and the loss of biodiversity," said Caroline Spelman, the environment secretary. "Reforming the CAP is the best opportunity in a generation to take a major step forward in dealing with all of these problems. But we're worried that the commission's proposals will be far too backward-looking, and this precious opportunity will be lost."
Trade campaigners have expressed concern at the impact on poor countries. "The biggest problem is that subsidies keep prices artificially low, mainly for grain traders, so developing country farmers cannot compete," said Ruth Bergan, co-ordinator from the Trade Justice Movement.
Research cited by the Overseas Development Institute (ODI) shows that African and Latin American countries are particularly affected by the CAP. A study last year from the University of Lausanne argued that the world as a whole would gain from the removal of the "most distortive CAP instruments, with Europe being the main beneficiary".
"The reallocation of resources within the economies across the world and corresponding terms of trade effects would increase world economic GDP and welfare by nearly €33bn – the European border protection (various import duties) elimination being the key contributing element," said the study.
The ODI said the main message from such studies is that in many cases CAP instruments are distorting and can damage developing countries. "This problem must be resolved to ensure coherence between CAP reform policy and development goals," it said.
