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Why the British are right to try to persuade the French to reduce their CAP subsidies.

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How Europe cheats Africa

Heather Stewart describes how the EU's cosseted farmers are helping to keep a continent in poverty

Sunday June 19, 2005

The Observer

If Africa is to be freed from poverty, rich countries must stop giving with one hand and taking with the other. While world leaders are promising to give increased debt relief and aid to the continent, taxpayers in rich countries are bankrolling lavish subsidies which pay for its producers to compete with the same people who will benefit from the G8's generosity. The most powerful commitment Europe could make to saving Africa would be to abolish the Common Agricultural Policy.

Last weekend's historic debt forgiveness deal, which could write off the debts of more than 30 poor countries to the World Bank and International Monetary Fund, will be worth up to £30 billion, spread over the next 25 to 30 years. Europe spends as much as that every single year, subsidising its farmers.

'As we approach the G8, the focus is on aid and debt relief, which are vitally important and could help create the circumstances in which poor countries could benefit from global trade,' says Celine Charveriat, head of Oxfam's Make Trade Fair campaign. 'But while rich countries continue to rig trade rules in their own favour, the developing world will never have the chance to work its way out of poverty.'

The Common Agricultural Policy, which swallows more than 40 per cent of Europe's budget for the benefit of just 5 per cent of its population, is a relic of the postwar years, when the predecessor of the Union was founded. As the EU's official history of the CAP, on its website, puts it, 'The memory of postwar food shortages was still vivid and thus agriculture constituted a key element from the outset of the European Community.' Europe is not alone - the farm lobby in the US is also powerful, and Washington subsidises a range of products, from cotton to maize.

Other industries have been exposed to the rigours of the global market for many years, as thousands of former miners, manufacturers and textile workers could testify; but farmers remain cushioned. When all Europe's leaders pay lip-service to the principles of free trade - and of making poverty history - it is hard to justify giving this one business a £30bn-a-year helping hand.

Tony Blair's insistence in Brussels last week that France agree to open up the CAP for negotiation if Britain is to countenance surrendering its EU rebate, may have been a diplomatic ploy; but he and Gordon Brown have long argued that European farm spending should be radically reformed.

The Prime Minister's last acrimonious row with the French President came three years ago, after Jacques Chirac and the German Chancellor, Gerhard Schröder, struck a deal that froze spending on the CAP until 2013, effectively putting the kibosh on reform for a decade.

Handouts are only part of the problem. In order to protect the European market, the EU imposes hefty tariffs on certain kinds of foreign agricultural goods, helping to push up prices at Europe's checkouts.

The Organisation for Economic Co-operation and Development, the Paris-based think-tank, estimates that the total cost to European consumers, when inflated food prices are added to the direct costs of the CAP, amounts to £70bn a year. Europe also pays export subsidies to farmers when they sell into global markets, which, when combined with direct handouts, allows them to 'dump' excess goods on world markets, sometimes at below-cost prices. Europe exports milk to Brazil, sugar to South Africa, and dried milk powder to Jamaica.

While agriculture constitutes less than 3 per cent of Europe's GDP, it is more than 90 per cent of many African economies; and when cheap European farm goods flood in, it's hard for African producers to compete, even in their own home markets.

There has been some progress since the 1970s and early 1980s, when farmers produced far more than Europe's consumers wanted to eat or drink, and the EU built up notorious 'wine lakes' and 'butter mountains' to prevent prices from plummeting. Under the latest, and most radical, round of reforms, subsidies have been 'decoupled' from levels of production, to use Brussels jargon.

Since January this year, farmers receive a single farm payment, which doesn't take into account how many litres of milk or tonnes of wheat they produce. But the new handouts are roughly based on what farmers used to receive under the old system, and output doesn't yet appear to have changed much. The OECD believes there will still be over-production. 'It's really a sleight of hand. The CAP continues to be a way farmers squeeze money out of taxpayers for supporting production,' says Matt Griffith, trade policy analyst at the development agency Cafod.

Jack Thurston, a trade expert at the Foreign Policy Centre think-tank, says it's time for a complete rethink about whether, and why, Europe should be supporting its farmers. 'You have to take a step back and say, why do we have this process run at an EU level?' Now that subsidies are no longer directly related to levels of production, for example, are they simply social welfare payments for people who happen to be in a certain job? And in that case, shouldn't national governments be paying them, as they do child benefits or state pensions?

Another reason for running (and funding) farm policy centrally might be redistribution. If the CAP was moving cash from relatively rich Old Europe, towards the poorer accession countries in the east, Thurston says: 'It would be like a Marshall Plan: it would bring benefits for the whole Union, provide political cohesion and so on.'

One part of the CAP, the so-called 'second pillar' payments, which help farmers to invest in rural infrastructure and look after the environment, does go to the poorest: it is doled out according to the wealth of the surrounding area as part of the so-called 'structural funds', which flow to the more deprived parts of the Union. But these 'second pillar' payments still only form 15 per cent of the total CAP budget. Most of the cash comes just for being a farmer.

In fact, the accession countries, some of which have huge farming populations, got a raw deal when they signed up to enter the EU. Their farmers began by being entitled to just a quarter of what their rich cousins in France or Germany receive, and will only be allowed to reap the full benefits of the CAP in 2013.

Even then, their single farm payments will be based on yields in the unproductive post-communist years, no matter how much more efficient they have since become. Last year, French farmers still received a quarter of the entire CAP budget.

Another argument often made for the CAP is that it protects Europe's green and pleasant land by making it worthwhile for farmers to look after it. But Britain believes direct payments to farmers, many of which go to large agri-businesses rather than small farmers, are an inefficient way of achieving that aim.

Momentum is building for reform of the CAP. Angela Merkel, the German Christian Democrat leader and likely challenger to Chancellor Schröder, expressed some sympathy for Britain's position in Brussels last week, saying: 'It does not make dealing with the rebate issue any easier that agricultural subsidies lasting until 2013 were set in 2002.' Germany has plenty of farmers but it would also like to see its bills cut, and Blair could form an alliance with the centre-right Ms Merkel if she wins the autumn election.

Europe, like the US, will be under strong pressure at World Trade Organisation talks throughout this year to surrender its farm subsidies in the name of helping poor countries to trade their way out of poverty. This so-called 'Doha round' of talks, due to conclude at a summit in Hong Kong in December, will fix the rules of the global trading system for a decade. Rich countries have promised the rest of the world a 'development round', which will help tip the balance back towards the poor.

Britain's policy, as expressed in the Africa Commission report and enshrined in Labour's election manifesto, is that all export subsidies should be unilaterally abolished by 2010.

The Treasury was delighted last weekend that it managed to get G8 finance ministers to sign up to a communiqué committing rich nations to striking a deal in Hong Kong that would 'deliver substantial increases in market access for developing countries' and 'establish a timetable for the elimination of all trade-distorting export support in agriculture'.

However, signing up to warm words on free trade is only the beginning, and campaigners say the rich world still treats the trade negotiations as a tit-for-tat battle to hang on to as much protection for their own industries as possible.

Peter Mandelson, the EU's trade commissioner, who negotiates on Brussels' behalf at the WTO, said last week that Europe 'stands ready' to cut its export subsidies to agriculture, but only in exchange for cuts in industrial tariffs by developing countries.

Oxfam accused the EU and the US of 'cheating on the poor' and 'Enronising' the negotiations, by using loopholes in WTO rules to disguise their multibillion pound subsidies.

'As soon as you start going through the European negotiating mechanism, development gets very quickly forgotten,' says Griffith.

If G8 leaders really care about the poor, then they should use Gleneagles to throw open the doors of the global marketplace and invite the farmers of Africa to trade their way to development. These farmers will still need help - investment in roads, airports and new technology; but if the world's rich countries set a clear timetable for sweeping away their subsidies, they will save themselves billions of dollars - and help ensure that we are not back in 20 years, rattling the collecting tins for Africa.

Dunce's CAP

· The CAP costs the average family in Europe £16 a week in taxes and higher food prices: Europe's food prices are the highest in the world.

· Each European cow costs taxpayers $2.20 a day, while half the world's population lives on less than $2 a day.

· Most farmers who receive subsidies earn above the average for their country. The average French farmer earns 60 per cent more than a non-farmer.

· The 224 largest cereal producers get £47m a year between them - more than the UK spends on aid to Ethiopia.

· One of the largest recipients of CAP subsidies in the UK is the Duke of Marlborough: more than £1m in the last two years.

· Europe exports sugar and beef to the developing world at less than half cost price, according to Oxfam.

· French farmers receive three times more per head from the CAP than Polish farmers.

· Sugar giant Tate and Lyle received more than £120m in CAP subsidies last year - worth half its profits.

· Prince Charles received £300,000 in subsidies for his Cornwall estate.

· EU taxpayers spend almost £3bn a year subsidising powdered milk exports to Jamaica, according to Cafod.

observer.guardian.co.uk . . .

Edited by Blackleaf
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