Joyeux Anniversaire! Alles Gute zum Geburtstag! Buon Compleanno! Hartelijk gefeliciteerd! Feliz Cumpleaños! Nifrahlek ghal gheluq sninek! (The last one is Maltese - I don't want to be accused of ignoring the smaller countries now do I!)
Just a quick post to congratulate the EU on 50 years of existence. I know there are many who would rather see the back of it but I am proud to say I am not one of them. I sincerely believe the EU has, overall, had an extremely positive effect on our continent. Long may it continue!
That said, it seems as if our union may be going through something of a mid-life crisis. The CAP once served a purpose in times of food shortages but it is long past its sell-by date. If you're thinking the same as me then might I suggest you send the EU a little birthday greeting? Post a comment on the EU Commissioner for Agriculture's blog. Tell her that we're proud of our union as it passes the half century mark but that we want the madness of subsidised agriculture to CEASE! (If enough of us mention the campaign then maybe she'll even put in an appearance here at a later date!)
Monday, March 26, 2007
Happy 50th Birthday EU!
Friday, March 16, 2007
Stop, Look and Listen! – Farm Subsidies and the WTO Traffic Lights
Before trying to make this debate slightly more intelligible to those not familiar with the vast jungle of terminology that is often used (myself included), I thought I’d lighten the mood with a short joke:
Q: Why did the farm subsidy cross the road?
A: Because the WTO’s red light didn’t work.
OK, I know it’s not a very funny joke so what the hell am I getting at? Whenever I read any document on the subject of farm subsidies the writers always seem to refer to a curious array of different coloured boxes. Here’s a little something I found on the WTO’s website:
“In WTO terminology, subsidies in general are identified by “boxes” which are given the colours of traffic lights: green (permitted), amber (slow down — i.e. be reduced), red (forbidden). In agriculture, things are, as usual, more complicated.”
You’re damned right they are! For a start, when it comes to agricultural subsidies, there is no red box, i.e. no type of subsidy that is entirely prohibited. What’s more, there’s a blue box under which subsidies can also be classified. Wait a second, that doesn’t sound like any traffic light I’ve ever seen! The blue box is an exception to the normal rules and allows subsidies that are not de-coupled from production (and as I mentioned in my last post this type of support normally leads to over production and ‘dumping’). Countries are supposedly phasing out subsidies in the amber box which are generally accepted to be ‘trade distorting’ such as price supports. However, unlimited amounts of green box subsidies are currently allowed. In order to qualify for the green box, subsidies “must not distort trade, or at most cause minimal distortion.”
The terminology above is used to classify domestic support for farmers. A further cause of trade distortion has been the use of export subsidies which enable producers in the EU, as well as other rich countries, to continue ‘dumping’ i.e. exporting excess output at below cost price. As noted in my previous post, this puts downward pressure on international prices for agricultural goods that many developing countries rely on as their main source of income. Negotiations to end this practice started over 20 years ago with the Uruguay Round of WTO negotiations. However, it wasn’t until the WTO’s Hong Kong Ministerial in December 2005 that a commitment was finally made by all members to completely remove export subsidies. The date set for this reform to be fully enacted is 2013.
So, at least on paper, it would seem that progress is being made. Export subsidies are on the way out (albeit at a snail’s pace) as well as other forms of trade-distorting domestic support (from the amber box). That just leaves the green and blue boxes to worry about then.
A recent report by the international NGOs ActionAid and Cafod argues that even if export subsidies are completely abolished and the EU continues to phase out support from the amber box, the practice of dumping by EU producers is almost certain to continue. First of all, that grand declaration that came from the Hong Kong meeting is mostly symbolic. Even without the pressure of WTO legislation, export subsidies as a proportion of total EU agricultural spending fell from 50% in 1980 to just 5% in 2006. That said, complete elimination of export subsidies should still be a high priority. As the report shows, one of the greatest injustices of the Uruguay Round was not only that it allowed developed countries to maintain around two thirds of their export subsidies for agricultural products but that in also allowed them to negotiate very favourable reference years in which to frame future cuts. In other words, they chose years when export subsidies were even higher than normal and then said “we’ll reduce from those levels”. As well as promising a total reduction by 2013 the declaration promised to bring about substantial reductions before 2010. However, they’re still using these inflated levels in their calculations which means that, in practice, there is unlikely to be any change in the real levels of export subsidies before 2010. This doesn’t sound much like progress to me.
What about the supposedly kosher domestic support (the green and blue boxes)? Since the other types of subsidies are being phased out this is increasingly where the money is being channelled. The reforms to the CAP in 2003 introduced decoupled direct payments which qualify for the green box and are hence not subject to any of the reduction commitments. However, in response to protests from many member states (mentioning no names) some direct payments are still allowed to be coupled (i.e. farms get more money if they produce more) and hence fall into the blue box. So far only the UK, Ireland, Germany and Luxembourg have introduced full decoupling. The report estimates that about €30 billion of direct payments will be made in 2013, of which €25 billion will be in the green box and €5 billion in the blue box.
So what’s the punch line? First of all, even without embroiling ourselves in the finite details of what it means for payments to be ‘coupled’ or ‘decoupled’, it should be noted that dumping from the US market has been ongoing even though decoupling was introduced over 10 years ago, in 1996. The UK introduced decoupled payments last year but export prices for goods like wheat and barley were, respectively, still about 30% and 45% below the cost of production. Secondly, since world prices are not expected to rise significantly over the period 2006-2014 EU producers are likely to continue producing at a loss. They are able to do this by using the single (decoupled) payment to cover their losses. As long as this system is in place we shouldn’t expect any significant changes in production levels. This means that goods from the EU will continue to flood international markets and destroy possibilities for more efficient producers in developing countries. The EU commission itself does not predict any significant reduction in exports for many major farm products. Where reductions do occur they are more than offset by increases in other goods.
In conclusion then, “to decouple or not to decouple?” does not seem to be a very significant question. We need to give the CAP the red light. The only solution is to CEASE subsidy payments completely!
Saturday, March 10, 2007
Stop this madness...right now!
The purpose of the Campaign for the Eradication of Agricultural Subsidies in Europe, (CEASE) is to provide a platform upon which to bring together and organise voices opposed to the EU’s Common Agricultural Policy (CAP).
What exactly is the problem with the CAP? Under the current system European farmers are subsidised with EU taxpayers' money to the tune of €45.5 billion per year (2005 figure). This represents over 40% of the EU's total annual budget and amounts to about €100 per EU citizen. The system started as a way of ending food shortages after WWII, a problem that does not seem particularly acute in the EU today. Today, subsidy payments are distributed on an increasingly unequal basis, with more and more of the money landing in the hands of large multinational companies, rather than small family farmers as people often assume.
The system works by guaranteeing producers a minimum price for agricultural goods like milk, butter and sugar. This price is normally significantly above the world market price. Farmers also receive subsidies depending on the amount they produce, although this system is currently being replaced with single payments that are 'decoupled' from production. However you look at it though, the fact is that EU producers receive unfair support meaning they enjoy lower production costs than their competitors in other parts of the world.
So what is the result of all this? The system is quite simply an example of terrible economics. We support farms (often large multinational companies) that would be unable to turn a profit if it wasn't for generous subsidy payments. EU governments keep prices within the member states up by buying large amounts of the products themselves. This results in the over-production of goods since producers don't have to play by the normal market rules. These surpluses (of e.g. milk and sugar) are then 'dumped' on foreign markets at below cost price (by means of export subsidies). This floods those markets with cheap subsidised goods causing local producers to go out of business. When you think that the markets in question are mostly those in poor, developing countries, where a large proportion of the population depends on agriculture to make a living, the consequences of this madness are devastating and can even lead to starvation.
All very well you might say, why don't we simply buy more goods from outside the EU? The increased competition is sure to eventually force prices within the EU down as well as help poor farmers in developing countries, right? Think again. Not only does the EU dole out unfair subsidies to its farmers with one hand, it uses the other to close the door on products from outside the EU. Agricultural goods from other countries are subjet to import tariffs. What this basically boils down to is that, when imported, agricultural goods are subject to a duty which ensures that they will not be competitive against our domestic (subsidised) produce. This is, to a large extent, the sticking point in the ongoing Doha Round of WTO negotiations. A further consequence is of course that consumers inside the EU have to pay higher prices. Yes, you heard correctly, EU producers are subsidised with our money and we have to pay higher prices! That's a two-handed economic slap in the face for every EU man, woman and child!
What can we do about this? Just like beating alcoholism, the first step is to recognise that we have problem. This blog is obviously not the first place the problem has been recognised. NGOs like ActionAid and Oxfam have, for a long time, campaigned on the issue. Guardian columnist Victor Keegan has also been drawing attention to what is happening with his blog KickAAS and, more recently, the sterling work of farmsubsidy.org has been lifting the veil of secrecy surrounding CAP payments and shedding light on exactly who gets what. So why are subsidies still being payed out? It's time to take a stand and unite on a single platform with one voice, reach out to citizens across Europe and target the campaign at those who make the decisions. This won't be easy. Although only a very small minority benefit under the current system, the farming lobby is a formidable force. It is hoped that CEASE will do to agricultural subsidies something like what the Jubilee movement has done for third world debt. I promise to come back shortly with a 'to do list' to this effect. In the meantime I am hoping this blog will act as a portal to engage with other interested people, stimulate the debate and (hopefully) lead to the formation of a trans-European army of anti-CAP activists!
Although the winds of change are starting to blow through the corridors of Brussels (with a total decoupling of payments promised by 2013) it is the opinion of this blog, as the name suggests, that the system of farm subsidies should CEASE completely. "That's imposible" you might exclaim "surely our countryside will go to ruin and there will be millions out of work". Well, here's some food for thought (excuse the pun); there is already one developed country that has totally abolished farm payments, namely New Zealand. Considering one of the first things one associates with the Kiwis is their lamb, as well as the fact that there are colossal distances between their producers and foreign markets, I think it's fair to say that if they can do it, so can we!
