A field to level USDA FAS

A field to level USDA FAS


For many continental farmers, the most threatening occurrence last year was not drought, frost or depressed prices but a draft proposal for the future of the European Union budget. Insider sources report that the European Commission is considering cutting back on EU agriculture subsidies in order to fund other priorities. What is driving Cap reform is the process now under way of setting the EU's 2014-20 budget. The exercise is raising questions about whether Europeans want to continue to subsidize farmers when they could be spending on electric cars, "smart" energy grids and other forward-looking projects. The Cap accounts for nearly half the EU budget - some €55 billion in 2009. As well as its sheer size, it is also renowned for its complexity and the internal contradictions that have sprung up over the years. The reforms did not change the amount of money paid to farmers, only the way in which it washanded out. This time, pressure is building both to reduce the total size of the pie and to redistribute its pieces, which will prove far more contentious. Several things have changed since 2003 that will make it more challenging for anyone to tinker with the Cap, let alone push through wholesale reform. For one, the EU has added 12 member states, mostly in central and Eastern Europe. On accession, farmers there settled for a comparatively small share of agriculture subsidies; now they are demanding equality. Second, the European Parliament - once a mere observer of agriculture policy - will now have a full say, thanks to expanded powers conferred on it by the new Lisbon treaty. At minimum, that will add to the bureaucratic complexity of forging any agreement. Some observers are already fretting that a handful of regional and highly politicized MEPs could sabotage reform, as legislators do in the US Congress. Finally, there is the economy. Back in 2003 it was buoyant and open markets and free trade were in vogue. Today policy-makers are operating as Europe struggles to emerge from the worst recession since the 1930s. European farmers have been particularly hard hit. Thanks to depressed milk and pork prices, their 2009 income is estimated to have fallen by 12 per cent, according to Copa-Cogeca, a group that represents European farmers. Across the Continent, governments are turning away from the free market to rescue carmakers, banks, and other national champions. The CAP itself was born in a very different economic and political environment. With fears of supply shortages following the Second World War, stable and generous prices were guaranteed to farmers to prevent an exodus to the cities, as happened after the First World War. It worked so well that by the 1980s Europe was storing lakes of surplus wine, and mountains of butter and wheat bought from farmers. Generous EU rebates helped exporters dump high-priced products on international markets, which did not sit well with developing nations. By the late 1980s, 80 per cent of the CAP budget was devoted to market interventions, storage, and export subsidies. The slow process of leading farmers towards the free market began in 1992. The EU curtailed its price supports and instead began to pay farmers a direct subsidy. In the late 1990s, with the CAP under fire from the World Trade Organization, Mr. Fischler picked up the baton. His Agenda 2000 program broke the link between subsidies and production, giving farmers more freedom to decide what - and how much - to produce for the market. To win political support, the former Austrian agriculture minister left the overall Cap budget intact. But he shifted some of the money from the "first pillar" of spending - direct subsidies - into a new "second pillar" that rewarded farmers for public goods, such as maintaining the rural landscape, improving standards, animal welfare and other objectives prized by policymakers. Pressure to clean up the Cap has only grown as greater transparency has allowed citizens to scrutinize the messier parts of the system. New disclosure laws have revealed, for example, that it is large landowners such as Britain's Duke of Westminster and Nestlé, the Swiss food giant - and not artisanal cheese-makers - that have reaped millions of Euros in payments. The man at the centre of the unfolding debate will be Dacian Ciolos, the incoming commissioner from Romanian. He promises to defend the CAP budget against cuts; however, much will depend on José Manuel Barroso, too. The European Commission president has repeatedly called for Europe to become a leader in emerging fields of "green" energy, such as wind and solar, in order to meet its climate goals and create jobs. But, a Commission proposal last year to increase research budgets by €50bn in the next decade to meet such goals lacked any plans to pay for it. A further source of contention is how much money will be shifted from the first pillar of direct subsidy payments to the second of public goods. Conservationists and environmental groups, for example, have latched on to the threat of climate change to argue for a larger second pillar which, they claim, is the only way to encourage smaller scale, more sustainable methods of farming. Against that, Europe's cattle and grain barons are raising the specter of food security. In a world of limited farm land and growing population, they argue, the EU must feed itself without risking dependency on unreliable trading partners.