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Hunger as an alibi

by Armin Paasch
The EU’s common agricultural policy (CAP) continues to distort global trade. Cheap competition from Europe is aggravating the poverty suffered by many farmers in developing countries. [ By Armin Paasch ]

The European Commission is planning to present its proposal for CAP reform for the years up to 2013 at the end of this year. This will make Europe’s agricultural policy the subject of heated discussion in the coming months. Formulation of the budgetary framework for 2014 to 2020 will be on the agenda at the same time. The German government spelled out its perspective in a position paper of March 31 that was based on recommendations from the Federal Ministry for Agriculture. Basically, it does not want any change. The tenor of the document is that the European agricultural model has proved its worth.

The position paper stresses glo­bal food security as an important objective. Depressingly, hunger and population growth are merely used as an alibi for a strategy to increase production and exports. This very policy, however, has long since been a part of the problem, rather than the solution. Many African and Asian dairy, tomato and poultry farmers suffer because of CAP. They cannot keep up with cheap competition from Europe, so their incomes no longer suffice to provide their families with adequate food. ­Accordingly, countries are becoming ever more dependent on imports because their domestic food production is going down. Prices on the world market are volatile, however, and hurt urban consumers as well during the food-price inflation in 2007/2008.

One harmful reason is that the EU still resorts to the outrageous instrument of export subsidies. In 2009, it allocated more than € 300 million to the export of dairy products alone. The subsidised quantity accounted for nearly one fifth of the global market. ­Almost 70 % of dairy exports end up in developing countries at prices which cover only half of European production costs.

The EU’s internal agricultural subsidies are harmful too. Yes, they have been uncoupled from production volumes to comply with WTO rules and are now basically paid according to the size of land holdings. Nonetheless, there is a dumping effect. When the managers of Europe’s abattoirs and dairy factories drive down producer prices, they know that farmers’ losses are compensated at least in part by state subsidies. In the 2006/2007 financial year, internal agricultural subsidies exceeded € 90 billion for the first time.

Last year, the European Court of Auditors demanded the EU to primarily direct dairy production towards satisfying the needs of the European domestic market. The argument was that only cheese and other products of high added value can be exported without subsidies. Indeed, this is true of other agricultural products too. Ministers of agriculture, however, do not heed such advice.

Both German and European agricultural policy prioritise the lowest possible agricultural prices in order for the domestic food industry to remain competitive globally. In this respect, CAP was very successful in recent decades. Producer prices in the EU were 76 % above world market prices from 1986 to 1988, but the gap has shrunk to 15 %. In 2003, Europe became the world champion in food exports; the global market share is 17 %.

Nonetheless, CAP does not help European farmers. About one half of all farms have given way to structural change since 1992. European consumers, on the other hand, do not benefit much either. Since 2000, producer prices for milk have fallen by 17 %, but the prices consumers pay in supermarkets have risen by six per cent. The big winners from CAP are trade and industry.

The Federal Government’s position paper objects to active supply management, which would help stabilise prices in the EU. It also opposes stricter environmental specifications and more equitable distribution of subsidies between farms. It even says that export subsidies should only be abolished if the WTO agrees on new trade rules – which is patently unlikely for the time being. In the FAO context, Germany’s Federal Government is a praise-worthy advocat of the right to food. Unfortunately, its agricultural policy is undermining that very goal.