Bridges Weekly Trade News Digest • Volume 13 • Number 42 • 9th December 2009

Economists Call for End to Direct Payments to EU Farmers

Discuss this articleShare your views with other visitors, and read what they have to say

A prominent group of European agricultural economists is calling for “radical” changes to the European Union’s farm support policies, including the ultimate elimination of all direct payments to the region’s agriculture producers.

In a declaration released last month, the economists argued that the Single Farm Payment - the cornerstone of the bloc’s Common Agricultural Policy — “should be phased out” and replaced by “new schemes…in which aids are granted not on past, but on future behaviour.”

The Common Agricultural Policy, or CAP, accounts for nearly half of the EU’s total annual budget and represents the world’s largest farm payment programme.

But the economists argue that the programme should be significantly scaled back. The EU should move away from “giving every farmer money no matter what he or she does,” explains Giovanni Anania, a professor at the University of Calabria and one of the economists who signed the declaration, “and start asking for [the provision of] services in exchange.”

“The costly Single Farm Payment confers very uneven benefits on member states and on individual farmers, without fulfilling any clear income distribution, rural development, or environmental protection objectives,” the economists wrote. “Support for rural development and for environmental protection is frequently poorly justified and ineffectively implemented.”

Moreover, the economists say they want the EU to be more progressive in reducing its trade barriers to agricultural products from overseas. This could help advance the long-running Doha Round trade talks at the WTO, they say.

“Generally, well-functioning markets rather than state intervention are the best way to attain a demand-oriented, innovative and competitive farm sector,” the economists wrote.

Poor farmers - like all other Europeans who fall below the poverty line - should have their incomes supported by public aid, not agricultural subsidies, the economists argue. The declaration also calls for many of the authorities that are now concentrated in Brussels to be devolved to individual member states, or even localities.

The EU has already made drastic reforms to its farm payment programme by ‘decoupling’ subsidies from production and cutting guaranteed prices of a number of commodities. But critics argue that more needs to be done and that the time is ripe for reform, as policy makers are gearing up to make changes to the CAP to coincide with the new EU budget, which will take effect after 2013.

Anania concedes that some of the changes proposed are “quite radical,” but given the upcoming review of the EU’s budget, he says, “now is the time to try to drastically reform the EU’s agricultural policies.”

Brussels, farmers push back

But the economists’ message has won a cool reception from some policy makers in Brussels.

“It was clear that the document raised serious concerns in the DG AGRI,” says Anania, referring to the European Commission’s Directorate General for Agriculture and Rural Development.

The roughly €50 billion payment scheme serves as a critical support for European farmers, who get on average only about a third of their final agricultural income from the sale of their crops and livestock, according to Pekka Pesonen, Secretary General of COPA-COCEGA, a European farmers’ association. The rest of their livelihoods are supported by the CAP, primarily the initiative’s ‘first pillar’, which includes the direct payment mechanism.

The Single Farm Payment doles out subsidies based on the number of hectares that each farmer owns. Farmers do not have to keep their land in production to receive the payments, but they do have to comply with European standards on public health and environmental welfare, among others.

Calls to cut the CAP have always been opposed by European farmers and now there is a swing towards a more interventionist agriculture policy in the EU, according to Jack Thurston, co-founder of farmsubsidy.org, a CAP-spending watchdog. Thurston, who supports reforms to the CAP, surmises that recent spikes in food prices, coupled with last year’s credit crunch, have shaken confidence in markets. “People are saying free markets don’t work and in the current climate, politicians and voters are more receptive to this argument than they have been for years,” Thurston says. In his view, economists are right to push for reform, but “at present, the stream is rushing in the other direction.”

On that front, European farmers seem to be leading the charge.

“The consequences would be devastating to European agriculture” if direct payments were to cease, says Pesonen of COPA-COCEGA.

Some supporters of a strong CAP say that the end of direct payments would encourage unsustainable behaviour. “Farmers would go for the most intensive production,” argues Tassos Haniotis of the DG AGRI, and such scaled-up activity could have adverse effects on the environment, undermining one of the key goals of modern European agriculture.

But reformers say that European environmental regulations could easily counter such adverse effects.

The case for reform could be further stymied by the incoming European agriculture commissioner, says Thurston. The European Commission president announced late last month that Dacian Ciolos of Romania has been appointed to the post. Ciolos - who studied in France, is married to a French woman, and reportedly considers the country his second home - is widely expected to be sympathetic to the traditional French support for strong farm subsidies.

On 10 December, France will convene a meeting of ministers from the 22 EU states that support a continuation of high farm subsidies. Britain, Denmark, Malta, the Netherlands and Sweden - the loudest supporters of significant reforms - were reportedly not invited to the gathering. France’s agriculture minister, Bruno Le Maire, told journalists that the goal of the gathering is to “produce a battle plan” for the group’s fight for a strong CAP.

Discussions on CAP reform are expected to begin in earnest next year. The European Commission should publish a communication outlining its basic ideas for changes to the CAP “around next summer,” according to Haniotis. That announcement will be followed by about a year of legal proposals and debates before any changes are enacted, he added.

The odds that that process will produce changes on the scale of those demanded by the economists may seem rather low at this point, but calls for reform cannot be dismissed out of hand, says Thurston.

“You never know with these kinds of declarations. Sometimes they gather quite a head of steam, other times they sink without trace.”

More information

The economists’ declaration is available here http://www.reformthecap.eu/posts/declaration-on-cap-reform-overview.

ICTSD reporting.

One response to “Economists Call for End to Direct Payments to EU Farmers”

Jonathan Hepburn 10th December 2009 at 09:41
ICTSD’s new book, “Agricultural Subsidies in the WTO Green Box: Ensuring Coherence with Sustainable Development Goals”, contains extensive analysis of the implications of the current EU farm policy framework for the achievement of economic, social and environmental goals, in both rich and poor countries. More details are online at: http://ictsd.org/i/publications/64573/