A fortnight ago I was in Strasbourg where I was lucky enough to speak to two Liberal Democrat MEPs from farming backgrounds about their work to reform the EU’s Common Agricultural Policy (CAP).
Phil Bennion, Liberal Democrat MEP for the West Midlands, explained to me how the CAP, which has two pillars of funds, works.
“Pillar one is common to every country in the European Union, pillar two is devolved and co-funded by member states. In the UK we spend 80% of our pillar two money on environmental schemes, while other countries spend theirs on things like cooperative marketing, cooperative storage schemes and training. Pillar one is the only part of the policy that is totally common.”
Phil’s interest in reform of the CAP “goes back to the mid-1980s when we were still in an era of price support, and we were using price support as a means of supporting farmers.” And, as he explained, “the consequences of that, were that, having paid £100 a tonne to the farmer for intervention to grow the wheat, what the EU was doing then was selling it at £30 a tonne – mainly to north Africa – which didn’t seem to me to be a sensible policy.”
“It seemed to me that we didn’t have an agricultural policy – we had a policy of disposing of large tonnages of grain to poor countries at very low prices.” And so the effect, Phil explained, of the CAP of the 80s was to undercut poor farmers in developing countries.
After seeing these and other “perverse incentives” in the CAP, Phil came up with a series of ideas to deliver a different form of agricultural support. He came up with the key idea that support should be delivered along area lines and with other payments for farmers providing specific ‘public goods’ – such as improved biodiversity, for example.
George Lyon, Liberal Democrat MEP for Scotland, wrote the European Parliament’s first report on reform of the CAP. George told me his main themes were “the need to incentivise and drive a new agricultural production system that was much more nutrient efficient, energy efficient and carbon efficient – and much more sustainable.”
And Phil and George have had remarkable success in their efforts to reform the CAP – helped by the liberal block being the swing vote in the European Parliament.
George Lyon says “Back in the 80s and 90s the system was to support the end price and that made the cost of food to consumers higher, but it also resulted in huge butter mountains and food mountains and wine lakes and all the rest of it. That system has been dismantled since the 90s and the last reform liberalised the agricultural markets across Europe quite substantially. The CAP of the past is long gone, and dead and buried thank god.”
“The drive has been to a much more market focused policy, one where the public purse rewards for the delivery of public goods and that’s the direction we want to keep pushing in.”
The common perception of CAP is of a monolithic waste of money, paying money to do nothing. But Phil says this is completely inaccurate. “We’ve got rid of set-aside, we’ve got rid of the food mountains.”
“The idea that the CAP is this monster out of control is a thing of the past. In the 80s CAP took up 85% of the total EU budget. It will be down to under 40% this year and, under the commissioner’s plans, it’s expected to fall to somewhere around 35%.”
Given that reform of the CAP is something Liberal Democrats have pushed long and hard for, I put it to George Lyon that the CAP might be called a Lib Dem success story. “Yes” he says. “Liberals have pushed hard to reform the CAP and that has been one of the success stories.”
* George Potter is a councillor in Guildford
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22 Comments
Reform of the CAP will not increase efficiency or lower prices to the consumer.
The geographical and economic realities are such that yields per hectare will have to increase substantially over the next 40 years.
The CAP – especially after recent reforms – leads to farm yields well below the level of maximum efficiency. This lack of efficiency has several dimensions: land is not used for the most efficient crops; yields per hectare are well below the maximum attainable levels; and incentives to adopt – or research – new technologies that will increase productivity have been blunted.
Research shows that farm subsidies do not necessarily help bio-diversity and that their abolition would lead to a less than corresponding fall in farm incomes. To a large extent, subsidies become capitalised in land values, thus increasing costs to farmers. Between 1992 and 2009 – the period since the introduction of direct payments under the CAP – the value of agricultural land and buildings in the UK rose 400 per cent compared with 38 per cent general inflation. This suggests that one of the effects of removing direct payments would be a decline in land prices, rents and associated production costs.
The abolition of subsidies in New Zealand demonstrates how government subsidies damage productivity and their removal leads to increased productivity.
The EU has articulated an ambitious strategy for Europe that sees biotechnology as key in fighting hunger and malnutrition and feeding an increasing human population on the currently cultivated land area with reduced environmental impact. Yet, the EU has positioned itself at the extreme restrictive end of the regulatory continuum concerning GM products thereby effectively constraining research and reducing take-up – the EU is therefore holding back potentially far reaching changes in farm productivity growth and competitiveness.
In addition to deregulating agricultural technology, the EU should also phase out direct payments to farmers amounting to €40bn per year. This would dramatically reduce government expenditure as well as leading to a more efficient farming sector, higher productivity and lower food prices.
The current review of the CAP represents the best opportunity for a complete change in agricultural policy that meets the challenge of rising global demand for food, but the reform must be radical.
I’ll preface this by saying I don’t have much time for ‘reforming’ the CAP so much as abolishing it. Likely the most illiberal part of the CAP isn’t the system of payments but the system of tariffs on imported goods, which hasn’t been mentioned. That’s what unnecessarily hobbles the agriculture of LEDCs, so that we can manufacture a system of food security and industrial welfare (later pretended as one of environmental protections as political tastes changed).
CAP is credited as a reason for Doha’s failure, and as a major contributor to food-price volatility that we’ve seen since 2008 ( http://capreform.eu/how-the-cap-contributes-to-world-market-food-price-volatility/ ) . Developing countries understandably don’t like it: it’s a protectionist racket designed by the world’s wealthy governments, protecting the world’s wealthy farmers against their natural competition and occasionally repackaged as a machine for a different political purpose. I’m glad that CAP has shrunk as a proportion of the EU budget: whether that speaks more to the growth of the EU budget or not is hard to say without figures. It’s still hardly a minor expenditure, some 58bn Euros in 2010 for something that now makes up less than 2% of EU GDP.
I’m afraid I can’t see provision of public money for delivery of a very spurious ‘public good’ as in any way a market-based reform. If we had a market-based system of agriculture, people would buy what they wanted from their own nation, at an unsurprisingly higher price while food from other nations, those which could actually do with a little bit of free trade in this sector, would benefit to the extent that people wanted cheaper food. I’m glad CAP is less ridiculous than it used to be. But it is ridiculous by design, and just being rid of it would be the best option.
@Sean
I’ll be doing a follow up post on future reform of the CAP next week – which I think will address a lot of your comments.
@Mike Bird
The main reason DOHA failed was the unwillingness of the US to cut subsidies to their farmers. George Lyon told me, quite accurately, that there’s no point in scrapping subsidies in the EU unless you scrap them everywhere else in the world.
And, to be frank, moving towards “public money paying only for public goods” seems to me to be perfectly fair. Farming has created some of europe’s most beautiful rural landscapes – landscapes that bring in tourists. Farming also has the opportunity to boost biodiversity to the benefit of everyone. And so on. These are all public goods and so the public purse should incentivise farmers to produce them.
I’d also suggest you wait until you see the article next week, because a lot of your points will also be addressed then,
But it’s absolutely wrong to say that the CAP contributes to food price volatility – the article you link to, correctly, identifies the problem as import and export tarrifs but is absolutely wrong in linking the tarrifs to the CAP. The tarrifs are a separate thing entirely.
P.S. I checked and the reason the CAP has shrunk as a proportion of the budget is because the money going into it has cut – not because the rest of the EU budget has ballooned.
When food prices are rising, why is not having surplus food a good thing? Surely the availability of more food would lower food costs to consumers?
I agree with Sean and Mike that it is abolition, rather than reform, of the CAP which is required. Piecemeal reforms over many years have reduced some of its most pernicious effects but there is still a long way to go and the timeframe is unacceptably glacial.
CAP remains a protectionist racket which feathers the nests of wealthy European farmers, sheltering them from competition from farmers in poorer nations while raising world food prices and impoverishing millions of people.
Moreover, its continued existence acts as a barrier to progress in WTO negotiations and prevents the wider liberalisation of world trade that is urgently required to ensure that globalisation works in the interests of developing countries.
George writes: “George Lyon told me, quite accurately, that there’s no point in scrapping subsidies in the EU unless you scrap them everywhere else in the world.”
Here we have the classic cry of protectionists through the ages when they have run out of other justifications. The same argument is used about removing tariffs, export subsidies and other non-tariff barriers to trade. It misses the key point that, even within countries that practise it, protectionism privileges a minority (producers of protected goods) while harming the majority (consumers and taxpayers).
Protectionism is bad for rich and poor countries alike; indeed, the fact that average tariff levels are higher in poor countries than in rich ones is one key reason why they remain poor.
Granted, it is more politically difficult to face down the vested interests of EU farmers if there is no movement from other parts of the world. (The logic of course works the other way too.) But from the point of view of the welfare of consumers and taxpayers worldwide there is every “point” in doing so. Indeed, a truly enlightened country or trading bloc would do so unlilaterally rather than hiding behind the excuse that others are just as bad.
As the economist Joan Robinson famously observed, just because your trading partner throw rocks into his harbour, that is no reason to throw rocks into your own.
Like others I believe we need to a far more radical reform. Someone please correct me if I’m wrong but is it not the case that most CAP money still finds its way into the pockets of the wealthiest farmers?
One way I would like to see policy evolve is towards providing greater food security for Europe – one widespread crop failure and we would be in a whole lot of trouble. We don’t think about this possibility much because it hasn’t quite happened in recent years despite a couple of close shaves. We may be just one big volcanic eruption (or equivalent) away from widespread hunger. How common are such events? It’s hard to say but perhaps once every century or two – not good odds.
“The main reason DOHA failed was the unwillingness of the US to cut subsidies to their farmers. George Lyon told me, quite accurately, that there’s no point in scrapping subsidies in the EU unless you scrap them everywhere else in the world.”
The first sentence is simply not true: the refusal of the US was no more (or less) responsible for Doha’s failure than the refusal of the EU and the Japanese to give up their own protectionist policies. The second sentence is economically illiterate: the benefits to removing barriers to trade are enjoyed by the nations removing the trade barriers even when other nations maintain protectionist policies. By allowing cheaper/higher quality imports, one allows the domestic market to specialise in areas of comparative advantage – if we import food, we can focus on manufacturing, or services, etc. This was the clear lesson of the C19th, where the UK unilaterally opened up trade and saw enormous growth as a result.
Frankly, this “we won’t move first” nonsense is just an excuse to delay action.
“moving towards “public money paying only for public goods”… Farming has created some of europe’s most beautiful rural landscapes – landscapes that bring in tourists. Farming also has the opportunity to boost biodiversity to the benefit of everyone. And so on. These are all public goods ”
You appear to be confused as to what a Public Good is: “bringing in tourists” is not a public good; it is a good that benefits the tourist industry, which would have an interest in providing tourist attractions, including rural idylls, that is entirely private. Also, far from “boosting biodiversity”, farming produces sterilised monocultures that eliminate insect and bird species.
“it’s absolutely wrong to say that the CAP contributes to food price volatility … The tarrifs are a separate thing entirely.”
No. The tariffs are an integral part of the CAP. They are distinct from the subsidies, but they are still a part of the CAP. And both cause price volatility.
I find it really sad that self-styled liberals continue to defend these modern-day Corn Laws, which simultaneously cost taxpayers EUR 46 billion a year while pushing up aggregate food costs by EUR 47 billion a year!
@Liberal Eye:
“is it not the case that most CAP money still finds its way into the pockets of the wealthiest farmers?”
It is. You are not mistaken.
“greater food security for Europe – one widespread crop failure and we would be in a whole lot of trouble”
Actually, you point perfectly demonstrates why European food security is to be found in trade, not domestic production. It is by creating a global market for food that we will achieve true security, providing ourselves with alternatives in the event of a widespread crop failure in Europe.
CAP is a load of protectionist nonsense that should be destroyed. There’s absolutely no excuse for the EU (or national governments for that matter) using subsidies to manipulate food production and prices. Complaints that other countries won’t get rid of their subsidies simply won’t wash, I’m afraid.
George, Alex said most of what I needed to. The argument about what Doha failed over ‘mostly’ is extremely debatable, but subsidies and protectionism (ours or those of the US) are the crux of it, and I simply can’t support any form of such an obvious crippling of development in much worse nations than ours, and such a clear impediment to efficiency. When we began scrapping many tariffs in the 19th century, we didn’t wait for other countries to agree to do so: we just knew free trade was best, and we were right.
You may think farms create beautiful landscape, I may disagree. I might think that a particular listed building is worthy of my efforts to preserve and join the national trust, but I’d be a bit annoyed if the money to preserve it was simply taken from me and handed over based on a political decision.
Tariffs are a part of the sections on agriculture that the Treaty of Rome and others established, and import tariffs are the other side of the CAP’s coin. Sadly the great work done in the treaty to rid the EU countries of imposing tariffs against each other also laid the groundwork for “a common customs tariff and of a common commercial
policy towards third countries”. This is from article 40:
“The common organisation established in accordance with paragraph 2 may include
all measures required to attain the objectives set out in Article 39, in particular
regulation of prices, aids for the production and marketing of the various products,
storage and carry-over arrangements and common machinery for stabilising imports or
exports. ”
The quite clear requirement of tariffs set out to regulate prices is part of the machinery of the CAP, the origins of which are articles 39-46 of the original treaty. They are required to ensure the basic elements of the functioning of the CAP. http://ec.europa.eu/economy_finance/emu_history/documents/treaties/rometreaty2.pdf
We should remember that this isn’t small beans: the OECD reckons that abandonment of subsidy could add $26bn to the world economy, obviously assisting most the people whose ability to compete would be unlocked.
The UK’s accession to the common market in 1973 was largely predicated on the issue of food security and tariff free access to European markets. There has not, however, been a sound economic argument for continuing with the CAP for mamy years now.
Agrucultural subsidies are an intensely political artefact, inextricably linked with powerful agricultutal lobbies. Perhaps, even mose so in Japan and the United States than in Europe.
As Sean Rickard notes above, the impact on agrucultural land prices is pernicious – erecting a barrier to entry to smaller farmers.
This is a relic of Europe’s post-war settlement that had had it’s day. The time has come to cut the umbilical cord and free the agricultural sector to unsubsidised open competition.
To be fair, there are some welcome moves afoot in the latest reforms, such as ending the hugely damaging sugar production quotas, which greatly disadvantage farmers in poor countries and channel large amounts of public money to European agri-business. But many harmful practices remain, and the overall edifice is intact.
As I understand them, the EU’s current plans for CAP envisage a continuation of the two-pillar system, in which pillar one (production subsidies to farmers and price support) accounts for the vast majority of the budget and pillar two (rural development spending) a much lower proportion. Pillar one spending alone totals more than any other item in the EU budget.
The UK and Nordic countries have argued for a significant cut in overall spending on CAP with support focused more through pillar two, but France in particular is determined to keep high spending on pillar one.
The latest proposals actually blur the distinction between the two pillars, since it seems that pillar one funds can be used towards objectives currently addressed by rural development funds (eg payments for the provision of ‘public goods’). This in turn will make it harder to reduce pillar one funds, which may well be the intention.
As Phil Bennion says, pillar two is “devolved and co-funded by member states”. But to secure funding under pillar two member states are required to produce a Rural Development Plan which has to be approved by the Commission.
I see no reason why this should be decided at EU level at all. If national governments want to fund rural development schemes they should be free to do so in their own particular ways, but there is no genuine cross-border issue here that justifies funding being allocated to the EU and then channelled back to member states.
To address the two main points that have been made:
1) CAP subsidies do go to wealthy farmers – however, they’re tapered, much like income tax levels so that they fall off as farmers become very wealthy. Exactly the same principle as the benefits system.
2) Additionally, the subsidies of the CAP have been reduced steadily over the past 30 years – in tandem with negotiations to get other blocs to lower their subsidies.
If CAP were unilaterally abolished then all that would happen is that European farmers would be instantly put out of business by being unable to compete with subsidised farmers in other countries. And, as a result, 35% of the world’s arable land would be abandoned for farming purposes and food prices would rise.
I, personally, don’t like subsidies but, since they already exist, you’ve got to be careful about how you get rid of them so as not to wipe out an entire industry. Anyone who argues for the instant abolition of the CAP is economically illiterate. Moving together towards abolishing subsidies is what most countries are working towards.
Additionally, I’m pretty sure that most people arguing for the abolition of the CAP would actually still like to se some subsidies – such as for improving biodiversity.
@Alex in particular
As I mentioned in the article, the UK spends most of its Pillar 2 on “greening” measures. But that’s not the same for other countries. Hence the desire to move greening measures into Pillar 1 so that greening is implemented across Europe with any leftover money being recycled into Pillar 2.
This is, again, one of the things that will be covered in next week’s piece.
But if you’re advocating that we replace the central EU scheme with various national ones then what you’re basically saying is that you want to end the single market in agriculture. Wanting to do so as part of ending the single market alltogether is a perfectly reasonable position, albeit one I would disagree with. But if you want to keep the single market then what you’re asking for is a single market in every area except agriculture. Which is simply ludicrous.
@Tom Papworth
Just to address your point in particular, let me emphasise again that 35% of the world’s arable land is in Europe. If we lowered out barriers unilaterally then we’d lose most if not all of that farming. Whilst the economy would probably diversify in other ways, that doesn’t make up for the fact that rural economies would be wiped out and that some areas of Europe, particularly the eastern bloc where they still have the legacy of collectivised farms, would be hit incredibly hard.
Additionally, with the global population set to reach 9 billion by 2050, the world would have to feed 3 billion more mouths or so on a third less land. Which would mean either high food prices, and mass starvation in the developing world, or deforestation of places like the Amazon in order to grow more food – which would be equally catastrophic.
@Alex again
For the record, George Lyon and Phil Bennion are both economic liberals and both have made a major effort in liberalising the CAP. I’d particularly recommend reading the policy papers on the CAP they’ve written before you accuse them of resorting to the “last cry of protectionists”.
@ George
First of all, I don’t believe that either domestic or EU policy can be justified on the basis that it helps particular interest groups which are portrayed as worthy – and that includes farmers, who are nothing if not effective lobbyists. (As it happens much of my family has a farming background, so I certainly have no axe to grind against farmers – but they are not uniquely deserving of taxpayer support and anti-consumer market intervention.)
“…If you’re advocating that we replace the central EU scheme with various national ones…”
Personally I’m not advocating that we “replace the central EU scheme with various national ones”; I’m arguing that we should phase out agricultural subsidies altogether.
That said, I would note in passing that many British farmers, especially small hill farmers, fared better under the post-war system of deficiency payments and that (at least until the 1960s when import controls were introduced) that system had fewer economically damaging features than the CAP of the 1970s and 1980s. CAP favoured, and was designed to favour,
“…then what you’re basically saying is that you want to end the single market in agriculture. Wanting to do so as part of ending the single market altogether is a perfectly reasonable position, albeit one I would disagree with. But if you want to keep the single market then what you’re asking for is a single market in every area except agriculture. Which is simply ludicrous.”
I find this logic bizarre. The single market is (supposed to be) about lifting barriers to the free flow of goods, services, capital and people throughout the EU. To ensure fair ands undistorted competition in this single market there are general rules restricting the use of state aid that apply to most industry sectors.
These rules do not apply to farming (or fisheries). Key legal instruments of EU competition policy are not applicable in the agricultural sector, which enjoys a raft of exemptions. Subsidies that are deemed to be compatible with CAP are specifically exempt from the general state-aid rules. (And of course EU agricultural policy itself erects tariff and non-tariff barriers against the rest of the world.)
So while there is a single market in agriculture, it is not subject to the normal single market rules, because agriculture is deemed a special case. Instead there is a sector-specific policy, which reflects the origins of the EU in terms of sectoral integration and the bargains that were struck between the two main founding countries (France and Germany) as well as concern about post-war food shortages. As Joe says, it is “a relic of Europe’s post-war settlement that has had its day”.
I’m not saying I want to end the single market in agriculture; I’m saying I want to dismantle CAP and end the special treatment of agriculture so that it is brought within the ambit of the general single market rules that apply to most other economic activities.
It might be that some of the pillar two functions of CAP (supporting land stewardship, conservation etc) would be compatible with the state aid rules, and if so member states should decide for themselves whether they want to pursue these without money having to be channelled through the EU and then recycled.
My main point in this regard was that CAP is now defended on the basis that it is supporting rural diversification, conservation and so on, and yet this rationale is weak because there are few genuine cross-border issues at stake. Along with its other failings, it therefore breaches the principle of subsidiarity, which holds that decisions should be taken at the most local level possible.
As Nick Clegg pointed out in a chapter on EU reform in the Orange Book back in 2004, much the same argument applies to the way EU structural funds to depressed regions are dispensed. Clegg argued that it made no sense for countries that are net contributors to the EU budget to receive recycled structural funds.
As part of an argument for a rebalancing of “lopsided” EU competences, Clegg wrote: “Regional funds are still being channelled to all member states, even those such as Britain, France and Germany, who are the main contributors in the first place… Logically, those governments should take full responsibility for the channelling of funds to their own deprived regions, rather than depend upon the recycling of funds via the EU.”
He also correctly noted: “It disrupts the key relationship between voters and those elected to public office if domestic issues with no obvious EU dimension are arbitrarily shuffled off to Brussels for resolution.”
@ George
“For the record, George Lyon and Phil Bennion are both economic liberals and both have made a major effort in liberalising the CAP. I’d particularly recommend reading the policy papers on the CAP they’ve written before you accuse them of resorting to the “last cry of protectionists”.
I’m certainly not accusing them of being protectionists; I agree they (and ALDE more generally) have been ‘on the side of the angels’ when it comes to at least reforming the CAP in the right direction.
But the specific argument you cited – that there is no point in scrapping subsidies in the EU unless they are scrapped everywhere else in the world – is an argument perennially invoked by those favouring the retention of protectionist measures, notably the French and Americans with regard to agriculture.
As I said, it makes the elementary error of assuming that protectionist measures benefit countries that deploy them while harming their trading partners. In reality they are self-defeating and harmful to the countries deploying them.
Following the Bush administration’s introduction of steel tariffs in 2002, the cost to American steel users in higher prices and lost jobs dwarfed the benefits to American steel firms. Likewise, the fact that average tariff levels are much higher in developing countries than developed countries hurts them much more than us.
The idea that trade liberalisation can only be beneficial if pursued multilaterally and with all countries in lock-step seems to be based on the mercantilist fallacy that exports are the point of trade.
This gets it the wrong way round: exports are the stuff we send off to Johnny Foreigner so that we get what we actually want, that he does better and cheaper than we can make ourselves. Imports are the purpose of trade, not exports, a corollary of Adam Smith’s argument that the purpose of all production is consumption.
But while unilateral trade liberalisation is desirable in principle and would bring overall benefits to the country doing it, I accept that the influence of powerful producer lobby groups in all countries means that the multilateral route – with the inevitable horsetrading – is probably the only practical way of advancing the cause of free trade worldwide. It is in this context that rich-country protectionism is a major political obstacle to developing countries realising their potential.
@Alex Sabine
I’m not arguing that subsidies aren’t harmful (though I’d argue that minor, targetted intervention, can bring about returns of many multiples of the subsidies put in) but what I am arguing is that scrapping the EU’s subsidies would leave european farmers unable to compete with subsidised farmers in the rest of the world – much like North African farmers found out during the era of CAP’s price support. *Unilateral* ending of subsidies would destroy Europe’s agricultural industry – and, as I said, given that we have over a third of the world’s agricultural capacity, this would have a horrific knock-on effect on food prices.
I agree with you that the multi-lateral route is the only practical way of lowering and eventually abolishing subsidies. But I also think that it is, from a liberal point of view, the principled thing to do. Unilateral action which results in the destruction of an entire industry, which results in increased deforestation in South America for farming purposes and which massively increases food shortages and food prices is exactly the kind of thing that no one should advocate – even in principle.
@George Potter:
“If CAP were unilaterally abolished then all that would happen is that European farmers would be instantly put out of business by being unable to compete with subsidised farmers in other countries.”
That is not borne out by the evidence. New Zealand unilaterally abolished farm subsidies and tariffs and its agricultural sector grew. As the former head of New Zealand’s equivalent of the National Farmer’s Union explained, it made them become more streamlined and more innovative, and to specialise in areas where they had a comparative advantage (Lamb; Pinot Noir) and as a result saw their farming sector boom. The cry that “We’ll all go to the wall if the protection is taken away” is as old as protectionism itself – I’m sure the landed gentry tried it in the 1830s and 1840s.
“35% of the world’s arable land is in Europe. If we lowered out barriers unilaterally then we’d lose most if not all of that farming”
That’s simply not true. Rather, Europe would shift production to areas where it had a comparative advantage (market gardening; Pinot Noir) while shifting away from areas where it was inefficiently competing with foreign producers (grains; livestock).
You also seem to be implying that the amount of arable land would decline from 35% to 0% – i.e. that all European land would be lost to farming. If any were lost, it would be the marginal land and the marginal producers – those where the real social benefits were outweighed by the real social costs. The effect of subsidies and tariffs is to mask market signals that would otherwise expose production that costs (not just in cash, but in externalities, such as loss of biodiversity) more than it creates (not just in cash, but in externalities such as pleasant rural landscapes).
“…rural economies would be wiped out…”
This is by no means necessary, but if it is it will be because of structural shifts in the global economy. Trying to protect local economies that no longer exist for any economic purpose would be like trying to prevent the migration of rural workers to the factories in the C19th, or to prop up heavy manufacturing in the North in the 1930s, or coal mining in the 1980s. These economies were effected by the winds of change. It is one thing to step in to help individuals or communities that are hit by cyclical downturns; it is quite another to try to stem the tide of progress. Setting up trade barriers to protect producers from the evolution of the global economy is like sitting on your throne commanding the tide to turn back – except that it costs EUR 46 billion a year and makes food unnecessarily expensive.
(Pop Quiz: Which group in society spends the highest proportion of their income on food? Answer: The poor? Second Question: Which group in society is most adversely affected by the CAP? I’ll let you work that one out!)
“by 2050, the world would have to feed 3 billion more mouths or so on a third less land. Which would mean either high food prices, and mass starvation in the developing world, or deforestation of places like the Amazon in order to grow more food – which would be equally catastrophic.”
You are implying that European land would lie fallow while prices sky-rocketed and people starved. That’s absurd. As prices rise, previously marginal production becomes viable. In fact, the great irony is that, when CAP-defenders say we need the CAP to protect us from high prices, what they are actually saying is that farmers can’t afford to produce food when prices are high. That doesn’t really need much more comment.
George,
We should applaud the efforts of George Lyon and Phil Bennion for their work and effort in liberalising the CAP and in reducing the CAP’s share of the EU budget to below 40%.
However, even with the proposed reforms to the CAP there is still a long way to go to address the key remaining issues:
– The CAP encourages European agri-businesses to export huge quantities of food worldwide that poor farmers cannot compete with on price and is seen as part of an unfair trade system rigged in favour of the richer countries.
– Europe is spending far too much on the CAP – when agriculture generates just 1.6% of EU GDP and employs only 5% of EU citizens.
– With European economic growth in the doldrums, and fierce competition from emerging giants like China and India, the EU needs to pay less for farming and invest more in scientific research and technology.
– Spending less on subsidies and more on agricultural research can help with improving crop varieties and livestock, which could benefit developing countries.
– Agricultural land prices are artificially inflated by subsidy payments making it difficult for the next generation of younger farmers to acquire and develop holdings.
Much of the work undertaken by the European Agriculture Council under the auspices of the CAP can be more effectively managed by national and regional agricultural co-operatives.
Unilateral targetted tariffs to protect against foreign state-subsidised dumping of particular commodities may be warranted in exceptional limited circumstances, but not as a perpetual instrument (such as the tariffs leading to the ‘Banana Wars’)to permenantly modify world food prices in the EU.
George: As I said, I acknowledge that in practice trade liberalisation has tended to happen through multilateralist horse-trading via GATT and later the WTO rather than nations pursuing their enlightened self-interest by simply removing the rocks from their own harbours. The important thing is that it happens, and as fast as possible.
As a counterweight to my own (perhaps rather dogmatic) views on free trade, I offer this defence of pragmatism by the highly intelligent former Labour Trade Secretary Edmund Dell, writing in 1986 ‘Of Free Trade and Reciprocity’:
“Reciprocity re-emerges whenever real business is to be transacted in trade negotiations. While the disciples of Adam Smith have claimed intellectual and moral victory over the errors of mercantilism, the real power has remained in the hands of practical men who play the mercantilist game of reciprocity.
“Reciprocity, as an idea, has a great attraction for government ministers. They feel it necessary to make verbal obeisances to the spirit of economic liberalism. Reciprocity appears to reconcile this political necessity with the even higher priority of being able to defend what they have done as a good deal.
“The possibility should not be ignored, however, that… it is the free traders who are making unreasonable demands on national sovereignty. Ministers should free their consciences of guilt and stand forth bravely for the mercantilism that they all in fact practise. They should end the hypocrisy by which they compel mercantilist pragmatism to doff its cap to liberal dogmatism and go on to claim, as an excuse for their actions, the compulsion of political necessity.”
I don’t agree with Dell on this matter, but as usual he puts his finger on what actually goes on, and why. I would prefer ministers to end their hypocrisy by challenging the “political necessity” of mercantilism; but ultimately I can live with the results so long as the trade barriers actually come down.