Doha may pry open EU farm sector to global competition

N Madhavan

LONDON: If the European Union (EU) symbolises free market and open borders, its Common Agricultural Policy (CAP) epitomises just the opposite — protectionism at its best. Though this apparent contradiction has been subject to intense criticism both within and outside Europe for many years now, precious little has been done to set right this dichotomy.

If that indeed happens, a huge market would open up for countries like India which can then export its surplus agro-produce to the EU. The Indian sugar industry, which at present is sitting on huge surplus stock, has been repeatedly complaining that the high tariff barriers put in place by the EU, in the guise of community preference, ensures that exports to the region do not make any commercial sense.

For over a decade, the EU has been attempting to reform its CAP fearing that it would someday overwhelm its budgetary resources. At present, over 40 per cent of the EU’s annual budget is spent on agricultural subsidies (more than the GDP of all African nations put together) despite the fact that this sector contributes only 3 per cent to its GNP and employs less than 5 per cent of the workforce. But the powerful farm lobby has succeeded in derailing any changes to CAP.

The strength of the lobby can be gauged from the sort of subsidies that exist. In addition to guaranteeing a minimum price to the farmers, the EU intervenes in the market and purchases particular commodities whose prices are below the target price fixed by it. Such purchases are stored in godowns across the region.

Another policy that has upset the farming community across the world is export subsidy. In order to maintain an adequate demand-supply gap in the local market to ensure ‘reasonable return’ to the farmer, the EU reimburses to the farmer the price differential between the export and domestic price. This has enabled farmers in the EU to undercut prices in the international markets. To avoid surplus production sometimes the farmers have even been paid to keep the land fallow. This has resulted in sudden sprouting of new golf courses as farmers put the land to other uses.

Over the years the justification for abandoning CAP in its present form has only multiplied. Talks are now in an advanced stage for inclusion of new members to the EU by the year 2004. Prospective member states, such as Poland, have a very large agricultural base with 25 per cent of its population employed in the farm sector. The farm subsidy would then become unsustainable and could drain the EU’s resources entirely.

The surge in Mad Cow disease and the Foot-and-Mouth epidemic among the livestock in the region has also brought into focus the misplaced emphasis of CAP on quantity over quality. The payment structure is ‘the more the production greater the income’. This has naturally made farmers produce more at the cost of efficient farm practices.

Environment has also been a casualty of CAP. The policy has encouraged increased use of chemical fertilisers and herbicides. EU farmers at present use two-and-a-half times as much fertiliser per hectare of land as farmers in the US. Moreover, the urge to grow more and earn more has forced the farmers to reclaim wet lands, cut trees and hedges.

Many of these subsidies also lack focus and in some cases have proved to be counter-productive. A good example is the subsidy for pruning the size of the fishing fleet in Spain. The country’s fleet was bigger than that of all remaining members put together. This often led to problems over fishing rights and the EU decided to attack this issue by encouraging farmers to go for limited number of bigger vessels rather than a large pool of small boats. But five years since the launch of the scheme, the size of the fleet has only increased. The subsidy was so attractive that a large section of the fishing community applied for it, took the money and bought boats again.

The CAP has, to some extent, undermined the benefits of European integration and introduced scepticism about the entire process. Consumers are not too happy to pay inflated prices for commodities that were always in surplus stacked away in godowns across the region. A recent article in The Economist argued that Britain would save up to 1 per cent of its GDP on account of CAP if it leaves the EU.

In the last 10 years of CAP reform, all that the EU could manage was some reduction in the guaranteed prices on cereals, beef and milk. Efforts are on to cut the direct cash subsidies and channel some of the funds for environment management and rural development.

The reform of CAP, is no doubt, an uphill task. It has created economic dependency and many farmers would go out of business if it is withdrawn. Leading members, like France, which accounts for 20 per cent of all the EU’s agro produce are expected to oppose any significant changes as they see it as a direct threat to their rural economy. Subsidies account for more than one-third of a French farmers’ income.

With the EU making its first clear commitment to the world community to open up its farm sector at Doha, it now has little choice but to move forward on revamping CAP, irrespective of the opposition it is likely to face. The major concern for bureaucrats at Brussels would be the potential fallout in public support to the process of European integration which has already declined to less than 50 per cent.