Wednesday, December 14, 2005

The EU can do with half its budget.

The EU can do with half its budget.
Category:  [in English]  [(b)Eurocracy]  [Global politics]

The EU budget talks are in disarray. France wants to abolish the British rebate; the Brits want less farm subsidies that benefit the Frogs. Fritz is finally fed up paying for those Frog farmers. Belgian's prime minister and the EU commission want a larger pork barrel viable minimum to build a ever more bureaucratic "better and stronger" Europe. Net receivers like Greece, Spain and Portugal keep their mouth shut and just hope the manna will continue to materialize out of the Brussels sky. And the Ossies keep a low profile not to waken up the centripetal navel-staring Wessies that didn't digest their electoral defeat on the EU expansion to Turkey draft constitution yet.

But let's have a look at that budget. Is the federal money used to build and maintain a strong and common EU defense, to build trans-European roads, to sponsor a common Justice and Law Enforcement body?

No it isn't. The Emperor has no Chinese T-shirt on. Half of the budget goes to farming subsidies. Ouch!

Houston, we have a problem!

These farming subsidies (in Euro-jargon CAP, Common Agricultural Policy), combined with high import taxes on agricultural products from outside the EU, have 5 negative consequences.

According to the OECD, food prices in the EU are 44% higher because of the CAP than they would be under normal market rules. The EU-consumer is the first victim.

Apart from exorbitant food prices, the EU consumer has to dig out money a second time, as a taxpayer, since he ultimately pays for these subsidies.

Developing countries, which are relatively more axed towards agricultural than to industrial output, face an artificial cost handicap selling their products on EU-markets. They sell less than they would in a free and unsubsidized market.

Dumping. Those same developing countries are flooded with cheap subsidized agricultural surpluses from the industrial countries (the US is also to blame), which destroy local employment and businesses in the agricultural sector.

The EU citizen perceives much less tangible results than he should when the EU budget were used in a proper way to core EU government business. Hence the money-dematerializing machine that constitutes the CAP is partly responsible for the credibility crisis of the European project.

How did we end up with mountains of butter and rivers of milk produced solely for the sake of finagling subsidies out of an inert and bloated bureaucracy and deteriorating relationships with irate trade partners? Why is food so special, and not textile or oil or cameras? Would it be that food has some mythical properties as it is basic? Erst das Fressen, dann die Moral.

I love the taste of croissants in the morning! It tastes like... dioxin!

French Agriculture Minister Gaymard proffers the usual woolly mantras of "farm products are more than marketable goods", "France, and Europe in general, need security of food supply", "food cannot be left to the mercy of market forces". "Farmers, unlike industrialists" - insists the Minister counterfactually – "cannot simply relocate and agrarian pursuits are a pillar of the nation's culture and its attachment to the land". So it's about pagan bucolical myths and about irrational love for the ancestral soil after all?

Of course food safety is an issue. But it's not an issue for foreign food alone. A few years ago, it was discovered by coincidence that Belgian home raised chicken on ancestral soil contained a vast amount of dioxin from industrial and deliberate contamination with waste transformer oil. Now Thai chicken may contain salmonella once in a while, but the risk of industrial contamination is much less in rural areas than in the highly industrialized West.

Homegrown veggies in Flanders contain high levels of nitrates and Atrazin that makes it into the groundwater, when growing substandard subsidized corn used as subsidized pig food. Gaymard's "Terre de la patrie" might be something to love but it sure isn't healthy.
All food should pass the same quality control stations before making it to the consumer. There is no a priori reason to single out foreign food.

Autarky, now what about that? Is there autarky in oil supply? In raw materials? Autarky in the supply of a commodity can be an option when confronted with a foreign cartel, like the OPEC. But food suppliers come from all corners of the world and they are very diverse. A food embargo on the EU would never work.

How Germany lost the War two times.

So where did those farming subsidies come from? French President Charles de Gaulle's main argument for creating the CAP was that French industry could not afford to subsidize its agriculture on its own (see here, p. 253 bottom). There was no question of not subsidizing agriculture; it was merely a matter of spreading the costs. Germany agreed; it had to. In those days, Germany indeed was still the vilified and submissive loser of World War II.

A Subsidy, a Subsidy! My Kingdom for a Subsidy!

Apart from the CAP, the EU subsidies circus in general is riddled by fraud. In the case of Greece, for example, the EU subsidies helped prop up a bloated bureaucracy and keep industries afloat that would otherwise be unable to compete.

Germany ended up being the big loser in this circus. Of the €22 billion that Berlin sends to Brussels, only about €14 billion end up back in Germany, in the form of subsidies for German farmers and for economically disadvantaged regions, such as the states of the former East Germany.

For Germany, the bottom line is clear. Year after year, the Germans send significantly more money to Brussels than they receive back. In 2003, the difference amounted to €7.7 billion, making Germany the biggest net contributor by a long shot. Only the Netherlands and Sweden pay more on a per capita basis. (read here). Aside from Ireland, Luxembourg and the ten new EU members, the winners of the Europe redistribution machine are Greece (with a net gain of €3.4 billion), Portugal (€3.5 billion) and Spain (€8.7 billion).

From the TimesOnline (thanks to Foreign Dispatches):
The European Commission figures show why French farmers are so attached to the EU subsidies. More than 131,000 French farmers took €20,000 (£13,000) or more from Brussels in 2003, far more than the combined total of 104,000 farmers from Britain, Italy and Germany who receive that amount. About 3,200 French farmers secured more than €100,000 in subsidies. The biggest beneficiary in France was a rice farmer in the Camargue , who received €866,290.

Facing tough criticism, the EU redesigned its CAP in 2003. France - and six other EU countries - intended to stick religiously to a deal struck, tête-à-tête, between the French president and the German chancellor in 2002.

The CAP - which consumes close to half of the EU's budget - will not be revamped until 2013 at the earliest, though outlays will be frozen in real terms and, starting in 2006, gradually diverted from subsidizing production to environmental and other good causes ("decoupling" and "modulation" in EU jargon).

Well, as long as farmers are paid by the EU and grow crops, it's still about subsidies, although the money won't show up as agricultural subsidies in the budget tables.

France's SM love affair with its farmers.

Why does France love its farmers so much that it is prepared to destabilize the EU fabric by a fantasist budget, to harm EU consumers and developing countries, and to enrage the WTO? Why farmers, and not plumbers or taxi-drivers for instance? Well it's certainly not for the number of people involved. Only 5% of EU citizens - 10 million people - work in agriculture, and the sector generates just 1.6% of EU GDP. In France, we talk about 3.5% of its population.

The most direct answer to this question is plain money. The CAP has been very profitable for France as a whole. Even after recent cuts, French agriculture still receives €8 billion a year through the CAP. Chirac himself started his political career as an Agriculture Minister, and was elected at first in a poor rural department. Another political factor is the over-representation of the countryside in the French legislative Senate

One of the answer is also plain pressure and violence. The largest French agricultural trade union, the FNSEA has become more aggressive in recent years to avoid being outflanked by a new competitor, Confédération Paysanne, a radical rural organization for which the antiglobalization campaigner José Bové (of McDonald's ransacking fame) was a longtime spokesman. In a country with a conflict-prone social culture (and where politicians are known to cave in the face of the frequent protests and strikes), farmers are among the most determined, and sometimes violent, lobbies.

There finally must be some inexplicable magic in the mythical ancestral French soil.

As the International Herald Tribune (subscribers only) remarks:
For farmers in France have tremendous sympathy from the rest of the population. Traditional, high-quality food remains an important part of the culture, and France's defense of its "gastronomical sovereignty" is itself a tradition. Defenders of French agriculture like Bové argue that globalization of the agricultural market has not only made France susceptible to bad-tasting food but also to unsafe food, mad cow disease, hormone-treated beef, genetically modified organisms and preservatives - arguments that are very convincing to many French.

But it is not just about food. French farmers are also considered the keepers of the countryside. Most French citizens - who often think of themselves as having rural roots even if their families have lived in Paris or Lyon for generations. […] In reality, with half of EU subsidies going to just 10% of farms, it is far from clear that the CAP helps preserve villages rather than large industrial farms, but the argument still carries weight among the French.


Tough times are ahead for the CAP, now that the Brits want to use the attack on their rebate as a casus belli to demand a review of the CAP itself, and of the huge money transfers to France that it causes.
If the CAP is not reformed, the EU will face complete deadlock. Blair will make this perfectly clear, and shift the debate onto the cost of the CAP, and the damage it causes to European consumers, but more importantly the cost it causes to poor farmers and the distortion of world trade.

The time is just right, now that the WTO meeting in Hong Kong is starting the fire on the barbeque that will grill the protectionist and unfair agriculture trade practices of the EU (and the US).

The EU taxpayer-consumer will be the first to win as the EU actually only needs half its budget. The food producing developing countries will be the next, and they will need less grants and gifts. Trade is Aid.

Postscript: subsidized luxury chocolates

A quick look at the table of the top 100 recipients of agricultural subsidies in Belgium offers a sweet surprise. Luxury chocolates and truffles manufacturer Godiva (also Neuhaus) from Brussels received a delicious €193,047 from the EU chocolate pork barrels in 2004. What's next? Subsidize Armani?


used to write this article:
A brand new critical and independent think tank on European farming subsidies:

How French farmers make themselves rich through EU (TimesOnline column)
Q&A: Common Agricultural Policy (BBC News)
CAP mid-term review 2003 (EurActiv article)
Why the French love their farmers (International Herald Tribune column, subscription only)
Germany Is Tired of Footing the European Bill (Der Spiegel article)
Multinationals, not farmers, reap biggest rewards in Britain's share of CAP payouts (The Guardian, article)
French Parasites (Foreign Dispatches blog item)

WTO Agreement on Agriculture: A Decade of Dumping (WTO, PDF, contains XXVI annexes with tables)
Agricultural Subsidies and Rural Poverty (GlobalPolicy articles list)
How EU Sugar Subsidies Devastate Africa (Independent article)
Farm Subsidies That Starve the World (New Statesman article)
Farm Fallacies That Hurt the Poor (Outreach report)
EU farm ministers hail CAP deal, aid workers call it disaster (Daily Mirror Article)

The Belgian Curtain. Europe after Communism. (Sam Vaknin, PDF, 141 pp.)
Winning the European CAP (Sam Vaknin article)
Europe's Agricultural Revolution (Sam Vaknin article)
Creating A common Market for Fraud in the European Union (Carolyn Warner, PDF, 257 pp.)


Blogger Karel Jansens said...

So, tell me again why exactly you are such a Euro-fan? :)

Seriously, the biggest irony is that farming need not be subsidized, even in the EU. Farmers who switch to garden crops, fruit, exotic(ish) animals, or even (shudder!) organic farming, often find that they can make more money without EU subsidies. In fact, one could argue that what the EU is doing, is supporting the terminally stupid (but then again, that's hardly new, is it?) .

I wonder if it wouldn't be cheaper to just stop the subsidies and give those farmers that won't or can't change a replacement income. At least they're bound to die eventually.

4:29 PM  
Anonymous Anonymous said...

Dear Charel,
tell me again, why exactly you are such an E-fan?

Is it because of my breasts?
Or because of my pronunciation of the Englisch language? You beast!
I really would like to farm you organic and switch your garden crop.

Are you already feeling hardly now?

My cheaper subsidie!

Kisses all over.


11:28 PM  
Anonymous zara said...


i would like to know what you think about the EU budget, WTO concerns and enlargement in the way that they may promote change in the future.

3:32 PM  

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