European agricultural reforms: a pig in a poke?

Policy changes do little to open markets to developing-world farmers, say critics.

The European Union's new agricultural reforms, designed to curb overproduction of food and limit dumping in foreign countries, may do less to help farmers in developing countries than officials claim, according to development experts concerned that the reforms are not as sweeping as they look.

After long and rancorous negotiations, European agriculture ministers agreed last week largely to sever the links between food production and subsidies that their Common Agricultural Policy (CAP) had enshrined, and to spend more money on rural development.

But by leaving the actual amount of subsidies paid to farmers untouched, the ministers "missed a one-off opportunity," complains Steve Hibbett, policy director for the British charity War on Want.

"In historical terms, they failed," he adds.

EU leaders ended their talks on a triumphant note last Thursday.

"This decision marks the beginning of a new era," EU Agriculture Commissioner Franz Fischler told reporters. "We are saying goodbye to the old subsidy system, which significantly distorts international trade and harms developing countries."

Hands off the sweetest deals

Critics of the reforms point out that sugar - a crop important to many countries in the developing world - was not even on the agenda because of its political sensitivity to many European governments. Nor were export subsidies reduced.

Such subsidies are very damaging to third-world farmers, says Sam Barratt, a spokesman for Oxfam.

A European dairy giant, Arla Foods, receives $15 million a year from the EU to facilitate its milk exports to the Dominican Republic, he points out, which makes its milk 25 per cent cheaper than local supplies. That has cost 10,000 Dominican dairy farmers their jobs over the past 20 years, he says.

European farm subsidies, which are the largest in the world at $50 billion per year, eat up nearly 40 percent of the EU budget. The Union's enlargement to the east next year, bringing in several nations heavily dependent on agriculture, threatened to bankrupt the EU unless its policies were reformed.

The Common Agricultural Policy, offering farmers more government money the more they produced, was successful when it was launched in the 1950s in its goal of encouraging European food self-sufficiency. But in recent decades, subsidies and price support mechanisms have led to huge surpluses of grain, dairy produce, and other agricultural goods.

The system has not only raised the price of food for European consumers 45 percent above what it would ordinarily be, according to the Organization for Economic Cooperation and Development (OECD), the Paris-based group of the world's most prosperous economies. It also encouraged European farmers to export their surplus to developing countries.

That has left many farmers in the developing world in an impossible position - unable to compete with the subsidized imports from Europe.

The new European policy will sever the link between subsidies and production in most areas from 2005 - though the French government insisted that some "coupling" should be preserved to help farms stay alive in less economically viable regions of Europe.

Changes in payments

Under the new system, farmers will be given a one-time annual payment, based on the size of their farms and on the amount of subsidies they have received in recent years.

"This has to be a very positive step," says Ken Ash, deputy director for food and agriculture at the OECD.

"It is tremendously important" as a move toward bringing artificially high European food prices into line with world markets, which will reduce the need for import tariffs, Mr. Ash says.

Development activists, however, point out that Europe's farmers will still be subsidized as heavily as they ever were, even if the way they are paid has been changed. "There is no inkling in these reforms that the level of subsidies will ever be reduced, and if farmers are paid subsidies on the basis of the amount of land they own, the chances are they will use it to produce food," argues Mr. Hibbett.

The reforms, however, are based on the hope that they won't, especially if they have to sell at world prices lower than they are used to.

"If the policy gives farmers the same amount of money whether they produce or not, they will take the money and not grow anything because it costs them money to [grow]," says Ash.

More beefs

Other elements in the reform are less dramatic than meets the eye, critics argue. A cap on subsidies to Europe's largest farms - the biggest 20 percent currently get 80 percent of the subsidies - will cut that income by only 5 percent, and new measures to encourage environmentally responsible farming methods will get only 3 percent of CAP funds.

But the reforms will encourage European farmers to grow what the market wants, instead of what they can get the most subsidies for, officials say.

EU leaders hope that this will prompt other countries to make their own reforms when the World Trade Organization takes up the stalled Doha round of international trade negotiations in Cancun in September. The talks are aimed at breaking down trade barriers.

European officials have their sights set particularly on the United States, where last year's farm bill provided for a $170 billion increase in agricultural subsidies over the next decade.

Cues to the US?

"It is clear that we have done our homework, and it is now up to others to do their homework," Mr. Fischler said last week.

"I have not seen much so far from, for example, our American friends [who recently] raised their subsidies," says Mr. Fischler, adding, "I cannot preach water and drink wine."

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