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EW BACKGROUND BRIEFING
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Now the calls are for
a “development-friendly” CAP
For Europe to realign the Common Agricultural Policy with its development goals will involve politics as much as policy. If they cut import tariffs and export subsidies, EU leaders will also need to allay voters’ worries about food prices, farmers’ welfare and rural conservation.
To open up European markets, the tariffs imposed on developing countries' agricultural produce would need to be reduced to the much lower levels imposed on rich countries. So far, tariff exemption programmes often constitute a form of protectionism because of complex eligibility requirements and measures that exclude many categories of produce. These could be made fairer by easing punitive “rules of origin” and reducing tariffs for processed goods, both of which discourage developing countries from boosting their economies by adding value to raw materials. Developing countries whose economies are built around preferential trade schemes would also need to be compensated when preferences are gradually removed.
Defenders of recent CAP reforms point to the “decoupling” of farm subsidies from levels of production so as to end overproduction. But many EU countries are still allowed to keep a high share of “coupled” subsidies, and “decoupled” subsidies based on input use or land area still favour largescale producers and therefore drive up European agricultural production.
The overall level of CAP spending continues to rise, and subsidies help keep food prices down in Europe. But CAP critics say EU taxpayers pay out more in subsidies than they would have to spend in extra food costs in a subsidy-free EU. If farm export subsidies were to go, food prices would also rise in the developing world,but a number of studies now suggest that this would hurt the poor only in the short-term, and then only where fewer than half the population lives in rural areas. In the average developing country, about 75% of poor people are rural.
CAP reform supporters emphasise that its subsidies protect Europe's farmers and the rural environment. But subsidies in fact favour large agribusiness rather than poor farmers, and may even damage rural biodiversity by favouring monocultures and the exploitation of marginal land.
Backers of a “development-friendly" CAP say it would redirect money into a genuine scheme of phased payments designed to help poorer farmers adjust to a subsidy-free world. And they argue that it would redirect money to the EU aid budget to help the developing world cope with the initial rise in food prices.
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It is time to remind ourselves of the commitments we in Europe made, encompassed in the eighth goal of more and better aid. Unlike past UN Summits on development where Europe was a leader, a lack of leadership did not bode well for this year’s summit. EU member states have been falling behind on their agreed aid commitments;and,calling on others to play their part, weakened the EU Council’s position for the Summit..
But we also promised to change the rules of international trade so as to allow a level playing field for developing countries to lift themselves out of poverty by increasing their exports to our rich consumer markets, and thereby generating new jobs and more income. From the perspective of the first of the MDGs – halving the number of poor people in the world –, agriculture is the most important sector of all. Two-thirds of the world’s poor live in rural areas and depend on agricultural activities. Yet they will be unable to lift themselves out of poverty as long as Europe's agriculture policies not only limit their exports but also undermine their ability to compete in their own home markets.
Developing countries' exports really matter if the MDGs' poverty reduction efforts are to succeed, and that includes agricultural exports. Households that can produce exportable crops are less likely to be poor than those not involved in export markets. Research suggests that a doubling of the developing world’s export participation would reduce poverty by 13%.
Reform of the EU's Common Agricultural Policy (CAP) is essential not just for this but to ensure that many of the other MDG actions yield results. More than 30 years ago, when enlargement of the European Community to include Greece, Portugal and Spain was on the political agenda, I argued that the inclusion of more Mediterranean countries would aggravate the impact of the CAP on global poverty because it would result in more subsidies for products like tomatoes and citrus fruit that are also produced by developing countries. And that's what has happened.
Working in the area of Dutch bi-lateral aid in the 1970’s, I was constantly confronted with the impact of our agriculture policies on the (lack of) success of “our” projects – and lots of Dutch aid at the time went to agriculture. A good example of that was a project in Tanzania to help increase local milk production. Although it was very successful in increasing productivity and had low costs, the Tanzanian farmers simply could not compete with cheap, subsidized Dutch milk powder – and that remains the case today. Another was an irrigation project to increase citrus fruit production in Egypt that although technically a success was hit by an EU trade agreement with Egypt that limited citrus exports to Europe.
These results have discouraged foreign investment in agriculture in developing countries, and have also contributed to the neglect of agriculture by the developing countries themselves who cannot match EU subsidies. The negative impact of Europe's trade policies on developing countries is often much greater than the positive impact of our aid. And the fact that these policies mostly are at odds with our development aid objectives means they undermine and even undo Europe’s development co-operation efforts.
This inconsistency between its aid and trade policies has been acknowledged by the EU since the Maastricht treaty in which it promised that “The Community shall take account of its development objectives in the policies it implements which are likely to affect developing countries.” Since then, European Council after European Council has repeated this commitment to ensuring that EU policies will support development objectives, and this principle is now enshrined in the Lisbon treaty.
But these pledges have not been translated into practice, because effective implementation mechanisms and genuine political commitment are both still lacking. Many member states tend to hide behind the Community competence on trade issues, while in fact only active national commitment is likely to bring about change at EU level.
Today, just as at the outset of this discussion more than two decades ago, the most blatant incoherence is with the EU's agriculture policy. But now the time seems more right than ever to put the CAP on the public agenda. European finance ministers faced with ballooning deficits will no longer be able to ignore the sacred cow that is the CAP. Europe’s taxpayers simply cannot afford business as usual when every year €57bn – more than 40% of the EU budget – is spent for the benefit of a few, and without creating much value for society as a whole.
Those who care about rural development, about climate change, about biodiversity and about the environment in general, are all urging CAP reform. A group of leading agricultural economists from all over Europe recently published a Declaration that proposes the abolition of market intervention and of blanket income support for farmers. Subsidies, they say, should instead be targeted at providing public goods that are of European interest, such as the fight against climate change and the preservation of biodiversity. And that's the sort of thinking that must guide the debate; public money should benefit public goods, the environment and equity at home.
But reforms also need to be helpful in reducing global poverty, which is a critical international public good. CAP reform needs to be consistent with the objectives of EU development policies, and many of the reforms proposed for the CAP would in fact be helpful from the standpoint of developing countries' farmers. The voice of development also needs to be raised, as did Franziska Keller MEP in the European Parliament last autumn, when she called “for the cessation of export subsidies irrespective of the successful conclusion of the Doha Round, to avoid dumping EU products on markets in developing countries and the economic loss that this generates”.
As the declaration of those leading agricultural economists put it: “The remaining elements of the CAP’s old market support mechanisms remain problematic for the EU’s trading partners (export subsidies on dairy products, and high import tariffs for example)." While development NGOs nowadays seem less vocal on this, perhaps because there has been some progress in the reform of the CAP, it has not been enough and the development angle is still as relevant as ever.
If I were a development minister today, I would still be quite hesitant to spend taxpayers’ money on the projects I've mentioned for improving dairy farmers' productivity in Africa and irrigation for Egyptian citrus fruit. I grant that, of late, export subsidies have been reduced and producer support has been increasingly decoupled from production, thus reducing incentives for Europe's farmers to grow more unwanted products. But very little progress has been made in reducing import barriers and expanding market access to developing countries’ producers. Dairy export subsidies were reintroduced in 2009, and the remaining supports, while not as distorting, still undermine developing countries’ efforts to increase agricultural investment and reduce rural poverty.
Many EU aid donors are more focused now than they were over the last decade on re-engaging in agricultural projects. The new Global Fund to boost food production and encourage good farming practices in the developing world has already received pledges for almost a billion dollars. And for the first time we can see South-South co-operation initiatives which might lead to a serious reduction of the trade barriers that developing countries impose on each other.
It is up to Europe to take action by reforming the CAP. The EU must ensure its agricultural policies and subsidies benefit our environment and those who need them at home in a way that doesn’t hurt developing countries. We need to make agricultural trade policies part of the broader relationship, not just with other countries but with the broader agenda of global poverty and the challenges to the environment.
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