EUROPE
Why CAP reform is on track
Spring 2006
Controversy rages unabated over the cost and effectiveness of Europe’s Common Agricultural Policy (CAP). Franz Fischler, the Austrian politician who as EU Farm Commissioner from 1995-2004 introduced the most drastic reforms yet, explains why he believes he has created a win-win situation for farmers and consumers
Commentary:
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There exist two very different concepts of European agriculture. One is that farming is the same as any other economic sector, so subsidies to it are no different to those given to, say, coal-mining, and both should be phased out as soon as possible. The other way of looking at agriculture is as part of our common European culture and identity, a complex of economic, social and cultural values without which our continent would be much the poorer.
To grasp the difference between these two concepts one need only compare the Tuscan countryside to the American Midwest. The former is a graceful, varied and aesthetically pleasing landscape that excerts a positive cultural influence. The latter, a monotonous and boring steppe that induces depression.
To we Europeans, the term “culture” means variety and quality. This is evident in the rich array of goods and foods that spring from the land, and in the sheer variety of our European landscapes. It also underscores’ how much the poorer Europe would be without, say, French, Italian or Belgian cuisine, and without our enormous variety of wines and cheeses, hams, olive oils and sausages. France's Charles de Gaulle once lamented the difficulty of governing a country which has 700 different kinds of cheese. Yet I feel sure that the loss of such variety would trigger something akin to another French Revolution. A nation's culture and its agriculture reflects and depends upon emotion, through both need to evolve if they are to stay alive.
A European farming culture that relies on clinging to tradition would soon degenerate to some sort of vast agri-museum. It is only when creative forces are still at work, and when those involved in agriculture continues to search for new answers to the changes taking place around the world, that agriculture will stay economically vital and keep on making a valuable social contribution. How is it possible, I often hear people ask, that such a small sector accounting for only 2% of Europe's GDP should still be of such enormous importance in our society? The answer is to be found in Europeans' shared philosophy of life; we would be poor indeed if we were to lose our agriculture!
We do nevertheless need a new agricultural policy, a substantial part of which would be the decoupling yet strengthening of our rural development efforts. Doing this would offer a qualified answer to the urgent question as to how European agriculture can realistically be upgraded and overhauled by the widespread introduction of modern methods.
European agricultural and food products face increasingly tough international competition, and our farmers must therefore produce what the market demands, which means not just variety and quality but also information about the methods of production and processing that are used. The market wants organic products and an exact knowledge of the additives used during processing. European agricultural policy has to make food safety a conditio sine qua non; quality must be guaranteed, rules of origin protected and the safety of consumers placed beyond question - and all this at prices determined by the market, not by politics. As to global export markets, the key factor must become our European branding rather than a false competitive edge secured by high subsidies.
But a cornerstone of Europe's new drive to reform its agrarian system has to be a general acceptance by society of the economic value and achievements of the farm sector. It may once in pre-industrialised times have been true, that man–made landscapes, biodiversity and a largely intact environment were services that could be delivered almost effortlessly by farmers along with their agri–products, but today all that has changed completely.
If society in Europe does not pay a fair price for these services that it increasingly demands, they will no longer be on offer. How can a European farmer whose products must compete internationally provide these wider agricultural services without being paid for them? The reality is that these rural responsibilities mean higher costs and lower profits for our farmers, and at the same time often prohibit them from using the best technically available means to achieve greater productivity.
So the logical conclusion facing policymakers is that Europe must decouple the use of public money from farm production, and should instead direct it towards a variety of rural public services. Increasingly, the EU's new decoupled system of direct payments will ensure that we Europeans can still enjoy the basic agricultural services we demand, and thus avoid a structural collapse of the farm sector.
Thanks to all these coming changes, the principle of value for money is becoming a reality. European taxpayers are able to know exactly what they are getting for their money, and the fact is that they will be getting more. According to an OECD study, decoupled support payments are proving more effective. With the CAP's traditional support system, 75% of farm support spending went towards covering fixed costs or were swallowed by the food production chain, so that only 25% actually went to the farmer; now, through the decoupling system, the farmer's share can be as much as doubled.
More than that, adequate payments for rural public services are no longer seen as trade distorting, either in the international market place or within the EU`s internal market. Therefore they are greenbox compatible, and “quid pro quo” services will be continuously supervised and under control so that no one will get money he does not deserve.
It is thus no longer as important as before that public services relating to agriculture should be priced the same right across Europe. Just as it is more expensive to go to a notary in Luxembourg than in Portugal, a farmer in Luxembourg gets paid more for his services than his colleague in Portugal, because otherwise he would not be able to cope with the country’s higher living costs. So long as there is a fair balance between taxpayers’ payments, and what they receive in return from their farmers, there will be no distortion of the internal market.
EU farm policy is, of course, a hot political topic around the world. The European Union must therefore be able to demonstrate that it is not only rich countries that subsidize their agrarian sectors.
In Europe and elsewhere, it clearly makes better long term economic sense to fund development efforts in rural areas that will help stem the drift to the cities, where people are often forced to live on social welfare because they can't find jobs. And policymakers should also not forget the social and financial costs of virtually abandoning once thriving rural regions. You don't need to go to Africa to study rural misdevelopment, a trip to Eastern Poland or to Spain's Estremadura is enough.
All of which brings me to the question of what the EU's new agricultural policy will mean to the new member states. I believe it is as important to them as it is to the older ones, even though there is a difference of emphasis.
Collectivised agriculture did great harm in some of the formerly Communist member states, and in these the EU's decoupled direct payments will do much to improve the situation. The abrupt breakdown of their political systems after the Berlin Wall fell has meant that in some regions large areas of land now lie fallow. I see these regions as good candidates for the growing of renewable raw materials. At the same time, the improvement of quality along the whole agrarian value chain is an absolute must in most of the new member states, and the opportunities that now exist for investment supports could be of real help. The greatest demand need of all in these countries is for regional development. The economic life and infrastructures of villages in rural areas have been badly neglected for several decades, and a significant political and financial effort is needed to correct these past mistakes.
All in all, the EU’s new agricultural policy will prove right both for newcomer countries that lag behind in rural and agricultural development, and for a number of older member states too. One can already feel that the 2004 enlargement has led to a win-win situation in agriculture, with new markets opening for the brands and quality products of the older member states, and new and easier sources of supply for farmers' raw materials becoming available to the newcomers. For them, the bottom line is that in its first year the introduction of the reformed Common Agricultural Policy has led to an income increase up to 70% in new EU member states, even though direct payments have not yet been fully introduced.
The overhauling of the CAP that I helped introduce as EU Farm Commissioner was not an easy project, but I believe it has brought with it a new awareness of agriculture that is good for both the new and older member states. Only barbarians can ignore agriculture, and those who would belittle its economic and social importance should know that they do great harm to the European identity and to the cultural core of Europe.