Rhein on Energy and Climate

EU agriculture has successfully passed its “health check” which governments had asked for in December 2005 when allotting it the biggest slice of EU budget expenditures 2007-13.

Never before since the start of the common agricultural policy has Europe’s agriculture been in such a good shape as today. Forgotten are three decades of milk lakes, frozen meat stocks and grain surpluses; gone are the recriminations about high export subsidies unfairly competing with farmers in Latin America or Australia.

Two things have changed over the last years:

First, the global agricultural outlook has changed from a structural surplus situation to one where demand tends to outstrip supply. World prices have gone up to make export subsidies superfluous.
All experts agree that a return to depressed agricultural prices is highly unlikely. Food demand is up world-wide because the world population increases by 70 millions every year and a growing share of humanity can afford more protein-rich food. Fertile land is not reproducible. Water scarcity will put a lid on irrigated crops. Climate change will lead to more frequent droughts and potentially lower yields.

Second, European agriculture has substantially improved its competitiveness, due to technological progress and bigger landholdings.

We should pay tribute to the common agricultural policy. It has achieved its basic objectives, thanks to very high subsidies paid first by consumers and since the 1990s increasingly by tax payers.

But the time has come to radically put it in question. How long should the EU continue subsidising a small economic sector, spending on it almost as much it does on science & technology, the mainstay of our prosperity (agriculture 0.5 percent, research 0.7 percent of GDP)?

We have to address this anomaly in European public finance!

European farmers will have to get along without a guaranteed stipend of
some € 350 per hectare! There is no reason to subsidise them for good! Subsidies should be granted for limited periods. Agriculture has benefited from substantial subsidies for a longer period than any other economic sector!

The Commission does not have the courage to openly confront member states on this sensitive issue. It believes the European tax payer should pay farmers for the “public goods” they deliver by assuring food security and helping preserve nature and environment.

These are specious arguments:

First, our food security depends above all on energy security. No domestic food production without oil and gas! Still, we have ceased subsidising coal, and renewable energy is subsidised for a limited period only.

Second, the environmental services that agriculture pretends to furnish
are dubious. Agriculture does a lot of harm to the environment by excessive use of pesticides, herbicides, fertiliser and water. It has also been a major killer of biodiversity. Last not least, it is a very big C02 emitter.

This being said, the latest Commission proposals go into the right direction. Abolishing the 10 percent mandatory set-aside regime, reducing direct payments to big farms receiving more than € 0.1 million annually and raising milk quotas in view of the full liberalisation of the milk market by 2015 are welcome measures. So is the abolition of the special premium for growing biofuel crops.

Europe needs a thorough debate on its future agricultural policy. The moment may not be opportune, considering the question marks about the direction of US agricultural policy, the fate of the Doha trade round, the role of biofuels and the level of world market prices.

The newly elected Parliament should organise public hearings on the subject in early 2010, timely enough to have an impact on the proposals the Commission will have to submit for agricultural financing beyond 2013.

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