Following the defeat of the French and Dutch referendums on the European Constitution, across the European Union and in each of the Member States a period of reflection has begun. Indeed, already a wide range of contributions have been made to the debate on the way forward for Europe.
Many of these contributions have been overly pessimistic. Yes, the European Union has suffered a setback. Yes, there is clearly a disconnect between the EU and many of its citizens. Yes, there is a real risk that the EU will suffer from a period of drift and a loss of momentum.
However, predictions of imminent collapse, disintegration or permanent crisis are a long way off the mark. The European Union is one of the most successful political entities in history. It has bridged national divisions which existed for centuries. It has, through a successful enlargement, ensured that the artificial division of Europe imposed by totalitarian tyranny has been overcome. It has created a stable and successful single currency. The European Union has been, is, and will continue to be a success. This should be the cornerstone of any debate on the Union’s future.
Today, I want to focus on one particular aspect of the EU’s policy – the Common Agricultural Policy. This policy has in recent months been the subject of much criticism, criticism which has largely been unfair, or misinformed, or both. Not a day passes without a call for the abolition or reform of the CAP. Those who defend the CAP are accused of protecting vested interests or of being prisoners of outdated policies.
References to the reform of the CAP remind me of what Oscar Wilde once said about the truth – “The truth is rarely pure and never simple”. The truth about the CAP is certainly not simple. Yet simplistic and negative statements about the CAP, many of which are themselves driven by self-interest, are continually being made. These have become lodged in the public consciousness largely because those of us who believe in the merits of the CAP have maintained a relative silence on the subject. I would like, therefore, to set out the truth, as I see it, about the CAP.
Let me start by going back in time briefly – to the beginning in fact. The objectives of the CAP were set down in 1957 in the Treaty of Rome. These objectives are
- to ensure a fair standard of living for the agricultural community
- to stabilise markets
- to assure the availability of supplies
- to ensure that supplies reach consumers at reasonable prices.
More than forty years later, these objectives, like all provisions of all previous European Treaties, were reviewed during the negotiations on the new Treaty on the Constitution for Europe. Both the Convention and the Inter-Governmental Conference, where the negotiations were conducted, agreed to retain these objectives intact. I think it is reasonable therefore to conclude that the original objectives are still valid.
I believe that the most important of the objectives is to ensure the availability of supplies since, after all, food is the second necessity of life after the air we breathe. All communities and nations must have at least a reasonable measure of food security. Europe has that measure of security now. It did not always have it. When the CAP was established, Europe was a deficit area for many basic food products. It was the CAP which corrected that situation. Its price support mechanisms offset the diseconomies of small-scale production on European farms and made it profitable for Europe’s small farmers to produce more.
Farm size is crucial to farm profitability. Here Europe was - and still is – at a major competitive disadvantage. The average size of farm in the EU 15 is only 18 hectares. The comparable figure for the US is ten times bigger, at 178 hectares. Canada is at 422 hectares, Australia at 3243 hectares and Brazil has 273,000 farms which average 916 hectares. In this situation, it is abundantly clear that if the EU eliminated, or significantly reduced, support for agriculture, then European farms on the margins of commerciality would go out of business and European agricultural production would fall. The food supply gap would be filled by imports from, for example, countries in South America and Australasia which can produce at prices below European levels.
So, should we worry about food security since these countries are not just abundant sources of food but can produce it cheaper than Europe can? I believe that we should, for a number of reasons. First, it is obvious that, as soon as Europe would start to buy in quantity from the world market the basic commodities that it currently produces, world market prices would rise. Second, the relative price stability that the market mechanisms of the CAP have provided would vanish as commodity prices oscillate in response to world supply, which in turn varies with weather conditions. Third, and perhaps most importantly, we can never be sure that supplies would not be disrupted by political instability, or even war, in a supplier country – and we have had examples of the consequences of such disruption in the case of oil supplies.
Food security can be too easily taken for granted. Let us not forget that just over half a century ago, much of Europe was still subject to food rationing. Indeed in the late 1940s hunger stalked many European countries. It would be grossly irresponsible if the European Union with its 450 million inhabitants, the vast majority of whom live in urban areas, did not place food security at the heart of its agricultural policy.
Vulnerability of food supplies would not be the only negative result of a significant cutback in the CAP. There would also be a serious outflow of labour from the land of Europe. This would add to pressure on non-agricultural labour markets and on urban housing markets. Farm size in the more fertile areas would increase and land in the marginal areas would be abandoned. The social and economic fabric of rural areas would be damaged, and the contribution of rural life to the cultural diversity of Europe would be weakened. The physical environment would also be adversely affected as the management of landscape features such as hedges, stone walls, wetlands and woodlands breaks down.
It also needs to be kept in mind that the CAP has been the subject of ongoing and broad-based reform for over two decades now. From the time in the 1980s when the CAP’s success in increasing European food production became a problem in the form of food surpluses, there have been continual reforms like the milk production quotas introduced in 1984 and the budgetary stabilisers introduced in the late 1980s. And over the past fifteen years, the CAP has been subjected to three major broad-based reforms – in 1992, 1999 and 2003. Meanwhile sectoral reforms continue, with sugar at present and with wine and fruit and vegetables next on the list. The mechanisms of the CAP have not been set in stone; they have been made responsive to evolving societal needs. A point that those who are advocating another reform are missing is that CAP reform is a continual process rather that a single event.
Indeed many commentators ignore the fact that the CAP has just been reformed – in fact, in June 2003 the Council of Agriculture Ministers agreed the most fundamental reform of the CAP since it was established. That reform is now being implemented by the Member States. I hold that it is simply not credible to call for reform of a policy the most recent reform of which is only now being implemented.
The 2003 reform was the most radical of all in that it also decoupled subsidies from production. This change, which as I have said, is only now being implemented, will have three major effects:
- first, farmers will now produce in response to market signals alone; they will not produce simply to receive a subsidy; this will further improve both competitiveness and quality
- second, since these subsidies are no longer conditional on either production or export, they do not distort production or international trade and are perfectly aligned with the direction of international trade liberalisation taking place in the WTO context
- third, it ensures that the European Union retains the necessary capacity to rapidly increase production, should there be a disruption of external supply.
The reforms of the CAP over the last two decades have brought the CAP into line with present-day realities. The 2003 reform was the most radical in this respect also. It provides that decoupled payments may be reduced or eliminated if a farmer does not comply with eighteen different EU legal instruments governing food safety, the environment and animal health and welfare.
These reforms have made European agriculture more competitive, better prepared for globalisation, more compliant with food safety requirements, more environmentally sustainable and more conscious of animal welfare requirements.
It is difficult to see what other changes could be made to the CAP in the medium-term apart from the on-going sectoral reforms that are an integral part of the evolution of the CAP. Furthermore, the pace of reform should be in keeping with people’s ability to cope with it. Farmers are business people, and like all business people they need a reasonable degree of stability in the policy environment in which they operate.
It is possible, even likely, that those who call for CAP reform want merely to reduce its cost. Those calls are usually accompanied by the claim that the CAP absorbs an excessive proportion of the EU Budget. Cost-cutting is, of course, a desirable objective but it should also be a rational process and rationality requires that when we draw comparisons, the basis for comparison should be valid. It is not valid to claim that the cost of the CAP absorbs too high a percentage of the EU budget compared with other activities. That percentage is high only because agriculture is the only fully-funded EU policy and because the total EU budget is so low.
A more relevant comparison is that between supports for agriculture in the EU and the US. Here we have the benefit of the work of a respected international body - the OECD. The OECD has estimated that transfers to agriculture from both consumers and taxpayers amount to $103 billion in the EU and $92 billion in the US, or 1.32% of GDP for the EU and 0.92% for the US. This broad comparability of support exists despite the fact that the average farm in the US is almost ten times larger than the average farm in the EU.
In any event, the fact that expenditure on the CAP is falling, and falling significantly, seems to be ignored. The ceiling agreed in October 2002 for the EU25 for 2013 is less in real terms than the ceiling agreed for the EU15 for 2006.
Politically, too, there are strong reasons for continuing our current approach. To try to overturn an agreement reached unanimously by the European Council as recently as October 2002 would be to send the wrong signal to Europe’s people. The fact that the October 2002 agreement was a crucial element in the overall settlement which made possible the historical re-unification of Europe would make any breach of that agreement all the more unacceptable.
In terms of international developments, the thinking behind the calls for CAP reform seems to have been done in a vacuum – it ignores the fact that negotiations are continuing in the WTO on a new international trading framework and indeed are now reaching a crucial stage. The mandate for the conduct of these negotiations by the European Commission has been agreed by the EU Council of Ministers and endorsed by the European Council. Not only would a decision to reform the CAP breach those agreements at Council of Ministers and European Council levels, it would hand our WTO negotiating partners a major strategic advantage – if they know that the EU will change the CAP yet again, they will take full advantage of that knowledge in the negotiations.
The final point I want to make in defence of the CAP relates to developing countries. Charges that the CAP is damaging developing countries’ ability to trade are not correct. The EU is by far the largest importer of agricultural products from developing countries, importing about €35 billion at zero or very low tariff, compared to €18 billion for the US. The EU imports more from developing countries than the US, Canada, Australia and New Zealand together. It absorbs about 85% of Africa’s agricultural exports and 45% of Latin America’s. And these figures pre-date the Everything But Arms initiative, a unilateral gesture by the EU to allow into the EU market, duty free and quota free, all products except arms from the forty-nine least developed countries.
While the EU’s export subsidy scheme has been criticised, export subsidies have not been granted where a negative impact on a developing country has been identified. Moreover, subsidised exports from the EU have been an important source of food supplies for net food importing developing countries, a fact that is often overlooked. In any event, the EU’s export subsidies are becoming less and less significant. Indeed, under the new WTO round, the EU has offered to eliminate all export subsidies.
In summary, I believe that calls for CAP reform are misplaced; they are based on a misunderstanding of the role of the CAP in European society and the world economy; they are based on a false premise about the relative cost of the CAP; they ignore WTO realities, and were they to be acted on they would involve breaches of existing agreements.
To conclude, while the truth about the CAP is not simple, I hope it is clear that the CAP is not the costly administrative monstrosity that some would make it out to be. It is soundly based on values and objectives set out nearly half a century ago in the Treaty of Rome and reaffirmed unanimously by the European Council just over a year ago. Yes, it costs money but not disproportionately so. And there is a return on that money. It provides security of food supplies and reasonable confidence about the safety and quality of those supplies. It supports conservation of the environment and respect for the welfare of animals, as well as the preservation of the family farm and the social and cultural benefits that flow from vibrant rural communities.
Given the diversity of climate and soil types in the EU, from the North of Finland to the Mediterranean islands, from the Baltic States to the Iberian Peninsula, the construction and management of a common agricultural policy which embraces such diversity is truly remarkable. This achievement is due to a belief in European integration and a desire to compromise for the sake of that integration. The CAP is, indeed, a truly European policy. To abolish or undermine it would weaken the entire European project at a time when Europe needs strengthening, not weakening.
Thank you