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March 24, 2008

France to push for entrenchment of agricultural subsidies

France is expected to push for the further entrenchment of trade-distorting agricultural subsidies when it ascends to the presidency of the European Union (EU) on July 1 this year.

Despite amendments to the EU’s controversial Common Agricultural Policy (CAP) and skyrocketing crop prices worldwide, Europe’s farm subsidies for 2007 still amounted to 54.7 billion euros (85 billion US dollars).

African states have been agitating against the EU and U.S.’s subsidies for many years as they cause overproduction which distorts world prices and leads to the dumping of commodities on African markets. Many African states are also dependent on agriculture as their main source of exports and foreign exchange.

France, a traditional champion of the subsidies regime, will hold the EU presidency for 6 months from July 1. Wrapping up the undergoing ‘‘health check’’ of the CAP will be a major item on its agenda. Many expect it to perpetuate trade-distorting financial aid well beyond the World Trade Organisation’s deadline of 2013.

The CAP was initially created at the end of World War II to ensure Europe could feed itself. Half a century later, and despite vocal arguments among EU members, it still absorbs 42 percent of the EU’s budget. Despite this, French President Nicolas Sarkozy recently announced that his administration would strive to guarantee the high prices agricultural products currently fetch.

Hélène Brial, an official at the French ministry of agriculture, concurs: ‘‘It is only fair that we financially support producers we impose strict and costly traceability and hygiene standards on.’’ This is especially needed as safety and environmental standards increasingly become mandatory requirements of European agriculture.

‘‘This is the reason why France is planning for a new CAP beyond 2009. The CAP is really about giving cash to our farmers,’’ Brial said.

An official of the European Commission said, ‘‘France isn’t thinking of a simple ‘check-up.’ It wants to plan for the future and to make the CAP subsidies a lasting feature of the EU. ‘‘By 2050, humankind will need to feed nine billion human beings, which means that a hectare of land currently feeding four people will have to provide for 6 instead. This is why the CAP has become a hot political topic once again,’’ he said, speaking on condition of anonymity.

Not all EU members agree with France, the largest single beneficiary of the CAP (receiving about 20 percent of subsidies) or Germany (the second largest, with 13 percent).

Britain and other countries have long refuted the claim that subsidising farms is necessary for European agriculture to flourish, especially in the light of recent market movements.

According to a large British dairy producer, ‘‘the government in Britain never supported the CAP system of price support... The view was that farmers were businesspeople and should accept the same risk as other commercial operations.’’

Dairy products’ prices doubled in 2007. ‘‘This explosion in world prices has allowed the EU to remove subsidies on all dairy products, and even contemplate increasing production in 2008,’’ he adds.

But many farmers balk at such change. Jean Notat, a stock breeder and a board-member of the FNSEA (the French abbreviation for the French Federation of Farmers’ Unions), confirms that recent increases in crop prices worldwide have given French farmers ‘‘the highest revenue since 1992.’’

But he still thinks the CAP should be left untouched. ‘‘With prices rising worldwide, the EU could be tempted to scrap the existing subsidies. The problem is, what if prices drop again tomorrow?’’ he asks.

However, lower prices are unlikely, given that most European governments are now also considering subsidising the production of bio-fuels, which puts additional strain on the world supply of cereals and vegetable oils.

Even if they were to remain stable, current crop prices present cattle breeders with a soaring bill for animal fodder. In certain areas, such as France’s Brittany, animal feed now accounts for more than 50 percent of production costs. ‘‘Again, this is another sign that no agriculture can possibly subsist without public support,’’ says Notat.

However, when asked about the impact of CAP subsidies on non-European farmers, such as those in Africa, Notat thinks ‘‘they should be content with rising world prices.’’

While benefiting from rising prices is contingent on being able to export one’s production, an ability which EU subsidies are accused of undermining, Notat argues that ‘‘the EU cannot be held accountable for all of Africa’s problems.’’

Following years of public pressure against excessive production and subsequent destruction and dumping of crops, the CAP was reformed in 1999 and in 2003. The previous system, based on support prices that were deemed wasteful, was abandoned.

Today, European farmers are free to grow any crop the market demands. More importantly, financial support to farmers is contingent on production figures for a reference period and not on volumes. This is a far cry from the CAP of the 1980s, when subsidies supported small European farms believed to be too vulnerable to market fluctuations. Based on past figures, most subsidies now go to large holdings.

What the reforms did not alter significantly, regardless of the change in criteria, is the volume of subsidies paid to farmers, an ever-growing number as the EU enlarges.

Although most tenants of the CAP candidly advocate the ‘‘principle of European preference’’ (that is, subsidising domestic production for privileged access to the European market), support for the EU’s export subsidies is much less vocal.

‘‘Yes, the EU subsidises its agricultural exports but it is also the world’s first importer of agricultural commodities,’’ counters Brial.

The ministry of agriculture’s explanation for the WTO negotiations being at a deadlock is thus hardly surprising. ‘‘It is always very hard to agree to anything when unanimity is required,’’ argues Brial.


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