Friday, 11 March 2011

Taming the CAP monster

At last, European governments have begun to tame the Common Agricultural Policy. There was a time when this insane subsidy for farmers would spin out of control, consuming ever increasing amounts of public expenditure.

If you will pardon the pum, recent reform efforts have bourne fruit. In euro terms, expenditures on financial support to agriculture has been flat since the mid 1980s. Over the last five years, expenditures have actually fallen in nominal terms.

The CAP continues to consume about 80 billion euros a year. This number is still far too high. Nevertheless, the recent fall in expenditures shows that even the most deeply entrenched subsidies can be dismantled if the political will is there.


Anonymous said...

"The CAP continues to consume about 80 billion euros a year"

Put lipstick on a pig, it's still a pig.

Anonymous said...

Imagine we lived in a world where farming subsidies had never existed. The price of food would have crashed, farmers would have become bankrupt taking food off the market, raising the price of food. On the face of it that doesn't sound too bad. Free markets operating correctly.

However that favours large scale producers, as the larger you can scale production up, the lower your costs. In a world with no subsidies it would favour those farms that can operate at huge scales. Farming production being dependant on land area would result in countries like the US, Canada, Russia and Australia producing all our food. Now again that doesn’t sound too bad, what is wrong with importing food at a lower cost than we can produce domestically?

Well heres the rub, food is unlike any other global commodity. If imports of any other commodity suddenly stopped then it would cause a lot of pain, but loss of food imports would cause the death of most of your population within a month.

Food, is a national security issue. You need to make sure you can produce at least enough food domestically to feed your country. And you need a method to enable small scale producers to compete with the big boys as food is traded as a global commodity. (BTW – I take the UK (or France, Germany etc) as a whole as being small, some US farms are larger than UK counties)

Also, you cant just moan about EU subsidies, as a lot of other countries also subsidise their farming. The US officially has lower food subsidies that the EU, however unofficially US subsidies are higher than the EU thanks to some accounting slight of hand. The EU cannot reduce its subsidies, while the US does not. If you wanted to reduce subsidies then it would take global cooperation of all countries, not just the EU. But that would raise global food prices.

And heres the second rub, because subsidies are so high, food is very cheap. That cheap food feeds a billion or so people who currently live in poverty.

Food subsidies a) provide food security for smaller nations b) discount food for those in poverty to feed themselves.

Clueless Alice at it again. You really have no understanding of agriculture and i'm not sure you understand even the basics of economics. Please take another couple of years off blogging and this time spend the time educating yourself.

Jim said...

Vested interest alert: I am a farmer!

I've said it many times - IMO agricultural subsidies reduce the price of food, not increase it. Subsidies allow a huge amount of marginal production to continue, which would stop immediately without subsidies. Thus you would have an immediate rise in agricultural commodity prices to compensate for the lost production.

They also allow producers to get over the bad years when crops fail, again, allowing production to continue unabated in the following year.

If one went to a world with zero subsidies, food could at some points be cheaper than it is now. It could also be many times more expensive. Imagine the crisis if we were dependent on foreign imports for 80-90% of our grain (as would be the case without subsidies) and Russia banned exports (as they did last year) because of crop failure. What could we do - we would have to pay the going rate which could be £300-400/tonne, not £150-200 we pay now. And while we could afford that, being a wealthy nation (ish), we would then be taking grain from the poorer nations who could definitely not afford to import grain at those prices. People would starve.

Historically food production was horrendously cyclical - nature hasn't changed since those days - you only get what you plant, and you cannot rear a cow in a few months. Increased production time is measured in years not months. Subsidies help smooth over the peaks and troughs by producing a bit too much. Which is far better place to be in, than not having enough.

davidb said...

The arguments are complex. By susidising farmers in the EU we overproduce some things we cannot consume. Wine, butter and olive oil for instance. These are dumped on third world countries markets where local production is then uneconomic. So a distortion of many markets takes place.

Our European empires were predicated on the motherland ( eu members mostly now ) selling manufactured goods to colonies who produced what they were good at. The CAP and the trade regulations imposed after we joined the EU cut off these trade routes. So we don't make tractors in the UK any more and our sugar comes from beets while our former colonies cannot farm cane economically. Who really won out there?Yo fairtrade.

All subsidy is a distortion of a market somewhere. Governments cannot really regulate the market in anything ( we only sell guns that cannot be fired at unarmed demonstrators eg).

The current rises in comodity prices are due to one thing. China. Its rise and increasing purchasing power have stimulated trade in everything from chicken meat ( brazil ) to Coal ( Australia ) to copper ( Zambia ). The jury is out on where it will all end.

Alice is right to be sceptical of the CAP. Subsidy for any group of vested interests will always have unintended consequences. At least in a free market the imbalances have a chance to be corrected for elsewhere.

Anonymous said...

I went in for a loaf yesterday and the baker said £1 each so I said down the road they are 50p but they have none. The baker said when he has none they are 50p as well

Anonymous said...

A total subsidy of about 90 billion Euros from a total population of about 500 million makes the subsidy to farmers about 1800 Euro for every woman, man and child. How on earth can this be affordable? It's nonsensical. B. in C.