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Some CAP facts and figures

by Jerome a Paris Sun Jun 26th, 2005 at 08:13:54 AM EST

While I am myself not very favorable to CAP as it is now, it probably does not deserve the hate spewed these days. So here are, courtesy of Le Monde, which published a very well researched full pager on the CAP on Thursday, some facts on CAP.

I have tried to summarise that article in English below, with some additional comments:

How does CAP work today?

Initially, in 1962, CAP was built on guaranteed prices for farmers, export subsidies, and a high level of protectionism. The goals were to make Europe self-sufficient (see the graph below - France was a net importer untile the late 70s), to modernise European agriculture and to provide a fair income to farmers.

CAP lead to overproduction and the famous "meat mountains" and milk lakes of the mid 80s. Reform was started in 1984 with the milk quotas and in 1992  with the lowering of direct price supports and a switch to direct subsidies to the farmers and not to their production.. The 2003 reforms led to the final abandon of production linked subsidies, and inserted a new linkage to environmental and health criteria. It also developed the concept of "rural development", with the farmers to be "stewards of the countryside".

From bottom to top on the graph: export subsidies, price support, direct revenue subsidies, rural development

Export subsidies have not fully being eliminated, but this is the clear goal (conditioned to the USA doing to same as part of the global trade negotiations). This has not prevented exports from growing regularly.

ag. exports, and CAP export subsidies, in euro billion

Does the CAP budget eat too much of the EU budget and prevent other policies?

Today, the CAP budget is 50 billion euros per year, or 43% of the EU budget, or less than 2% of the EU GDP.

The reason the CAP takes so much of the EU budget is because it is the only fully federal policy of the EU. If the EU had decided to make education a federal policy, it would take a budget 15 times bigger than the CAP.

Remember this - it takes so much of the budget because it is the only thing that Europe actually controls in full. The rest of the (overall small) EU budget covers only small portions of Europe's public spending in all the relevant fields.

CAP costs each European 2 euros per week. It made up 0.65% of EU GDP in 1988 and will account for 0.30% in 2013. Agricultural prices have gone down significantly, even though consumers haven't seen it because there are many other players in the food chain. It has been noted, for example, that a German farmer gets 65% of the retail price of an egg, 40% for dairy products, but only 4.5% for bread.

Are Europeans paying for French agriculture?

France is the first beneficiary of CAP, with 21% of CAP amounts - 9 billion euros:

But it should never forgotten that the grand deal when the EU (then the EEC) was created was that France got support for its farmers in exchange for agreeing to opening up its borders to trade and in particular to German industrial goods.

That's certainly a good that strongly benefits all the pro-free trade countries of the EU, starting with the UK. Agricultural subsidies is the price for political acceptance of free trade in France.

And it may very well be true that France also benefits from free trade, but this is NOT an argument that works politically in France. As the referendum vote recently showed, there is still a VERY strong protectionist streak in France, and free trade within Europe should not be taken completely for granted, so that trade off is still justified today.

Is CAP unfair to the new member states?

The new member states will only receive 100% of the sums given to their Western colleagues in 2013. Currently, they get only 25%, and that will go up each year. So there is some sort of unfair transition period.

But it should be noted on the other hand that these reduced amounts helped increase farmer revenues by 50% in 2004 in the new member states - and this has led to a major shift in the perception of the EU by the rural populations of these countries. Note as well that they feared an invasion of Western agricultural products in their countries, and actually the opposite has happened - exports from the new member states to the rest of the EU have grown massively in the pasy year.

Are CAP funds going only to the richest farmers?

On this one, the reply is clearly yes, and this is how CAP was explicitly designed in the early years: CAP was not meant to help individuals, but to generate strategic self sufficiency in a few sectors (cereals, dairy products and bovine meat).

This has been increasingly criticised, and as part of the 2003 reforms, it was proposed to cap subsidies per farm (to EUR 300,000) but this was rejected by Germany and the UK which have more big farmers relatively speaking...

Is CAP noxious for the developping world?

This was very much true in the past, when the CAP was developed on the basis of high domestic prices, protected by high external tariffs, and then went on to export its surpluses thanks to export subsidies.

This really nasty policiy mix was significantly toned down starting in 1992, with the massive reduction in production linked subsidies. The goal now is to eliminate all export subsidies, although it has not been done yet.

The EU nevertheless is the largest importer of agricultural products in the world, and has a number of specific agreements with the least developed countries that give these access. The big tensions today are with intermediate countries like Brazil which do not benefit from these special rights, and do want to develop thanks to agricultural exports, as it is one of their competitive sectors on the world scene.

Would agriculture disappear in Europe without the CAP?

Some sectors would certainly disappear without the current framework. Ironically, France, with its highly productive grain producers in the greater Paris basin and Picardy, and its focus on wine and other fine foods, would probably suffer less than others.

Is CAP bad for the environment?

The most polluting activities, like pig farming or poultry farming actually get very few subsidies. It is nevertheless a fact that the CAP's focus for many years on increasing production and "modernisation" has encouraged industrial agriculture with all its negative side effects.

The reforms of recent years aim at moving away from that logic, by focusing on environmental and sanitary criteria.

As regards the big food crises like "mad cow" and others, the race for productivity can certainly be blamed, and EU rules and regulations, which are supposed to prevent these things, are only imperfectly enforced (but this is done largely on a national basis) and are often subject to derision and criticism in other circumstances (all the jokes about the diameter of bananas or the complaints that EU sanitary rules prevent the production of "real" food like traditional cheeses).

So, that's, from my perspective, a reasonably balanced description of the CAP. If you think it is hopelessly biased, being written by a French paper and commented by another French guy (although you know where I stand on this topic), here's the version from the Economist:

Europe, in particular, is struggling with its cosseted and deeply entrenched farm lobby. France has historically been the biggest obstacle to reform; almost half its area is farmland, and its farmers defend their subsidies vigorously. Thanks to such obstructionism, the EU's common agricultural policy (CAP) accounts for nearly half of its overall budget, even though only 4% of its population still works the land. Though there has been some modest progress on reform in recent years, disputes over the CAP are still acrimonious. A row over its funding was the main reason for the collapse of the EU summit in Brussels last week.

The reasons that I am personally favorable to a big reform of the CAP are:

  • the impunity that farmers have in France. They can flaunt rules (especially environmental ones), they can riot and break public buildings and do various illegal acts and are never punished for it, and this is simply not tolerable; this is especially important as it becomes ever more important to enforce environmental and sanitary rules;

  • France wastes a lot of its political capital in Europe on defending the CAP blindly, when a little more public and private flexibility would go a long way to reestablishing its - much needed from my perspective - leadership on other topics;

  • the policy of favouring agrobusiness over small farmers needs to be changed, and this is not especially a French problem;

  • similarly, all policies that distort international trade to the detriment of the agricultures of developing countries needs to be scrapped as much as possible.

But the CAP need not be scrapped altogether. And the fact that it uses up a large chunk of the budget is because all European countries are too selfish to put more money in the common pot for more ambitious policies in other areas (even those they purport to support like science, R&D and the like), and thus because the overall budget is too small, not because the agriculture budget is too big.

Nice job Jerome, as usual.

As an American I'm pretty much in the dark about CAP and the whole EU thing as a whole, but it seems to me that a critically important point is buried in your statement that "Agricultural subsidies is the price for political acceptance of free trade in France." This seems to indicate that France is somehow "special" in today's European system: In a true Federal system France would not hold a veto on pan-European agreements.

It seems to me that this gets to the heart of the problem with Europe. As a federalized program, the CAP should be negotiated between all 25 countries on a level playing field. Instead, there are special restrictions on the new countries, and special consideration given to France.

Central to the EU structure is a residual understanding that Germany is "bad." Perhaps the most blatant example is the voting system that gives France, Britain, Italy, Spain, and Poland as many votes as Germany even though they're considerably smaller--the last two less than half the population of Germany. The CAP is a side effect of this system where the economically efficient Britain and Germany are forced to support inefficient France. How else can you interpret a system which involves a substantial net movement of cash in this fashion?

Somehow France will eventually be forced to come to grips with its true position in Europe: One of many players, whose interests are less important than Germany's. This may happen gradually under the pressure of negotiation, or it may happen suddenly in a crisis where the rest of Europe finally decides to over-rule France's expectation of special treatment.

At least, that's how it looks from this side of the pond...

by asdf on Sun Jun 26th, 2005 at 08:52:20 AM EST
No asdf, this doesn't mean France is special: every European country has its pecularities in the EU. The EU developed by everyone giving up something for keeping something else.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Sun Jun 26th, 2005 at 09:03:31 AM EST
[ Parent ]
I thought about whether I should address the smalller issues, on second thought I should.

  • The EU is not a true federal system, and some (the Brits) oppose a development in that direction very much. It is now a confederation.

  • The CAP is negotiated between 25 countries. The result of the last negotiations was a transition until 2013, which isn't obviously bad compromise as the article notes it (and I can reinforce what it writes from here from Hungary). I note the long transition is probably good for avoiding shocks both for West European farmers and the netto contributors to the EU budget.

  • Votes Part I: The equal votes of Germany with France, Britain and Italy was the price then Chanchellor Kohl paid to allay the fears of then British PM Thatcher and (less so) then French President Mitterand of a dominant Germany after re-unification. The new system of the Nice agreement abadoned that, tough, Chirac fought hard to keep the Germany-next three ratio lower than the population ratio. That was when Spain and Poland also demanded over-representation, and got it.

  • Votes Part II: The workings of the EU are such that progress comes when it seems least likely, with the country(/ies) who tried to get too much and stalled progress thereby before forced to give in. In that fashion, having been roundly criticised for Nice, in 2003 Chirac gave in in the planning of the next system: the one included in the now stalled Constitution. However, this time it was US allies Spain and Poland that tried everything to maintain their privileges under Nice. However, they stood alone in the end: half a year later, Aznar of Spain was gone, and Poland accepted complete defeat.

  • France is not economically inefficient relative to Britain and Germany. Airbus, Renault, PSA, Loreal et al are fine. This inefficiency meme is only a popular spin in the Anglo-Saxon press. While, in fact, Britain sports a large trade deficit and under Bliar started the same savings-crunching, credit-dependent spending as the USA.

  • In the eighties, Maggie Thatcher, probably intending to blow up the EU, fought a hard fight to have a special British rebate, so that Britain won't be a netto payer. As usual in the EU, politicos opted for preventing disaster, that is they gave her what she wanted.

  • The current EU summit on the EU budget failed not because of CAP but because Britain vetoed every compromise proposal to even freeze the British rebate. Bliar demanded a complete re-drawing of the entire budget, blaming the French and CAP, forgetting that the  CAP itself was freezed in the previous compromise the above Le Monde article also mentions.

  • Hence, expect Britain to be next being forced into a compromise.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Sun Jun 26th, 2005 at 09:30:48 AM EST
[ Parent ]
France has a veto, but so does everybody else. And yes, France is special because France made peace with Germany, just a few years after WWII and all we know happened then.

CAP HAS been renegotiated several times, and most countries get a lot out of it. Did you not read that it was the UK and Germany that blocked the reform to limit payments per farm? A number of countries are happy to "hide" behind France in these negotiations,

As to the number of votes, Germany has as many as the others, not just France, so why blame France for that fact? The constitution would have changed this, but that issue was not mentioned one in France.

as to "economically efficient Britain and Germany are forced to support inefficient France", give me a break. It could be argued very easily that France and Germany paid for the UK's prosperity, by welcoming them in the EU when it was inreally dire straits. Since the UK has been in the EU, it has been thriving. Coincidence? And France is just as "efficient" as the UK on most metrics. (Go read the "what's wrong with the eurosone labor market" diary by Colman for some numbers and I can provide more). These comparisons are driven by the UK-based english speaking business press who seem at times to still be at war with the continent. It's certainly an ideological war, but it seems that the UK has never made peace with Germany following WWII.

Face it, Europe without France will never happen. Europe without the UK is very easy to conceive (I don't support it, but i can see it happening). We made peace with  Germany. We built prosperity for europe, and opened the door to all. The CAP was an important brick in that effort.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun Jun 26th, 2005 at 09:47:56 AM EST
[ Parent ]
Methinks Jerome from your comments that you see this issue too much from the perspective of French politics.  I don't think that it was Blair's intention to scupper the Budget or to keep the Rebate in its current form, but to take back some victory with him from Brussels.

The simple issue is that without the rebate Britain would be second only to the Netherlands in terms of per capita contributions.  In the government's mind the rebate is closely tied to the CAP and so any negotiations must be a joint one.  Even with the rebate, Britain gives more than France per person to the EU funds.

Why should French agriculture be favoured so much over the other European Countries?  Over the new countries?  Everyone in the EU understands that there should be donor countries and recipients, Spain and Ireland seem particularly grateful.  But why should France give so little?  They have a strong economy and a high standard of living.

The deal you speak of does not have any bearing on the current politics of the EU, or in Britain.  If Chirac wants to deal with the British Rebate (and it should) they need to negotiate, not petulantly demand without offering any compromise.

The only international crime is losing a war

by Luam (uretskyj at gmail.com) on Sun Jun 26th, 2005 at 12:19:52 PM EST
[ Parent ]
Well, I am Hungarian, and I agree with Jerome almost completely.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Sun Jun 26th, 2005 at 01:37:04 PM EST
[ Parent ]
I know there is a lot of nationalism rising to the surface, and I certainly won't claim to be immune to the phenomenon... but I will claim to some balance as I have already roundly criticised some French policies and positions and am comfortable defending them on other topics.

The debate about the rebate has been disingenuous, to say the least. All British arguments have been about how much the UK would have paid in recent years without it, which of course is not what was discussed, as the issue is only about what happens in the future. As it were, under current rules, the rebate is set to grow massively, from 5 to 9 billion euros, and the way it is structured (with other rules applying to Germany and the Netherlands), that increase will basically be paid by Italy, France, and the new member states. Blair smartly suggested to give back that last one, the most offensive part of it, but the numbers with respect to France and Italy are pretty impressive, as provided by no other than the increasingly euro-bashing Economist:

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun Jun 26th, 2005 at 02:24:05 PM EST
[ Parent ]
You underline a very important point with your mention that "it was [not] Blair's intention to scupper the Budget or to keep the Rebate in its current form, but to take back some victory with him from Brussels."

Victory in Brussels for any UK government means something for the UK. Victory for the continental countries means something for Europe. This is the fundamental distinction between the UK and the core EU. (And yes, I know that France et al. fight for their national interests. The point remains. The only national victories that will ever be claimed are those against the UK. You will never hear - "we beat the Germans")

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun Jun 26th, 2005 at 02:28:52 PM EST
[ Parent ]
To some extent that is true that the British see themselves as having to fight for what they want from Europe, but perhaps that perception is based on some reality?

Victory for Britain in this case means getting something in return for agreeing to reduce the Rebate.  This isn't just a strike at France, but the current structure of spending in the entire EU.  You showed us the projected future contributions assuming the rebate, but what would it look like without.  I was looking at the projections with and without for 2003 in The Economist, it makes it pretty clear what Britain is worried about.

Why does France want to beat the UK, but not the Germans (is that what you meant)?  I get that sense as well and I think that my British friends think that Germany and France are aligned to make things difficult for Britain.  How can a leader ask another country to sacrifice and then stonewall when his own country is ask to do similarly?

The only international crime is losing a war

by Luam (uretskyj at gmail.com) on Sun Jun 26th, 2005 at 03:03:22 PM EST
[ Parent ]
We don't want to beat the UK, we just defend ourselves against the way they play the game, i.e. as a zero-sum game, which Europe patently is not. We fight the Germans, but we do not need to worry about zero-sum games with them (as when we do, like Chirac in Nice in 1999, the results are catastrophic for all).

As you know, I think that europe will only get anywhere when France and/or Germany and the UK finally decide to stop sniping at each other and force themselves to compromise. any compromise between France and the UK is likely to be acceptable to most, as they represent widely opposite views of what to do.

But there is no will to force a compromise, like there is between the French and the Germans (who, remember, disagree about pretty much everything, but force themselves to talk and find common ground). Only sniping and blaming and stone walling. This is pathetic.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun Jun 26th, 2005 at 03:43:13 PM EST
[ Parent ]
I don't feel like I have a sense of what is going on in France in response to Chirac's call for an end of the British Rebate, and the budget talks.  From the British press it really just seemed like an attempt to wind the British up and distract everyone from the failure of the referendum.

Are the French glad that the Rebate was put on the table?  At all surprised that Blair didn't just give in?  Surprised that Chirac was unwilling to compromise?  Is there really a consensus that Blair should just yield a bit of the Rebate without any concessions in return?

To me it didn't seem like diplomacy but an attempt at showmanship.  So far as I can tell, Blair won on the exchange, but may be forced to pay for it when he tries to put forward his agenda as EU president now that he has to deal with the budget as well.  Blair offered a compromise and immediately France and Germany joined together and declared it unworthy of consideration.

The only international crime is losing a war

by Luam (uretskyj at gmail.com) on Sun Jun 26th, 2005 at 04:13:33 PM EST
[ Parent ]
The French press has been highly critical of Chirac and sees the rebate debate as a distraction from domestic issues and his overall failure as a President. But while there is a lot of questioning (of the "what could we learn form the British model" kind), there is little trust in Blair's commitment to Europe. The conclusion was that he may get his way despite his pretty universally disliked ideas because of the weakness and stupidity of Chirac and Schroeder.

The focus has now switched back to domestic issues - and the heat wave.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun Jun 26th, 2005 at 04:34:35 PM EST
[ Parent ]
I agree with you. CAP should be there to

(1) support small farmers,

(2) prevent grand monopolies in the agrarian business,

(3) protect local, unique food,

(4) advance environmentally friendly agriculture.

It is still far from that today.

At any rate, I am not a proponent of a third world produces food - first world eats it future: the transport of that food is too bad for the environment. The West dumping of its excess food production on developing nations should be stopped, rather than create another free trade idiocy.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Sun Jun 26th, 2005 at 09:00:21 AM EST
Great diary - and much needed. Your 4 summing up points make real sense.

As usual, once the facts are presented simply and understandably, a new truth emerges. It seems much of the EU bureacracy and elite 'politicians' are incapable of communicating to the average European - whether about CAP, the Constitution, or indeed any other of the key issues.

You can't be me, I'm taken

by Sven Triloqvist on Sun Jun 26th, 2005 at 09:14:03 AM EST
The more I read about the EU's current problems, the more I agree with you that the EU bureaucracy is "incapable of communicating with the average European."

It seems to me that the obvious solution to this problem is to give more power to the European Parliament. If Europeans thought their views on EU policies mattered, they'd probably take more of an interest in EU issues.

by Matt in NYC on Sun Jun 26th, 2005 at 11:51:12 AM EST
[ Parent ]
I'm not sure even that would work. MEPs are still elected by voters that don't really think it matters, because MEPs don't have any real power.

It is still seen as a 'kicked sideways' dumping ground. An ex-PM of Finland (Anneli Jäteenmäki, who was forced to resign in disgrace) is apparently wandering around making no contribution at all - either because she is language-challenged or is using the 'well-paid holiday' in Brussels to plot her comeback in Finland.

Give the MEPs real power as a 'lower chamber' and give the commisioners a pan-european unifying role, modelling them more on the Senate. Perhaps 4 from each country.

Then voting for MEPs would have more meaning.

You can't be me, I'm taken

by Sven Triloqvist on Sun Jun 26th, 2005 at 12:43:33 PM EST
[ Parent ]
It is certainly true that all I see is the English language press, mostly British... It will be interesting to see how it works out over the next couple of years...
by asdf on Sun Jun 26th, 2005 at 12:18:48 PM EST

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