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Saturday, October 05, 2002

It's not just libertarians that get exercised about agricultural subsidies, less doctrinaire free-traders are just as scathing. This recent article in The Economist laments the demise of EU agriculture commissioner Franz Fischler's proposed reforms that would decouple CAP payments from production and decrease over time. A related article [subscription required] says much the same in more colorful language.

THIS summer the European Commission floated proposals for reform of the European Union's demented common agricultural policy. In many ways it was a timid plan, given all that is wrong with the CAP. The proposed reform aimed mainly to rearrange, not reduce, the mighty sums that the EU requires its taxpayers to hand over to farmers. The plan was nonetheless welcome. It would have broken the link between subsidy and production, tying farm aid more closely to rural conservation and—most important—reducing the extent to which the CAP dumps farm goods outside the EU, which drives down world prices at great cost to poor-country farmers.

CAP supporters tend to be those who receive payments rather than those who make payments so it's easy to suspect self interest in their arguments. $39 billion is twice as much as US agricultural subsidies, a lot of money in absolute terms, but small as a percentage of government spending so their argument is perhaps not as demented as it seems. Supporters also challenge the idea that the CAP harms developing countries:

How could anybody regard euro40 billion ($39 billion) a year of direct subsidy (plus twice as much again in higher prices demanded of European consumers) as too much to pay for producing food nobody wants, keeping third-world farmers poor and wrecking Europe's rural environment? Cheap at the price, say the ministers.


Anyway, the CAP's defenders continue, the broader effects of the policy have been misunderstood: “Some also claim that the CAP is responsible for causing hunger in developing countries. Nothing could be further from the truth.” How so? Well, the third world should really stick to subsistence farming, the ministers explain: all this haste to develop cash crops, move into export markets and rise out of poverty is not at all suitable for poor countries. By inhibiting their efforts at agricultural development, you see, the CAP lessens that dangerous temptation. In truth the CAP helps poor countries.

The Economist's snide commentary on the base idea that developing cash crops may not be a good way to develop poor countries conceals an interesting notion. Both supporters and defenders of the CAP claim that industrial agriculture generating surpluses for export is harmful, often citing environmental concerns as well as disruption of communities and cultures. It is also worth examining the idea that cropping one's way to wealth is possible.

There would have to be significant investment in developing countries to produce in quantity for export markets, something that would be neither quick nor cheap. The return on capital employed could be low, especially when compared to other uses for that capital within developing countries. More importantly, the market for food in the US and EU is likely to be stagnant or declining since their fertility rates and population growth are low and likely to decline further. The opposite is true for developing countries, that is where all of the population growth over the next 20 to 50 years is likely to occur. The UN estimates that food requirements will double in those countries. It may be all that developing countries can do to feed themselves. Surpluses, if any, would be exported to other developing countries rather than developed countries. It may be that the developed countries will still need to produce at a high rate for export to developing countries just to avert starvation. Unless the LDCs develop their industries and have money to buy food, a risky assumption, developed countries will not be paid for the food, it will be given in aid and so, in effect, subsidized by developed world governments and institutions.

When we look at world food production and markets over time it doesn't seem like there is a realistic chance that LDCs can lift themselves out of poverty with agricultural exports. There are other problems as well since LDCs tend to be clustered in warmer climate areas not always suited to crops adapted to the cooler developed countries. New cultivars might be required that can cope with the dislocation, probably GMOs, or developed countries might become markets for southern foods, a diet change in either case. Agriculture for export has an uncomfortable history in LDCs. Often the best land is used by large companies using modern techniques to produce foods that locals despise; 'gringo potatoes' in Peru for example. Agriculture requires water, often irrigation, and water is likely to be in even shorter supply than food in populous developing countries.

The EU defenders of the CAP may be making weak, self serving arguments but they may be right for the wrong reasons. Still, Fischler's proposals to break the link between subsidy and production and tie farm aid more closely to rural conservation seem worthy.

posted by back40 | 10/05/2002 07:53:00 PM


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