Darling's daring bid for reform

The UK Chancellor of the Exchequer (aka Finance Minister) Alistair Darling wrote earlier this week to all his counterparts on the Economic and Financial Affairs Council (ECOFIN) ahead of today’s meeting, setting out the case for a radical reform of the EU’s agriculture and trade policies. Specifically, he calls for the abolition of direct aids (some €34 billion a year) and the abolition of EU tariffs on agricultural imports. He also signals the growing concern in the UK about the EU’s headlong rush into food-for-fuel policies that are widely seen as contributing to the rapidly rising costs of food in Europe and elsewhere.
Here is the text of the letter in full:

13 May 2008
Dear Dr Bajuk,
Rising global food and energy prices are increasing inflationary pressures across the world economy, hitting poorest households the hardest and threatening to reverse the progress we have made over the past few years in reducing poverty. The increases in agricultural prices seen over the past two years have been substantial, with wheat prices for example rising by around 150 per cent, and food price inflation in the EU27 has accelerated over the past year, to stand at over 7 per cent in March.
The EU has a clear responsibility to play a full role in the international community’s collective efforts to address the consequences of spiralling food prices by tackling the causes, but it also has responsibility to its own citizens to ensure that its own policies do not unnecessarily inflate the cost of food within the EU. It is therefore unacceptable, that at a time of significant food price inflation, the EU continues to apply very high import tariffs to many agricultural commodities. The Commission should give urgent consideration to extending the suspension of import tariffs on grains and to reducing or suspending the import tariffs that apply to other agricultural commodities.
Against a backdrop of climate change, population growth, higher energy prices and increased global demand for meat, EU and global food security in future will be critically dependent on ensuring efficient international markets for agricultural products and pursuing liberal trade policies. To this end, and consistent with the Lisbon Agenda, I believe that under the discussions at the June ECOFIN on food prices and our preparation of the June European Council, ECOFIN ministers should seek to agree an agenda for tackling the problem of rising food prices focussed on the following core elements.
First, we need an ambitious international trade deal concluded as soon as possible. Barriers and distortions in the global food market increase volatility and stifle the incentives to increase supply to match demand. Second, we need a fundamental reform of Europe’s agricultural sector. Specifically this should include:
* phasing out of all elements of the CAP that are designed to keep EU agricultural prices above world market levels (such measures cost EU consumers EUR43 billion in 2006);
* an end to direct payments to EU farmers (which cost EU taxpayers EUR34 billion – 32 per cent of the whole EU budget – in 2006);
* improving the efficiency of EU markets for agricultural land, labour and capital;
* raising farmer knowledge of the benefits of market mechanisms for risk management, such as agricultural futures and options, and ensuring a more liquid market for these is free to develop and covers more commodities; and
* encouraging an appropriate level of agricultural research and development at EU and national level.
Third, we need a renewed focus on ensuring the single market delivers the best outcomes for the European citizen. I welcome the Commission’s decision that one of the first “market monitors” under single market review proposals agreed at the Spring Council in March will examine the retail sector and propose that this study should cover groceries and make recommendations on what more could be done to tackle rising food prices.
Fourth, we need a close examination of the direct and indirect effects of EU biofuels policy, including a full assessment of its effect on food prices, now and in future. This is the objective of a review led by Ed Gallagher in the UK who will produce his interim finding at the end of this month. In line with the conditions agreed at the Spring 2007 Council, the implications of these effects should be factored into the current negotiations on the Fuel Quality Directive and Renewable Energy Directive.
I look forward to the opportunity to discuss these issues on 14 May.
I am copying this letter to ECOFIN colleagues and Commissioners Almunia, Mandelson, Michel, Grybauskaite and Fischer Boel.

With French Agriculture Minister Michel Barnier making all the running in the Agriculture Council with a firm defense of direct payments to farmers and a renewal of EU ‘community preference’, Darling’s letter indicates that the British strategy for achieving CAP reform is to work through ECOFIN. The UK government must have realised that the CAP Health Check is not going to offer any prospects for significant progress towards it’s bold long term objectives for the CAP, and is pinning its hopes on the Budget Review, in which the Agriculture Council is more likely to be eclipsed.
However, if past experience of the politics of EU financing is anything to go by, the UK will be roundly outmaneuvered by the French and the Germans with the Irish, Poles, Greeks and Spanish playing a supporting role. In my view the UK needs to think a little more about what a reform alliance across the EU might look like, and work towards a policy agenda that offers something for everyone, not just the traditional ‘gang of three’ (UK, Denmark and Sweden). The alternative is to sound like a lone voice in the wilderness, reminiscent of the worst days of John Major’s government. There is also a tactical error in setting objectives that are so out of line with the political centre of gravity in Europe. It means that whenever the EU is debating a smaller point about the CAP, for instance, during the health check, any UK contribution to the debate is dismissed casually by the Commission and member states with the line, ‘Well you British, you want to scrap the CAP, so why should we be listening to anything you have to say.’
Rather than becoming the poster child for an unattainable vision of market liberal purity, the UK should be taking the opportunity of the EU Budget Review to advance a positive vision for the EU beyond 2013, a vision that is crafted to appeal to a winning coalition of other member states. Not a shopping list but an intellectually consistent expression of of the principles around which the EU budget – and EU revenue – should be organised. Such a vision would inevitably lead to a much smaller role for the CAP and would make the UK’s budget rebate unnecessary. This is the deal that the UK has been working towards for several years now.

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