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EP draft report: Whereas all this is nonsense

The EP own-initiative report on the post-2013 CAP is taking shape as a new draft has become available (dated 24.3.2010). Though it is better packaged, and sexed-up with a ‘green growth’ tag, the content is just as dull and conservative as the earlier draft. The report captures the intellectual deficiency of the CAP-insider bubble.

The draft report suggests 5 ‘key building blocks’: area-based direct income support, climate change mitigation payments, payments to areas with natural handicaps, payments for biodiversity and environmental protection, and green growth subsidies with a focus on renewable energy. The first two payments are to be fully financed by the EU, and the other three co-financed by the member states.

I will not go into the reports’ food-security and fair-income arguments (though they thoroughly deserve criticism) but will limit myself to commenting on some peculiar lines of reasoning that are considered to prop up the case for a strong CAP.

whereas the share of CAP expenditure in the EU budget has steadily decreased from nearly 75% in 1985 to a projected 39.3% in 2013; whereas this represents less than 0.45% of the EU’s GDP; whereas the decline in budgetary expenditure on market measures is even more significant – from 74% of all CAP expenditure in 1992 to less than 10% at present;

“Measured against the EU budget and GDP, we are wasting less money today than in the past.” This is correct as an empirical assertion about past policy changes. It is not an argument that could justify the expenditure of a single euro on the CAP. Maybe 0.0% is the right spending target. It could theoretically also be optimal to spend 1.0% of GDP on agriculture through the CAP. Whatever the right solution is, reference to past spending levels is not acceptable as an argument in the debate about desirable future policy choices.

whereas the EU continues to experience a widening trade deficit in agricultural products

and

insists that EU agriculture must remain competitive against fierce competition from well-subsidised trade partners; therefore believes that competitiveness should still be a fundamental objective of the CAP post-2013 to ensure that the EU has the raw materials to produce high-value European food products and they continue to win a greater share of the world market

Where is the problem with a trade deficit in agriculture? And why should the EU gain shares in world agricultural markets? The basic assumption of economists is that each country benefits if it specializes according to its comparative advantage. In those developing countries where the most competitive sector happens to be agriculture, governments are often skeptic about excessive specialization and prefer a more complex economic argument based on the dynamic gains of investing in manufacturing and service sectors that allow their country to climb up the value chain in the future. But the EU’s competitive advantage is much more concentrated in high-value-added sectors (high-tech, professional services, luxury goods, research and innovation). In other words: we are lucky. It makes no sense to work against this specialization and export more agricultural products. Since trade accounts roughly balance in the long-term, more agricultural exports would automatically imply fewer exports of these high-value-added products and services in which the EU enjoys a comparative advantage.

recalls, therefore, that unless farming activity is preserved across the EU, no provision of public goods will be possible;

and

insists that the cost of support through a strong CAP is nothing compared to the costs of no action and its negative unintended consequences;

The death of European agriculture is again at the doorstep. The day the CAP is abolished, there is no country to walk in, no food to eat, no water to drink, no air to breathe. These wild beliefs can be divided into two ‘analytical’ steps: first, that agriculture would actually collapse, and second, that this would create overwhelming problems. In reality, agricultural production will most likely continue to grow – with or without policy support (see DG Agri study: Don’t be afraid of liberalization and Crystal ball gazing: Scenar II study on the effects of CAP reform). If agricultural production were to decline dramatically, this would cause some problems – but it would also create great benefits, notably in terms of water quality and climate change (though this depends on second-order effects abroad). But CAP supporters rarely say “We believe that without the CAP, there would be a slight decrease in production, and this would have negative effects on balance.” They almost inevitably turn to the dramatic – “unless farming activity is preserved across the EU, no provision of public goods will be possible” – a situation that would be so horrible that the €55 billion we are paying every year must be deemed nothing short of “nothing”.

I have criticized three points: the reference to past spending as a justification for future spending; the blindly mercatintilist appetite for world market shares; and the all-or-nothing drama when it comes to the survival of European agriculture and the public goods that depend on it. Together, they are examples of a fundamental problem in EU agricultural policy-making: the CAP debate is taking place in a bubble. Agricultural ministries, DG Agri, the EP Committee on Agriculture, farmers, the landowners and rural interests reinforce each other in the CAP-insider community. Radically critical voices are sidelined. The CAP is made within a bubble by people who want to keep the CAP as it stands or to reform it as much as is necessary to preserve it. Lines of arguments such as those I have picked out above can prosper in such an environment. Strikingly unsound statements, which would, in other policy domains, be dismissed with laughter as intellectually deficient, are the respectable mainstream in agriculture.

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