Doc. 10649

12 July 2005

The costs of the Common Agricultural Policy

Report

Committee on the Environment, Agriculture and Local and Regional Affairs

Rapporteur: Mr Paul Flynn, United Kingdom, Socialist Group

Summary

The Parliamentary Assembly recognises that the circumstances that led to the Common Agricultural Policy (CAP) of the European Union (EU) have significantly changed, resulting in the need to further review this important policy. The Assembly welcomes the recent package of CAP reforms as a good step forward in tackling some of the negative effects of the CAP such as its impact on developing countries, consumers, industry and the environment and its new focus on the protection of the environment, animal welfare and rural development. The Assembly recommends that the EU must carefully assess the effects of its agricultural policy both within Europe and in developing countries and take appropriate action to meet its commitments to reach the Millennium Development Goals.

The Assembly recommends that EU institutions and EU member states consider the need for reform to encompass all interests and address the role that agricultural policy can play in promoting rural development, protecting cultural heritage, traditions and landscapes. A more efficient and fair system is needed to appropriately compensate rural communities for the non-economic services they supply, such as the protection of the environment and of animals, the maintenance of landscape, their contribution to the social and economic life of rural areas and to the preservation of water, air and soil as life’s essential elements. Any reform of the CAP needs to take account of the urgent need to address dwindling water supplies and the threat posed by climate change.

I.       Draft resolution

1.       The Parliamentary Assembly recognises that the Common Agricultural Policy (CAP) of the European Union (EU) is a policy determined by the circumstances of post-war Europe to safeguard and ensure its food supply. Those circumstances have changed. It is time to reconsider the CAP in the context of the negative effects it is having on, among others, countries in the developing world.

2.       The Assembly recalls its Resolution 1322 (2003) on “Challenges for a new agricultural policy” and notes that the CAP has met its original aims of guaranteeing food supplies and income for farmers. It has also promoted rural development and has been beneficial to rural communities, particularly in protecting Europe’s cultural heritage and traditions.

3.       Agriculture has been in decline in Europe for some years. This decline can be observed both in terms of the number of people it employs and its contribution to the economy. Young people are no longer attracted to this activity which has been overtaken in its contribution to the economy by other sectors.

4.       The Assembly welcomes the recent package of CAP reforms as a tentative step forward in addressing the challenges faced by the CAP and refocusing on the protection of the environment and animals and on its social effects. Any further reforms should not be viewed as a threat to agriculture but rather as an opportunity for consumers, the developing world, the environment, rural areas as well as for farmers through improved agricultural policy.

5.       There is a need for a shift in focus to tackle some of the negative effects of the CAP and the problems caused to developing countries, consumers, industry and the environment.

6.       In developing countries, agriculture is often the main economic activity. These countries mostly carry out a traditional agriculture, aimed at home consumption and the local markets, whose future is threatened. It is subject to competition, also on the local markets, from commodities produced by major agricultural and food-processing companies, many of them multinationals. Rural populations are drifting into the cities, where there is too often a dearth of job opportunities, housing and services, which result in serious social problems.

7.       The governments of developing countries endeavour to secure hard currency to be able to import goods and services from developed countries and despite the problems this causes on the domestic front, they give precedence to major enterprises able to export agricultural products. This policy suffers from restrictions to free trade imposed by advanced economies such as those of the United States and the European Union. The Assembly observes these contradictions and notes the need for the EU to shoulder its responsibility for the complex effects of its agricultural policy on developing countries.

8.       The Assembly recalls Resolution 1449 (2005) on ”The environment and the Millennium Development Goals” and notes that agriculture can be a major force in reducing poverty by improving employment prospects and creating wealth. However, the EU must carefully assess the effects of its agricultural policy both within Europe and in developing countries and take appropriate action to meet its commitments to reach the Millennium Development Goals, including through its agricultural policy.

9.       The negative effects of the CAP are clear in the impact that the European Union’s sugar regime has had on many developing countries, where sugar can be produced more cheaply and easily. The Assembly condemns the EU sugar regime for awarding large subsidies to already highly profitable companies and hindering the ability of developing countries to escape from poverty. While providing aid to developing countries, potential income is cut through trade restrictions. This situation is no longer tenable.

10.       The Assembly notes that consumers in the European Union pay twice for the Common Agricultural Policy: through taxation and through higher food bills as a result of the CAP. This has the greatest impact on low income families who can least afford it. It is an unnecessary burden on consumers.

11.       The CAP remains a significant burden on the budget of the European Union, while other challenges demand new resources, such as scientific research, territorial cohesion, common defence, etc. The use of CAP resources must not become counterproductive and therefore its effects on manufacturing industries must be taken into account as they can be very negative at times, like the case of the sugar industry. Some CAP schemes have had a negative impact on linked industries causing the loss of jobs, such as job losses amongst manufacturers of sugar-based products.

12.       In addition, there is concern about the way subsidies are distributed. Large financial awards are being made to the largest and wealthiest farmers, dispelling the idea that the CAP protects the smallest farmers. The decision by the United Kingdom Department for Environment, Food and Rural Affairs to publish the recipients of subsidies (names and amount received) in March 2004 is to be welcomed. It is revealing that the CAP does not primarily help small farmers.

13.       The Assembly regrets that some elements of the CAP which have promoted intensive farming, alongside developments in technology, have also indirectly contributed to the destruction of habitats, pollution and decline in bird and animal species dependent on those habitats for their survival. Bird species have been recognised as indicators of this. Across Europe, the population of many farmland birds have been severely damaged as a result of this trend. For instance, the population of a farmland bird, the skylark, has declined by 52% in the UK.

14.       Without further reform, the Assembly is concerned about the long-term future of bird and animal species in Europe and the resources needed to repair the environmental damage caused by intensive farming.

15.       New Zealand offers an example of what can happen when subsidies are removed. Subsidies became unsustainable and were removed in 1984. It is notable that agriculture in New Zealand did not go into decline, productivity improved, environmental damage was reversed and the industry now responds to market and consumer demand. Important lessons can be learned from this example, even though the situation of agriculture in many parts of Europe cannot be compared with that in New Zealand in terms of rural population density, production tradition and complexity, links between agriculture and other local sectors such as tourism and the links between agriculture and landscape and environmental quality.

16       Switzerland offers a contrasting example combining high subsidies with environmental protection. This principle is incorporated in the Swiss Constitution. The integration of such concern into agricultural policy would be wise, although there is concern about the sustainability of large subsidies and their effects on neighbouring markets.

17.       Consequently, the Assembly recommends that the institutions and member states of the European Union consider the following issues in the current and any future reform of the CAP:

17.1.       the impacts that the CAP has had on developing countries, the environment, consumers, taxpayers and other industries and how to address them;

17.2.       the urgent need to address the effect of the CAP on developing countries, particularly through schemes such as the EU sugar and tobacco regimes;

17.3.       the important lessons that can be learned from the New Zealand and Switzerland examples;

17.4.       the role that agricultural policy can play in promoting rural development, protecting cultural heritage, traditions and landscapes;

17.5.       the need to develop a more efficient and fair system remunerating the non-economic services supplied by farmers: the protection of the environment and of animals, the maintenance of landscape, their contribution to the social and economic life of the outlying regions and preservation of water, air and soil as life’s essential elements;

17.6.       the need to require the publication of all aid recipients and amounts received to introduce greater transparency and accountability;

17.7.       the need for reform to encompass all interests and not just those of the farming sector;

17.8.       the need to focus on the environment, particularly in the context of imminent problems predicted as a result of climate change.

II.       Explanatory memorandum by Mr Flynn

Contents

Page

1.       Introduction …………………………………………………………………………………….       5

2.       Trends in agriculture ………………………………………………………………………….       7

3.       Cost to the developing world ………………………………………………………………..       8

      EU Sugar regime

4.       Cost to the taxpayer and the consumer …………………………………………………….       12

5.       Cost to other industries and the economy of the EU ………………………………………       13

6.       Cost to the environment ………………………………………………………………………       18

      The Skylark Alauda arvensis

      EU tobacco regime

7.       Some models ………… ………………………………………………………………………       20

      New Zealand

      The United States

      Switzerland

8.       Conclusions …………………………………………………………………………………….       23

9.       Recommendations …………………………………………………………………………….       24

1.       Introduction

1.        The policy was established with the aims of increasing agricultural productivity, providing a fair standard of living for agricultural producers, stabilising agricultural markets, assuring stability of supplies and ensuring reasonable prices to consumers. It was determined by the experience of post-war Europe. Above all it was based on the desire for security and self-sufficiency.

2.        CAP established a complex system where farmers were guaranteed prices for their produce and given subsidies to guarantee supply. Support was extended to exports, and tariffs on imports from outside the EU were implemented, adding a further level of protection. CAP fulfilled its aims very quickly in guaranteeing a stable income for farmers and food supplies. It was determined by the circumstances of the time. Those circumstances have changed and it is time to reconsider CAP and the role agriculture plays. A valuable contribution to this debate has already been made by Mr Nicolaos Floros, in his report, ‘Challenges for a new agricultural policy’ (Doc.9636).

3.        This report1 will demonstrate that the policy has gone way beyond its original aims and has had negative effects. For the purposes of this report cost will be understood as a negative consequence, measured in terms of damage to the environment, financial costs to the economy and developing world. These negative effects are unintended consequences, unforeseen by the policy-makers at its inception, but today’s policy-makers are in a strong position to learn from these problems. The EU has a responsibility in its policies, not just to its farmers, but to the rest of its population and people elsewhere. Four areas will be examined to illustrate these effects, the

developing world, the European taxpayer and consumer, the economy and other industries and the environment. Consideration will also be given to New Zealand, where government support for agriculture was largely removed in 1984, the United States and Switzerland.

4.        While this report seeks to expose the negative consequences of CAP, it acknowledges that in some circumstances CAP may have benefited communities. For instance, it has been recognised as a means for the survival of minority languages in rural communities. This received some attention a debate on Mr. Floros’ report, which recognised the importance of protecting rural areas, not only for environmental reasons, but because these areas contain much of Europe’s cultural heritage including languages. Support for agriculture could play a future role in protecting Europe’s cultural heritage, while at the same time being refocused to the needs of the environment and taking into account the developing world.

5.        Europe has over 60 indigenous or regional languages and many of those who speak these languages are based in rural areas. At the same time, a significant number of these languages are classified as being endangered and enjoy little protection or support from national governments. Rural depopulation and the decline of the farming industry is clearly a factor in this. The Council of Europe has played a prominent role in highlighting the plight of these languages and offering protection through the European Charter for Regional and Minority Languages. Any reform of CAP must recognise this as a positive aspect and seek to include it in any future policy. I believe deeply in the report’s (in discussion of document 9636) point about how precious rural life is. I speak Welsh, a language that exists in strength now only in rural areas even though it was a sophisticated, developed language 1 000 years before English came to the British Isles. That is of unique cultural importance. Our rural areas are often the places where the soul of the nation lies in its richest and purest form. Istvan Szechenyi the celebrated Hungarian litterateur said the answer to the question of where the nation lives is that the nation lives in her language.

6.        The correlation between minority languages and rural areas can be illustrated with a few examples.

-       Mrs Tytti Isohookana-Asunmaa, in her report Endangered Uralic minority cultures (Doc. 8126), documented the problems of Uralic languages, often based in rural areas, but declining in tandem with the movement of young people to urban areas, often in search of employment. It highlighted the need for protective measures such as funding for education and media.

-       Friesian, spoken in the Netherlands and small areas of Germany by 600,000 people, has suffered a downward trend in its use as a result of rural depopulation. Two thirds of Friesian speakers live in rural areas, where 8% of the population is employed in agriculture, compared with only 3% for the rest of the Netherlands.2

-       Breton, spoken in North-Western France in the regions of Brittany and Loire-Atlantique, is concentrated in rural areas. Agriculture and fisheries are predominant in the local economy, but these areas are losing their Breton-speaking population. “The strongest Breton speaking areas are also the poorest agricultural land in Brittany,” leading to emigration. In addition, these areas tend to have the most committed Breton speakers.3

-       Welsh, spoken by an estimated 500,000 people, has its greatest concentration in rural areas. According to the 2001 Census, out of 8 local authority areas with more than 40,000 people with one or more skills in the Welsh language, 5 are largely rural. For example, in the areas of

Carmarthenshire and Ceredigion, farming accounts for 10.5% of the working population.4 106,440 people have more than one skill in the Welsh language in Carmarthenshire and 44,635 people do in Ceredigion.5 A decline in agriculture naturally impacts upon the language spoken in rural areas.

7.        Reform has become necessary to take into account the effects of CAP. The most recent reforms can be welcomed and go some way to break the link between subsidies and production and link farming practices to environmental protection with a single payments scheme, but the damage to the developing world and the environment has already been done. Any concern that reform could damage the EU’s self-sufficiency has been dismissed by the OECD. The EU is more than self-sufficient and this is not threatened by reform. The reforms are a tentative step in the right direction, but critically have not altered the overall amount transferred to farmers. It is estimated that the budget for CAP will remain stable in spite of the introduction of single payments.6 Giving the focus to the environment is a popular way to repackage CAP, without addressing its real costs and is largely in response to pressure from a powerful farming lobby. A leading Economic Advisor notes, “I am very cynical about this switch to (environmental) funding – it’s a way of keeping the subsidies.”7

8.        Consumer organisations have also been critical of the reforms, suggesting that consumers will see little difference. “I fail to see the purpose of a reform which allows payments to continue more or less as they are, with the same amounts of money going to the same people, irrespective of need, forcing poorer families to subsidise better-off farmers.”8 The vested interests of the farming lobby mean that real progress is stalled and concessions had to be made in order to achieve any reform at all. NGOs working in the developing world have criticised the reforms for being of little assistance to poorer farmers and reform to parts of the policy such as sugar is only now being considered. A critical examination and reform of CAP should not be viewed as a threat to agriculture in Europe, more as a recognition of the problems and need for change, which benefit everyone, including the farmers.

9.        However, this report will not attempt to analyse each new round of reforms, but concentrate on highlighting the negative consequences of CAP and the need for a rethink of agriculture policy in the EU. By its own admission, the aims of the European Union have changed. At the European Council in March 2000 in Lisbon a new ten-year objective was set for the European Union to become, “the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion.”9

2.       Trends in agriculture

10.        To set CAP in context, it is important to see what contribution farming makes to the economy of the EU.

11.        There is a general trend of long-term decline in the agricultural sector in the EU. Employment in agriculture has declined dramatically and the structure of the workforce has changed. Fewer people are farming and fewer younger people are engaged in agriculture. The contribution agriculture makes to the EU economy is dwarfed by industry and the service sector.

Table 110

Number employed

1975

(millions)

1999

(millions)

1975-1999

(millions)

1975-1999

(%)

Services

48.1

78.2

+30.2

+63

Industry

40.9

33.7

-7.1

-17

Agriculture

7.6

3.8

-3.8

-49

Total

98.6

115.8

+17.2

+17

12.        The change in age structure of the agricultural workforce in the EU suggests an ageing industry. Claude Vidal’s overview of the workforce found that in 1995, workers aged 55 or more represented 38% of the permanent labour force. It is becoming more difficult and less attractive for young people to commit themselves to the industry.

13.        Although there is a trend to farm larger areas for the benefits of economies of scale, 58% of agricultural holdings in the EU-15 are under 5 hectares, while 54% of holdings (of a total of 6.8million holdings) are in less favoured or mountain areas.

3.       Cost to the developing world

14.        When CAP was established little thought was given by policy-makers to producers elsewhere in the world, although concessions were granted to former colonies or members of the Commonwealth. In recent years, there has been a realisation that what happens within the EU has a significant effect on other countries. While it is easy to appreciate why the EU acts in the interests of its own farming industry, as one of the wealthiest regions of the world, it has a responsibility to consider those who are in a less fortunate position. It is also important to point out that there are other powerful factors as work in trapping developing countries into a cycle of poverty including debt and the way world trade operates. A report published by the Commission for Africa in March 2005 underlines the role EU policy plays in determining conditions for trade elsewhere. According to the report, Africa is unlikely to reach the Millennium Development Goals and one of the reasons for this is, “the disgraceful protectionism facing it in the markets of the developed world, and the need to compete with heavily subsidised developed country exports.”11 It goes on to add, “These barriers and subsidies are absolutely unacceptable; they are politically antiquated, economically illiterate, environmentally destructive, and ethically indefensible. They must go.”12 CAP also has a knock-on effect on countries bordering the EU, who cannot compete against subsidised goods from their nearest neighbours. For instance Russian representatives have highlighted this as a problem they experience with products originating in Finland. This does nothing to help the much-needed development of Russia.

15.        CAP creates a double cost for the countries of the developing world in the dumping of surplus goods on their markets causing great damage to agriculture and trade restrictions preventing the export of goods. More money is spent on supporting agriculture in the EU, with negative consequences for developing countries, than is spent on aid used to deal with problems created in part by CAP.

16.        Consider the contrast between what Europe spends on its cows and the lot of many people in the developing world.13

17.        Clearly this would not be such a significant problem, if the developing world was not so reliant on agriculture, but it is an inescapable fact that for many it is the main source of employment. It has been estimated that 50% of people in developing countries are employed in agriculture, while this increases to 60% or more in less developed countries.14 The developing world has an advantage in most types of crop production, because land and labour is cheaper and environmental conditions suit crop growth.15 In a report prior to the WTO meeting in Cancun, the Committee stressed the importance of agriculture to these economies, “agriculture is the backbone of the economy,” and “the establishment of a prosperous agricultural sector is one of the keys to development and economic growth.”16 This compares strikingly with Table 1 on levels of employment in the EU.

18.        CAP has two significant effects on these countries. Firstly, dumping, meaning the dumping of surplus goods, produced in Europe for a guaranteed price, on markets in the developing world. This means that prices of the same goods produced in the developing world are depressed and farmers suffer as a result.

19.        Secondly, restrictions on exports from the developing world. Many goods, for example sugar, as we will see later on, face restrictions on access to the European market. Some countries enjoy preferential status, but Mozambique, a large sugar producer, faces these restrictions. If the poorest nations of the world increased their share of world exports by 5%, they would reap an extra €268.2bn ($350 billion) a year, seven times what they currently obtain from aid. Using this, a projection has been made that suggests that for every 1% increase in the share of world exports achieved by developing countries, the number of people in extreme poverty would decrease by 128 million.17 Agriculture has the potential to contribute to poverty reduction, but is constrained as a result of CAP and the behaviour of developed countries. It can contribute to increasing wages and the creation of jobs in related sectors. However, it is important to avoid damage to habitats and the overuse of pesticides. A report by the International Development Select Committee on the Department for International Development’s (DFID) agricultural policy notes that, “DFID cites a correlation between a 1% increase in agricultural productivity and a reduction by between 0.6% and 1% in the proportion of people living on less than €0.76 ($1) a day.”18 No equivalent correlation exists for manufacturing or service industries, demonstrating the importance of agriculture to the developing world.

20.        In another twist, the EU devotes part of its budget to overseas development aid, ironically to tackle some of the problems caused by its own agricultural policies. This is not to suggest that the EU’s development programmes do not make an important contribution in developing countries, simply that there is an irony in giving in one hand and seeming to take with the other.

Table 219

2001

Support to agriculture

Overseas aid

EU

€71.3 ($93.1) bn

€19.4 (25.3) bn

US

€37.5 ($49.0) bn

€7.6 ($10.0) bn

Japan

€36.2 ($47.2) bn

€10.34 ($13.5) bn

21. Another factor which will have an impact on agriculture and food supply in both the developing world and developed world is pressure on water supplies. Demand on water supply for intensive farming in the developed world is already making large inroads into aquifers that will not be replenished. This situation is likely to be exacerbated by climate change. A recent report highlighted that those living in developing countries are more likely to suffer directly from the effects of climate change.20 Work carried out by the Earth Policy Institute demonstrates the gravity of demand for water outstripping supply and creating a crisis for future generations. The Institute estimates that 1000 tons of water is required to produce 1 ton of grain. The water balance in the North China Plain has an annual deficit of 37 billion tons of water, enough to produce grain to feed 111 million Chinese at their current level of consumptions. “In effect, 111 million Chinese are being fed with grain produced with

water that belongs to their children.”21 The focus of agricultural and environmental policy has to be moved towards considering these looming crisis away from trying to satisfy the interests of a powerful farming lobby.

EU Sugar regime

22.        An examination of the case of the EU sugar regime will be used to demonstrate the effect of CAP. It will also reveals costs to the taxpayer, consumer and the economy in the EU.

23.        “In a bizarre reversal of geography, Europe is the world’s largest exporter of white sugar even though it costs twice as much for European producers to grow the stuff than farmers in poor countries.” 22

24.        It has also been described by the think tank Agra Europe as, “the most protectionist, market rigging and expensive of common market organisation for agricultural products.”23 The European Commission is equally critical of the regime. In a statement as part of an announcement of reforms it said, “The current system has come under fierce criticism for misallocating consumers, hampering competition, harming developing countries and giving consumers, taxpayers and the environment a raw deal.”24 In a written reply to a Parliamentary question, the Secretary of State for International Development in the UK stated, ‘The EU’s CAP regime for sugar is a heavily regulated, highly protected and discriminatory one. It is also extremely costly to the consumer and taxpayer. Most of the countries in Africa and Asia who are sugar producers are currently denied preferential access to the EU market. Reform of the regime is both necessary and desirable, and long overdue.’25 Echoing this statement, the Chancellor of the Exchequer Gordon Brown MP remarked in a speech that, “We the richest countries agree to end the hypocrisy of developed country protectionism by opening our markets, removing trade-distorting subsidies and in particular, doing more to urgently tackle the scandal and waste of the Common Agricultural Policy – showing we believe in free and fair trade.”26 He intends to make this the focus of the G8 in 2005.

25.        The regime operates on two levels. Firstly, subsidising the producers of raw sugar, which is then exported and secondly imposing high import tariffs (with some countries given preferential treatment).The EU produces a surplus of €8.6m (£6m) tonnes a year, which equates to 20% of annual exports of all other countries. Producing sugar in Europe is not cheap and requires intensive methods of cultivation. A study by the Netherlands Economic Institute recorded that it costs Europe around €673 to produce one tonne of white sugar, compared to €286 for competitive countries like Brazil and Colombia.27

26.        Secondly, when it reaches the market its price can be set lower than its competitors, depressing the price for cheaper producers in the developing world. The biggest beneficiary of the regime at the moment is the sugar industry itself and some of the richest areas of the EU, dominated by a handful of large companies who record substantial profits. According to Oxfam, British Sugar receives €123m a year in support, accounting for half of the company’s profits and helping it maintain a profit margin of 20%.28 See table 13, chapter 5 below, for a list of subsidies received.

27.        “Europe’s most prosperous agricultural regions, such as Eastern England, the Paris Basin, and northern Germany – are amongst the biggest beneficiaries of sugar subsidies.” 29oldings with sugar beet are larger than the EU average and enjoy a higher income. Statistics from the European Commission confirm that the average size is more than 120 hectares. A simple comparison of Eu

European sugar farms and their counterparts in Mozambique illustrates this. European sugar farms can earn €86,021 (£60,000) a year in subsidies for producing sugar, while the average wage in Mozambique is €215 (£150) a year.30

28.        Mozambique is one of the world’s poorest countries with 70% of its population living below the poverty line. It is able to produce sugar very cheaply, but with current trade restrictions, less than ten per cent of its production reaches the EU and US. 31 If Mozambique could export more of its sugar, it would be a major step towards tackling poverty. As the leader of Mozambique’s national sugar workers’ union explains, “We are a totally agricultural country and if we had the market, we could triple production and improve conditions.”32

29.        A recent report by Oxfam offers greater insight into the situation in Mozambique by estimating the cost of EU on sugar imports. By calculating what Mozambique would have gained if exports to the low-priced world market had been transferred to the EU at current prices since 2001, Oxfam reports that Mozambique could have expanded its exports by over 80,000 tonnes earning €29.1m ($38m) or the equivalent to total government spending on rural development. The potential of sugar to create jobs can be seen in the example of Sofala province. In the late 1990s, the province had unemployment of 19%. Since the reopening of two large sugar estates, employment figures have doubled. This has coincided with the dramatic reduction in poverty. From being the province with the highest poverty headcount in 1996-97, the province now has the lowest incidence of poverty in 2002-03.33 The table below offers further comparison.

Table 3 - UN Human Development Report 2004

(NB UK and Switzerland additions made separately from Oxfam to provide comparison).

 

Zambia

Mozambique

UK

Switzerland

% of population living on less than €1.53 ($2) a day

87%

78%

Figures not available. Measurement not applied to countries with high human development

 

GDP per capital

PPP €643 ($840)

€804 ($1050)

€20035 ($26150)

€22992 ($30010)

Life expectancy

33 years

38 years

78.1 years

79.1

PPP = Purchasing Power Parity, calculation to allow comparisons. Calculation of the relative value of currencies based on what those currencies will buy in their nation of origin.

30.        South Africa also feels the effects of the sugar regime. A study by CAFOD found that it costs between €191 ($250) and €229 ($300) to produce one tonne of sugar in South Africa, while in Europe it costs €459 ($600).34 140,000 people in South Africa are employed in the sugar industry from growing sugar through to processing, but South African Sugar Association estimates that over the past decade, the EU has depressed the world sugar price by 20 to 40%, forcing many farmers out of business.

31.        Due to import restrictions, consumers in the EU pay substantially more for sugar. It is estimated that as a result of the regime, the cost to British consumers is €860m (£600m). Manufacturers of products using sugar, who employ 80,000 people in the UK, have suffered from

high prices, estimating that as many as 10,000 jobs have been lost in the UK during the last five years.35 The manufacturers are not competing on a level playing field with companies outside of the EU.

32.        Any reform of the sugar regime will have to consider carefully a myriad of different interests. A balance will have to be struck between protecting jobs in the EU and the welfare of developing countries. Radical reform could do more harm than good, but it would be difficult to argue for maintaining the status quo. Research commissioned by the European Commission ‘Reforming the EU’s sugar policy’ examined three options for reform. If full liberalisation were to be adopted, global prices for sugar would rise by 30% and consumers in the EU would pay substantially less for sugar. It is important to note that some NGOs suggest caution in considering full liberalisation, as it could have damaging effects on some industries in the developing world.

4.       Cost to the taxpayer and the consumer

33.        A double financial burden has been placed on citizens in the European Union as a result of CAP, a cost which does not discriminate between rich and poor.

34.        The average citizen of the European Union pays twice for their weekly food shop. Firstly through taxes used to fund CAP and secondly in higher food prices which result from the protection CAP offers farmers from the vagaries of the world market and cheap imports.

35.        Calculations by the OECD of the total support estimate given to agriculture by states demonstrate that European consumers pay a premium for food beyond that of most other OECD members. The Total Support Estimate encompasses support from taxpayers and consumers. The EU comes out as the most expensive for its citizens, matched only by Japan. The OECD has calculated that money given directly to farmers through CAP accounts for 37% of their income in the EU, one of the most generous schemes across the OECD members. This subsidisation of producers should in theory act as a guarantee of food quality, but a number of food scares and crises including BSE and dioxins in chicken throw this into question and test the justification of requiring such a contribution from consumers, particularly as they are not in a position to refuse to pay.

Table 4 - OECD - Total Support Estimate (statistics taken from OECD website)

(Annual monetary value of all gross transfers from consumers and taxpayers to the agricultural sector).36

   

1998

1999

2000

2001

2002

Australia

€ (millions)

1,587

1,556

1,468

1,308

1,307

 

% of GDP

0.5

0.4

0.4

0.3

0.3

Canada

4,130

4,698

6,004

5,927

6334

 

% of GDP

0.8

0.8

0.8

0.8

0.8

Japan

56,790

62,319

73,223

64,024

59,057

 

% of GDP

1.5

1.6

1.4

1.4

1.4

New Zealand

156

168

181

140

201

 

% of GDP

0.3

0.3

0.3

0.3

0.3

United States

81,696

93,412

100,695

108,804

95,785

 

% of GDP

1.0

1.1

0.9

1.0

0.9

European Union

118,716

120,975

108,577

110,456

119,438

 

% of GDP

1.5

1.5

1.3

1.3

1.3

36.        For consumers in the UK, a Parliamentary answer from the Department for Environment, Food and Rural Affairs records that “Farm subsidies paid through the EU budget represent €5.7 – 7.1 (£4-5) per week for a family of four and the Common Agricultural Policy is estimated to add €7.1 - 8.6 (£5-6) per week to family food costs.”37

37.        Within this burden on all consumers, there is the hidden problem that poorer families spend a greater percentage of their incomes on food (more than a quarter as an average across all member states).38 Consequently, those who can least afford it are being penalised most.

38.        If further proof were needed, the Consumers Association in the UK carried out its own comparison of how much CAP adds to the weekly shop judging it against the prices paid by consumers in New Zealand, which abolished farmer support (see case study). “The Common Agricultural Policy is well past its sell-by date.” Sheila McKechnie, Director of the Consumers Association.39

39.        Table 5 demonstrates that basic goods are substantially more expensive for consumers in the UK than in New Zealand. Clearly, CAP is not the only factor in making food prices higher, but it is an important factor. Nevertheless, this level of expense seems difficult to justify.

Table 540

Average Price

England (£)

New Zealand (£)

Butter (500g)

€2.4 (1.73)

€0.95 (0.66)

Beef – steak entrecote (1kg)

€13.77 (9.61)

€7.47 (5.21)

Beef – minced(1kg)

€4.96 (3.46)

€3.78 (2.64)

Olive oil (1l)

€9.58 (6.68)

€4.66 (3.25)

Lamp – chops (1kg)

€13.21 (9.22)

€4.76 (3.32)

Rice – white (1kg)

€2.82 (1.97)

€0.76 (0.53)

Sugar – white (1kg)

€0.86 (0.60)

€0.57 (0.40)

Milk, pasteurised (1l)

€0.73 (0.51)

€0.60 (0.42)

40.        Public support for CAP is mixed and there is a growing awareness of the cost the policy to the consumer and of the issues surrounding fair trade. A recent Eurobarometer Survey found there was an even split between those who thought that the EU’s agricultural policy did fairly well or fairly badly in its role in protecting small or medium sized farms, reducing development gaps between regions, ensuring stable and adequate incomes for farmers and improving the life in the countryside. In protecting small or medium sized farms, 49% of respondents felt the policy did badly.41

5.       Costs to other industries and the economy of the EU

41.        Since its inception, CAP has accounted for a large proportion of the EU budget and although there is a downward trend in the amount of money devoted to CAP, it continues to represent about 50% of the budget. This can be traced back to its founding principles, such as guaranteeing food supply, but this report will show that it is now a drain on resources which could be redirected elsewhere. Table 6 demonstrates this. The Commission for Africa report sees this as unjustifiable, “Given that CAP absorbs almost 40 per cent, around €30.6bn ($40 bn) of the EU budget and that the EU economy is growing at only 0.8 per cent, it is high time that European governments paid more attention to the opportunity costs of this waste.”42

Table 6 - Budget payments from European Community Finances43

€ m

1995

1996

1997

1998

1999

2000

2001

2002

2003

CAP

34,498

39,081

40,341

38,810

39,780

40,506

41,543

44,255

44,780

Structural Operations

19,292

24,426

26,285

28,366

26,664

27,591

22,456

32,129

33,173

Total payments (all)

66,915

76,756

79,302

80,614

80,310

83,331

79,988

95,654

97,501

42.        A comparison can be made between the amount of money allocated to CAP and the Structural Funds and the relative need for this money in different economic sectors. Manufacturing has suffered decline in the European Union member states, but has not received the same level of support as agriculture to help stem this decline. Nevertheless, it still contributes more to GDP and employment. The example of the EU Sugar regime demonstrated the costs to one area of the manufacturing industry. Recalling table 1 (Claude Vidal), agriculture represents by far the smallest sector of economic activity, but receives the largest proportion of funds.

43.        It would be impossible to attribute this decline in manufacturing to the concentration of European attention and resources being focused on agriculture. The factors identified for the decline of manufacturing across the EU will vary from country to country and within each country ranging from political, changes in the global market, and available resources. It is not within the scope of the report to analyse these reasons in detail.

44.        “Typically, in the seven major industrial economies, manufacturing output has fallen from about 30% of GDP in 1960 to about 20% in the 1990s.” 445

45.        “The manufacturing sector’s share of total UK output has fallen from 26.5 per cent to 18.7 per cent (in 2000) since 1979.” 456

46.        While there is continuing support for agriculture, state aid for struggling industry is not encouraged by the EU and there have been a number of high profile cases of Member State Governments falling foul of this. Mario Monti, the EU Competition Commissioner has clearly stated, “A national subsidy race remains one of the lost serious threats to the unit of the Common Market.” Giving subsidies to individual companies is not compatible with a common market.

Table 7 - Money received under Structural Funds in the UK.46

€m (£ m)

1994/95

1995/96

1996/97

1997/98

1998/99

1999/2000

Agricultural Guidance Fund

€94.6 (66)

€32.9 (23)

€55.9 (39)

€73.1 (51)

€74.55 (52)

€144.8

(101)

Social Fund

€711 (496)

€1016 (709)

€1050 (733)

€1243 (867)

€732 (511)

€1169

(816)

Regional Development Fund

€870 (607)

€579 (404)

€890 (621)

€917 (640)

€498 (348)

€633

(442)

Total

€1675 (1,169)

€1628 (1,136)

€1997 (1,393)

€2233 (1,558)

€1306 (911)

€1948 (1,359)

47.        Nevertheless, one cost of CAP and a continuing problem for the EU, is whether this concentration of resources can be justified. Money spent in vain, has not prevented contraction, and perhaps even hindered survival by preventing adaptation to real market conditions. Both figures for GDP and employment in agriculture, suggests a declining industry. Poor rates of growth are in evidence for both GDP and employment as tables 8 and 9 show.

Table 8 - GDP by industry47

 

1998

1999

2000

2001

EU-15

2.9

2.8

3.4

1.5

Agriculture, hunting and fishing

1.6

2.6

-0.9

-1.6

Industry (incl. Energy)

3.0

1.1

3.8

0.5

Business activities and financial services

4.0

3.7

4.7

3.1

Table 9 - Employment growth by sector48

 

1980-1989

1991-1995

1995-1999

Agriculture

-2.3

-4.1

-1.8

Manufacturing, mining

-1.3

-2.8

-0.1

Business sector services

1.5

0.5

2.7

48.        Money channelled through the European Social Fund (ESF) in the UK and elsewhere has seen some notable successes, (Table 7 illustrates the amount received). During a Parliamentary debate about the fund, it was noted that, “The ESF is adding value to the new deal and other policies, which together with stable economic growth, have helped almost 2 million people into permanent jobs.”49 This was reinforced by, “So far, the ESF has helped more than 1 million people in England through employability training and guidance projects.”50 If more money was channelled towards areas which have suffered as a result of a decline in manufacturing, similar results could be achieved.

49.        However, it is noticeable that the Structural Funds contains a component for rural areas (see below for a discussion on the distribution of CAP funds), which effectively means that rural areas receive a double support, although for very different projects. From my own experience in Newport West, Objective 1 funding money is not always diverted to the neediest areas. Newport West has three of the poorest wards in Wales with high levels of unemployment and social deprivation, but has not been accorded Objective 1 status, whereas rural areas in West Wales with no wards in the top 100 of the poorest in Wales does have this status. This is not to deny that there may be unemployment and social problems in rural areas, but merely suggests that areas dependent on agriculture achieve a higher status in the minds of policy-makers, partly as a consequence of CAP’s central position in the history of the EU.

50.        CAP has created the economic cost of a dependency culture amongst farmers, who gear production towards receiving subsidies. A report by Oxfam, ‘Cereal injustice under the CAP in Britain,’ highlights the disparity of distribution of funds; the largest and richest farms received a large proportion of money. Significantly, CAP has been poorly distributed amongst farmers, so that large scale producers can receive more than small family farms due to the area of land owned. This poor

distribution of funds has been highlighted by the OECD. Research by the OECD has found that support for prices and output is a very inefficient method to distribute income to farmers, because it ends up elsewhere. For ever 1€ in direct output support, only 25c is received by the farm operator.

51.        One such example of this is the so-called barley barons concentrated in Eastern England, who according to several studies consume more than a quarter of all agricultural subsidies distributed within the UK.

52.       Oxfam published a report called ‘Cereal injustice under the CAP in Britain’ in 2003 exposing this imbalance and the lack of transparency of information about the distribution of funds It calculated, using farm size and subsidy that would be available, that 224 of Britain’s largest cereal farmers would have received €67m (£47m) in 2003 under current rules or €2.86 (£2) every five minutes. The report also claims that two of the UK individuals on the “Forbes” list of the world’s richest people receive some of the largest subsidies.51 The table below highlights the disparity.

Table 10 - Estimated payments under the Arable Area Payment Scheme by size category (2003) (excluding sugar)52

 

0-50

50-100

100-500

500-1000

1000+

Total

All England – number of holdings

15181

12871

19845

1199

224

49,230

% of holdings

30

26

40

2

0.4

100

Average payment (€)

€5207 (£3,632)

€12817 (£8,940)

€42860 (£29,895)

€155823 (£108,687)

€301631 (£210,388)

€27238 (£18,999)

53.        The largest 2.5 per cent of holdings account for around 20 per cent of total payments, while the smallest 30 per cent receive less than 6 per cent of the total. Money is being channelled to people and regions who are rich already, while the poor remain poor. The OECD has also calculated that support through CAP goes to the largest farms which are least likely to suffer income problems. The 25% largest farmers receive 70% of support. The consequences of rewarding large scale farming can be seen in environmental damage and dumping on the developing world. This is likely to be exposed further in the UK by the provisions of the Freedom of Information Act 2000. The Department for the Environment, Food and Rural Affairs has announced that details of single payments will be disclosed from April.53 In the meantime, research published in September 2004 highlighted how much money the top five landowners in the UK are entitled to, (see table below). CAP has become a form of income support for the super rich, a situation which cannot be allowed to prevail.

Table 1154

Landowner

Acreage

Value

Subsidy Entitlement

Duke of Buccleuch

270,900

€857 (£598m)

€29.2 (£20.4m)

Estate of Atholl dukedom

147,000

€286 (£200m)

€15.7 (£11.0m)

Duchy of Cornwall

141,000

€688 (£480m)

€15.2 (£10.6m)

Duke of Northumberland

132,000

€663 (£463m)

€14.9 (£9.9m)

Duke of Westminster (excluding London)

129,000

€645 (£450m)

€13.2 (£9.2m)

54.       The Department for the Environment, Food and Rural Affairs in the UK decided to publish the recipients of subsidies in March 2005, (names and amounts received), in the financial years 2002-03 and 2003-04. This goes substantially further than the information in Table 11 and confirms the findings of Oxfam discussed in earlier paragraphs. The figures revealed in this release of information are quite staggering. The largest cash subsidy paid out in the year 2003/04 alone is a massive €182m (£127m), paid over three separate claims, to corporate giants Tate & Lyle, who claim a profit of €322m (£225m) for the same year. Another multi-million pound company, Meadow Foods Ltd, receiving a little under €43m (£30m). The problems caused by the EU Sugar regime for the developing world and companies manufacturing goods containing sugar were highlighted on page 7. Subsidies to companies account for the largest amount of CAP payments. The list also includes individual recipients of this income, and a notable figure is the €1.15m (£800,000) paid to the Duke of Westminster over the past two years. This vast sum is small change to Britain's second richest man, worth over €7.1bn (£5bn). The top individual recipient is Sir Richard Sutton, gaining €3.15m (£2.2m) over two years. He owns land with a net worth of €172 (£120m). Even the Royal Family receive subsidy payments, with the Sandringham estate receiving €1m (£700,000), and the Duchy Home Farm, Prince Charles' estate, receiving €430,000 (£300,000). The bottom 100 names on the list received less than €35 (£25) in subsidy in 2004.

Table 12 - Individual recipients of CAP subsidies

Individuals

Estate

Estimated Personal Wealth in 2004

in € (£s)55

CAP Subsidies Received between 2002 and 2004

in € (£s)56

Sir Richard Sutton

Sir Richard Sutton Settled Estates

€172 (£120m)

€3.15m (£2.2m)

The Vestey Family

Thurlow Estates

€1bn (£700m)

€2.15m (£1.5m)

Alan Turner

Water Priory and Lovenden Estates

€111m (£78m)

€3.5m (£2.5m)

Duke of Marlborough

Bleinheim Farm Partnerships

€1.39bn (£97m)

€1.43m (£1m)

The Parker Family

Blankney Estates

€100m (£70m)

€1.41m (£986,000)

Earl of Radnor

Longford Farm

€93m (£65m)

€1.29m (£900,000)

Earl of Plymouth

Earl of Plymouth Estates

€43m (£30m)

€1.29m (£900,000)

Duke of Richmond

Goodwood Estates.

€64.5m (£45m)

€1.29m (£900,000)

Duke of Westminster

Grosvenor Estates

€7.1bn (£5bn)

€1.1m (£799,000)

The Queen

Sandringham

€368m (£250m)

€1m (£700,000)

Duchy of Cornwall

Duchy Home Farm

€573m (£400m)

€430,000 (£300,000)

Table 13 - Top 10 Companies in receipt of CAP subsidies in the UK in euro (£)

 

2002-03

2003-04

Tate & Lyle Europe

€109m (£76.17 m)

€139.8m (£97.56m)

Meadow Foods Limited

€28.2m (£19.71m)

€37.17m (£25.93m)

Tate & Lyle Europe

€26.89m (£18.76m)

€29.37m (£20.49m)

C Czamikow Sugar Limited

€20.57m (£14.56m)

€28.04m (£19.56m)

Granox Limited

€20.97 (£14.63m)

€25.02m (£17.58m)

Co Op Centrale Rai Ffeisen Bank

-

€21.74m (£15.17m)

Philpot Diary Products Ltd

€27.31m (£19.05m)

€21.26m (£14.83m)

Fayrefield Foods Ireland Ltd

-

€20.54m (£14.33m)

Lisburn Proteins

€20.32m (£14.18m)

€16.75m (£11.69m)

Nestle UK Ltd

€28.38m (£19.80m)

€16.6m (£11.61m)

55.       This kills the myth that farm subsidies are shoring up poor farmers. Large landowners and companies receive large payments, while many small farmers receive tiny amounts of support year, exploding the myth that CAP primarily helps small farmers. Further enriching the super-rich is a loathsome waste of public money.

56.        CAP has not prevented a decline in agriculture and has stifled innovation by protecting the industry from the realities of the market. To some extent, as farmers have come to rely on CAP payments, they have not needed to attempt other means of making money. CAP has been used as a crutch by some to avoid competition from overseas.

57.        One farmer claimed, “In the same way that a heroin addict cannot survive the day without a fix, so a farmer cannot get by without a subsidy because that’s what he’s used to.”57

6.       Cost to the environment

58.        CAP, alongside developments in technology, led to an intensive form of agriculture with the aim of producing quantity not quality. This required the use of pesticides and herbicides and changes in land management, which has resulted in the pollution of water courses and the food chain and the destruction of habitats of a number of species of bird and insects. The example of the skylark will be used to illustrate how CAP has altered agricultural practices to the detriment of one species, although other aspects will be considered as well including how the tobacco regime has caused damage to the environment. The best measure of environmental damage is the fortunes of bird species because they have been most closely monitored, some over a period of 30 years. This is not to say other species have not been affected as mammals, plants and insects have suffered too.

59.        The scale of the damage can be summed up quite simply with a few examples. It has been estimated that in the last 60 years in the UK, 190,000 miles of hedges have been removed to expand field size, 60% of ancient woodlands have been destroyed and 97% of meadows have been lost. The key reason for this has been intensification leading to a uniform landscape. The Worldwide Fund for Nature pinpoints 7 characteristics of this58.

• An increase in water abstraction

• An increase in the use of heavy machinery

• A reduction in the number of people employed on the land

• The removal of hedgerows, walls and wooded areas to increase cultivation area

• High inputs of man-made fertilisers and pesticides to allow year-round cultivation

• Widespread drainage of wetland habitats

• Periods of extended cultivation through introduction of winter-sown crops

• Introduction of new crop varieties

      The Skylark Alauda arvensis

60.        “The population declines of farmland birds have been greatest in those European countries with the most intensive farming systems. In the UK, between 1970 and 1999, the skylark has declined by 52%, the yellowhammer by 53% and the corn bunting by 88%.” 591

61.        The number of breeding skylarks declined by 58% in lowland British farmland habitats between 1975 and 1994.60 The species is one of forty on the red-list of birds, considered as high conservation concern. This records its breeding population as having declined by more than 50% in the last 25 years.61

62.        The biggest decline in Skylark population has been recorded on farmland. Changes in agricultural management have been pinpointed as the most likely cause. They are sensitive to vegetation structure and therefore land management practices such as changes in crop type and grazing regimes. Skylarks will not breed in tall or dense vegetation and prefer a mixture of habitats, with areas of shorter crops (spring cereals). “Sowing regimes have changed, with winter cereals replacing spring-sown cereals as the predominant arable crop during the 1970s.”62 Other changes including the cultivation of unsuitable crops such as oilseed rape and a general decrease in diversity may be responsible. This means that there are fewer breeding attempts and reduced numbers of young birds. A further potential impact of the increase in winter cereals is that cereal stubbles, an important feeding habitat outside the breeding season have been greatly reduced since the early 1970s.

63.        BirdLife International published an assessment of the status of farmland birds across Europe, which offers further evidence of the damage caused by intensive agriculture. The table below highlights the scale of the problem. The report concluded that, “Downward trends in farmland birds are significantly correlated with cereal yield, indicating a strong correlation between the intensity of agricultural production and decline in farmland birds.”63

Table 14 - Status of bird species64

Country

% of breeding species under threat

(number of breeding species)

France

41% (281)

Germany

36% (253)

Spain

46% (261)

Italy

42% (250)

Greece

43% (252)

Portugal

47% (201)

Ireland

31% (151)

      EU tobacco regime

64.        Of all the agricultural sectors supported through CAP, the tobacco regime encapsulates cost the environmental damage it has caused. Tobacco is grown in a very small area of the EU and concentrated in only a few member states. Nevertheless, the EU is the world’s 5th largest tobacco producer. The regime has created a dependency, which in spite of the negative effects of it, has only just begun to be overhauled.

65.        “Industry maintained by extremely high subsidies that are currently paid as a production premium. The premium makes up on average 76% of tobacco growers’ incomes from tobacco growing.” 656

66.        The Royal Society for the Protection of Birds produced the following summary of the policy.66

Table 15

Amount spent by EU on supporting production

€963m (2002)

Amount spent by EU discouraging teenage smoking

€6m (2003)

Average premium received for tobacco

7,800 euro/ha (2002)

Average premium received for arable crops in England

371 euro/ha (2002)

Number of deaths caused by tobacco consumption

550,000/year (2001)

67.        Environmental damage stems from tobacco growing, because tobacco is nutrient hungry and vulnerable to disease. It requires a high application of fertilisers and pesticides. This has a negative impact on water quality, soil quality and farmland biodiversity. Pesticide use has been pinpointed as a factor in the decline of birds, invertebrates and plants. It costs €172m (£120m) a year in the UK to remove pesticides from drinking water.67

68.        There is also an extraordinary irony in the funding of tobacco production while at the same time member Governments spend millions of euro each year on campaigns to try and discourage people from smoking and in health services to treat smoking related diseases such as lung cancer. The tobacco grown in Europe is not of good enough quality to be sold on the European market; consequently it is exported to the developing world, carrying the health risks with it.68

69.        A study by a group of researchers at the University of Essex69estimated the cost of cleaning up after intensive farming such as chemical pollution. They concluded the total bill in Britain for 1996 could be as high as €3.3bn (£2.3bn). This included the cost of removing nitrates and pesticides from drinking water, repairing soil erosion and restoring lost habitats.

70.        CAP reform does offer the opportunity to repair some of the environmental damage and give farmers a role in this. As part of the most recent round of reforms, ‘cross-compliance’ will mean that payments are linked to environmental standards being maintained. This has already seen some positive results with the creation of new woodlands and restoration of hedgerows. However, rural improvement and environmental schemes will receive a very small percentage of the overall budget as a result, limiting the scope of such schemes. CAP has been reformed by giving it an environmental focus, a case of ‘green window dressing,’ rather than tackling the real costs of the policy.

7.        Some models

      New Zealand

71.        “The removal of farm subsidies in New Zealand has given birth to a vibrant, diversified and growing rural economy.” 70

72.        New Zealand offers a model case of what the situation would be if the Common Agricultural Policy was abolished and is an example that could be emulated. Reforms were carried out in New Zealand between 1984 and 1989, virtually removed all subsidies to farmers.

73.        Agriculture makes a significant contribution to the New Zealand economy and up until 1984; Government support for agriculture had increased in an effort to protect the industry and consumers from oil price shocks in the 1970s. This generated a catch-22 situation of protectionism sheltering the industry from the competition of the world market, but at the same time having to spend money to lift the industry out of stagnation. As time went on, the amount being spent on subsidies become unsustainable.

Table 1671

 

Assistance (NZ $)

Output (NZ $)

1980

€226m (405m)

€1,467 (2,621m)

1985

€579m (1,035m)

€2,562m (4,577m)

1990

€115m (206m)

€3441m (6,148m)

74.        “The costs of domestic protection resulted in an ongoing deterioration in the relative competitiveness of the protected (agricultural) industries, and compensation had to be increased.” 72conomic problems led to a reassessment of this policy and between 1984 and 1986. The bulk of subsidies were removed. This removal did lead to a period of painful readjustment for farmers, but crucially did not lead to a drastic decline in the industry. It was reported in March 2000, that “in the end only about 1% of the 8,000 farms that were predicted to close faced forced sales.” 735

75.        The liberalisation of the industry in New Zealand has had a positive impact on farmers, the environment and for the tax-payer. Table 5 on page 9 demonstrates that consumers have benefited too. The Federated Farmers of New Zealand produced a report, ‘Life After Subsidies.’ They concluded that the removal of subsidies had been a positive experience, “The New Zealand experience shows that in a modern economy, farmers do not need to rely on state charity.”74

76.        They make a number of observations about the result of this change in policy.

77.        The comparison with a declining agricultural sector in the EU and the gains from removing subsidies is striking. An assessment of the way farmers have adapted concluded that, “The removal of subsidies has proven to be a catalyst for productivity gains, innovation and diversification. Farmers today are farming better, they are much more conscious that their activities must make good business sense. No longer are they farming to get subsidies. Farmers maintain cost structures that reflect the real earning capacity of their farms. They invest in protecting their environment, and the value of their land is based on its earning capacity. NZ farmers are now more in charge of their own destiny and less at the mercy of government price/subsidy fixing. Farmers have proved far more resilient and adaptive than was expected when subsidies were first removed.”75

78.        Agriculture is now driven by the market and the consumer, environmental damage has been lessened by the use of less intensive methods, the rural population has remained stable and economic growth in the agricultural sector has outpaced all other sectors of the New Zealand economy. It may be argued by some that comparing the EU and New Zealand only serves the critics of CAP and that New Zealand is too different from the EU. However, it offers a model example of transition from a subsidy dominated system to a liberal policy and highlights the problems caused by subsidies.

79.        As well as New Zealand, interest has been expressed in looking at other agricultural policies operating elsewhere in the world. The most obvious place to start is with the United States, as one of the most powerful actors in world markets for many agricultural commodities.

      United States

80.        Trends in agriculture in the US mirror those in Europe. Farms size increased greatly with mechanisation, while the population employed in agriculture has gone into decline. For example, one quarter of the population lived on farms and agriculture contributed 7% directly to GDP in the 1930s. In the 1990s, 2% of the population lives on farms and its direct contribution to GDP has dropped to 1.5%.76 Policy in the United States has to a great extent been similar to that of Europe: guaranteeing food supply and the livelihood of farmers, backed by a powerful farming lobby.

81.        Farm policy in the US has as its base a number of Acts passed in the 1930s and 1940s in response to depression conditions and to boost post-war recovery. These Acts are key reference points for agricultural policy, because they contain permanent provisions such as price support, which Congress can revive at any time. Until the 1990s, farmers received support for production and the US continues to provide export subsidies and export credit guarantees.

82.        The most recent US Farm Bills in 1996 and 2002 demonstrate US policy and allows some comparison with the EU. The 1996 Federal Agricultural Improvement and Reform Act had similar aims to the MacSharry reforms of CAP in 1992, in that it introduced decoupled subsidies and began to expose farmers to the market, although subsidies remained quite high. It was undermined by increasing emergency payments to farmers. The 2002 Farm Bill followed, which increased protective measures and led to an increase in spending on support of 70%. It was seen as a reversal of the aims of 1996. As with recent CAP reform, some efforts have been made to link payments to environmental considerations.

83.        The effect of these policies is felt particularly in the developing world. The policy of support for cotton farmers in the US and its consequences mirrors closely the subsidisation of sugar farmers in the EU. Cotton farmers enjoy higher levels of support than any other producer in the US, allowing them to export cotton below the world market price. Cotton farmers receive €176 ($230) per acre, while cereal farmers receive €30.6-38.3 ($40-50) per acre. This has the negative effect of undercutting more efficient producers in West Africa, leading to a loss of income for individuals and the countries concerned. 10 million people in West Africa directly depend upon cotton production. It has been estimated by Oxfam that in 2001, the whole of Africa lost €229m ($300m), while West Africa lost €146m ($191m).77 For a country like Burkina Faso, these losses are equivalent to the debt relief received under the Heavily Indebted Poor Countries initiative.

84.        This policy has been challenged by Brazil through the WTO and earlier this year, it was ruled that these subsidies violated trade regulations. Nevertheless, change is unlikely to happen until a new farm bill is introduced, possibly in 2007.

85.        The US system sheds very little light on alternatives to CAP and possible reform. Both policies appear to suffer from the same basic problem; they were drawn up in different economic and political contexts and have proved to be very difficult to reform. As policymakers in the EU have a growing responsibility to consider the effects of CAP beyond the borders of the EU, it is instructive to see the influence of the US on other parts of the world.

Switzerland

86.        Switzerland offers a more useful example for consideration and contrasts with the policy adopted in New Zealand. General trends in Swiss agriculture are similar to those already seen in the EU and US. Agriculture accounts for 1.5% of economic activity, while the figure for industry is 34%. The population engaged in agriculture has decreased and now employs 4.6% of the population.78

87.        State support for agriculture in Switzerland is some of the most generous in the world. The Producer Support Estimate (support for farmers as a % of their gross receipts through state support OECD) for Switzerland currently stands at around 70%79, in comparison it is around 30% for the EU. Although this might indicate a highly expensive, protectionist regime, Switzerland has instigated a number of interesting reforms, which offers lessons for CAP.

88.        Proposals in 1996 to refocus the agriculture policy towards the environment were accepted by the majority of voters. In addition, Article 104 of the Federal Constitution recognises the role that agriculture plays and undertakes to ensure that food supply is secured and that agriculture can contribute to this. The Confederation has a number of responsibilities including providing financial support, but with significant provisos that payments are only made where environmental guarantees are given. Additional payments are on offer for farmers who do not use fungicides and who adopt animal-friendly husbandry techniques. Payments are not linked to production. Rewards for farmers are now on the basis of high ecological standards rather than low use of fertilisers. This has led to a 35% drop in pesticide use.80 Mr. Boetsch, in his presentation, underlined that the guiding principles of the policy emphasised conservation of natural resources and rural landscapes. The structure of payments has shifted towards making direct payments, increasing from 29% of payments in 1990-92 to 66% in 2000-02, but with no significant drop in income for farmers.81 If the aims of CAP were redrawn, much could be learnt from the Swiss example.

89.        There is a fear in Switzerland 82 that liberalisation would lead to a collapse of the farming industry, which echoes many of the fears surrounding proposed reform of CAP. Instead of moving in the direction of New Zealand, Switzerland has adopted a different approach. This example offers a way of building environmental considerations into an agricultural policy, although questions may remain about the financial cost to taxpayers and consumers of maintaining such a policy. Farmers are still being cushioned from market realities and such generosity will be difficult to maintain due to budgetary constraints.83 Changing the form of payments to direct payments does not necessarily lessen the cost to the taxpayer and may be considered as a way of prolonging the philosophy of CAP, rather than reforming it radically as was mentioned in the opening paragraphs.

90. The lesson from the Swiss experience and the new EU single payment agreements is the remarkable lobbying power of the farming industry. They have successfully managed to replace the discredited case for subsidies on an economic basis with one based on the environment. Much of this is well founded on improved farming methods that are more benign for farm animals and the natural environment. Less convincing is the argument that farming has created the beautiful countryside on which most of our tourism depends. It was the hand of nature rather than that of the hands farmers that has shaped our beautiful landscapes. It is extremely unlikely that the demise of farming would see our cultivated areas reverting to forest and bracken from one frontier to another. Many farming activities enhance the beauty of the countryside. Others detract from it. Changing from agricultural to recreational and leisure often has a beneficial effect on the beauty of the landscape and improves rural prosperity. In the long-term, both the Swiss policy and the reformed CAP will be unsustainable.

8.       Conclusions

91.       The Common Agricultural Policy was determined by circumstances in the context of post-war Europe. These circumstances have changed greatly in the last 50 years. Support for agriculture in some form clearly has a place in Europe, particularly as a shielding force against the threats to our cultural heritage and minority languages, which are often intrinsically linked to rural areas.

92.       Nevertheless, all measures have shown agriculture to be in decline and CAP has failed to stem this.

93.       The report has demonstrated the costs of CAP to a developing world which more reliant on agriculture and obstacles farmers in places like Mozambique face as a result. The example of the sugar regime illustrated this. Reform of CAP could make a considerable difference to the lives of people in the developing world by helping to lift them out of poverty.

94.       Consumers and taxpayers in Europe do not receive a fair deal from CAP, particularly those living on modest incomes.

95.       Other industries are now more significant to the European economy than agriculture and the policy appears to operate largely for the benefit of the richest farmers. The recent publication of how much public money large landowners and companies receive in subsidies should be a catalyst for change. This practice is unsustainable and completely unjustified. Structural funds have been successful in helping communities affected by the decline in traditional manufacturing industries, while CAP still consumes by far the largest proportion of the EU budget.

96.       The loss of species and habitats was certainly not intended by those who originally put CAP in place, but it is deeply regrettable that so much damage to the environment has been done. The latest reform of CAP linking direct payments to environmental standards is a welcome recognition of the problems created before.

97.       New Zealand offers a radical alternative, which may not suit Europe, but is a useful point of reference in this discussion. Switzerland offers another path for reform, but the substantial financial cost remains.

9.       Recommendations

98.       This report recommends that the Council of Europe investigates the cost of CAP to the developing world, the taxpayer and consumer, other industries and the economy of the EU and the environment. It should also consider that CAP has had some positive effects with regards minority languages and that any reform needs to be carefully considered. Lesson can be drawn from the problems of CAP, wasteful schemes such as support for tobacco should be withdrawn and agricultural support refocused to encompass the needs, not only of farmers, but also the developing world, the rest of the population of Europe and the environment. Any reform of CAP is dwarfed by the urgent need to address dwindling water supplies and the threat posed by climate change.

Reporting committee: Committee on the Environment, Agriculture and Local and Regional Affairs

Reference to committee: Doc. 9853 and Reference No. 2852 of 8 September 2003

Draft resolution adopted by the Committee on 1 July 2005.

Members of the Committee: Mr Walter Schmied (Chairman), Mr Alan Meale (1st Vice-Chairman), Mr Renzo Gubert (2nd Vice-Chairman), Mrs Elsa Papadimitriou (3rd Vice-Chairperson), Mr Ruhi Açikgöz, Mr Olav Akselsen, Mr Gerolf Annemans (alternate: Mr Luc Goutry), Mrs Sirkka-Liisa Anttila, Mr Ivo Banac (alternate: Mr Miljenko Dorić), Mr Rony Bargetze, Mr Jean-Marie Bockel, Mr Malcolm Bruce, Sir Sydney Chapman, Mrs Pikria Chikhradze, Mrs Grażyna Ciemniak, Mr Valeriu Cosarciuc, Mr Osman Coşkunoğlu, Mr Alain Cousin, Mr Miklós Csapody, Mr Taulant Dedja, Mr Hubert Deittert, Mr Adri Duivesteijn, Mr Mehdi Eker, Mr Bill Etherington, Mrs Catherine Fautrier, Mr Adolfo Fernández Aguilar, Mrs Siv Fridleifsdóttir, Mr György Frunda, Ms Eva Garcia Pastor, Mr Fausto Giovanelli (alternate: Mr Giovanni Crema), Mrs Maja Gojkoviċ, Mr Peter Götz, Mr Vladimir Grachev, Mrs Gultakin Hajiyeva, Mr Poul Henrik Hedeboe, Mr Mykhailo Hladiy, Mr Anders G. Högmark, Mr Jean Huss, Mr Ilie Ilaşcu, Mr Jaroslav Jaduš, Mrs Renate Jäger, Mr Gediminas Jakavonis, Mr Ivan Kaleziċ, Mrs Liana Kanelli, Mr Karen Karapetyan, Mr Orest Klympush, Mr Victor Kolesnikov, Mr Zoran Krstevski, Mr Miloš Kužvart, Mr Ewald Lindinger, Mr Jaroslav Lobkowicz, Mr François Loncle (alternate: Mr Guy Lengagne), Mr Theo Maissen (alternate: Mr John Dupraz), Mr Andrzej Mańka, Mr Tomasz Markowski, Mr Giovanni Mauro (alternate: Mr Pasquale Nessa), Ms Maria Manuela De Melo, Mr José Mendes Bota, Mr Gilbert Meyer, Mr Goran Milojeviċ, Mr Vladimir Mokry, Mrs Carina Ohlsson, Mr Gerardo Oliverio, Mr Pieter Omtzigt, Mr Mart Opmann (alternate: Mr Toomas Alatalu), Mr Cezar Florin Preda, Mr Jakob Presečnik, Mr Lluís Maria de Puig, Mr Jeffrey Pullicino Orlando, Mr Maurizio Rattini, Mr Marinos Sizopoulos, Mr Rainder Steenblock, Mrs Maria Stoyanova, Mr Gàbor Szalay, Mr Nikolay Tulaev, Mr Iñaki Txueka (alternate: Mr Julio Padilla), Mr Vagif Vakilov, Mr Borislav Velikov, Mr Geert Versnick, Mr Klaus Wittauer, Mr G.V. Wright (alternate: Mr Brendan Daly), Mr Kostyantyn Zhevago

N.B.       The names of those members present at the meeting are printed in bold.

Secretariat to the Committee: Mr Sixto, Mr Torcătoriu and Ms Lasén Díaz


1 Two exchanges of views were held during the preparation of this report: on 4 November 2004, with Mr Boetsch, Director of the Swiss Federal Office of Agriculture, and on 26 May 2005, with Mr Tangermann, Director for Food, Agriculture and Fisheries at the OECD, and Mr Collignon, President of the European Centre for Rural and Environmental Interest (CEIRE) and Director of Rurality-Environment-Development (RED).

2 European Commission profiles www.uoc.edu/euromosaic/web/homean/index1.html.

3 Ibid.

4 ‘Persons engaged in work on agricultural holdings, 2001’ National Assembly for Wales Digest of Welsh Local Area Statistics.

5 ‘One or more skills in Welsh Language.’ Census 2001 UK Office for National Statistics.

6 ‘EU hails new era of healthy food and green living’ Rory Watson The Times 27th June 2003.

7 ‘So, what is the future for our countryside?’ Faisal Islam The Observer 12/08/01.

8 Quote from Consumers’ Association UK ‘EU hails new era of healthy food and green living’ Rory Watson.

9 Statement of Aims at European Council meeting, Lisbon March 2000.

10 Claude Vidal Eurostat ‘Thirty Years of Agriculture in Europe. Changes in agricultural employment’.

11 ‘Our Common Interest’ Commission for Africa Report Published March 2005 p. 256.

12 ‘Our Common Interest’ Commission for Africa Report Published March 2005 p. 256.

13 ‘Dumping on the Poor. The Common Agricultural Policy, the WTO and International Development’ Duncan Green and Matthew Griffith CAFOD 2002 p.1.

14 ‘Trade and Development at the WTO: Issues for Cancun’ International Development Committee House of Commons 2002-03 p.24.

15 ‘The Age of Consent’ George Monbiot Flamingo Great Britain 2004 p.190.

16 ibid p.24.

17 ‘The Age of Consent’ George Monbiot p.188.

18 Report by the International Development Select Committee on DFID’s agricultural policy ‘DFID’s Agriculture Policy’ HC 602 p.6.

19 OECD Statistics www.oecd.org.

20 ‘Up In Smoke’ New economics Foundation October 2004.

21 ‘ Water Deficits Growing in Many Countries’ Earth Policy Institute Update 15 August 2002, Lester R. Brown.

22 ‘Sweet smell of cynicism’ Charlotte Denny The Guardian 18/01/04.

23 Agra Europe press release September 2002.

24 Statement made by Franz Fischler.

25 Written reply to Parliamentary Question from Hilary Benn MP, Secretary of State for International Development 26th October 2004.

26 Speech by Gordon Brown MP, Chancellor of the Exchequer 6th January 2005.

27 ‘Evaluation of the Common Organisation of the Markets in the Sugar Sector’ Netherlands Economic Institute 2000.

28 ‘Dumping on the World. How EU Sugar policies hurt poor countries’ Oxfam Briefing Paper 61 March 2004 p.25.

29 ibid p.1.

30 ‘Sweet dreams go sour across culture divide.’ Charlotte Denny and John Vidal The Guardian 23rd August 2002.

31 ‘Dumping on the Poor. The Common Agricultural Policy, the WTO and International Development’ Duncan Green and Matthew Griffith CAFOD 2002 p.14.

32 ibid p.14.

33 ‘A Sweeter Future? The potential for EU sugar reform to contribute to poverty reduction in southern Africa.’ Oxfam November 2004.

34 ‘A rough guide to CAP’ CAFOD Briefing.

35 Memorandum submitted by the UK Industrial Sugar Users Group to the ‘Reform of the Sugar Regime’ report by the House of Commons Environment, Food and Rural Affairs Select Committee.

36 OECD Producer and Consumer Support Estimates Database 1986-2003.

37 Parliamentary Answer from Ben Bradshaw MP, Minister at Department for Environment, Food and Rural Affairs 19th June 2003.

38 ‘Cultivating a crisis: The Global Impact of the CAP’ Professor Sir John Marsh and Professor Seconda Tarditi p.34.

39 ‘Scrap the CAP’ Consumers’ Association (UK) press release 11th December 2001

40 ‘Scrap the CAP’ Consumers’ Association (UK) press release 11th December 2001

Study commissioned by the Consumers Association carried out by the Economist Intelligence Unit in March 2001.

41 ‘Europeans and the Common Agricultural Policy’ Eurobarometer 221 2005.

42 ‘Our Common Interest’ Commission for Africa Report Published 2005 p.282.

43 HM Treasury (UK) The Government’s Expenditure Plans 2001-2002 to 2002-2002 CM 4615 April 2000.

44 Manufacturing in the Knowledge Driven Economy’ Department for Trade and Industry (UK) November 1999.

45 ‘Manufacturing’ Dominic Webb House of Commons Standard Note p.2.

46 HM Treasury (UK) The Government’s Expenditure Plans 2001-2002 to 2002-2002 CM 4615 April 2000.

47 ‘Gross Domestic Product 2001’ Roberto Barcellan Eurostat.

48 ‘Employment in Europe 2003 Recent Trends and Prospects’ European Commission 2003.

49 Chris Pond, Parliamentary Under-Secretary of State for Work and Pensions, ‘European Social Fund’ Westminster Hall debate 17th June 2004.

50 Ibid.

51 ‘Spotlight on subsidies. Cereal injustice under the CAP in Britain’ Oxfam Briefing Paper 55 January 2004.

52 ibid p.14.

53 ‘EU farm subsidies uncovered’ David Hencke and Rob Evans, The Guardian 7th January 2005.

54 ‘Who Owns Britain’2001 Kevin Cahill table published in ‘Property Scandal’ Jason Cowley New Statesman 20th September 2004.

55 As published in The Sunday Times Richlist 2004.

56 As published by Department for Environment, Food and Rural Affairs 2004.

57 It pays you according to how much land you have which is bloody stupid’, Peter Hetherington The Guardian 22nd September 2003.

58 ‘Agriculture in the EU’ Worldwide Fund for Nature www.wwf.org.uk/filelibrary/pdf/ag_in_the_eu.pdf.

59 Dire warning for Europe’s farmland birds’ RSPB January 2004.

60 ‘Population declines and reproductive performance in skylarks in different regions and habitats of the United Kingdom’ Chamberlain and Crick 1999.

61 The population status of birds in the UK. Birds of conservation concern: 2002-2007’ RSPB.

62 ‘The importance of arable habitat for farmland birds in grassland landscapes.’ Robinson R. A., Wilson, J. D. , Crick, H. Q. P. Journal of Applied Ecology 2001.

63 ‘Birds in the European Union: a status assessment.’ BirdLife International 2004 p.11.

64 Ibid adapted from data included in report.

65 Tobacco Production in the EU Background Paper’ Royal Society for the Protection of Birds March 2004 p.1.

66 ibid p.2.

67 ibid p.5.

68 House of Commons debate January 2003.

69 ‘An assessment of the total external costs of UK agriculture,’ J.N. Pretty, C. Brett, D. Gee, R.E. Hine, C.F. Mason, J.I.L. Morison, H. Raven, M.D. Rayment, G. van der Bijl 2000.

70 ‘Life After Subsidies. The New Zealand Farming Experience 15 Years Later’ Federated Farmers of New Zealand 2002.

71 OECD Agricultural Polices in OECD Countries 1997 p.64.

72 ‘Farming Without Subsidies. New Zealand’s Recent Experience’ Ron Sandrey & Russell Reynolds 1990. p.17.

73 ‘Fruits of the Kiwis’ Guardian 30/03/00.

74 ‘Life After Subsidies. The New Zealand Farming Experience 15 Years Later’ p.1.

75 ‘The New Zealand Agricultural Sector: Policy Approaches and Initiatives Used to Help Farmers Adapt.’

Professor Anton Meister and Dr. Shamin Shakur, Massey University, New Zealand August 2003 p.63.

76 ‘1996 Farm Act increases Market Orientation’ Economic Research Service USDA C. Edwin Young and Paul C. Westcott.

77 ‘Cultivating Poverty: US cotton subsidies and Africa’ Oxfam Policy Paper.

78 Statistical information from Swiss Government.

79 ‘Doing it the Swiss Way’ Stefan Mann EuroChoices Vol.2 No 3. 2003.

80 ‘The reform of the Swiss agricultural policy: achievements and challenges.’ Presentation by Mr. Boetsch, Director of the Swiss Federal Office of Agriculture 4 November 2004.

81 Ibid.

82 ‘Doing it the Swiss Way’ Stefan Mann EuroChoices Vol.2 No 3. 2003.

83 ‘The reform of the Swiss agricultural policy: achievements and challenges.’ Presentation by Mr. Boetsch.