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Andrew Light Speaker Tour in Europe May 14, 2013 / Berlin, Germany; Brussels, BelgiumGMF Senior Fellow Andrew Light participated in a speaking tour in Europe to discuss opportunities for transatlantic cooperation on climate and energy policy in the second Obama administration.
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Anchor Elaine Reyes speaks with Andrew Small, Transatlantic Fellow of the Asia Program for the German Marshall Fund, about Beijing's potential role in brokering peace between Israel and Palestine
The Shared Farm Policy Agenda in Brussels and Washington
May 27, 2005 / Jack Thurston
Agra Europe
A perspective by Jack Thurston and Susan Sechler*
EU-US policy dialogue on farming and food policy rarely rises much beyond a ‘blame game’ in which each side accuses the other of being the worst offender in terms of subsidies, tariffs or discriminatory use of food safety regulations. But with ever-growing internal pressures as well as new international challenges, now is the time to begin a constructive transatlantic dialogue on the future evolution of agriculture policy.
Transatlantic comparisons are difficult because farm structures and farm policies are so different in the world’s two largest agricultural economies. Europe has four times as many farms but around a third of the agricultural land area of the United States.
In terms of export markets, Europe is moving further in the direction of value-added and highmargin speciality products, while the United States is still competing as a low-cost producer of bulk commodities, but also fruits, vegetables and processed products.
In part because of these differences and in part for historical reasons, the architecture of farm support policies is very different on either side of the Atlantic. Overall, the EU has much higher tariff walls than the US, although Europe does import a significant amount under preferential trade agreements with former colonies (for instance, 85% of agricultural exports from Africa are to Europe).
Spread of policy coverage
The EU spreads farm support payments across a broad range of sectors while in US farm support is concentrated on the ‘big five’ program crops of corn (maize),soya, rice, wheat and cotton, plus sugar and dairy. This has created an important economic difference – and a potentially critical regional and political cleavage – between supported sectors and unsupported sectors. A current source of discord is the efforts of the politically powerful US sugar lobby to derail the Central American Free Trade Agreement (CAFTA), to the fury of most other farm sectors.
On agri-environment policy, the EU promotes the joint production of environmental public goods by farmers, while in the US, conservation policy is more about paying farmers to take land permanently out of production and return it to a more natural state, or about specific interventions to combat point pollution problems. This difference has important implications for the future of the WTO Green Box.
In the mid 1990s, when the terms ‘multifunctionality’ and ‘European model of agriculture’ came into use in Europe, US observers were justified in their scepticism. European farm subsidy payments were still firmly linked to output, and only a tiny share of the CAP was spent on rural development and conservation. For its part, the US was embarking on its radical ‘Freedom to Farm’ legislation which envisaged a end-point to subsidy-dependency. It looked to most observers as if the US had seized the initiative and the EU was struggling to keep up.
But in the past five years, the balance of initiative has shifted. As commodity prices fell from the abnormal highs of the mid-1990s, the US soon began to abandon the
philosophy behind ‘Freedom to Farm’, turning to a system of counter-cyclical payments and an increasing reliance on emergency bail-outs. As a result, the US is now much closer to its (admittedly lower) Uruguay Round AMS ceilings than is the EU.
Rural traumas in Europe
In the meantime, European countries have been traumatised by food safety crises like BSE and by a sense of broader rural crisis as farmers have continued to leave the land and many rural areas have failed to share in growth in the rest of the economy.
European governments have established policy commissions and re-branded agriculture ministries as “rural affairs” ministries. Policy meat has been added to the theoretical skeleton of ‘multifunctionality’. The result was the Fischler reforms and the critical decisions on decoupling, cross compliance and modulation. But there remain uncertainties and instabilities.
The implications of the 2007- 2013 Financial Perspectives debate for the financing of the CAP’s ‘Pillar 2’ (rural development and agrienvironment policies) threaten to
undo an important component of the Fischler reforms. There are two potential sources of a budget squeeze: the ‘group of six’ net contributors who want to see the EU budget trimmed to 1% of GNI; and the accession of Romania and Bulgaria in 2007.
A recent report from the British Parliament suggested that the UK should trade its budget rebate for a re-opening of the 2002 Brussels deal on Pillar 1 financing, while the European Parliament has begun to talk of national co-financing of the CAP (see AE2156, 13.5.05, EP/1).
Another uncertainty is the impact of decoupling both on farmer behaviour and on the broader politics of farm policy. The first question Americans ask about the Fischler reforms is whether ‘decoupling’ really is just that. Any money a farmer receives from the state will affect his or her financial viability, investment options, and thus production decisions.
Aid cheques justified?
Moreover, in times of growing demands on public expenditure from pensions, public services and security, stories about farmers getting money for simply watching the grass grow do not go down well with the public. Development NGOs have already pocketed the joint commitment of the EU and US to end export subsidies and are now aiming their sights on the sheer scale of domestic support, decoupled or not.
The debate over what benefits the public gets from the agriculture policies has intensified with the publication of the names of individual recipients. These revelations galvanised the 2002 Farm Bill debate and have thrown the distributional unevenness of farm support into sharp relief. In both the EU and the US, it is large farms that get most of the subsidy, even though farm supports are frequently justified as aid for small family farms.
Earlier this year President Bush surprised many by advocating a reduced payment limit of $250,000 per farm. In the EU, more and more Member States are publishing farm-by- farm data on CAP payments and Commissioner Fischer Boel has recently re-floated payment limits as a way of bridging future budget shortfalls.
Like Europe, the United States has its own problems with the conflict between the more narrow interests of the individual commodity producers and the overall interests of the larger economy and the US’s ambitions in the world.
US budgetary problems
The annual US budget deficit is approaching $500 billion and the trade deficit has swelled to an all time high: 2005 may see the US being a net food importer for the
first time in nearly half a century. Rural unemployment and poverty have increased, but farm income in virtually all sectors hit an all time high last year and will top that this year. This means there is pressure do more on rural development, as well as on conservation.
While a new five-year US Farm Bill is not required until 2007, a farm policy debate is already moving ahead as part of the Congressional politicking over the President’s plans to half the budget deficit. Amazingly, 1985 was the last time the Administration wrote a farm bill and submitted it to Congress and there is a real need for the USDA to seize the initiative once more. While Europe has been struggling to find a policy that can reconcile its many stated objectives in agriculture, food, trade and rural development, US farm policy has drifted without a sense of shared objectives and no firm hand on the tiller.
Negotiation, litigation in WTO
In addition to budgetary pressure and the relatively new issues of conservation and rural development, the other big challenge for agriculture policy is trade liberalisation. The impact of the WTO is felt in two ways. The first is through negotiation: the need to reach an agreement to complete the Doha Development Agenda. The United States needs a successful agreement from the Doha Round and pressure is building from non-agricultural businesses, food processors and even those commodity producers who realise their future lies in more open competition in emerging markets, where food demand is growing.
The second way is through litigation. Whether the EU and the US make good their early promises to abide by the rulings on sugar and cotton respectively will give an indication of how important the litigation route may be in future. Meanwhile, lawyers acting for Cairns Group countries are already drafting a new generation of Dispute Settlement cases.
The hard politics of large entitlement programmes mean that agriculture will remain the most heavily subsidised economic sectors in both the US and the EU for some time to come. If this support is to be provided in a way that reduces trade frictions between the world’s two economic superpowers, helps to promote pro-poor development outcomes from global economic integration as well as providing value for taxpayers, both sides should start talking in terms of their shared objectives and – more importantly – moving together.
* Susan Sechler is U.S. Director of the Trade and Development Programme at the German Marshall Fund of the United States (GMFUS). Jack Thurston is a Transatlantic Fellow of the GMFUS. www.gmfus.org
