Europe Tackles Agriculture Subsidies
June 30, 2003
Last week the European Union took a step toward reform of its Common Agricultural Policy, or CAP. Cutting farm subsidies and tariffs in developed countries has been a major obstacle freer world trade in the Doha negotiation round of the World Trade Organization.
Agricultural protectionism is costly for consumers and encourages inefficiencies in agriculture:
- Europe's CAP costs $50 billion a year, half the entire European Union budget; the French alone receive more than $10 billion a year from the EU to keep unproductive farmers in business.
- CAP subsidies account for 35 percent of the entire value of European farm production, about double the share of America's.
- Due to market distortions, the price of sugar in Europe, for example, is two and a half times the prevailing world price.
- The EU will pay farmers just as much, but instead will pay them for things like protecting the environment, keeping the cows well groomed and following food safety rules.
- Under the old system, the EU guaranteed prices to farmers and bought directly whatever couldn't be sold on the market -- and it restricted imports.
- The reform removes the incentive for overproduction that so distorts world agricultural markets -- and punishes in particular the developing world.
However, the French managed to impose an opt-out clause that lets a country maintain the current payment-for-production if it is necessary to keep farmers in business. Which may make the "reforms" moot.
Source: Editorial, "French De-Capitation," Wall Street Journal, June 30, 2003.
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