Milking the budget

WHEN Charles de Gaulle rejected Britain’s bid to enter the then European Economic Community (EEC) in the 1960s, one reason he gave was the incompatibility of its farming policies. Britain was a trading nation that fed itself mainly by importing cheap food from across the world, said the general. France and its continental partners ate what they produced at home.

Contrasting attitudes to farming have dogged the European project at least since Britain joined in 1973, through budget rows and wider clashes between protectionists and free-traders. As European Union leaders began their latest budget fight at a summit on November 22nd, one thing was certain: the EU will go on spending disproportionate sums on farmers. Yet, at a time of harsh domestic austerity, it can ill-afford the extravagance of the common agricultural policy (CAP). Worse, the CAP favours big producers over small ones, and rich western countries over poor eastern ones.

The EU still spends some 40% of its budget on agriculture, an industry that generates less than 2% of GDP and employs less than 5% of the workforce. No other group of workers gets such coddling. Steel, coal and shipyard workers lost their jobs en masse when uncompetitive industries slimmed down; car workers are now following suit. Yet rural peasants must be preserved.

Why such largesse? Eurocrats point out that the CAP is one of the few entirely Europeanised areas of spending. It may take a big chunk of money in a modest EU budget, but it is still tiny as a share of overall public spending in the EU: about 0.4% of GDP. Yet EU governments (and non-EU ones, too: Norway and Switzerland are even more egregious) seem fearful of their obstreperous farm lobbies. At a deeper level, farming evokes memories of ancestral villages, rural landscapes and national identities expressed through food. De Gaulle himself once asked: “How can you govern a country which has 246 varieties of cheese?”

The CAP was born, in part, out of a wish to boost food production after the second world war. The creation of the common market meant that Germany could freely sell industrial goods across borders, so France wanted to export its agricultural bounty. The CAP was also a transfer system from Germany to France, a hidden form of war reparations. Producers benefited at the expense of consumers through guaranteed high prices for farmers, buttressed by high tariffs. By the 1980s the EEC had butter mountains and wine lakes that had to be paid for, stored and often dumped on the global market. Britain got little from the CAP, which absorbed almost 80% of the EEC budget, driving Margaret Thatcher to secure a permanent rebate on the country’s net contribution in the early 1980s.

Over the years the CAP has declined as a share of EU spending, and moved from price support to paying farmers directly (on occasion, to leave some land fallow). Reforms have tried to make farmers respond to market prices, not subsidies. Money has shifted from unconditional payments under “pillar one” of the CAP to incentives for rural development under “pillar two”. Subsidies are now justified to support public benefits (maintaining the landscape, looking after the environment) and to reduce rural poverty, as well as guarantee food security and quality.

Yet many of these arguments are still bogus. Most of the money still goes to pillar one, and it is based on historical levels of production. Big money continues to go to big landowners, who often use intensive, soil-degrading and water-polluting methods, rather than to struggling hill farmers making goat’s cheese. And to protect western farmers, subsidies for eastern Europe are being phased in only gradually, with low ceilings. A hectare of land in Belgium or the Netherlands still earns three or four times as much support as a hectare in the Baltics.

Even where farmers are struggling, it is hard to justify treating them so differently from other workers whose livelihoods are precarious or under threat. They should be helped to adjust, not supported indefinitely. A more sensible EU policy would end direct subsidies and limit the EU’s role to policing common environmental, food-quality and animal-welfare standards. Brussels could help finance research into farming or non-farming rural employment. But much farm support ought to revert to national level, with strict rules on competition and state aid to prevent too much of a free-for-all. If governments (and voters) want cows with bells to graze on flowering pastures, or stipends for poor farmers so they can live on marginal land, they should surely pay themselves through targeted assistance.

Cow-ardly

Sadly, the pressure for even modest reforms, let alone a root-and-branch liberalisation, has dissipated. The latest compromise budget proposal presented by Herman Van Rompuy, president of the European Council, cuts more from pillar two than pillar one. It removes the European Commission’s proposed cap on large payouts. And it stretches out the timetable to equalise (partly) payments per hectare.

Even the worst crisis in the EU’s history, it seems, is not sufficient incentive to curb the CAP. Most attention is focused on saving the euro. With anti-austerity protesters on the streets, nobody wants to upset farmers. For some in southern Europe losing farm aid would strain public finances. France is becoming a net contributor to the CAP, yet still staunchly defends farm subsidies. Britain has largely given up on reform—perhaps because the Tories are friendlier to farmers, or because their priority is to cut the size of the EU budget and defend their rebate. And there is no point in looking to the European Commission. It may be an engine of liberalisation, but it is weak and unpopular. It can hardly antagonise one of the few groups with a reason to support it.