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European Agriculture Study Tour--A Primer on European Agriculture Subsidies

Missy Shelton reports from Europe on a journalism study tour funded by the German Marshall Fund, a nonpartisan American Public Policy and grantmaking institution that promotes trans-Atlantic relations. She's among eleven journalists taking part in an agriculture study tour. In this installment, Missy Shelton talks with a European agriculture expert to get some background on European agriculture subsidies. This helps set the stage for her next reports that include Missouri and European perspectives on trade negotiations through the World Trade Organization or WTO, farm subsidies and debate surrounding the reauthorization of the Farm Bill in Congress.

Shelton: I'm riding on the Thalys train from Paris to Brussels, Belgium. I'm joined here by Jack Thurston, Transatlantic Fellow with the German Marshall Fund. He also worked from 1999-2001 as special advisor to British Agriculture Minister Nick Brown. So, to begin with, give me a bit of history of the CAP for folks in Southwest Missouri who may not be very familiar with it.

Thurston: The CAP or Common Agricultural Policy is a set of policy measures which exist for the benefit of farmers in the European Union. It has its origins in the founding of the E-U in the 1950's. In those days, the priority was to increase productivity of European agriculture because in the post-war era, there had been food shortages. And some people had been on the verge of starvation. Really the incentive was for farmers just to produce as much as they could to adopt all the productivity enhancing technological changes that were available to use the land that was available in the most productive way. It was done simply through a system of guaranteeing high prices for farmers. So that whatever they could bring to market, they could make sure they'd get a decent price that would more than compensate them for their investment. As time passed by, the policy became so successful that Europe was overproducing food and instead of being a net food importer, which it had been, it was exporting food. Because the food was being produced at a high price, it had to be exported backed by a taxpayer subsidy. These subsidies for export mounted up. The E-U's trading partners, including the U-S and the farmers of the U-S became upset that Europe was dumping its surpluses on the markets, depressing prices around the world. At the same time, European consumers and taxpayers and citizens were upset that there seemed to be all this food going to waste, often destroyed. But that's really some time ago and there have been a lot of changes since then.

Shelton: It's my understanding that these days those subsidies are not based on the production output, is that right?

Thurston: That's right. It was agreed in 2003 that the subsidies paid to farmers would be de-coupled from whatever they produced. Essentially, they would get what they used to get based on a historic reference period in the future regardless of whether they raised any crops or animals or not. The idea is to free farmers from farming the subsidy and allowing them to farm to the market. They still get their payments which are seen as important to maintaining farm incomes at a level necessary for them to keep going because in many parts of Europe and we've just come back from Poland, farms are not the most productive, they're not competitive on the world markets and without that kind of extra help, you might want to call it welfare and farmers won't like it if you call it welfare but in a way that's what it is, it's a social payment to them, they wouldn't probably be able to survive.

Shelton: It's my understanding that Europeans view American farm subsidies as being protectionist and vice versa, Americans view European subsidies as being protectionist. Could you just comment on that.

Thurston: If you look at tariff barriers, that's the import taxes that there are in the E-U, they're definitely higher than they are in the U-S. There's no question about that. So that has been the main focus of the current trade negotiation is reducing European import tariffs. And Europe has offered to make some substantial cuts in many of the sectors where our trading partners would like to export...beef for instance into the E-U. I suppose that the European response to the U-S payments is that they are very much linked to production. They are very much guaranteeing farmers if they raise their crops, they'll get a decent price either through the market or a government hand out. And that in a way is artificially stimulating a level of production that wouldn't exist if farmers had to bear the risk of farming rather than falling back on the government when times are bad. I think both sides can point at each other and say, "Oh you're protectionist." I think actually that doesn't get you anywhere. That might be good for trade negotiators who are in that sort of negotiation but ultimately for policymakers and citizens what we need to be thinking about is what works, what delivers value for public money. What can we justify? We're spending large amounts of money, how much is that delivering public benefit? How much is that just inflating land values or leaking out into higher profits for agri-business companies, the kind of things the public does not see as a high priority. That kind of policy debate can be useful, looking at best practices in the U-S, Missouri, Poland, or France or Belgium or the U-K.

Shelton: I've been speaking with Jack Thurston, Transatlantic Fellow with the German Marshall Fund. He also worked from 1999-2001 as special advisor to British Agriculture Minister Nick Brown.