European subsidies and denial of the market

There was an editorial in the Economist this week on European farm subsidies, and how they should be cut given high food prices (see here).  The Common Agricultural Policy (CAP) has been a sore point across the world, including much of Europe, for many many years.  I hadn’t seen figures recently, but they are reported €55bn last year (about £30 billion pounds).  Apparently, with the current high food prices, far from it being a good time to reduce CAP spending, and allow producers outside of Europe to gain the benefits with less pain to Eurpean farmers, Fench and German ministers are proposing additional barriers to protect European farmers.  The French want to increase the standards in Europe, so going around the world trade rules.

The part that really made me irritated though was the German farm minster, Horst Seehofer, who claimed that reducing subsidies would not help the developing world as he “does not see how you can help the weak by hurting the strong”, and that he could see ‘food conflicts’ lurking around the corner. For a start, I would not call European farming ‘strong’.  Farming in Europe is not structurally advantaged, with some big structural defects such as labour costs and land value.  What I would call it is obscenely funded for decades.  It’s hard not to look ‘strong’ when you are massively and consistently bankrolled.  And, looking outside Europe, I strongly resent that it is our own actions in distorting the markets that create some of the poverty in the world by denying people the ability to earn a living.  And, I don’t suppose they are any less offended, especially as Western ‘aid’ is given that doesn’t come close to fixing the distortions of the Western market rigging.

The argument is also being raised that food security is too valuable to be left to the market.  I rather hope that governments have done some crisis planning around this that beats my 5 minutes thought … but I’m not at all clear on how it stands up.  For example, why would cattle be a sensible model for survivability – it’s much less efficient in land area terms, and if there really was a global crisis then it would feel hard to justify anything like the meat culture we have in the West today.  So, you might expect a subsidy model based on self-sufficiency in a crisis to focus on the minimum intervention required, not a ‘full service’ farming provision.  Moreover, the world is very connected, so it’s not very easy to see how agriculture can be delinked from the rest of the economy safely – oil being the most obvious, where the North Sea doesn’t feel like it could supply Europe.  Maybe it could supply the UK, and keep the farmers in diesel and fertiliser, but I don’t recall the discussion being UK self-sufficiency at the expense of the rest of Europe – at the very least they are armed just as strongly as us, so they could credibly defeat an isolationist approach from the UK.  Terrorism might be a real issue as well of course, and that can be very very hard to stop.

There is one kernel of possibility in the position that farm subsidies should not be cut due to current high prices, which is that they might not be sustained for long enough to matter – farming is seasonal after all.  But, as I understand it there is a belief that they will be structually higher due to Chinese and Indian consumption levels, even if America gives up it’s insane biofuels subsidies.  And, that defence is not allowed to cary much weight in other markets in any case.  It shouldn’t in this case.  Just because we have allowed CAP to exist does not mean we should continue to do so.  It is a good time to fundamentally restructure it … but if I was under any illusions about the likelihood before, the asinine position of EU politicians makes it clear that I would have been misplaced.  1 muted cheer for democracy.

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EDIT – just found an intruiging (and more eloquent) post on farm distortions here.  Don’t think I’d call it a failure of the capitalist model as this post does though – it’s almost exactly NOT a capitalist model.  It’s a grossly distorted, state sponsored, ethically suspect distortion of capitalism.

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One Response to European subsidies and denial of the market

  1. Jim Pye says:

    Hi Greg,
    Very thought provoking and views I strongly endorse. Another angle on the same theme that makes me mad is the absurd “set-aside” policies of the CAP. Great swathes of Europe are left to rot because of subsidies paid to farmers to NOT produce food whilst we continue to import basic foodstuffs from the third world that not only deprives them of food for their own bellies but drives up the price of food that they can obtain.
    The situation in Canada with the hog slaughter is also obscene and I wonder how long it will be before we hear of major famine disasters possibly leading to a huge escalation in terrorism around the world as the west continues its head-in-sand attitude to world food production challenges. As for the absurd bio-fuel issue, that is a whole new debate that opens up yet more cans of worms.

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