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EU's flawed agri subsidy system: Do 125,000 farmers deserve $14.3 bn?

In fact, the U.K.'s looming departure from the EU may leave a 98 billion-euro hole in the next EU budget and that shortfall has exposed deep discontent on the continent.

Lionel Laurent | Bloomberg 

The Euro Zone must reform or die
Illustration by Binay Sinha

The European Union’s Common Agricultural Policy — also known as CAP — is a 58-billion-euro ($64 billion) system of farm aid that accounts for the bloc’s biggest single budget expense. And it has long been a punching bag for euroskeptics.The U.K. press for years excoriated the “wine lakes” and “butter mountains” supported by EU money. Even after the production quotas went away, critics accused the EU of trade protectionism meant to squeeze rivals.

The EU’s defense is that the system is more market-oriented and eco-friendly than it used to be. Today it’s no longer just the Brits grumbling. In fact, the U.K.’s looming departure from the EU may leave a 98 billion-euro hole in the next EU budget and that shortfall has exposed deep discontent on the continent. Germany is loath to fill the gap and wants individual member states to contribute more for farm subsidies, something — still the biggest overall recipient of CAP funds — is resisting. Unlike some of its thrifty neighbors who want to keep a lid on costs, wants a more ambitious system.

French President Emmanuel Macron is fighting the view popularized by author Michel Houellebecq and others that Brussels is too weak and beholden to free trade to defend France’s local terroirs from competition. It would be easier to build popular support for a bold new CAP if its hypocrisies weren’t so apparent to voters. The system only costs around 0.4% of the EU’s gross domestic product, but it's distributed in wildly unequal ways.

Europe’s capitals are frequently awash in tales of well-heeled landowners receiving millions in EU aid — including the wealthy, Brexit-loving entrepreneur James Dyson — which should ideally go to those who actually need a financial boost. One well-known statistic is that about 80% of EU agricultural aid goes to the top 20% of farmers; in absolute terms, according to 2017 data, some 125,000 beneficiaries get around 12.9 billion euros ($14.3 billion) in aid. That’s about 103,000 euros ($113,500) per farmer.

Given the EU is advertising itself as a “geopolitical” defender of the Western liberal order and protector of citizens’ way of life, another awkward problem with the CAP is the corruption and cronyism it fosters within. A New York Times investigation this week revealed how the CAP has propped up the likes of Hungary’s Viktor Orban via farmland sold to his allies, and sent tens of millions of dollars to Czech Prime Minister Andrej Babis’s company Agrofert.

With EU aid now doled out directly by the hectare, the wine lake and the butter mountain have been replaced by land-grabs based on patronage and directed at insiders , according to one 2015 study. More accountability and transparency would help, as would the centralized ability to link EU aid to recipients who have a healthy respect for the rule of law and democracy. But member states would have to agree to give up the power they enjoy when it comes to allocating aid.

They have a bothersome habit of watering down sensible proposals such as putting a cap on the size of farm handouts or conditioning them on certain goals. Brussels does audit the money trail to fight fraud and error, which it estimates represents about 2.4% of farm aid, but its resources aren’t limitless.One idea raised by Alan Matthews, professor emeritus of European agricultural policy at Trinity College, is to tie aid to something that’s popular and a top priority for the new European Commission — the environment.

Rather than just call for a hard cap of, say, 50,000 euros per beneficiary (which countries would fight), he suggests a soft cap above which aid would be tied to climate-friendly, sustainable farming initiatives. Big farms, however politically-connected, would have to show they can offer a public good in exchange for public funds. This is superficially the same message being sent by the U.K. government to its own farmers as a way to replace EU subsidies after Brexit: Aid should be earned by eco-friendly initiatives, not paid by the hectare.

It’s easier said than done, and the state of U.K. agriculture without membership in the EU’s single market is hard to predict. But considering it will take time, money and political trade-offs to improve the EU’s flawed system, a small step like this — particularly if it proves to the naysayers that Europe can be reformed — is surely worth it.

First Published: Mon, November 11 2019. 16:18 IST
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