John Madeley
Reform of the CAP debate Vitoria, 13 October 2003
John Madeley
CAP reform and developing countries
“A scandal that should get us hoping mad”
First of all I would like to thank you for inviting me to the Basque region. I was born in one of England’s regions, the northwest, more specifically in Manchester, which has a football team, quite a good team.
In June this year, reforms were announced in the EU’s Common Agricultural Policy, the CAP. It was claimed that they were sweeping reforms. I’d like to explain why I believe that the reforms were a missed opportunity, and why they will not reduce, let alone stop, the damaging impact of the CAP on developing countries. I’d also look at the connection between the CAP and world trade rules, and at the collapse of the World Trade Organisation talks in Mexico last month, and finally at the reforms that are needed.
When the CAP reforms were announced in June, European Union ministers claimed that they are the most sweeping reform in its history. According to the EU ministers' statement, "With this reform the EU
Council is sending a strong message to European farmers, European citizens and the world, in particular the developing countries".
I don’t believe it. Sweeping change it may be in terms of the slow pace of CAP reform But that doesn’t necessarily mean very much. To take a bizarre parallel - if I have not taken a shower for 4 years, since 1999, (the last CAP reform, the one before that was in 1992) - a way of finding out who your true friends really are - and then I announce: I am planning to take a shower, well. that’s a sweeping change. Well actually, I add, I am not going as far as to shower all of me, no, no, I’ll just do the left half of me, I’ll leave my right side for a while. Oh, and I’m also delaying it for 3 years anyway. So there’s no way I’ll get all the dirt off.
Bizarre? Yes, but, it’s a fairly close analogy to the planned CAP reforms. Before I look at these reforms, I’d like to look first at the impact today of the CAP on developing countries, after the reform the impact will not change much. Under the CAP, about 43 billion euro is being paid each year in subsidies to EU farmers. You and I pay that, in our taxes and as consumers.
What’s the effect of these subsidises? They encourage EU farmers to produce more food than they would under market conditions. According to one study (by two specialists, Borrell and Hubbard), until the late 1990s, EU non-grains output, such as sugar, as a result of the CAP, was 8 times higher than it otherwise would have been, Grains and milk production were 50 per cent higher, meat products 18 per cent higher. Production in the EU is therefore significantly higher than it would be in the absence of subsidies.
Much of the surplus produce is then ‘dumped’ - sold cheaply below the cost of production - in developing countries. This depresses prices and makes it difficult if not impossible for local farmers in developing countries to compete. As a result, farmers throughout the developing world have been driven off the land and into destitution. To put it bluntly, the CAP, the US Farm Bill and the subsidy regimes of other Western countries are destroying the livelihoods of millions of resource-poor farmers in developing countries. This is why it matters. Developing country agriculture is vital for food security, rural livelihoods, and poverty reduction, and it’s being crippled by this dumping. The CAP helps to maintain the poor in their poverty - the very opposite of what EU development policy is supposed to be all about.
I’d like to look briefly at some of the sectors where there is dumping. Sugar. The EU’s sugar subsidies swallow up 1.4 billion euro each year, and are causing huge problems for small-scale farmers in developing countries.
The EU is the world's largest exporter of white sugar. All the EU’s sugar exports to developing countries are dumped, each tonne of EU sugar is sold on the international market at an average of 60 per cent below the cost of production. Through measures such as intervention prices and export subsidies, sugar beet producers in the EU are supported by a system that raises the price of sugar in the EU to artificially high levels, far in excess of the world price. In addition, the use of export refunds enables sugar traders to export surpluses at prices significantly below the cost of production in the EU.
Some sugar producing countries in the African, Caribbean and Pacific group receive higher prices for their exports of sugar through the preferential access they have to the EU, under Sugar Protocol. But they are still affected by dumped EU sugar. Take Swaziland for example, which produces sugar at less than half the cost of EU countries, but is unable to compete with EU imports that dominate its market. The sugar industry plays a crucial role in the country’s economy, but subsidised EU sugar products, primarily confectionary products, are seriously undermining Swaziland’s sugar processing industry, and have led to the loss of about 16,000 jobs in the industry, according to an ActionAid study, and 20,000 jobs indirectly linked to it, such as packaging and transport.
And the winners from the CAP: the big sugar processing companies, as well as large farmers.
Wheat - each tonne of wheat produced in the EU is sold on the international market at an average of around 40 per cent below the cost of production. The effects of this are felt in many countries. Take Indonesia Dumped EU exports of wheat flour to Indonesia leapt over fivefold in one year, from about 40,000 tonnes in 1998/99 to over 220,000 tonnes in 1999/2000. The imported flour is much cheaper than what it costs to produce flour in Indonesia, and he cheap imports are driving down local domestic prices, marginalising rice farmers, with serious implications for food security.
Take Kenya. There’s been a dramatic increase in the volume of cheap wheat flour imported by Kenya from Egypt, one of the chief importers of EU wheat. The cheap flour imports pose a serious threat to around half a million Kenyan people who are dependent on wheat for income. Many Kenyan wheat farmers are now facing destitution, having to sell their their crop at ruinously low prices.
Dairy produce: Take Jamaica. “The Jamaican dairy industry may be on its last legs”. Who says so? None other than one of the world’s major agricultural research centres, the International Food Policy Research Institute. In a recent newsletter, it says: “part of the reason is milk powder flooding in from Europe at prices so low that local farmers cannot hope to match them. The industry is in danger of complete collapse. Imports of milk powder shot up by 50 per cent last year and local production is less than half what it was in the 1990s’.
The EU’s support for dairy farmers amounts to around €15 billion a year. The Catholic aid agency CAFOD estimates that this works out at about €2 per day per cow. Put another way, the average EU cow receives more than the income of half the world’s population.
In Britain we have a large dairy company called Arla Foods, which delivers milk to half a million people in Britain every morning. Not to me it doesn’t. The company exports some €60 million worth of dairy produce each year to the Dominican Republic. The EU gives Arla €15 million in export subsidies to help facilitate these exports which makes Arla's milk 25 per cent cheaper than local produce. As a consequence of this, 10,000 farmers have lost their jobs in the dairy industry in the Dominican Republic over the last twenty years.
Tomatoes: Take Ghana. Ghana has made a concerted effort to develop a local tomato industry. But subsidised, tinned Italian tomatoes are selling so cheaply in Ghana’s markets that the local crop cannot compete. EU subsidies for Europe’s tomato producers come to about €350 million a year. Ghana is just one country to be hit by cheap EU tomatoes, there are certainly others.
Now of course it’s all done in the name of free trade, the belief that free trade is good for us, including the poor, that it forces farmers in developing countries to "diversify", ti find something else to grow or move to a city and live on the street. It should no surprise that displaced farmers are increasingly driven to suicide.
Tragically, the proposed reforms in the CAP will barely change a thing. Look at what’s proposed. The supposedly radical reform does not start until 2006. It will then de-couple a certain percentage of farm subsides from production. EU farmers will receive direct payments based on an historical reference period, and de-coupled, de-linked, from how much they now produce, or whether they even produce.
The deal is about changing the way that farmers are paid, it is not about lowering subsidy levels overall, in fact it will increase them, from 43 billion euro to 49 billion euro by 2013, when the EU will of course have 10 new members. And export subsidies may well go on, more on that later.
So how will reforms affect the sectors I’ve looked at?. Sugar, perhaps the biggest culprit of all in terms of the damage it causes in developing countries. Well, you couldn’t make it up - sugar’s not included in the reforms. EU ministers couldn’t agree. Sugar was so divisive it had to be taken out of the discussions. Talks are still going on, options are being considered. The damage meanwhile goes. The scandal of these subsidies is still with us.
Milk subsidies - reform was fudged; the big decisions are deferred until 2007. Nothing it seems will stop dumping for the next few years at least. Dairy farmers in Jamaica, the Dominican Republic and elsewhere, will be lucky to survive until 2007
Tomatoes? Fruit and vegetables and fruit as a whole? Same as sugar. in the meantime, it’s carry on dumping.
But what about the products that are covered? Cereals is the big one. EU farmers are supposed to produce less grain, cereals, or even not produce at all, since they will receive payments in any case. Let’s look at what’s happened in the past. We do have some pointers. Since the 1990s, the EU has already decoupled part of its subsidies in cereals. It intervenes in the market at prices much closer to the world price, and 50 per cent lower than the previous intervention price, whilst channelling payments to farmers directly. If the theory was right, cereal production should have fallen, since farmers could have produced less, yet still received their payments.
Well, the Technical Centre for Agricultural and Rural Cooperation in Wageningen found that EU cereals production increased by 25 per cent, because overall subsidy levels had increased. The direct payments that were given more than made up for losses experienced from a lower intervention price.
And look at the evidence from the United States. The 1996 US Farm Bill, decoupled payments from production and switched instead to a system of supporting the incomes of farmers. What’s happened? The total area planted to cereals has increased, not gone down. Let be clear - income payments guarantee farmers regular amounts of money which they can use to invest in their farm and potentially increase production, and dumping. Decoupled farm subsidies reduce farmers' production costs, not their output.
The theory that decoupling reduces output and dumping does not stand up. And there are other factors involved, besides the economic. Farming is not just a job, it may be part of a family’s history possibly for hundreds of years. Producing less, or moving off the farm altogether, is likely to mean moving to a town or city and accepting a very different culture and way of life. In reality, most European farmers stick to farming as long as they possibly can. It matters little to the farmer what labels the EU attaches to its supports.
And the EU’s own analysis shows that wheat production will not fall under the planned reforms. According to a European Commission assessment, production of soft wheat in the existing 15 EU countries will rise from 97.2 million tonnes in 2002 to 101.9 million in 2009, a 5 per cent increase. So much for lower output. The planned reforms do not change anything very much for cereal growers. Their interests have been preserved
The reforms proposed will however make the CAP less transparent. Developing countries could witness even more dumping and it could be more difficult for them to ascertain the level of EU support, and dumping that is affecting them.
The EU claims that its planned reforms are less trade-distorting. Significantly a recent OECD report does not back that claim. Countries which have liberal trade arrangements with the EU could be especially vulnerable. The 79 ACP countries, with whom the EU is presently negotiating reciprocal trade agreements, will see cheap EU products flooding in under those arrangements; they are in danger of becoming Europe’s dumping ground.
What all this adds up to is that EU ministers have missed the opportunity to reform the CAP in a way that would reduce, let alone remove, the burden it imposes on developing countries. Far from helping, the reformed CAP is a stab in the back for millions of the world’s poorest farmers. The reforms are a sham, and the additional insult is that some of the money that you and I pay in taxes and when we shop, is being used to destroy livelihoods in developing countries. This is a scandal, a scandal that should get us out of bed every morning hoping mad.
But isn’t the World Trade Organisation supposed to deal with all this. Is it not supposed to stop dumping? No, not really. In fact the WTO’s agreement on agriculture legalise practices, such as export subsides, that were banned under the GATT, the organisation it supercedes.
US and EU governments claim that decoupled subsidies do not have trade distorting effects and do not cause dumping. EU Agriculture Commissioner Franz Fischler claimed after the reforms were announced in June: "Our new policy is trade friendly. We are saying goodbye to the old subsidy system which significantly distorts international trade and harms developing countries".
Not so Mr Fischler. That’s an illusion. But he went on: “the decision will give Europe a strong hand in the negotiations on the Doha Development Agenda. Now it's up to others to move to make the WTO trade talks a success”.
Another misplaced statement I’m afraid. He was refering of course to the WTO’s Cancun meeting of trade ministers last month. Exactly a month ago today I was in Cancun watching the drama unfold. And it was a drama. Cancun’s specific task was to review the Doha development agenda, agreed in November 2001. Under that agenda, WTO member countries are committed to phasing out all forms of export subsidies; to substantial reductions in trade-distorting domestic support, and the incorporation of "special and differential treatment for developing countries....to effectively take account of their development needs, including food security and rural development".
The EU and the US submitted a joint paper on agriculture which proposed the elimination of export subsidies, but over an unspecified period, and reductions in the most trade-distorting domestic support measures, but with exceptions.
A group of 20 developing countries - including Brazil, China, India and South Africa - did not think that was good enough. They said the ministerial declaration, issued by the chairman of the WTO's General Council shortly before Cancun, was heavily influenced by the EU and the US, and "interprets the Doha mandate with a lower level of ambition and fails to deliver substantial cuts on trade-distorting domestic support".
The G20 proved to be a powerful force at Cancun. It put forward a paper on agriculture which called for an end to export subsidies and for a cap on direct payments to producers. It proposed a formula for tariff cuts that would involve developed countries doing more, and suggested tighter rules and disciplines to “ensure the reform process will be effective”.
Negotiations in Cancun failed to bridge the different views. A revised ministerial declaration, issued on the penultimate day, showed that little progress had been made. In the end, it was disagreement over whether negotiations should begin on a number of new issues, such as an investment treaty, which led to the meeting's collapse. But, at least two people I spoke with, said that had more been offered to them on agriculture and on special treatment, developing countries may have given ground on new issues.
The ministerial declaration certainly raised the heckles of developing countries over its treatment of the "peace clause" in the WTO’s agreement on agriculture. Under the peace clause, WTO members use "due restraint” by not challenging the agricultural subsidy regimes of another country. Developing countries do not challenge the EU and the US over their farm subsidies. The clause is due to expire at the end of 2003 but the draft ministerial text said that it should be extended. This means that the dumping of agricultural surpluses will continue and cannot be challenged. This infuriated developing countries and was one of the underlying reasons for Cancun’s collapse. One of the best results of the collapse is that the peace clause now expires at the end of this year, but the EU and US are now making efforts to extend it. I would suggest that an extension needs to be vigourously and passionately opposed.
Two of the WTO’s last three ministerials have now collapsed, (Seattle was the first one in 1999) and there is a real question mark over its future. The WTO has huge faults, not least in the way it pushes trade liberalisation, which like dumping, has meant more imports flooding into developing countries which have wiped out small farmers and exacerbated unemployment and poverty. Faults too in the way it conducts its meetings and how declarations are framed, Nonetheless it is an organisation in which all the 148 member countries have an equal vote and which they could change to get a better deal from trade - and it would have to be substantial change.
Dumping and trade liberalisation have been a tragedy for millions, a tragedy which is largely hidden from people in Europe. How many people has lost their livelihoods is not known. Five million would, in my view, be a low estimate.
Ministers in Cancun were given just a glimpse of this human disaster, with the suicide of Korean farmer Lee Kyung-hae. Lee was well known to people who worked at the headquarters of the WTO in Geneva. For two months he had sat by their front gate in a makeshift tent, for some of that time on hunger strike. Lee had a message which he hoped people inside the building would hear. He sat behind hand-written boards which read “WTO kills farmers”, “Stop your agricultural negotiations” and “Exclude Agriculture from the WTO”.
Lee was a former president of the Advanced Farmers Federation in Korea and been moved by the plight of Korean farmers to mount his protest. Since the WTO’s agreement on agriculture came into force in 1995, barriers to imports have been drastically reduced and cheap, subsidised rice has flooded into Korea, much of it from the United States. Rice from California sells in Korea for a third of the price of local rice. Unable to compete, many thousands of Korean farmers have lost their livelihoods, some have committed suicide. Hence Lee Kyung-hae’s banner.
Lee didn’t survive. If EU governments want the WTO to survive, if they really believe in multilateral rules for trade, as they say they do, they must be prepared to make substantial changes in both the WTO and the CAP, rather than just tinker with them. They must put agricultural subsidies firmly on the agenda, otherwise the damaging impact of over-production and dumping will continue.
Trade ought to be a force for good, to help people out of poverty. Instead, trade has been turned on its head. much of it, especially trade-related policy, such as the CAP damaging the poor, not helping them. So what needs to be done?
The CAP needs to be reformed in a way that will make a difference. Four suggestions:
1. Cut the CAP’s budget, substantially. Phase out, as soon as possible, agricultural subsidies in the EU.
2. Eliminate all types of export subsidies immediately.
3. Redirect spending towards helping organic agriculture, conserving the environment, promoting rural development, and target them at small-scale farmers and more sustainable agricultural practices.
4. Decisions of EU ministers should be consistent with the EU’s development goals. Please ministers, stop giving help to the poor with one hand, in aid, and then take it away from them with the other, in the CAP. Let’s have some coherence in EU policies.
And, two suggestions that relate to world trade:
1. Go forward, not backward from the WTO’s Doha development agenda. Work, as a matter of urgency, for measures that end dumping, and that includes accepting the end of the peace clause.
2. Support the introduction of special measures in the WTO to enable developing countries to protect small-scale farmers and to develop their own agricultural sectors. Recognise that international trade cannot solve all the problems; hear the pleas for food sovereignty which are increasingly being made.
Finally, a thought. In a number of countries, smokers are suing tobacco companies for the damage that smoking has done to their health. They believe they have a right to compensation. If someone loses their livelihood as a result of the action of a company or an institution, does not that person have a claim for compensation? If it can clearly be shown that the CAP has caused the loss of a livelihood, should not the EU pay compensation? Could it be sued in the courts under EU law? I am not a lawyer, I don't know the answer, but natural justice would seem to suggest that compensation is due.
Europe’s leaders need to reform the CAP to give the poor justice, or, the poor may seek justice in another way. The test of any civilised society is how it treats its poorer members. So, come on EU leaders - don’t disappoint us.
John Madeley is a best-selling author, journalist and broadcaster, specialising in economic and social development issues.
Website www.JohnMadeley.co.uk Info@JohnMadeley.co.uk