By Philippe Legrain

By Philippe Legrain Philippe Legrain is senior fellow, economics at the Lisbon Council, former trade and economics correspondent for The Economist, and author of three critically acclaimed books, most recently Aftershock: Reshaping the World Economy after the Crisis. From 2000 to 2001, he served as special adviser to World Trade Organisation Director-General Mike Moore. 1. An early version of this e-brief ‘And ye shall know the truth, and the truth shall make you free.’ appeared as the Lisbon Council’s submission to the European John 8:32 Commission consultation on “CAP post-2013,” launched in April 2010 by Commissioner TheCommon Agricultural Policy (CAP), drawn up in 1958, has long since reached Dacian Ciolo s, . The author would like to thank Paul Hofheinz, Ann its sell-by date.1 At the very least, it requires root-and-branch reform.2 Such a reform Mettler and Sylwia Ste¸pien’ of the Lisbon Council for their editorial must be set in the broader context of the European Union’s new priorities and assistance and encouragement, reflect the interests of all Europeans – not just landowners and agribusinesses. as well as several anonymous reviewers for their valuable The CAP is ripe for major overhaul – up to and including abolishing it and “repatriating” comments on the earlier version agricultural subsidies to countries that wish to keep them. Only through reform of this of the paper. Any errors of fact or judgment remaining are the type will the EU be able to focus on the economic and social challenges of tomorrow. author’s sole responsibility. 2. This is a crucial test for the EU. Is it serious about investing in the future, For a summary of this paper’s key or does it wish to stubbornly subsidise the past? Do we want an EU budget that recommendations and findings, see the Executive Summary that addresses today’s pressing demands and helps Europe and its citizens prepare for begins on Page 9. the social and economic challenges of the 21st century? Or will our policies remain hostage to narrow interest groups that use their privileged place at the policymaking table to ensure that their subsidies keep flowing? As the European Union begins the long-overdue debate on future spending priorities, a debate which will lead to concrete proposals for a modern EU budget in early 2011, the discussion on the CAP must surely be opened again. No doubt some will strive to ring-fence CAP spending, surreally declaring its regressive social effects as the cutting-edge of “progressive” European policy and using national vetoes to stop reform. This would be a grave blunder. As President Barroso set out in his recent “state-of-the-union” speech, the global financial crisis makes it even more important for Europe to embrace reform. Now is the time to seize that opportunity. Modernisation of the EU budget will be a litmus test of Europe’s ability to meet 21st century economic and social challenges. Delaying those decisions would virtually guarantee another lost decade of meandering discussions, low credibility and limited progress at the European level. The opinions expressed in this e-brief are those of the author alone and do not necessarily reflect the views of the Lisbon Council or any of its associates. 1 Lisbon Council e-brief: Beyond CAP: Why the EU Budget Needs Reform ‘The CAP purports to help poor, small farmers, yet the richest 20% reap roughly 80% of the direct income support.’ 3. Joshua Chaffin, “EU Pays Do We Need a European Common Agricultural Policy? Subsidies to Sugar Groups,” The CAP purports to help poor, small farmers, yet the richest 20% reap roughly Financial Times, 05 May 2010. 80% of the direct income support. The biggest handouts go to large (often 4. hereditary) landowners and big agribusinesses. In effect, the masses of middle- Kevin Cahill, Who Owns The World: The Hidden Facts Behind and working-class taxpayers keep the lords of the manor in clover on the Landownership (Edinburgh: pretence of helping the peasants. Mainstream, 2006). See also Stephen Castle and Doreen Carvajal, “Small Elite Reaps Shamefully, many European countries still keep the names of CAP recipients Millions in EU Farm Subsidies,” The New York Times, 07 May 2009. shrouded in mystery. But according to Farmsubsidy.org, a transparency group, the biggest beneficiaries are sugar companies such as France’sTereos, which received 5. Dacian Ciolo s, , “The Future of €178 million last year, and Poland’s Krajowa Spółka Cukrowa (€135 million). European Agricultural Policy – Call At a time when most Europeans are tightening their belts, the number of CAP for a Public Debate, Speech to the European Parliament’s Agriculture millionaires – people or companies receiving at least one million euros in CAP Committee,” 12 April 2010. subsidies – rose by more than 20% to 1,212 in 2009. Together, this charmed 3 6. circle pocketed €4.9 billion. By one calculation, Britain’s biggest landowner, the BBC, “Q&A: Common Duke of Buccleuch, may extract as much as €31.3 million a year from the CAP.4 Agricultural Policy,” 20 November 2008. Clearly, the CAP is not “for all of society,” as Commissioner Dacian Cioloş said 7. 5 Eurostat, Statistics in Focus, in a speech on “The Future of European Agricultural Policy.” Since agriculture 18/2010. accounts for a mere 1.6% of the EU economy6 and 4.7% of EU jobs (2.8% in 7 8. the EU-15), the CAP penalises the vast majority of Europeans who neither own Organisation for Economic a farm nor work on one and must pay twice over to support landowners and Co-operation and Development, Agricultural Policies in OECD farmers through higher taxes and higher food prices. The sums are astronomical. Countries: Monitoring and According to the Organisation for Economic Co-operation and Development Evaluation 2009 (Paris: OECD, 2009). (OECD), the CAP cost Europeans €79.5 billion in higher taxes in 2008 and a further €36.2 billion in higher food prices – a total of €114.6 billion a year, 9. 8 Professor Alan Winters of Sussex or 0.91% of EU GDP. That works out at nearly €1,000 a year for a typical family University argues that “agriculture of four. And since the poor spend a bigger share of their income on food, the CAP is vital for income generation and poverty alleviation in most is particularly regressive. developing countries. Three- quarters of the poor live and work in rural areas; agriculture is their The CAP’s other victims are poor farmers in developing countries. Their exports major source of income; farm to the EU are limited by high import tariffs; their sales in domestic and third incomes have large spill overs to others in the rural economy; and markets are undercut by EU export subsidies; and the excess EU production that food accounts for a major share the CAP encourages depresses prices for their products more generally. This is of all poor people’s expenditure.” Quoted in Philippe Legrain, immoral – and it works counter to the EU’s efforts and stated commitment to Open World: The Truth about promote international development and help the world’s poor.9 The CAP costs Globalisation (London: Abacus, 2002). poor countries more than they receive in overseas aid from the EU. No wonder so many African farmers who cannot sell their produce in Europe risk their lives trying to come and work in the EU instead. The broader costs to Europeans – and to the EU itself – are huge. By skewing the EU economy towards uncompetitive agriculture, the CAP acts as a tax on competitive industrial and service-sector exports, crimping economic growth. 2 Lisbon Council e-brief: Beyond CAP: Why the EU Budget Needs Reform ‘By skewing the EU economy towards uncompetitive agriculture, the CAP acts as a tax on competitive industrial and service-sector exports, crimping economic growth.’ Wh 10. It legitimises protectionist arguments: if agriculture is special, surely manufacturing European Commission, Standard Eurobarometer 72, is too? If “food security” is vital, isn’t self-reliance important in other industries December 2009. too? And it is a major obstacle to freeing up trade in the World Trade Organisation’s Doha Development Round, as well as in regional and bilateral y the negotiations with other trading partners. All this deprives EU businesses of export opportunities and Europeans of well-paid jobs. The CAP gobbles up over 40% of the EU’s budget (for more, see Chart 1 below: How the EU Spends Its Money). Since public finances are extremely tight, and there is no appetite for increasing the EU budget beyond the current 1% of EU GDP, the CAP starves other EU priorities of funds. Given that economic growth was sluggish even before the financial crisis plunged the EU into recession, EU and that the Lisbon Agenda failed to make the EU the most dynamic and B competitive economy in the world, propping up yesterday’s jobs and today’s powerful vested interests stunts the EU’s ability to promote the skills, innovation and better-paid jobs of the future. Ideally, EU governments would not support B farmers at all. But if they insist on doing so, subsidiarity dictates that eyo they do so nationally, subject to EU state-aid rules and other constraints. udget A recent Eurobarometer survey provides some important clues as to what citizens know – and what they expect.10 When asked, “Over the next 10 years would you like to see an increase, decrease or no change in the European Union financial support to farmers?,” 70% of respondents opted for an increase or no change – a fact which some have seized on to claim European citizens support the CAP.

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