EU Farm Policy Debate Pits France Against U.K.

European Union proposals on future farm spending set out today may be the beginning of more than a year of debate among the bloc’s 27 member states on the scale of agricultural subsidies.

The European Commission, the EU’s regulatory arm, plans to put a cap on payments to each farm, limit aid to those actually producing crops and livestock, tie payments to environmental targets and adjust how much goes to each member state, according to a June 29 budget proposal.

The EU spent 58.2 billion euros ($79.4 billion) on agriculture and rural development in 2010, or 47 percent of the total. France, the biggest food producer in the bloc, has called for overall spending to be little changed when the Common Agricultural Policy is extended after 2013. The U.K. wants cuts in direct payments to farmers.

“Current policy is no longer effective” and has a “lack of credibility,” Dacian Ciolos, EU agriculture commissioner, told the European Parliament in Brussels today.

France got 10 billion euros from the European farm and rural development budget last year, or 17 percent of total spending. The country accounted for 19 percent of the EU’s agricultural output of 350.5 billion euros in 2010, based on producer prices, according to the bloc’s statistics department.

France ‘Happy’

“France is broadly happy with the status quo,” Mats Persson, the director of Open Europe, a U.K. business-funded policy group, said by phone from London. “They’re still doing very well out of the CAP budget.”

U.K. Environment Secretary Caroline Spelman in January called the EU’s farm policy “morally wrong” because it undercuts agriculture in developing countries.

French Agriculture Minister Bruno Le Maire has said the EU must maintain funding for the CAP to preserve the region’s farming tradition, including raising beef and dairy cattle in mountainous areas.

“Lower the budget of the CAP, and tomorrow there’ll be no cattle farming in the mountainous regions of France,” Le Maire said in January. “There will be no more Saint-Nectaire,” he said, referring to a cow’s-milk cheese produced in Auvergne in central France.

U.K.’s Share

The U.K. got 4.1 billion euros of farm aid last year, or 7.1 percent of the total agriculture budget. Its agriculture output was 6.7 percent of the EU’s farm production last year.

“It’s the same old classic divide,” Persson said. “France on the one side pitted against the U.K.”

Germany, Europe’s largest economy, joined the French position in September 2010 as the countries published a joint paper that stated the EU needs a “strong” common farm policy.

“Whoever can get Germany on board wins the battle,” Persson said. “Once you have the Franco-German bloc reaching a position, that tends to produce more or less the outcome for the EU as a whole.”

The commission presented in June its proposals for the EU budget for 2014 to 2020, including 382.9 billion euros for agriculture and rural development over the period. The CAP would get 57.4 billion euros in 2014, based on the proposal.

“With the euro-zone crisis, I wouldn’t like to bet on anything with respect to the budget,” said Alan Matthews, emeritus professor of European agricultural policy at Trinity College in Dublin. “There will be attempts to cut down the overall size of the budget.”

‘Reformist Bloc’

Countries that want to reform the farm policy include the U.K., the Netherlands, Denmark and Sweden, according to Persson and Jack Thurston, the co-founder of farmsubsidy.org, a budget- monitoring group.

“The reformist bloc is outgunned and outnumbered,” Persson said. “About 21 countries, which is obviously a strong negotiating block, are basically in favor of the status quo.”

Eastern Europe countries that joined the EU more recently have big rural communities that mean they benefit from the bloc’s farm policy, according to Persson.

“Poland is one of the biggest defenders of the CAP and money being spent on farmers, because they have such a large farming sector,” Persson said. “So therefore reform of the CAP has actually become a bit more difficult.”

Countries that now receive direct payments that are less than 90 percent of the EU average will get more money from 2014, based on the commission’s proposals.

Likely Defeat

A proposal to limit payments to individual farms is likely to be defeated by opposition from the U.K. and Germany, said Thurston at farmsubsidy.org.

“There will be a fight over the proposals for capping the very large payments,” Thurston said. “I don’t know how hard commissioner Ciolos will push on this. The commission has to make everybody happy with something in the final agreement.”

As part of the future farm policy, 30 percent of direct payments will be tied to farmers complying with environmental targets, according to the EU’s June proposal. That 30 percent would amount to about 12 billion euros a year, according to a report by Matthews.

“Will it be a high barrier to jump?” said Thurston. “Reform-minded countries like Sweden, Denmark, the U.K. and the Netherlands will want to see a more onerous green-point system. The business-as-usual guys will want to keep it fairly accessible so all farmers can be included.”

Ciolos hasn’t given details yet on which environmentally sustainable practices farmers will have to adhere to. “Greening” of the farm policy will increase production costs, EU farmer lobby Copa-Cogeca said last week. The cost to farmers for the environmental proposals may be 5 billion euros, according to Matthews.

Tying part of the direct farm payments to environmental measures has allowed Ciolos to justify the future of such spending, according to Matthews.

“This is the trump card the commissioner has played,” Matthews said. “Otherwise there was no legitimacy for these payments. To maintain the CAP budget more or less, in absolute terms, is rather an extraordinary achievement on his part.”

To contact the reporter on this story: Rudy Ruitenberg in Paris at rruitenberg@bloomberg.net.

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.

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