OECD calls for farm subsidies to go

The OECD is arguing that currently relatively high farm prices provide a window of opportunity to scrap farm subsidies: OECD

If only it were so, but the underlying politics does not permit it. Farmers will point out that input prices have also risen and mobilise food security arguments to justify the need for subsidies. Veteran Farmers Weekly columnist David Richardson is even waving the threat of food rationing in the latest attempt to alarm politicians and consumers.

In fact the rise in commodity prices has reduced the share of farm incomes that comes from subsidies. Across the OECD countries this fell from 22 per cent in 2009 to 8 per cent in 2010. It is consistent with a long-term declining trend.

This is not because subsidies have been cut in response to the fiscal crisis, but because of a reduction in countercyclical payments. Even so the 34 OECD member countries spent $277bn last year subsidising their farmers. Subsidies account for about 9 per cent of US farmers' income, but the figure is 28 per cent in the EU.

China has jumped on the subsidies bandwagon. The amount paid out last year went up to a record $147bn, an increase of 40 per cent on the preceding year. This pushed the share of Chinese farm income drawn from subsidies to 17 per cent, near the OECD average of 18 per cent. Direct payments to grain farmers in China have been consistently increasing since their introduction in 2004.

Britain and Poland have issued a joint statement calling for CAP reform and in particular less emphasis on Pillar 1. Poland joining the reform camp is a step forward, although it is interesting that one of the stipulations is a convergence of direct payments across the EU. See more here: Poland

Has a grand deal been done?

The future of the Common Agricultural Policy depends on what is decided about the EU budget. And the broad shape of the EU budget is usually decided in grand deals between the leading countries of Europe. Indeed, in the past, the future of the CAP has effectively been decided over lunch between French and German ministers. However, in a larger EU, that is not as simple, although the Franco-German axis is still very strong.

However, this time it looks as if a grand deal may have been done between Britain, France and Germany. David Cameron has been quite an effective negotiator in Europe and for understandable reasons he wants the EU budget frozen in real terms. It's very difficult to inflict misery at home when there is apparent profligacy in Brussels (a lesson that the European Parliament seems slow to learn).

Britain is denying it, but essentially what seems to have been agreed is that Britain's budget rebate, won by Mrs Thatcher, will stay intact although the original justification for it has been undermined. In return France will be able to keep the CAP more or less unscathed. Germany has already sold the pass, as it usually does, by signing up to a joint declaration with France calling for a strong CAP.

Needless to say, the accession states, and in particular Poland, are furious. They want the budget to be maintained and subsidies to their farmers brought in line with the rest of Europe. To some extent that could be achieved within the current budget envelope, although farmers in other member states would lose out.

There is a lot of hard negotiation to come, but it may be, despite denials, that the basic outlines of a deal have been agreed. If that is so, it will be a disappointment, but not a surprise, for the CAP reform camp.

Alliances and stances over CAP reform

The process of CAP reform is always marked by informal alignments or alliances between member states and there seems to be something of a rapprochement between Britain and Poland: Poland

Both countries support a shift of spending from pillar one (direct payments to farmers) to pillar two (more public goods oriented). However, the UK wants pillar one to be phased out, while Poland wants an equal split between the two pillars.

The two countries agree in principle that subsidies for farmers in older member states and the accession states must be equalised, a key agenda item for East European countries. However, Britain doubts whether it will be possible to go as far as a flat rate.

However, in a different alignment, Austria is backing France and Germany in calls for a strong farm budget, but opposes Warsaw's idea of a fixed rate of subsidies. France is confident that its stance is gaining broad support and that the CAP budget can be retained at around the current level: France