Better targeted EU farm subsidies could help poor country farmers - study

Linking EU farm subsidies to goals such as environmental protection could help farmers in poor countries, a new study says - although much would depend on the size of the payments and how they are made.

The analysis, conducted by Professor Alan Matthews for the International Centre for Trade and Sustainable Development, shows that new proposals from the European Commission for post-2013 farm spending could be a step forward for producers in developing countries. But the size of the EU farm budget, and whether payments will distort production and trade, will be key in determining how poor farmers are affected.

EU farm spending has been criticised for being “unfocused, untargeted and hard to justify on any rational criteria”, notes Matthews, a professor of agriculture policy at Trinity College Dublin. Linking payments to clear goals - such as environmental protection - could reduce the extent to which subsidies affect production and trade.

Subsidies and tariff barriers meant that in 2006-08 EU farmers could sell produce at 15 percent above world market prices. While these subsidies still give European producers a competitive advantage over their counterparts in the developing world, a succession of reforms has meant the price gap has narrowed dramatically from two decades previously, when it stood at 76 percent.

Many developing countries have raised concerns that the sheer scale of subsidy payments, including decoupled income support payments, could cause more than minimal trade distortion - which would mean that the subsidies would have to be reclassified and subject to an overall ceiling under World Trade Organisation rules. “EU figures show that the share of direct payments and total subsidies in agricultural factor income is 28% and 40% respectively for the EU-27”, Matthews says, “suggesting that much EU agricultural production would not be economically sustainable with current farm structures in the absence of this support”.

The new proposals would not reverse the move to greater market orientation in EU agriculture, says Matthews, even though they would maintain the current architecture of market management tools. But the European Commission does suggest that the bloc could need to maintain production capacity to achieve food security goals, “even though on any objective basis this is not a cause for anxiety as far as the EU itself is concerned”, says Matthews.

The Commission proposal also makes no mention of whether the EU plans to continue using export subsidies to send goods such as dairy products and pigmeat overseas at artificially low prices, thereby undercutting poor farmers in the developing world. “The failure to make a commitment to ending the use of export subsidies after 2013 is a disappointment”, Matthews says.

The new proposals state that the future farm policy will have to respect EU commitments to 'Policy Coherence for Development'. This means that “there is an explicit mandate to explore the impact on developing countries”, notes Matthews.

The paper is online at: http://ictsd.org/i/publications/97803/