BY: MARIKA ANNUNZIATA
Next year, “Brexit” will effectively reduce European funds by around €10 billion per year.While the member states’ governments are still finding an agreement with regard to the creation and improvement of resources, the budgets of the two main historic policies of the European Union will suffer the conspicuous consequences: The Union’s Cohesion Policy and the Common Agricultural Policy (CAP).
Since 1992, the CAP has already lost its most important regulatory tools moving away from the goals put forth by the Rome Treaty in 1957: “increase agriculture productivity”, “ensure a fair standard of living for the agricultural community”, “guarantee the security of supply, reasonable prices for all users” and of course “stabilise the markets”. The guarantee prices, the variable customs duties established within the framework of Community preference, the exports incentives and production quotas initiated in the 1960s have gradually lost momentum after the European Union’s adherence to the World Trade Organization (WTO) policies beginning on 1stJanuary 1995.
Last June, the European Commission confirmed this approach: farm support will have few implications in terms of trade so that the European Union might comply with its obligations under the WTO agreement. The European prices, thus, have to align with the international market.
However, there is still a detail that can disrupt the neo-liberal free-market system: the agricultural markets are structurally unstable. Global prices in agriculture most often fall under the heading of dumping, because they are equal to the surplus of the most competitive states. Thus, the farmers of Europe suffer generally low prices and do not cover the costs of production.
Despite the decisions made by Brussels, agricultural policies worldwide have been strengthened since the 2008 food crisis. In China and India, for example, the domestic prices of multiple products exceed the world prices due to custom duties, guaranteed minimum prices and large public reserves. US manufacturers and farmers receive variable aid depending on the evolution of the market. In turn, almost alone against all, the European Union is still clinging to its 1990s free trade approach.
Nevertheless, confronted with the crisis of the agricultural market, the economists in the European Commission are trying frantically to find solutions that will not require government intervention. They still aim to consolidate and strengthen risks management tools, private insurances and mutual funds inside the forthcoming CAP. But these tools can only be efficient when the prices plummet over the long term. They are similarly ineffective when a price reduction occurs for most farmers at the same time, making it impossible for the risk pooling mechanism to work properly. That is what happens most often in the agricultural sector.
In the context of progressive market deregulation, the major processing and distribution firms and corporations cover the lion’s share in terms of added value, at the expense of farmers. Hence, the European Commission’s proposal in 2018 encourages the creation of both national and local agricultural producers’ organizations in order to exert control over marketing and the sale price of their products. Furthermore, in an effort to face the problems created by the market deregulation, Europe is seeking solutions by combating the producers’ oligopolistic practices.
On the other hand, the European Commission might need to use the “crisis reserve” established in 2015. The main objective of the almost €450 million program, funded by the budget of the CAP, is market management and stabilisation in times of crises, which might affect agricultural production and distribution. The reserves can also be used to rebalance the markets by offering monetary incentives to decrease the production.
But with no proposal to test a new approach in dealing with the agricultural crises, it is difficult to believe that the “crisis reserve” will eventually be mobilized.
Nonetheless, the European Union still has one tool in its arsenal- the customs duties at EU countries’ national borders, which remain higher for many agricultural products than they are for the other economic fields. This is to say nothing of the free trade agreements that have become more ubiquitous between numerous countries and regions of the world, especially since free trade agreements result in the ratification of duty-free import quotas or the reduction in customs duties.
But the attenuation of the redistributive payment is the hazard of the forthcoming agriculture policy intended to support small and medium-sized farmers on the grounds of employment. If the mechanism, now discretionary, should became mandatory, no restrictions would be imposed to the member states as to the budget allocated. At the same time, as with every reform, the European Commission has proposed to diminish the amount of aid for the larger holdings: “foster a smart and resilient agricultural sector”.
The same applies to the “biodevice” introduced as the main novelty of the forthcoming CAP: it “should reflect higher ambition and focus more on results as regards resource efficiency, environmental care and climate action”. Under its umbrella, member states will be able to make direct payments to farmers who commit to environmentally friendly practices. “The granting of income support to farmers will be conditioned to their undertaking of environmental and climate practices, which will become the baseline for more ambitious voluntary practices”. The new conditionality will rely on the implementation of a streamlined set of environmental and climate conditions. These practices will be further defined by member states (similar to the Paris Climate Accord) in order to better take account of their specific situation, climate risks and needs, while ensuring that these practices adequately contribute to the objectives agreed at EU level. As a result, member states will have to ensure that the agreed targets are met and performance is monitored in a robust and credible way. The Commission, thereby, intends on deferring the responsibility of laying down key rules within the national strategic plans to the national government.
Overall, in an attempt to play by the rules of the WTO, the European Union agricultural policy has been driven into a corner. Still, the CAP is one of the foundations of the European framework. The current policy further contributes to blocking the multilateral trading system, since emerging markets and the United States are challenging decoupled aids, which are at the core of the European subsidiary system. “It cannot be ignored that specific agricultural sectors cannot withstand full trade liberalisation and unfettered competition with imports.” Food safety and environmental performance, tackling climate change and protection of natural resources, employment and migration: the agriculture is at the heart of the main challenges of this century.
Marika Annunziata holds a Master’s Degree in law from LUISS Guido Carli University in Rome with a main concentration in European and international law. Marika is currently a trainee attorney and is studying in order to further pursue diplomatic career in Italy.
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