In a bid to make its agricultural system more efficient and less subsidy dependent, the European Union (EU) is writing its own “freedom to farm.”
First, the basics: Europe is a continent made up of small countries like Luxembourg and big countries like Germany. Each is independent, with its own prime minister, president and/or royal family. Until recently, each had its own currency, and some still do.
Currently, there are 25 countries in the European Union (EU) and everything from the “constitution” to farm policy is being renegotiated. The EU wants to function more like a federal system, something like the U.S. of Europe, though that name was scoffed at and thrown out years ago. Yet, the principle's the same.
Many of these member countries want to share the same currency and foreign policy, all under a single leader — much like the U.S. under the Articles of Confederation in 1781.
A Bid To Please WTO
To date, EU agricultural subsidies have eaten up 50% of the entire EU budget. The subsidies are comprised mostly of direct payments with an occasional price support, as in the case of butter, or export refunds for sugar.
The EU's new policy has one main objective: to become less market distorting as required by the World Trade Organization (WTO). The EU has done this primarily by decoupling supports from production and re-coupling to land.
But if this is the EU's vision for the future of Europe, its July 2003 negotiations and final decision on the “common agriculture policy” should have come as a shock. It didn't.
The EU bureaucrats think the result will be a true “right to farm” policy. Farmers' unions in the EU, however, say what the ministers actually did was re-nationalize farm policy and put power back in the hands of individual nations.
It's been dubbed “a la carte” farm policy. Pick a decoupling level from list A and you may choose option one or two from list B. Since each nation has pet industries they want to protect, they'll do just that.
Protectionism isn't necessarily a bad thing, but protectionism is something the EU always points its finger at the U.S. for trying to do. Now, they call it “freedom to farm.” But as they're quick to point out, “not like the Americans did it.”
In the European sense, decoupling means that direct payments, in an annual lump sum, will be on a per-hectare basis rather than based on production. Beef policy will remain on a per-head basis.
Basically, the EU's new policy means that if you live in a country that chooses 100% decoupling on cereals, established farmers will get about 200 euros ($240/acre) no matter what they grow. It can be corn, wheatgrass or prize race horses, just as long as the soil is kept in good shape and the crop isn't fruit or vegetables.
But their offspring, who are working to buy a farm at what Americans would consider insanely high prices, up to 20,000 euros ($24,000/acre) in some countries, won't get a dime in subsidies to grow cereals. They'll get “rural development funds” aimed at helping young starting farmers. But how it will work isn't really known.
The EU isn't really reducing subsidies, just moving them around in a find-the-marble game. Instead of subsidizing crops and livestock, they're subsidizing young people and land.
Under the proposed system, individual EU countries will choose their level of cereals decoupling on a national or regional basis, from 75% to 100%. (Rye supports, however, are gone completely.) If a nation chooses 100% decoupling, it can keep up to 40% of the durum wheat supplement payment. For decoupling purposes, corn is being considered a cereal, a fact UK corn growers are thrilled about.
From there, the country keeps 50% of sheep and goat premiums. It can choose to keep 100% of the suckler cow premium and up to 40% of the slaughter premium; or 100% of the slaughter premium; or up to 75% of the bovine male premium.
The Corn Of The Matter
Despite the EU's desire to reduce negative impact on world markets, according to a report by the University of Missouri's Food and Agriculture Policy Research Institute, EU and world prices for wheat and corn will only drop by about 1% as a result of the new policies.
There will be no effective cuts in intervention prices but a 50% reduction in monthly increment payments will result in a slight drop in support price, the report said.
Corn prices are expected to drop 0.3% if there is 100% decoupling while a 0.2% drop is expected if there is 75% decoupling. Soybean prices look similar, with a 0.3% and 0.1% drop, respectively.
No countries have officially said how they'll decouple. My ear in Flanders tells me Belgium is looking at 75%, while I've heard rumblings of 100% in the UK. When each nation decides what it will do, EU analysts will scramble to come up with the probable result on European and world agriculture.
No one is sure what the new face of EU agriculture will look like, but it will be radically different.
There will be fewer farmers; that's a fact. Whether production will really drop, as WTO-wary ministers are hoping, or big farmers will buy out smaller farmers, is yet to be seen.
Meghan Sapp is an American agricultural journalist from California who currently lives and writes about agriculture from her base in Brussels, Belgium.