Why You Pay Three Times More for Food Than You Should

Why You Pay Three Times More for Food Than You Should

THE SAD STORY OF THE COMMON AGRICULTURAL POLICY (CAP)

By Joshua King

MSFL_Cows

Picture: http://www.freestockphotos.biz/stockphoto/10201

THE COMMON AGRICULTURAL POLICY IS QUITE POSSIBLY THE MOST INFAMOUS POLICY TO COME FROM THE EU.

Quick facts:

  • Makes food cost ‘2 to 3 times more than it would without the policy’- Dalia Grybauskaite, the former EU budget commissioner
  • Amounts to an incredible 62-68 billion of European taxpayers’ money per year (€67 billion in 2013)
  • 43% of the entire EU budget
  • Devastating effects on Europe and the Third-World

Introduced at the insistence of France who were victim to the political influence of their farmers; the CAP came into force as a way to stop European farmers having to compete with cheaper products on the world market.

As part of this policy, huge subsidies are supported with further protectionist measures such as export subsidies, import tariffs, and quotas on particular agricultural products from outside of the EU.

The subsidies have frequently led to production surpluses resulting in food being destroyed, sold below market prices to the rest of the world, or being stored- leading to the infamous ‘food-mountains’ of the 80s.

History and Analysis

In its original form, the CAP was a price support system. This meant that every year the Ministers of Agriculture would come together and decide the prices for agricultural products. These prices were set artificially high, above the market price.

In order to attempt to make this system work the Commission had the responsibility of intervening in the European agricultural market to spend the European budget to buy as much of each product as was necessary to maintain the agreed price whenever there was a drop in demand.

Yes that’s right, bureaucrats setting high prices for European consumers and bureaucrats using European taxpayers’ money in order to keep those prices high.

It is easy to observe that the CAP was broken from its introduction as prices were set specifically so that the least efficient farmers in the European Community were guaranteed an adequate income.

As the system was set so that essentially any farmer could win- rewards were especially high for the large efficient farmers which consequently produced huge surpluses for the European Community to store or dispose of at great expense to Europe.

To put that into perspective, in 2009 the EU spent €330.4million on a ‘butter mountain’ to join the stores of unwanted sugar, grain, and wine.

British MEP for the Conservative party; Syed Kamall stated at the time that: “Taxpayers are being hit by a double whammy. Not only must they pay farmers to produce the food, they are now seeing their money being spent on produce nobody wants to buy.

Instead of going back to the past and creating butter mountains, we should stop wasting taxpayers’ money..’’

An alternative way of disposing of the excess food purchased by the Commission has been to sell it to the rest of the world, usually well below market rates. This is otherwise known as dumping.

Dumping, combined with the other protectionist measures implemented has crippled not only the poorest European consumers but also the Third World.

The Third World is able to produce and sell food for a much lower price than Europe. This is because Third World countries have an obvious comparative advantage in agricultural production compared to the EU due to the climate and abundant unskilled labour.

The UN has stated in 2010 that EU protectionism has deprived developing countries of €448billion in export income per year.

In 2009 Oxfam even accused the EU of starting a trade war.

A spokeswoman said: “This is sending a bad signal to developing countries as it shows how rich countries are trying to take advantage of the food crisis to push for their own interests.”

Under the CAP everyone across Europe and the Third World must suffer while the chosen few farmers benefit from EU cronyism.

Reforms

One disappointing attempt after another. Reforms of the policy have constantly been discussed during the last four decades. As part of the 1992 MacSharry reforms, direct payments were introduced as a substitute for the price support system. These reforms did nothing to remedy the problem that a select few farmers were benefitting massively at our expense.

In 2003 the Organization for Economic Co-operation and Development (OECD) estimated that 70% of CAP support still went to only the richest 25% of farms.

Agenda 2000 reforms and the 2013 reforms have been too little too late. While attempts to bring the CAP spending of the EU budget down to below 40% are welcome; it is merely a papering over the cracks of an inherently broken system.

Scrap the CAP

Europe should scrap the obnoxious, bureaucratic, crony serving CAP.

When we compare wholesale food prices in Europe to world prices it shows that the EU is paying 17% more for food than we would under the free market.

EU budget Commissioner Dalia Grybauskaite stated the CAP makes food cost ‘2 to 3 times more than it would without the policy.’

In comparison, New Zealand abolished all subsidies to farmers in 1984 and the farming industry has since thrived.

When the subsidies were removed, it turned out to be a catalyst for productivity gains. New Zealand farmers cut costs, diversified their land use, sought nonfarm income, and developed new products. Farmers became more focused on pursuing activities that made good business sense.

Since the reforms, agriculture’s contribution to New Zealand’s economy has remained steady at about 5 percent of gross domestic product (GDP). Adding activities outside the farm gate, such as processing of milk, meat and wool, agriculture is estimated to contribute over 15 percent of GDP. By contrast, agriculture’s share of the economy has fallen in many other industrial countries.

More efficient agricultural production in New Zealand has also spurred better environmental management. Cutting farm subsidies, for example, has reduced the previous overuse of fertilizer. And cutting subsidies has broadened farm operations to encompass activities such as rural tourism that bring management of the rural environment to the fore.

The CAP must be scrapped if the EU is supposed to benefit European citizens and the rest of the world.

 

 

References and Sources

Ian Bache 2013: Politics in the European Union

http://www.telegraph.co.uk/news/worldnews/europe/6198708/EU-costs-Britain-118bn-a-year.html

http://www.theguardian.com/world/2003/jun/26/eu.politics1

Lee Rotheram: http://www.taxpayersalliance.com/cap.pdf

http://www.iea.org.uk/blog/abolish-the-cap-let-food-prices-tumble

Tim Congdon 2012: ‘How Much does the EU cost Great Britain?’

http://www.express.co.uk/news/uk/81314/EU-s-butter-mountain-costs-taxpayers-236m

http://www.la.org.au/opinion/041010/eu-protectionism-killing-africa%25E2%2580%2599s-poor

http://www.huffingtonpost.com/mark-ross/farm-subsidies-new-zealand_b_1680259.html