Truth about Trade and Technology, IA
07-09-07
Strict rules accompany European farm payments
by: Philip Brasher
Herme, France - So far, Europe's overhaul of farm policy is paying off well for
growers like Francois-Xavier Letang, who tends about 2,700 acres of wheat,
potatoes, sugar beets and other crops.
He's collecting more than $300,000 in fixed annual payments each year no
matter what he grows or how high commodity prices go, so he's paying more
attention to the markets in deciding what to plant.
He's gotten out of barley and into growing potatoes, for sale to a French fry
maker, and rapeseed, the European version of canola, for processing into
biodiesel.
But there are strings attached to that government cash.
Letang, who farms in the rolling Seine River basin near the medieval town of
Provins, must rotate his crops every year. He can't plant the same crop on the
same acreage each year the way many Iowa farmers now do with corn. Another
rule prevents him from leaving the ground bare after harvest. He must plant a
cover crop to protect against erosion.
If Letang violates those or other rules, he risks losing at least a portion of his
subsidies.
Welcome to Freedom to Farm, European style.
The U.S. Congress has stepped back from the free-market policy of the 1996
Freedom to Farm law, which created the concept of fixed subsidies that were no
longer linked to prices or a farmer's production.
But the European Union has now embraced the policy wholesale and gone a
step further by tying the payments to strict conservation measures like croprotation and cover-crop rules.
European Union officials say the reforms, adopted in 2003, are addressing
international demands on the EU to reduce the impact of farm subsidies on
global commodity supplies and prices.
The new fixed payments replaced a system of crop subsidies and price controls
on which farmers had long depended.
But Letang and other farmers doubt European taxpayers will keep footing the bill
for this kind of policy, and growers themselves have mixed views about it.
"It's hard to justify to the producers an aid that is not based on what they are
producing," Letang said, speaking through a translator in front of his two-story
farmhouse.
Letang would prefer the American system of pegging subsidies to commodity
prices. He thinks Europeans will insist in converting the fixed subsidies he's now
getting into payments that would be tied to farming practices that address
pollution and other consumer concerns.
That's an idea being pushed now in Washington by some lawmakers and
environmental groups.
"The main issue in France today in the general population is there is a big
concern for the environment and water quality," Letang said.
In the United States, the 1996 farm bill was supposed to wean farmers off
government subsidies by providing fixed payments that would phase out over
time.
But commodity prices subsequently collapsed, and in 2002 Congress essentially
reversed the Freedom to Farm approach by creating a new form of
"countercyclical" subsidies tied directly to fluctuations in commodity prices.
This year, Congress could take another step back. The chairman of the Senate
Agriculture Committee, Iowa Democrat Tom Harkin, wants to cut the fixed
payments to bolster the countercyclical subsidies and fund other programs.
Harkin says the direct payments drive up land values and increase production
costs by raising land rents.
Direct payments "were never intended to be a permanent part of our agricultural
program," Harkin has said.
European Union officials say they copied their policy from the United States and
plan to stick with it.
"We're still in Freedom to Farm and we want to continue to be in Freedom to
Farm," said Lars Hoelgaard, the European Union's deputy director general for
agriculture.
The EU's farm policy comes up for review in 2008, but experts see no signs that
Brussels will retreat.
"It's hard to see the EU coming back on that. The public support has changed so
much against agriculture," said John Beghin, an agricultural economist at
Iowa State University.
The EU is likely to go forward with another major change by ending a quota
system for dairy farmers.
By 2013, it's widely expected that the EU will start slashing farm subsidies
overall.
"There's only a certain amount of money in the European Union pot," said Jack
Thurston, a former adviser to the British agriculture minister who runs a Web site
that tracks EU farm payments.
"Everybody who wants to do anything else in the name of Europe, whether that's
better European defense policies, whether that's research and development,
they're circling like vultures around the farm budget."
The European Union, which now comprises 27 countries from Portugal to
Poland, will spend nearly 45 percent of its budget this year on agriculture,
conservation and rural development programs, or about $74 billion.
Of that, more than $40 billion will go to Letang and other farmers in the form of
those "decoupled" direct payments. The payments are based on the value of the
subsidies and price supports farmers benefited from before 2003.
U.S. farm spending, meanwhile, has fallen sharply because much of the aid is
tied to commodity prices and is expected to total less than $19 billion this year.
The United States has far fewer farmers - 2 million compared with the EU's 13
million - and has traditionally subsidized a smaller range of crops, mainly grains
and cotton.
European farmers view the U.S. policy of keeping subsidies tied to crop prices as
unfair at a time when the EU is adopting the Freedom to Farm approach to
payments and requiring growers to meet environmental and animal-welfare rules
American farmers don't face.
The prospect that the subsidies will be shifted to conservation and rural
development is especially worrisome, said Pekka Pesonen, secretary general for
COPA-COGECA, an umbrella organization of farm organizations and farm
cooperatives.
"Here we're talking about huge sums of money," he said.