The Wall Street Journal ran a long article yesterday on a dispute between France and Great Britain over how to proceed with the Common Agricultural Policy (CAP) of the European Union which consumes about 40 per cent of the EU budget, i.e. $75 billion every year.
The French blame the current global food price inflation on free trade and suggest that the EU must expand its current subsidies for every ton of crop production. Moreover, the CAP model should be emulated in other parts of the world. As explained by the French minister for agriculture, Michel Barnier, in an interview with the Financial Times, the argument runs like this:
What we are now witnessing in the world is the consequence of too much free-market liberalism. We can’t leave feeding people to the mercy of the market. We need a public policy, a means of intervention and stabilisation. I think [the CAP] is a good model. It is a policy that allows us to produce to feed ourselves. We pool our resources to support production. West Africa, East Africa, Latin America and the southern shore of the Mediterranean all need regional common agricultural policies.
It is astonishing to see that someone in the hyper-regulated and hyper-subsidized world of agriculture really tries to blame “free-market liberalism” for the food price explosion. It is also not difficult to spot that Barnier’s “recommendation” for developing and emerging economies to copy the CAP model of throwing public money at farmers is only meant to keep out competition from these countries indefinitely. Of course, they do not have the resources to set up such a system but they have a legitimate interest to gain access to rich-world markets.
It is here that we should take a look at the British criticism of the CAP. The British argue convincingly that the decades-long de facto discrimination of the CAP against food from poorer countries deterred farmers in these economies from investing adequately in agriculture. Now that global food demand is increasing this under-investment causes supply constraints from which the developing world suffers in particular.
The CAP is currently under review as the present agreement runs out in 2013. France has always been one of the great beneficiaries of EU agricultural subsidies and it would probably be a far more EU-skeptical country if the policy was not in place (although the French also voted down the EU Constitution in 2005). In order to appease its agricultural lobby other EU member states are likely to look for another weak compromise for the time after 2013. But then European leaders should not claim that their political horse-trading has nothing to do with the crisis facing the world’s poor.