If the CAP does not fit, get rid of it

The UK Chancellor of the Exchequer, Alistair Darling, is fighting the good fight on policy towards the EU’s agricultural sector. Effectively, he has called for the abolition of the Common Agricultural Policy, the EU’s Welfare State for Farmers – a costly, distortionary, inefficient and inequitable arrangement overdue for the scrap heap.

Darling’s proposals for dismantling the CAP focus on the two key measures required: (1) an end to all measures (tariffs, quotas, other trade restrictions) that keep EU farm prices above world prices and (2) an end to all direct support for European farmers, whether this takes the form of production subsidies, income support or any other measure.

He also proposes to end the subsidisation of the production of bio-fuels in the EU, again an eminently sensible measure. There is a case for public funds subsidising basic research (because knowledge is non-rival in use) and to a lesser extent for subsidising applied research and the development of new products and processes. This includes the subsidisation of R&D into bio-fuels. There is no case for subsidising the growing of agricultural products for bio-fuels.

It is ironic that on the same day that the benighted German farm minister, Horst Seehofer (reinforcing earlier similar calls from the comparably benighted French farm minister Michel Barnier), called for China, India and the US to be forced to adapt higher (European!) environmental and health standards if they want to export food products to the EU, there is a report in the Financial Times that European poultry producers are using a chlorine-washing process on exported chicken, although the use of the same cleaning method in the US has led to a de facto ban on American chicken sales in the EU for the past 11 years. The European Food Safety Agency has determined that chlorine washing does not raise safety concerns. The EU chicken import ban on US chickens based on the proposition that chlorine washing damages health therefore breaches WTO rules.

The hypocrisy of the EU agricultural lobby in hiding behind phony phytosanitary arguments while defending or even trying to augment protectionist barriers, is breathtaking. To wield  environmental arguments in support of the agricultural sector is truly brave. Over the long sweep of human history, agriculture has been by far the most environmentally destructive sector. Agriculture in advanced industrial countries pollutes the soil, the ground water, our streams, rivers and lakes through the intensive use of organic and manufactured fertilizers. Water for agricultural use is almost always provided at a price well below its long-run marginal social cost, which depletes the water table and contributes to desertification. Agriculture contributed massively to deforestation, erosion, subsidence. Farting cows and other flatulent cattle emit methane and contribute to global warming. Modern factory-style farms spoil the landscape and are an eyesore.

Food security is best safeguarded by global free trade in agricultural products and an end to all production, export and income supports for the agricultural sector. A diversified global supply of food certainly would make me feel more secure than would dependence on the goodwill on French farmers who blockade the roads and other means of getting food to the customers, when the CAP does not provide them with the standard of living they would like to be accustomed to.

Unfortunately, stupid and collectively self-defeating food security policies are not found only in the overdeveloped world. The current export bans and inefficient government-sponsored hoarding of staple foods like rice by low- and middle-income exporting countries should also be banned under WTO rules. India’s banning of some food futures markets is a pathetic pandering to ill-informed domestic consumers and survivors from ‘Old India’ (a mixture of Fabian socialism and Gandhian self-sufficiency) by a pussilanimous government.

Maverecon: Willem Buiter

Willem Buiter's blog ran until December 2009. This blog is no longer active but it remains open as an archive.

Professor of European Political Economy, London School of Economics and Political Science; former chief economist of the EBRD, former external member of the MPC; adviser to international organisations, governments, central banks and private financial institutions.

Willem Buiter's website