The constitutional crisis in the EU has been rapidly over-run by the budgetary crisis that now absorbs the attention of Europe’s beleaguered leadership. In this brief note, Jyoti Banerjee asks whether the Common Agricultural Policy, a major budgetary battleground, can be defended in an era of intense competition among the rich and hunger among the poor.
On a number of occasions, this blog has pointed to Europe’s poor showing against the US when it comes to the measures relating to R&D performance, productivity, technology and competitiveness. A 2004 study by the European Commission pointed to Europe lagging America on 11 out of 12 such measures.
This is particularly apposite discussion material when battle is being waged for the heart of Europe: will Europe be a competitive economic force competing with the Americans and the Asians, or will it be a social welfare state that helps out those of its citizens that struggle to keep afloat in a world that is changing around them?
What is interesting to me is that the protagonists on both sides of the European argument seem to believe that their kind of Europe precludes the other kind. My own view is that a competitive productive Europe is more likely to be able to afford to be a socially hospitable place for its citizens; though, inequalities in the distribution of income at the margin can prevent any of its gains ever reaching the people who need that assistance. However, a Europe constructed purely on social principles without paying attention to competitiveness and productivity will eventually fall behind the other economic blocs to such an extent that there will be no money to float the boats that have run aground. Using the terminology of the mathematical theorists, neither approach provides sufficient conditions for success but putting competitiveness top of the agenda seems a necessary condition.
Budget allocation
Putting this preamble aside, what is Europe putting its money into? The Economist (June 17, 2005) points to the outsize proportions spent on the Common Agricultural Policy, which currently has a budget more than 12 times what Europe spends on research. To put the share of agriculture into context, 46% of the EU’s budget is spent on a sector which only employs around 4% of Europe’s citizens. I would like to point to a few key issues that emerge from this sort of fiscal allocation.
First of all, Europe is putting the bulk of its resources into a sector that can never be at the heart of future wealth creation in this continent. When our science and technology funding is low, and the transfer of our research knowledge into business impact is ephemeral, such a twisted allocation seems like poor judgement on the part of Europe’s leaders. Let’s put our effort and resources into helping promote the wealth and well-being of Europe’s citizens. Agriculture should not be the focus of the EU.
Secondly, the Common Agricultural Policy is creating massive distortions in the food market. It sustains farms and agribusinesses that are otherwise not sustainable. In fact, proponents of the CAP say that something like 75% of European farmers would lose their livelihoods if it were to be removed. Clearly, CAP is not to be trifled with, without due attention to the massive problems of the agricultural sector. But look at the negatives: European food prices are artificially lower than the true costs of production, which creates gross inefficiencies in the allocation of resources across the food chain. Worse still, it makes it impossible for farmers in other parts of the world, particularly those from poor countries, to compete with Europe’s subsidy-fed farmers. At a time when the efforts of many, including Bono and Bob Geldof, have sensitised the rich world to the need for debt forgiveness and fair trade as socially just ways to address global poverty, Europe’s structural failures in agriculture are irresponsible.
Thirdly, in the interest of food price maintenance, CAP pays farmers to destroy food that they are given subsidies to grow. It isn’t that this food is not needed. In a recent article, Sheila Sisulu, deputy executive director of the World Food Programme, pointed to 4.5 million global deaths due to hunger-related causes since the millennium (see www.nationmedia.com/eastafrican/24012005/Opinion/Opinion240120053.html for the full text of her article) with three million of these being children. Every day 25,000 people die to hunger. Today I am expecting to attend a tsunami benefit cricket game between Asia and the Rest of the World at the Oval ground in Surrey. It is tremendous that so many of the world’s top cricket stars are participating in such a worthy cause but let’s put the tsunami in context: every week more people's lives are lost to hunger than died in Asia’s tsunami.
A moral argument
At this level, CAP is not about economics – it is morally reprehensible. It is an obscenity in a continent that prides itself in its enlightened social policies. Europe’s leaders should welcome the current focus on budget allocation as an opportunity to right a terrible wrong. Sure, it will not be easy to fix something that has embedded itself into Euope’s structures over a period of decades. Sure, some French farmers will drop a load of manure on Parisian streets to show their anger over change. Sure, the losers in European agriculture will have to be taken care of. But I venture to say that not one of them will go hungry, let alone die of hunger, something that 25,000 other people today alone will not be able to avoid, thanks in part to CAP.
This is Europe’s chance. For the sake of millions upon millions of hungry people, and in the interests of Europe's own citizens, I urge Europe’s leaders to act justly and responsibly.
Jyoti Banerjee
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