FarmPolicy

November 22, 2019

“Analysis from Washington”- By Dan Morgan- Europe

Europe

By Dan Morgan- Dan is a special correspondent of The Washington Post and a Transatlantic Fellow at the German Marshall Fund of the United States. “Analysis from Washington” is posted exclusively at FarmPolicy.com.

A few days of travel in Europe isn’t enough to decode the enormous complexities facing negotiators seeking a transatlantic deal on agricultural subsidies and tariffs as part of the Doha trade talks.

But some impressions stand out after a whirlwind journalistic tour of European agriculture organized by the German Marshall Fund of the United States.

From all the stories about stalled negotiations and mutual U.S. and European criticism, one would think the two sides were far apart. Yet I was struck more by the similarity of the challenges faced by American and European farmers.

On both sides of the Atlantic, the forces of globalization, environmentalism and the information revolution are relentlessly eating away at the creaky government structures that have underpinned and protected agriculture for decades. More and more, the market rules.

During a week of travel in Poland, Belgium, the Netherlands and France we heard about French corn farmers investing in foie gras production in Canada as a springboard to the U.S. market. We met a 25-year-old Dutch dairyman, fluent in American slang, who thinks rigid European milk quotas hurt his ability to compete for global customers. And we visited a large-scale grain farmer east of Paris who is planting crops that can be turned into biodiesel fuel at a refinery sprouting up nearby.

As in the United States, it seemed to me that many of the European farmers we met were ahead of the politicians, farm organizations and trade officials in recognizing that change – perhaps radical change – is inevitable.

That’s not to say there still isn’t plenty of protectionism and feather bedding in the European Union. In 2003, the EU adopted a major reform of the Common Agriculture Policy (the “CAP”) that shifted billions of Euros away from traditional price guarantees on crops to something called “single farm payments,” a fixed annual cash allowance similar to the “production flexibility” payments adopted by Congress in 1996. In return, European farmers had to adhere to practices safeguarding the landscape, food safety and animal welfare.

Significant as this was, the devil was in the details. The farming sector still claims more than 40 percent of the European Union’s budget. Government can still step in – “intervene” — if prices fall too low, and farmers must idle 10 percent of their land annually—a restriction abandoned by the U.S. Congress in 1996.

Complicated as the U.S. subsidy system is, the EU system merits the overworked word “Byzantine.” Consider, for example, this paragraph from the Organization for Economic Cooperation and Development’s analysis of the new CAP:

“For the beef sector, Member States may retain up to 100 percent of the slaughter premium for calves and up to 100 percent of the present suckler cow premium and up to 40 percent of the slaughter premium, or up to 100 percent of the slaughter premium, or alternatively, up to 75 percent of the special male premium.”

And that is only the broad EU policy on beef. As the language suggests, each of the 27 EU countries can determine the pace of implementation and add their own individual tweaks to create an even more confusing crazy quilt of subsidies and regulations. Is it any wonder that U.S. and European trade negotiators have trouble “aligning” their policies?

Yet it is easy to miss the forest for the trees. The same big policy shifts are underway in Europe and the United States. One way or the other, the old subsidy system based on government-set floor prices for commodities is being replaced by a new 21st century system of hefty incentives for expanding biofuels production, along with a “transition” in which farmers get government checks in return for good stewardship of the land.

How long the transition will take to a system that is fully keyed to the market is anybody’s guess, but the officials and farmers we talked to in Europe seemed resigned to many subsidies ending in 2013, when the reformed CAP expires.

For French farmers, “there has been a change in mentality,” said Damien Caze, director of maritime fisheries and aquaculture at France’s Ministry of Agriculture. “They go to the States; they go abroad; they speak English. They see an end” to the old protections.

Will the subsidies really end in 2013, we asked Philippe Bernard, who runs a French John Deere dealership.

“If the Americans stop subsidizing their agriculture we will stop,” he replied.

In fact, there could be deeper reforms next year, when the EU does a mid-course review of the 2003 policy. The review comes as Congress itself is under pressure to write a new multi-year farm bill by Oct. 1 that takes account of new environmental, trade and energy factors.

Old ways die hard, and some farmers expressed uneasiness about the pace of change. The direct payments, Caze acknowledged, are not popular because they are viewed as “an invention of Brussels,” headquarters of the EU. Some even hanker for the American safety net that allows a farmer to take out a loan after harvest on the crop he has grown, at a fixed support price.

“That’s the most logical system for me,” said Francois-Xavier Letang, 32, who farms a 2500 acre spread of wheat, sugar beets, canola and potatoes not far from the medieval walled city of Provins, once ruled by the Duke of Champagne. He has 10 tractors and 10 employees.

Letang is heavily subsidized, to the tune of about $400,000 a year in direct payments.

But in other ways, he personifies the new breed of businessman-farmer who is skillfully exploiting the EU reforms almost without realizing it.

By French standards, Letang is big, and risks being resented by locals as a “capitalist.” Size offends those for whom a landscape dotted with small farms is as much a part of French culture as 3,000 varieties of cheese.

When a farmer gets too big, joked Patrick Messerlin, a professor of economics at the famed Sciences Po university in Paris, people “start looking at the guillotine and saying we missed someone.”

But if Letang was worried about his head, he didn’t show it. A decade ago, he could grow wheat at a government-subsidized price and not worry much about markets. Now he has stopped growing barley “because of the market,” and raises potatoes under contract to a French fry processor. Recent EU cuts in subsidies for sugar beets is driving out inefficient producers in Italy, said Messerlin, enabling efficient farmers such as Letang to capitalize.

Five years ago he started raising canola, a weedy looking plant whose seeds can be processed into diesel fuel. This year he planted 250 acres. His farmers’ cooperative has a stake in the new, nearby biofuels plant.

Suddenly, Letang is keeping close tabs on fuel prices.

As in the United States, the biofuels explosion has drawn Europe’s once prosperous, but sleepy agriculture into the go-go global energy market. There may be no turning back, given the incentives. EU and French rules allow Letang to plant biofuels on the 10 percent of his acreage otherwise set aside for conservation. And, he said, he gets a check from Brussels if he plants additional acreage in a biofuels crop.

Given the similar forces shaping European and U.S. “production” agriculture, why is it so difficult for transatlantic negotiators to cut a deal?

The answer is politics.

One of the first visitors French President Nicolas Sarkozy received after his election last month was the president of a French farm organization. A few days later, his new agriculture minister, Christine Lagarde, told European trade negotiators in Brussels that Europe should make no further concessions unless the United States made the first move.

In many ways, the European negotiators have a tough row to hoe. There are only a few hundred thousand farms in the United States in which the owners depend mainly on farming for their living. In Europe there are millions. In some countries, such as Poland, the structure of agriculture resembles that of the United States in the 1930s, an era in which the farm vote still swung elections. In France, hundreds of small town mayors come from a farming background. The survival of their communities can depend on saving the few small farmers who sustain the local grocery and school.

EU and European governments recognize the need to shift money from the conventional subsidies that are not really needed by efficient commercial farmers such as Letang, to the kind of rural economic assistance that could help a Polish farmer with seven cows. But the big farmers like being subsidized, even as they conquer markets.

So: It’s the politics, stupid. U.S. lawmakers serving on the agriculture committees should understand that.

By Dan Morgan

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