The Future of the CAP:An Independent View

Agra Europe Outlook for Agriculture

16 March 2010

Jack Thurston Co-founder, farmsubsidy.org

If citizens knew how the EU spends €55 billion a

year on farm subsidies...

Would they approve?

Our method

Freedom of information

+Investigative

reporting

Beer policy

Good stories+

Public debate

Business & Media |21.05.066 |||| BUSINESS

Who’s creaming off EU subsidies?

CASH COWS

WHAT IT COSTS THE TAXPAYER TO DESTABILISE DAIRY MARKETSBritish export subsidies, bydestination country, 2004 and 2005

Export subsidy granted, by company, 2004 and 2005

SOURCE: FARMSUBSIDY.COMPHOTOGRAPH: ALAMYGRAPHIC: CATH LEVETT

NIGERIA£11,782,308

IVOIVORY COASTCOAST£5,722,515722,515

DHAILANDTHAILA06,805£6,706,80£6

OMANOMA,660,973£4,660,97

SAUDIARABIA

£2,147,003

SUDAN£3,906,970

ESIAINDONESIAIND8£2,947,118£2,94

INDIA£1,244,914

BANGLADESH£3,479,499

NESIPPINEPHILIPPH,901,708,9£1,7

NAPANJA27344,2£1,24£

ALGERIA£9,413,948

EGYPYPT£3,03,031,340340

JAJAMAICAAICA£2£2,296,9296,9877

MEXICO£7,714,200

VENEZUELA£2,274,752

UAE£6,016,605

*includes subsidiaries

£1 to £4m

KEY

£4 to £7m £7m+£0m 5 10 15 20

£22,149,818

£21,957,002

£19,391,504

£7,442,672

£6,421,069

£6,016,872

£4,863,754

£4,009,257

£3,335,750

£3,084,188

FayrefieldFoods*

Philpot DairyProducts

DaleFarm*

NestleUK

TMC Dairies(NI)

HoogwegtInternational

Lakeland Dairies(NI)

Eilers & WheelerSales

MeadowFoods

F UhrenholtDairy

British-based exporters, includingNestle and Dairy Crest, haveclaimed £126m of taxpayers’money over the past two years for

sending surplus butter and milk powder topoor countries such as Nigeria andBangladesh, according to a new reportobtained exclusively by The Observer.

Export support for British dairy prod-ucts is only a tiny part of the complex!43bn web of farm subsidies thatstretches across the European Union.But by anatomising this one subsidy indetail, the figures provide a startling pic-ture of how the Common AgriculturalPolicy (Cap) works to prop up priceswithin Europe, with reverberations farbeyond the farms of the home countiesand Northern Ireland.

The data, obtained by Jack Thurstonof campaign group farmsubsidy.org,using Freedom of Information requeststo the government’s Rural PaymentsAgency, shows that most of the recipi-ents of the cash are large agribusinesses.

The biggest winner, Fayrefield Foods,was able to bank more than £22m overtwo years, 2004 to 2005. Philpot DairyProducts, the export arm of Dairy Crest,which owns well-known brands such asCountry Life and Clover, also claimed atotal of almost £22m. These levels of sub-sidy are enormous relative to the size ofthe companies: the £10m claimed byFayrefield Foods in 2004 was worthalmost 10 per cent of its turnover, forexample, and dwarfed its profits, whichwere less than £1m. Nestle, whose exportof skimmed-milk powder to developingcountries has long been controversial,received more than £7m.

The total cost of the dairy subsidyregime across the EU is more than !1bn.Dairy farmers receive some subsidiesdirectly, but much of the money goes toprocessors and exporters – who are paidby EU taxpayers – to underpin prices.

To maintain these artificially highprices, cheap dairy products from moreefficient producers, such as NewZealand, are kept expensive usingimport taxes. At the same time, theprocessors are given financial help tooffload their surpluses.

Until the 1980s, the EU simply boughtany extra production and piled it up inwarehouses, forming what became

known as the EU ‘butter mountain’(‘wine lakes’ were another manifestationof the same problem). But after a barrageof criticism of this very visible waste,Brussels switched its attention – and itscash – towards exporting the products.

Since the EU price is so much higherthan the world average, farmers aregiven a refund for each kilogram of but-ter or skimmed-milk powder theyexport, so that they can sell at somethingcloser to the market price and avoidmaking a huge loss on the transaction.This year the subsidies are !109 (£73) forevery 100kg of butter exported.

Trade campaigners argue that thescale of the exports – £47m was spent on

refunds in the UK alone last year –means rather than smoothing out fluctu-ations in dairy production, the exportsubsidies have created an entire industryout of dumping cut-price products inpoor countries, often damaging the localagricultural industry, and driving otherpotential producers out of the market.

Many of the countries revealed as

major destinations for exports are sur-prising. British firms were handed£11.8m over the two-year period forsending milk products to Nigeria, forexample, and almost £6m for sendingproducts to Côte d’Ivoire.

A recent report by Cafod found thatimports of cheap, EU-subsidised milkpowder had devastated the Jamaicandairy market, for example, causingdomestic production to plunge, anddamaging the livelihoods of small-scale,local producers.

For the consumers of the butter andmilk powder, the cut-price products canbe a bonus: that’s one argument oftenused to defend the subsidies. But in anyother industry, the idea of the Europeantaxpayer paying producers to sell goodsabroad at lower prices than in Europe’sshops would seem odd to say the least.

Campaigners complain that shiftingthe butter mountain into developingcountries stifles agricultural trade, bycrowding out domestic farmers whocan’t compete with the might of the EU.

‘In many of these countries, buying a

Exports of cheap European dairy products are crushing the livelihoods of developing world farmers, writes Heather Stewarton behalf of the EU, said Britain wouldlike to see them abolished.

‘We would prefer that export refundsdisappeared as soon as possible; but aslong as they are there, British farmers areentitled to claim them just like all EUfarmers,’ he said. He added that the gapbetween the fixed EU price and theworld price had narrowed in recentyears, and argued that the amount spenton export refunds had been ‘witheringaway’.

Britain’s small-scale dairy farmers,many of whom have been driven out ofbusiness recently, see little of the benefitsfrom the subsidies. They sell their milkto processors and supermarkets, which

often have a strong position in the mar-ket place, driving down farmers’ mar-gins. A recent report by aid group Cafodfound that farmers were paid less thanthe cost of production for their milk.Even the EU admits that the export sub-sidies are unfair, and agreed to phasethem out – though not for seven years.

But in the ongoing WTO talks, Man-delson is battling, on the EU’s behalf, tocling on to most of the lavish Cap sys-tem. Uncovering the details of the dairyexport regime, just one small corner ofthe Cap, confirms that any system aimedat fixing the market creates strangeanomalies, and knock-on effects else-where.

The new figures also powerfully con-firm campaigners’ claims that the smallfarmers who are meant to be protecteddon’t see much of the cash: and in a glob-alised marketplace, a scheme dreamedup in Brussels has ramifications thou-sands of miles away, including in some ofthe world’s poorest countries.

‘Milking The System’ is available at farmsubsidy.org

Peter Mandelsonagreed to Europegiving up exportsubsidies by2013. Critics saythis is no help tofarmers drivenout of business.

cow is one of the most reliable ways oflifting yourself out of poverty,’ saysThurston, who is trying to compile aEurope-wide directory of how Capsubsidies are spent.

Sheila Page of the Overseas Develop-ment Institute says small-scale farmersin Bangladesh or Indonesia would prob-ably not be the beneficiaries if the subsi-dies were removed; but more efficientexporters, such as Argentina and Aus-tralia, could win such markets in fair(unsubsidised) competition.

‘If they weren’t getting it from the EU,they would be getting it from some-where else – Argentina, South Africa,Australia,’ she says.

Peter Mandelson, who negotiates onbehalf of Europe in the current ‘DohaRound’ of World Trade Organisationtalks, agreed in December that Europewould give up its export subsidies by2013. However, it it is not clear how thephase-out will happen.

Page says that’s little help for farmersin poor countries who have been drivenout of business by the existence of thesubsidy regime. ‘They’re being damagednow, and the fact that the subsidies won’texist after 2013 won’t be much comfort.’

Britain argued strongly for an earlierdeadline for the abolition of export sub-sidies, but Mandelson made it clear thathe saw the 2010 deadline advocated bysome campaigners as ‘unrealistic’.

A spokesman for the Department forthe Environment, Food and RuralAffairs, which administers the payments

F armers are given arefund for each kilo ofbutter or skimmed-milkpowder they export| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

European taxpayers arepaying producers to sellgoods abroad at lowerprices than in Europe| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

Land of milk and moneyEACH TIME you rip open aminiature plastic packof butter to spread onyour in-flight roll, half-wayacross the Atlantic, thecaterer is clocking uphow much it can claimfrom the European Union for‘exporting’ a dairy product.

The giant milk processors and tradersare not the only firms able to dip into tax-payers’ cash each time milk or butter leavesthe EU. Gate Gourmet and Lufthansa Sky

Chefs, the major providers of in-flight catering, are among thestrangest claimants of exportsubsidies for dairy products.Each of them has received

more than £100,000 over thelast two years.The EU also paid out

£14,026 in export refunds toNeal’s Yard, the upmarket cheesecompany with swanky outlets inLondon, which also sends itsproducts overseas, including tothe US.

Another £1.75m was claimed inBritain by companies carrying milk prod-ucts out to ‘ships’ stores, oil and gas rigs’,while £1m was paid out for ‘victualling’ on

vessels belonging to non-EUmember states,

which apparentlyalso qualifies asexport. And£4,092 of taxpay-ers’ money wenton sending milk products to

Antarctica.

Three BIG problems with the CAP:

1. It’s Expensive

2. It’s Untargeted

3. It’s Unequal

Three BIG problems with the CAP:

1. It’s Expensive

2. It’s Untargeted

3. It’s Unequal

Growth of the CAP budget

0

10

20

30

40

50

60

1980

1981

1982

1983

1984

1985

1986

1987

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1989

1990

1991

1992

1993

1994

1995

1996

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1998

1999

2000

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2003

2004

2005

2006

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2008

Export subsidies Market supportDirect aids Rural development

€ billions EU-25 ➔

EU-15 ➔

EU-27 ➔

EU-12 ➔

EU-10 ➔

6%

51%43%

Jobs, growth, security, justice,

foreign policy, overseas aid,

climate, energy, environment,

R&D, science & innovation...

Farm subsidies

EU Budget, 2007-2013

Admin

0

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30

45

60

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52

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EU National Regional & local

Farm subsidy expenditure, 2007€ billions

Three BIG problems with the CAP:

1. It’s Expensive

2. It’s Untargeted

3. It’s Unequal

Proposed EU Budget: 2010

Photo: NASA

Photo: Laura Leon / IHT

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Through the green

smokescreen

How is CAP cross compliance delivering for biodiversity?

“In conclusion, the current

system fails to deliver value

for taxpayers’ money. The

underlying lack of logic in

the current direct payment

system, with no link between

subsidies received and

public goods delivered must

be urgently addressed.”

BirdLife International,

November 2009

“Many, if not all, standards are likely to have been legal requirements for some years before cross compliance was introduced in 2005...

...the overall value of the Single Payment [is] in the majority of cases…likely to vastly exceed the total related costs.”

Institute for European Environment Policy, 2007

Cross Compliance: geing paid for obeying the law

Cross Compliance in Scotland, 2008

Number of payments

Amount

Subsidies 48,603 €541 million

Cross compliancebreaches

310 €203,121

Proportion 0.6% 0.0004%

Targeting policies to objectives

Objective Policy

Preserve natural resourcesIncentivise ecological performance;

regulation: polluter pays

Safeguard rural livelihoodsTarget poorest rural households;

invest in economic diversification

Reliable, affordable food supplyMore open markets; skills,

knowledge & new technology

Preventing hungerIncome support for poor households,

food stamp type policies

High quality productionSkills, marketing, protection of

intellectual property

Three BIG problems with the CAP:

1. It’s Expensive

2. It’s Untargeted

3. It’s Unequal

Top 18% of recipients

get 85% of the money

82 % of beneficiaries get less than €5,000

0

100

200

300

400

500

600

BE BG CZ DK DE EE IE EL ES FR IT CY LV LT LU HU MT NL AT PL PT RO SI SK FI SE UK

Direct aid, € per hectare - UAA, 2013

Harvesting cash on Anglesey

€27,286 / hectare

M & R S Rogers, Bodrida Brynsiencyn

Recipient Municipality € / ha

H W & E E WILLIAMS PWLLHELI 44,535

M & R S ROGERSLLANFAIR

PWLLGWYNGYLL27,286

TG HARRIS DYFED 26,848

W L RAYMOND & LAWRENCE

HAVERFORD WEST 26,008

E R OWEN & SON HOLYHEAD 21,814

Wales: SPS Rates, 2008: Top 5

Wales: SPS Rates, 2008: Boom 5

Recipient Municipality € / ha

JDF JONES CAERNARFON 1.48

RL JAMES CARMARTHEN 1.14

HG MORGAN NARBERTH 0.75

ML THOMAS CLYDACH 0.36

DT OWEN CAERNARFON 0.01

Wales: SPS Rates, 2008

€ per hectare Recipients Proportion

500+ 1058 6%

400-500 982 6%

300-400 2602 16%

200-300 5376 32%

100-200 4815 29%

less than 100 1908 11%

“The payment rates defined in

entitlements vary greatly depending

upon: the historic claims record of the

2005 applicant in the period 2000 -

2002, any National Reserve award,

the volume of Milk Quota held on 31

March 2005, and the Tonneage of

Sugar Beet Contract held in 2005.”

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

BE BG CZ DK DE EE IE EL ES FR IT CY LV LT LU HU MT NL AT PL PT RO SI SK FI SE UK

Direct aid, € per farm worker - AWU, 2013

0

50

100

150

200

250

BE BG CZ DK DE EE IE EL ES FR IT CY LV LT LU HU MT NL AT PL PT RO SI SK FI SE UK

Average rural development spend, € per hectare - UAA (2013)

1,032

How to spend it

- Ecological farming: uplands, organic farms...

- Marginal land at riskof abandonment

- Invest in knowledge and skills: resource use, marketing, diversification

- Measures to address price & income volatility

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25

EU Farm Income Growth 2000-2008

A post-Fischler selement for the CAP?

Redistribution is politically toxic, but...

- Phase out historic entitlements

- More conditionality on area payments

- ‘Public money for public goods’ rhetoric

- Price/income volatility measures - optional?

- Budget cuts - 30% by 2020, but how?

- Co-financing - compulsory, rates vary by measure and by country

Thanks for listening!

Jack Thurston Co-founder, farmsubsidy.org

jack@farmsubsidy.org