EUROPE: Europe's Vast Farm Subsidies Face Challenges

The last time the European Union
decided the future of its 50 billion euro agricultural aid program, in
2005, the deal was cut behind closed doors in a luxury suite at the
five-star Conrad Brussels hotel.

The president of France, Jacques Chirac, and the chancellor of Germany, Gerhard Schröder, joined forces in secret to protect the program against cuts until 2013, outmaneuvering Tony Blair, the British prime minister, who was left fuming over the generous subsidies.

Now, 2013 is closer at hand and a new round of maneuvering has begun
to reshape the richest system of agricultural handouts in the world.

At stake are a host of delicate - some would argue intractable -
issues that have hardened to the point where resolution will be all the
more difficult: Who should receive the subsidies? What is their
purpose? Is there a way to tie payments to a crackdown on fraud and
corruption? Can they be more directed at small farmers instead of
multinational conglomerates?

New ideas for change are springing up, while the traditional
beneficiaries - France and the agrarian side of its economy are at the
top of the list - are digging in. National self-interest, not
surprisingly, underlies the debate.

Governments traditionally decide on a policy goal and then settle on
a budget to try to achieve it. In the case of what is formally known as
Europe's Common Agricultural Policy, that process seems to have been
turned on its head. An enormous amount of money continues to be
allocated as its goals become more diffuse and subject to dispute.

In its fifth decade, the agricultural subsidies program is a bedrock
of European Union spending, now totaling 55 billion euros ($79
billion), almost half of the group's budget.

It amounts to a huge redistribution of income to farm interests from
taxpayers. But most farmers get the crumbs because payments are
typically based on land size: 80 percent of beneficiaries receive about
20 percent of the payments, European Commission figures show.

Originally, the purpose of aid was clear. It was a tool for feeding
a hungry continent, devastated by World War II, through the use of
production incentives that grew through the 1960s. But those methods
led to huge surpluses. So they were reduced and scheduled for
elimination in 2013.

Meanwhile, the European Union was forced to grapple with whether it
made sense to keep supporting farms that could not compete in the world
economy.

Over the years, the Europeans have sought to discreetly redefine the
subsidy. While the farming industry collects about 41 billion euros in
direct aid, this year, 13.6 billion euros more went to rural
development programs - to encourage diversification by financing
projects like organic farming, renewable energy and farm tourism.

Cash has strayed to an array of projects. In Spain, for example, a
gravel manufacturer received 1.1 million euros and a utility giant
466,000 euros for installing electrical connections.

The European Court of Auditors - which monitors spending - was
critical of such financing in a recent report, which found that four of
10 payments sampled were "affected by errors."

After years of such alterations, billions of euros pump haphazardly
through the system at large, which last year rewarded a variety of
beneficiaries beyond the simple farmer. At the head of the line were
giant American and European factory farm companies, Spanish road
builders, German Gummi bear manufacturers, luxury cruise ship caterers
and wealthy landowners - including Queen Elizabeth II and Prince Albert
II of Monaco.

Despite all the logrolling and special interests, ideas are emerging about a makeover.

One is the concept of public goods - rewarding farmers who meet
environmental standards and animal welfare requirements. Another is a
new form of "market regulation" that releases cash to farmers when
prices for products dip dangerously.

"We must stop wasteful spending and invest exclusively in programs
that efficiently promote public goods, such as biodiversity and clean
water," said Valentin Zahrnt, an economist with the European Center for
International Political Economy in Brussels.

But no one is sure how these new environmental buzzwords will be interpreted.

Jack Thurston, a founder of Farmsubsidy.org,
which collects and publicizes data about how European farm aid is
spent, says that even a seemingly positive reform to emphasize the
public good may "be more subject to fraud because more of it will be
discretionary and will vary by member state."

France, in particular, is supporting the spigot approach, but it has
taken stock of political realities and adopted its arguments for a
generous aid program to include the new interest in improved
environmental standards.

Last year, as in years past, France was the biggest beneficiary of
farm subsidies, collecting more than 10 billion euros. One of the
largest recipients was Groupe Doux, a chicken manufacturer that
collected 62.8 million euros. Another big French beneficiary, at 38.6
million euros, was Saint Louis Sucre, a subsidiary of the Germany sugar
giant Südzucker.

Südzucker, through its various subsidiaries, collected 448 million euros.

"Everyone benefits from the system," said Bruno Le Maire, the French
agriculture minister, who acted as host at a Paris conference this
month that endorsed continuing the subsidies at high levels and using
more of them to enhance environmental protection.

"I know a lot of farmers in France who could not live without the
support," Mr. Le Maire said. "It's normal because we demand that the
agricultural industry meet certain standards to maintain food security
and rural development, which is costly. It benefits all, including the
big farming interests."

France sees the subsidies as an essential transfer of resources from
urban areas to rural populations to protect its bucolic landscape, the
safety of its food and a rural way of life that is a profound part of
its culture.

But for others, it is not so simple. France has traditionally
benefited financially from the policy because of its high number of
farmers. Other nations, like Britain and the Netherlands, are big net
contributors to the European budget, but collect less in farm subsidies
because they have smaller, more efficient agricultural sectors.

The reform debate is much livelier this time because the former
satellites of the Soviet Union that joined the European Union will have
more power to demand a bigger share of aid.

Under the last deal, which was negotiated before they joined the
bloc, their farmers had to settle for less than their European Union
counterparts.

The restive East European nations signaled at the Paris conference
that they wanted a strong program that included equitable shares for
smaller nations.

For all the theorizing and long-standing efforts to improve the
system, the political maneuvering over farm aid often comes down to a
simple equation: who gets what. European leaders are already preparing
to defend the individual national interests of their 27 countries.

"This is a straightforward battle between the losers and gainers,
and it's nothing more significant than that," said Alan Buckwell,
policy director of the Country Land and Business Association, which
represents landowners in rural England and Wales. "It's the stuff that
most politics is about: how are we carving up the money?"

But Mr. Buckwell and others said that this might not be enough to
win acceptance from the public. A major test of the political mood will
emerge in the European Parliament
next year, when it issues a report on farm aid that will shape the
decision-making about spending. For the first time, the Parliament will
have an equal voice with member countries in the outcome to determine
the size of farm aid budget.

But instead of advancing a reform agenda, the Parliament will
probably face even more pressure from local farmers to maintain the
status quo.

George Lyon, a Parliament member from Scotland who will lead the
drafting of the document, said the central issue was whether the Common
Agricultural Policy "should continue down the path toward more of a
market focus and more liberalization, or whether countries are likely
to move back toward more regulation and protection."

With its large and militant farm sector, France will seek to protect
its own, even if that means aiming for a bigger slice of a smaller pie.

A battle for national interest is inevitable, Mr. Lyon said:
"Self-interest always comes to the fore in these debates about money."

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