EU Heads of Mission: 'Subsidised Europe' image at odds with reality

By EU Heads of Mission

NZ Herald·

22 Apr, 2016 05:00 PM4 mins to read

The EU is now the world's largest agricultural exporter -- despite the ban on imports into Russia. Photo / iStock

European agriculture's transformation should be recognised, write EU Heads of Mission.

Something "strange" appears to have happened at December's World Trade Organisation ministerial meeting in Nairobi, according to NZ media. As Prime Minister John Key observed in a parliamentary debate last month, the European Union "actually agreed" to a multilateral agreement to eliminate subsidies for agricultural exports.

We thank the Prime Minister for acknowledging the EU's contribution to the Nairobi outcome. But we remain concerned with the apparent astonishment of other New Zealand stakeholders at it.

Key's words point to persistent stereotypes in New Zealand public life and media about "subsidised European agriculture". This stereotype ignores the profound transformation Europe's agriculture has undergone in the past two-and-a-half decades. It also exaggerates differences and underplays common interests between the EU and New Zealand.

Like New Zealand, the EU was a leader at Nairobi - not a reluctant follower - of efforts to ban subsidies on exports. Indeed, the EU advocated more comprehensive liberalisation of global agricultural trade at Nairobi. It has taken a similar position in negotiations with the US for a Transatlantic Trade and Investment Partnership.

These positions reflect decades of reform of the EU's Common Agricultural Policy that have made Europe's agricultural sector both more sustainable and more competitive. It may be surprising for many New Zealanders to learn that they trade almost as much with the EU as they do with China. It may be even more surprising to learn that the EU is now the world's largest agricultural exporter - despite the ban on imports of its products into Russia.

The transformation that has made European agriculture market-oriented and competitive has been omitted from many recent commentaries on falling dairy prices. Declining dairy prices have had a wrenching impact on New Zealand and European farmers, especially those who have recently invested in new production capacity or land and are carrying high debts.

Sliding prices have coincided with the EU's elimination of its 30-year-old regime of internal production quotas. In April 2015 the restrictions on EU internal milk production were finally removed (something originally agreed upon in 2003) as a last step towards market orientation in the milk sector. This was seen as providing a pathway away from market-distorting policies of the 1970s and 1980s towards more environmentally and economically sustainable dairy production. In the five years before their 2015 removal (a period corresponding to the global dairy boom), production caps within the EU grew only 1 per cent annually.

In the midst of crisis, the complexity of global dairy markets and the underlying transformation of European agriculture have been lost in explanations of events, while "subsidised European agriculture" continues to receive blame.

Removal of EU production caps opened up competition for a share of the world's largest single market, but also to meet demand among growing middle classes in the world's emerging markets.

Internal European developments have also coincided with Russia's illegal actions in Ukraine, including annexation of Crimea, Western imposition of sanctions on Russia and Russia's retaliatory ban on food imports, including dairy, from the EU, US, Australia and others. Russia has removed its demand for dairy from global markets at the same time that production has increased in China, North America, New Zealand and Europe.

Coming together as they have, these developments have produced a dramatic and sustained downturn from the historic highs dairy prices reached in early 2014.

This "perfect storm" is driving structural change in global dairy markets. In future New Zealand and European producers will be among the world's most competitive players. This development aligns EU and New Zealand interests in the international trading system.

In the midst of crisis, the complexity of global dairy markets and the underlying transformation of European agriculture have been lost in explanations of events, while "subsidised European agriculture" continues to receive blame. These simplistic explanations exaggerate differences between the EU and NZ and obscure the areas where they share trading and political interests.

Last year, the EU and New Zealand recognised the strength of their shared values and common interests in a treaty-level agreement, the Partnership Agreement on Relations and Cooperation.

In October, EU and New Zealand leaders announced their intentions to negotiate a free trade agreement. New Zealand, the EU and its member states now co-operate to meet common global challenges such as security, combating climate change and generating sustainable economic and employment growth. We suggest that the first steps in deepening bilateral relations must include a healthy and open contemplation of how much both sides have changed over four decades.