EU subsidy reforms a 'terrible mistake'

By LIAM DANN primary industries editor

PARIS - The latest reforms to the European Union's Common Agricultural Policy will be good news for New Zealand farmers but Jacques Chirac's Administration is not happy.

His agriculture adviser Herve Lejeune says any further subsidy reform should be targeted at helping the poorest countries.

The reforms being implemented mean that farmer subsidies will no longer be linked to production, so removing the incentive to overproduce. This should mean the EU has less produce to dump on world markets.


Farmers will receive payments based on factors such as the number of hectares of land they own. Whether they actually cultivate that land is their choice.

But Lejeune is not convinced.

"Decoupling" subsidies from production was a compromise that France agreed to for political reasons, he said.

"Farmers will be able to receive grants without even producing anything. We are not really convinced of this idea, mainly at an economic level."

It doesn't take a degree in commerce to see he has a point - paying people for doing nothing has seldom been a winning strategy for economic prosperity.

"We were told decoupling was a means of controlling productivity. This was a terrible economic mistake," Lejeune said.

"Sometimes the legal reality is very far from economic reality. It is because we have World Trade Organisation agreements - we decouple because legally speaking it has to be done."

Lejeune's stance highlights the difficulty Europe will have integrating its agricultural policy into a liberalised trade environment.

Without the political will to overhaul its fundamentally anti-competitive structure the EU is forced by the WTO to introduce reforms that make its agricultural policy even more unsound.

Lejeune believes Europe was unfairly accused of distorting trade when in fact it had made more progress than its rivals (he did not name the United States but the implication was clear).

Europe's trade-distorting subsidies had been reduced by 90 per cent in the past 10 years, he said.

"If new efforts are made they should be focused on the poorest countries," he said. "We have to target certain products and target certain countries."

This does not bode well for New Zealand. French officials see us as one of the wealthy countries that has benefited most from recent trade liberalisation.

"But one must allow for the poorest countries to develop their own agriculture," Lejeune said.

"To do this we probably have to get rid of the subsidies that are most destabilising, but this has to be done progressively to enable these countries to meet their domestic needs."

* Liam Dann is in Europe courtesy of the French Government.