Update on EU Agricultural Programs

 Been a long time since I posted on this subject. Here's a recent release--the study is critical of the EU programs:

The Common Agricultural Policy (CAP) is the EU's largest budget item, averaging EUR 54 billion annually. It is well known that over 80% of payments are going to only 20% of farmers, but to what extent these payments support policy goals is poorly understood, due to a lack of transparency and complex reporting.

"Our analysis shows that at least €24 billion per year goes to income support in the richest regions, while the poorest regions with the most farm jobs are being left further behind.

The IMprint of History on EU Farms

Politico has a piece on the EU and farm  policy:

With Brexit sapping the EU’s financial firepower, European Commissioner for Agriculture Phil Hogan is under intense pressure to slash the bloc’s €59-billion-a year farm subsidies. 

In response, one of Brussels’ suggested cost-cutting measures is to set a ceiling on how much the largest farms can receive. At first glance, it’s a savvy political move that would reduce lavish payments to landed aristocrats and agricultural conglomerates. Hogan’s problem, however, is that this subsidy ceiling would also deliver a painful blow to poorer (but bigger) Eastern European farms that used to be vast cooperatives in the communist era.

Data provided by the Czech farm association show that the top 2.6 percent of the largest farms in the country manage a massive 81 percent of the country’s arable land, while breeding some 70 percent of its dairy cows.

There's a lot of variation though: Czech farms are the largest, while Poland, Hungary and Romania all are on the small end of the scale (under 10 hectares average). I think Polish farms were never collectivized, and maybe the other two?

France and EU Farm Subsidies

It seems French farmers may be losing out according to this Politico piece,  The dynamics of the French farm programs are similar to the U.S:

With defense, security, migration and digital technology emerging as clear strategic priorities for Brussels, it is becoming increasingly difficult to defend the sacrosanct status afforded to farmers, particularly the bigger landowners. Under the current budget, a massive €58 billion a year, or some 40 percent of the EU budget, goes to CAP payments, but 80 percent of that money heads to only 20 percent of farms.

My Hypocrisy: Coal Versus Corn

There are reports that the Republican governor of WV is looking for government subsidies for coal production.  My gut reaction is to immediately oppose them.

However, what's my logical basis? Am I being a hypocrite?  I assume the idea is to keep coal mines going through a bad spell, perhaps a bad century, providing jobs for coal miners, at worse easing the transition to a non-coal future.  (Actually Gov. Justice has a "national security" rationale, perhaps somewhat like the old subsidies for wool and mohair.) Compare that with my rationale for some farm programs: keeping farms going to ease the transition to a future with fewer farmers.  (Full disclosure: that's one of two rationales I mostly buy, at least with respect to historical farm programs, the other rationale being the production adjustment one.)

So can I come up with a way to distinguish between farmers and coal miners as worthy recipients of government subsidies?

One difference is clear: farm subsidies go to farmers, coal subsidies would go to coal mining companies. Is that sufficient?

British Agriculture in the Modern World

I found this long piece from the London Review of Books very interesting. The writer's hook is Brexit. The EU budget is heavily focused on agricultural subsidies, but the EU also imposes regulations, so he can find a mix of opinions.  The writer interviews farmers about Brexit and considers the various impacts, but the piece ranges broadly. What's especially fascinating to see what's common to English and American agriculture, such as expanding farm size and conservation concerns, and what's different, particularly the continuing position of the wealthy/noble landowners. And finally the writer discovers the variety which exists behind all the stereotypes of farmers.

A couple quotes:

"[a farmer involved in conservation] was grateful for one aspect of his new life: he gets to meet people when he talks about his work. Mechanisation has isolated farmers. Wright and his brother farm alone where once 14 people worked."

"When the English government recently had the chance to carry out its own, independent CAP reform – in agriculture, there essentially is an English government, with the four parts of the United Kingdom having separate policies – it proved eager to go on subsidising the big landowners"

 Read it.

Thanks to commenter "rupello" for the lead.

EU Agriculture Subsidies Inadequate?

The EU has more subsidies for agriculture than the US, but the Ulster dairy farmers believe they're not enough. Ulster exports its milk and the strong pound/weak euro relationship hurts, as does the EU embargo on Russia over Ukraine.  It's a complicated world out there.

EU Agriculture Policy

I've lost track of what's been happening in the EU farm programs over the last few years.  Here's a BBC piece of about a year ago.  

Some highlights:

• cost about $80 billion for direction farm payments and rural development
• direct payments to farmers in central and east Europe countries being phased in (those countries much more dependent on agriculture) but farmers in the old EU countries get most benefits
• fights over environmental incentives and payment limitations
• enjoyed this: "The definition of an "active farmer" has also been contentious. The current payments system is largely based on land area and past subsidy levels, meaning that landowners like airports and sports clubs, which do not farm, have been getting subsidies based on their grasslands or other eligible land areas."
• big farmers get most benefits

Duplicative Payments and Management's Use of People and Money

GAO has a report on duplicative payments by USDA farm agencies. Basically, they found a lot of overlap (producers getting benefits from multiple programs) but not a whole lot of duplication (producers getting benefits from multiple programs for the identical cause, such as loss of production). They did recommend data matching in cases where duplication is possible, but RMA and FSA pushed back, arguing lack of resources. 

Bottom line: even though the taxpayer would gain if they identified the duplication (because the cost would be less than the money to be refunded, assuming there was 100 percent collection) it doesn't make sense to managers.  Assuming managers are good and rational, they see a bigger bang for the personnel and IR bucks in other areas.  The answer is to allow the agencies to keep  part of their collections, but that's not something likely to happen.

EU Farmers and Farm Programs

A picture of EU agriculture from this  (the context is the proper relationship between payments for grassland and payments for croplant):

It is about farmers who are farmers just to obtain subsidies and who fulfil their income goals only by subsidies. Perhaps, they have a few animals, although an increasing number of them only own grassland. From the agronomic point of view, this is intolerable, as the cultivation of hay for selling is not considered economically viable. In Slovenia, there are more than a quarter of agricultural holdings with grassland but no animals, but they apply for direct payments. Among them, there are less and less farmers and more and more mere land owners, who will have an increasing interest in the expansion of land, which they would rent out and if nothing else, split the subsidies with a tenant.

Where's the WTO Rules?

There's a blog, CAP Health, which discusses EU agricultural policy.  Based on a cursory review, it doesn't seem as if the EU is going to follow the US in shifting strongly to a crop insurance policy.  Which leads me to the question in the title: one of the advantages of the direct payment program in the Republican's Freedom to Farm legislation in 1996 was its compliance with WTO rules on agricultural subsidies.  These days I've not seen those rules mentioned in any of the discussion of changes to farm legislation. Are they no longer applicable, do we just not care, or does crop insurance fit within them as well as direct payments?

European Agricultture versus US

Haven't linked to posts at CAP Health Check recently. One subject the Euros are dealing with is whether to move to flat rate payments (paying the same rate per acre hectare regardless of the historical crop grown). For someone steeped in US farm programs that's an astonishing idea--I can't imagine anyone in the US proposing it, much less a realistic possibility of enacting it, but it's seriously on the table across the sea.

Why? I suspect one answer is there's more variation in US agriculture than in Europe, particularly within a country:

•  First of all each country is much smaller than the U.S.
• Second, there's much more climactic variation, consider dryland cotton and irrigated cotton.  Irrigation isn't that important, I don't think, in the EU
• Third, there's a greater diversity of important crops.  Specifically cotton and rice are much more important than in the EU.  And those are the high value crops, meaning thy get the biggest support payments.

Least Surprising News from Yesterday

From Farm Policy:

Reuters writer Charles Abbott reported yesterday that, “The House Agriculture Committee on Wednesday rejected President Barack Obama’s proposals to reduce crop subsidies to higher-income farmers and federal support for crop insurance.
“There was little discussion as the committee refused farm cuts requested by the president for the second year in a row. With elections in November, the committee approved a letter saying benefits ‘should be maintained’ at current levels.
“‘We are united and I think we have over-whelming support in the House not to open up the farm bill’ enacted in 2008, said Agriculture chairman Collin Peterson, a Democrat.”

And people think Obama has power. Not so.

EU Ag Payments Go to Non-Farmers

It's always nice to have company in one's problems. The NY Times reports here that EU agricultural payments often go to non-farmers and rich landowners. Even the Queen of England, who used to get payments from us as well, until the 1985 farm bill.

Meanwhile, the Farm Payment Story in Europe...

While Obama initiates a fight against direct payments to farmers with gross income over $250,000, Europe has its own payment system costing about $50 billion (at current exchange rates). Jack Thurston starts an explanation why that's politically unsustainable:

1. the payments started as replacement for subsidies but have been in place for 2 decades
2. most money goes to the biggest farmers with the best land, like Queen Elizabeth II
3. landowners get rich, not working farmers
4. poultry, pig and horticulture people don't get paid
5. the most money often goes to the people who do the least for the environment (i.e, who farm the most intensively)

Most of the above sound as if they could apply to the U.S.

Farm Bill Blues in the EU Too

The greens were disturbed with the outcome of our 2008 farm bill process. Apparently similar forces are also at work in the EU--apparently the resolution of the EU CAP (common agricultural policy) "health check" debate is for very minor moves of money from income support/direct payments to conservation and minor reductions of the biggest payments.

FSA Is Better Than EU

At administering farm program payments and getting them accurate. At least, that's a possible conclusion from this quote:

As Wyn Grant has observed, the Court of Auditors annual report on the 2007 EU budget published on Monday identified a clutch of weaknesses associated with the controls on spending on EU farm policies. The Court observes that “Some 20 percent of payments audited at final beneficiary level and revealed incorrect payments, a limited number of which had a high financial impact.” It concludes that farm subsidies remained “affected by a material level of error of legality and/or regularity”.

In its worst days, FSA never had that high a rate of erroneous payments (and even that was partially a matter of definition).

EU Dairy Policy Kills

I blogged earlier about the change in US eating patterns--dairy is down over the last 35 years. But, if this post on the CAP (EU farm program) Health blog is correct, EU dairy subsidies have kept their consumption high, with adverse impacts. The idea is that the EU has kept dairy supports high, by buying surpluses, which are eventually consumed somewhere (in school lunch programs, etc.) The resulting increase in saturated fat consumption causes higher rates of cardio-vascular disease and deaths.

I'm not sure of the logic here, or with those who attack US subsidies for corn. I think economists would agree, no subsidies would mean only the most efficient farmers would survive, meaning the price level would drop and, presumably, consumption would go up. Maybe I'm wrong, but you might be able to make a case that subsidies help health, not hurt it.

Irish Agriculture

Here's an interesting article with a splattering of facts about Irish agriculture. It seems that it's heavily subsidized by the EU and mostly dairy and beef. Farmers may rely on the EU for half their income. Irish farmland is expensive, at 60,000 euros. When one converts euros into dollars and finds that's close to $100,000, one is astounded. When one wakes up to the fact that hectare is the unit of land measure, it means that an acre of Irish farmland only costs $40,000 or so.)

The article is keyed to the possible impacts of a big cut in subsidies coming out of the Doha round on trade barriers.

And You Think FSA Has Problems?

Over the past years FSA (Farm Service Agency for newcomers) has made news for having computer problems, for not having the capacity to implement the new ACRE program, for paying the estates of dead people for too long, etc. (Their good work goes unreported, as is normal.)

The British counterpart of FSA has its own problems, as these excerpts from a UK Computerworld article show:

The government agency overpaid subsidies under the Single Payment Scheme by £37 million in 2005 to 2006, and some 20,000 farmers were paid incorrectly, according to the ‘progress update’ report by the Committee of Public Accounts.

A third of claims this year, or 34,499 claims, could still be affected unless farmer entitlements were properly checked, it said.

The agency also overspent by £50 million on a business change project that was intended to meet the new payments scheme, taking total project costs to near £300 million.

“The agency’s service to farmers is still undermined by weaknesses in its IT systems, such as its inability to provide farmers with a predicted amount and payment date to assist them with their financial planning,” the report said.

It is spending £750 to process each farmer’s claim for a subsidy payment, and greater automation of small claims processing as well as better use of electronic payments was “essential” in reducing these costs, the report said.

Its IT system was “rigid and task based”, and was “unsuited” to the agency’s needs, the committee said. The Accenture contract was renegotiated so that from September 2007 to 2009, Accenture will receive a managed service fee of £14 million in total, and risk will be better spread.

Surprising Factoid of the Day--the French Export Food [Updated]

From the CAP Health Check (the blog on EU ag policy):

The UK runs a large trade deficit in food and agricultural products, at around 22 billion euros or 13 per cent of GDP (see table below). This makes global food price increases especially damaging for reasons that I’ll explain below. By contrast, France runs a trade surplus in food of almost 5 per cent of GDP.

I'm too lazy to check, but I doubt the U.S. surplus is that big.

[Updated: Turns out the French export more wine than we do soybeans or corn and the Brits export more beer/ale. (2004 figures). And our 2008 exports are only $91 billion (record high value) but that's tiny compared to GDP/GNP of $14 trillion. That differential explains why the French do more for their farmers than we do for ours--the agricultural sector is much more important.)