Europes Controversial Common Agricultural Policy
European nations have been following a controversial policy called the common agricultural policy. Under this policy, European governments have been giving subsidies to their own farmers. These subsidies artificially lower the price of some crops leading to market distortions. This is the reason why Europes common agricultural policy has come under severe criticism many times.
This policy has been criticized by developing countries in Africa. It has also been criticized by small farmers within the European Union. It is considered to be one of the most regressive and ill-formed policies. Yet, the policy hasnt really been changed. In this article, we will have a closer look at some of the pitfalls of this policy.
Hurts Small European Farmers
The European common agricultural policy is probably the only subsidy program in the world which is aimed at providing money to the wealthiest people in Europe. The policy does not differentiate between small farmers and huge farming corporations.
More money is given out to firms who have more hectares of land under cultivation. This encourages larger firms to buy out lands from smaller farmers. They get more revenue as the size of their farm increases. On the other hand, their costs decrease drastically because of economies of scale.
The final result of this common agriculture policy has been the disappearance of small farms. The average farm size in Europe has doubled.
It is astonishing that European taxpayers spend about a third of their annual budget on agricultural subsidies. It is also astonishing is that most of this money is given to companies which already have multi-million dollar turnovers.
Disproportionate Spending on Farmers
Farmers have been receiving the lions share of taxpayers money from the EU budget for many years now. The problem is that farmers represent less than 3% of the population of the European Union. Even after receiving so many subsidies, they account for less than 6% of the GDP of the region. Yet, these farmers receive close to one-third of the taxpayer money in the form of subsidies.
This policy is just incorrect on several grounds. Because of this policy, most of Europes taxpayers end up paying a lot of money which goes into the hands of a handful of corporations. This seems like a regressive tax which transfers money from the poor to the rich!
When it comes to agricultural subsidies, the European taxpayers face a double whammy. First, they have to fork out a lot of money in terms of taxes. This money is then used to subsidize the rich farmers. The problem with subsidy is that they promote inefficiencies. This is the reason why the cost of food grains in Europe is much higher than the rest of the world.
The European customers pay twice, first in the form of taxes, then in the form of high prices.
The government has been trying to justify this policy saying that food security is an essential part of national security. However, it does not seem to be the case with other countries.
Developed nations like China and the United States routinely buy and sell food grains. A handful of countries in the world produce their own food grains. The majority still relies on trade, and there is no reason why Europe should feel threatened when the rest of the world doesnt.
Distorts The Market
European countries produce more food grains than they actually should. This is because the rules of supply and demand are simply ignored by the government interference. The government basically guarantees a handsome profit to anyone who produces crops. This is the reason why overproduction occurs. This overproduction leads to colossal wastage. A lot of the crops are simply destroyed! Also, European nations are forced to dump these crops on developing nations. This is done by severely undercutting prices when exporting crops. The end result is that the economies of many African nations are adversely affected.
The exports of food products from Europe to Africa have doubled in the past five years. The end result is that the African farmers are not able to compete with European multinationals. This is also creating political instability in the region.
Young people are turning to terrorism because of the lack of economic opportunities available in this region. The end result of this policy is that artificially lowered prices destroy the GDP of African nations. Multi-million dollar enterprises are being subsidized to destroy the livelihood of daily wage earners.
Food subsidies have been an important point if discussion in global forums such as the World Trade Organization (WTO). After insistence from member countries, the WTO has finally taken a hard stance on these subsidies and the damage that they cause.
After much hue and cry, smaller nations have been able to get WTO to create policies which restrict export subsidies to some extent. However, it would wrong to say that these subsidies have been completely eliminated.
Despite the restrictions, farmers in the EU still exert a downward force on the prices in African nations making it difficult for the local farmers to prosper.
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