Blog Post

EU farm reforms and slaying the ghosts of Doha

In a recent development, and as a major step towards consensus on reforms to the more than 50 billion euro-a-year farm policy, EU negotiators provisionally agreed (awaiting final approval of the European Parliament and member states) that up to 30 percent of current direct subsidy payments to large farms will henceforth be conditional on farmers' taking steps to improve their environmental performance, including leaving 5 percent of their arable land fallow as a haven for wildlife.

By: Date: July 10, 2013 Topic: European Macroeconomics & Governance

In a recent development, and as a major step towards consensus on reforms to the more than 50 billion euro-a-year farm policy, EU negotiators provisionally agreed (awaiting final approval of the European Parliament and member states) that up to 30 percent of current direct subsidy payments to large farms will henceforth be conditional on farmers’ taking steps to improve their environmental performance, including leaving 5 percent of their arable land fallow as a haven for wildlife. Amid widespread concerns about the bloc’s food security and criticisms about agri-business-led watering down of environmental standards to the point of making them meaningless, the present proposal does affect direct subsidies allocation under the Common Agricultural Policy (CAP), which will continue to consume three-quarters of EU’s total farm budget from 2014-2020.

Since 1992 (and especially since 2005), the EU’s CAP has undergone significant change as subsidies have mostly been decoupled from production, or in WTO-speak shifted from the contentious Amber Box (that are subject to reduction discipline in the WTO’s ongoing Doha Round negotiations) to the Green Box and Blue Box categories that are not subjected to disciplines of reduction and elimination[1]. Direct payments are decoupled from current production and are not directly price-related, which makes them less distortionary than other types of indirect subsidies. However, they are still distortionary, and affect global farm prices leading to distortions in export opportunities and agro-market access for developing country farmers. The present proposal to make subsidy payments conditional on setting aside land for bio-diversity purposes (Blue Box) will also add to the distortions in market prices of agricultural products[2]. Also, a substantial amount of these direct payments benefit the large industrial farmers and are made to owners of land that is no longer even used for farming. This has been one of the major bones of contention between the industrialised countries and the rest in the Agriculture negotiations of the Doha Round.

Agriculture and the WTO

So what does this development mean for the moribund Doha Round of WTO talks? As a positive from the negotiation perspective, EU leaders also agreed to reduce overall CAP spending for 2014-20 by 13 percent compared to the 2007-13 period. This is a reversal of the earlier trend of increases in the overall farm domestic support in industrialised countries. As such this will go down well with the developing country trade partners and help EU to take a proactive stance at the Bali Ministerial of the WTO.

In the aftermath of the terrorist attack on US mainland, the Doha Round was launched in 2001 with the promise of boosting development and hence agriculture was given priority. Development was deemed to be an important component of proactive strategising to prevent future terrorist attacks on the west. The thinking around that time, and especially in view of the failed Seattle ministerial meeting of the WTO, was that prioritising development of the poorer countries would be imperative to enable the launch of a new WTO round of trade negotiations; this meant support for liberalisation in sectors and products of interest to them.

The other consideration that likely influenced the strong focus on agriculture in the Doha Round was that agriculture was considered an unfinished business from the Uruguay Round, at least in the developing country perspective, and including elimination of the rules and protection for agriculture in industrialised countries in the agenda was necessary to get a new round going. Following the Uruguay Round practice, and in the hope of ensuring that agriculture sector reforms don’t get scuttled in course of time, agricultural market access for developing countries was included as an important element of ‘the single undertaking principle’ of negotiation. Thus it is an unfortunate development that 12 years down the line agriculture has remained as the key stumbling block of conclusion of the Doha Round.

Several commentaries have identified the multiple reasons for the intractability of the Doha Round, ranging from the intransigence by key WTO members, the complexity of the negotiations and over-loaded agenda, the ‘single undertaking’ principle that binds the outcome together, lack of business-sector interest, lack of leadership, etc. However, it may be worth considering that a satisfactory agreement in the agriculture market access pillar in favour of the developing and least-developed countries could well turn out to be the most effective means to get the stalled Round moving again.

Notwithstanding their public posturing at the WTO, negotiators from developing countries, and in particular those from the larger ones with significant market access interest, agree that it is difficult to get over the feeling of deception over the unfulfilled Uruguay Round agricultural commitments of the industrialised countries. Thus, in order to assuage the feelings of this large group of stakeholders and make them amenable to showing flexibility in other areas, conceding in agricultural negotiations is necessary; and for the latter, agriculture sector reforms in industrialised countries are an imperative. With the recent agreement, EU has a better chance of appearing proactive in agricultural negotiations in the run-up to Bali. For sure, industrialised countries need to address this particular elephant in the room if they wish to lend serious support to the WTO beyond paying lip-service to the cause of trade multilateralism. 


[1] The US has already redesigned its subsidy system and moved the bulk of its subsidies from the Amber to the Blue and Green Box types of subsidies.  

[2] The DSB panel on US cotton subsidies has ruled that direct payments ‘do not cause significant price suppression’. However, they still cause some distortions, as farmers receiving these subsidies are restricted in the alternate ways to which the farm land could be put to use (thus indirectly affecting prices and production) and hence these subsidies were deemed actionable.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.


Warning: Invalid argument supplied for foreach() in /home/bruegelo/public_html/wp-content/themes/bruegel/content.php on line 449
View comments
Read article More by this author

Blog Post

What 2019 could bring: A look inside the crystal ball

Economic performance prospects in Europe, the US and Asia in 2019. We start off by reviewing commentaries and predictions about the euro zone, which many commentators expect to perform below potential as uncertainties continue to dampen a still robust recovery.

By: Michael Baltensperger Topic: European Macroeconomics & Governance, Global Economics & Governance Date: January 14, 2019
Read article More on this topic More by this author

Blog Post

EU budget implications of a no-deal Brexit

A no-deal Brexit would mean the UK’s contributions to the EU budget fall to zero as of March 30th 2019. The author here calculates an estimate of the budget shortfall that would have to be covered in this case, and how the burden would fall across different member states.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: January 14, 2019
Read article Download PDF More on this topic More by this author

Policy Contribution

The implications of no-deal Brexit: is the European Union prepared?

The author, based on a note written for the Bundestag EU Committee, is exploring the possible consequences of a no-deal Brexit for the EU, assessing preparations on the EU side and providing guidance on the optimal strategy for the EU, depending on the choices made by the United Kingdom.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: January 14, 2019
Read article Download PDF More by this author

Parliamentary Testimony

German Bundestag

The implications of no-deal Brexit: is the EU prepared?

Hearing on Brexit in the EU Committee of Bundestag on 14 January 2019, exploring the possible consequences of a no-deal Brexit for the EU and assessing preparations on the EU side.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance, German Bundestag, Testimonies Date: January 14, 2019
Read article More on this topic More by this author

Opinion

Fifty shades of yellow

Who are the Yellow Vests? What are the true roots of their uprising? And what do they want? Six weeks after they started rocking French politics and a month after violence erupted on the Champs Élysées, these questions are still hotly debated in France.

By: Jean Pisani-Ferry Topic: European Macroeconomics & Governance Date: January 10, 2019
Read about event More on this topic

Upcoming Event

Jan
24
12:30

Towards a new social contract

This event will look at a a proposal for a new social contract put forward by the World Bank.

Speakers: Maurizio Bussolo, Zsolt Darvas, Ruby Gropas and Bernadette Ségol Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More by this author

Podcast

Podcast

Director’s cut: Wrapping up 2018

With 2018 drawing to a close, and the dawn of 2019 imminent, Bruegel's scholars reflect on the economic policy developments we can expect in the new year – one that brings with it the additional uncertainty of European elections.

By: The Sound of Economics Topic: Energy & Climate, European Macroeconomics & Governance, Finance & Financial Regulation, Global Economics & Governance, Innovation & Competition Policy Date: December 20, 2018
Read article Download PDF More on this topic

Policy Contribution

The euro as an international currency

Is a more important international role for the euro worth pursuing? What measures would achieve this result, if it is worth pursuing?

By: Konstantinos Efstathiou and Francesco Papadia Topic: European Macroeconomics & Governance Date: December 18, 2018
Read article More on this topic More by this author

Blog Post

Brexit: Now for something completely different?

The life of Brexit. After a week of ECJ rulings, delayed votes, Theresa May’s errands across Europe and the vote of no confidence, we review the latest economists’ opinions to try to make sense of what has changed and what hasn’t.

By: Inês Goncalves Raposo Topic: European Macroeconomics & Governance Date: December 17, 2018
Read article More on this topic

Opinion

Can virtual currencies challenge the dominant position of sovereign currencies?

Marek Dabrowski and Lukasz Janikowski analyse why private money has historically failed in competition against sovereign currencies and what it means for modern virtual currencies, such as Bitcoin.

By: Marek Dabrowski and Łukasz Janikowski Topic: European Macroeconomics & Governance Date: December 15, 2018
Read article More on this topic

Opinion

How a second referendum could be the best way to overcome Brexit impasse

A new vote based on the revocation (or not) of Article 50 would give the UK government a clear signal to proceed in one direction or another, and thus trim down the number of options being touted – most of which are unworkable as things stand.

By: Maria Demertzis and Nicola Viegi Topic: European Macroeconomics & Governance Date: December 14, 2018
Read about event More on this topic

Past Event

Past Event

Investment and intangible capital

This event featured a presentation of the EIB's 2018 Investment Report.

Speakers: Román Arjona, Maria Demertzis, Debora Revoltella and Mario Nava Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: December 14, 2018
Load more posts