CAP reforms will hit South's poor farmers


Brussels 31 May -- On the eve of the new millennium the Common Agricultural Policy (CAP) of the European Union is again under reform, and all over Europe farmers have been protesting. But while their protests make headlines in the European media, hardly anyone in Europe pays attention to the detrimental side effects the CAP-system has on producers outside the European Union.

Yet on the world's agricultural markets there is a silent trade war going on. The principal victims are poor farmers in developing countries, men and women, who see their local market flooded by cheap EU products. Backed by taxpayer's money and building on their huge protected home market, EU agri-business is able to sell European produce on local markets all over the world at prices below cost price.

Brussels provides more than 40 billion Euro annually as subsidy to EU agriculture. As a result, about every agricultural product the EU's exporters have on offer is directly or indirectly subsidised: from Dutch powder milk and butter to Italian tomato concentrate and pasta, from French wheat, sugar and sunflower oil to Irish beef or German pork. Even the sugar in British marmalade or the sugar and milk in Belgium chocolates qualifies for export subsidies when sold outside of the EU.

In particular the small and increasingly open markets of many developing countries are often flooded by these subsidised exports. While poor urban consumers may welcome cheap EU products, long term development of the whole economy is hampered. Investments in further processing of local farm products are often not profitable under these circumstances. Even existing small and medium sized local industries are sometimes thrown out of business, when import controls are lifted in the process of liberalisation.

Potentially the agricultural sector, employing well over half of the population, is a main engine for development in many poorer countries.

But when exporting products to the protected EU market is hardly possible, when on other foreign markets the EU (and sometimes also the USA) is an unfair competitor, and when even on one's own home market the EU takes over, realising that potential is difficult.

In their work with local organisations in developing countries, Eurostep members are confronted with the adverse effects of some of the EU's policies. An EUROSTEP dossier highlights evidence on the way in which the spill-over from the CAP-regime continues to disrupt growth and opportunities in developing country agriculture, undermining the livelihoods of millions of people.

In West Africa, a flood of cheap (mainly) Italian tomato concentrate undermines local tomato processing. While Brussels provides an annual 372 million Euro in processing subsidies to the Southern European firms, the long existing local processing industry in West Africa is in crisis. In Senegal one of the two tomato canning factories closed down two years ago; the increase in imports from the EU was one of the main reasons. The other Senegalese factory has turned to importing cheap triple concentrate in bulk from Italy, in order to can this into double concentrate, which they sell on the local market. Thousands of local farmers lost a market outlet for their tomatoes through this shift in corporate policy, which has also happened in Burkina Faso and Mali. Ghana has seen an enormous increase in imports of EU tomato concentrate recently. Local fresh tomato producers have a hard time. The government's efforts to sell a closed down tomato-processing factory to an interested foreign investor (Heinz) may well fail because of the unfavourable situation for tomato processing in the country.

In Jamaica and Brazil, organisations of milk farmers and milk processors have been protesting in recent months against cheap dairy imports, most of which are from the EU. Brussels provides annually some 1.75 billion Euros in export subsidies to European dairy exporters, helping them to maintain their nearly 50% share of the world market. Jamaica has a well-established dairy sector, but as a result of import liberalisation local products are now being replaced by cheaper foreign imports. Jamaican farmers are reported to be dumping the fresh milk from their full coolers in the ditch, while EU products, subsidised to the tune of 1 Euro per kilo of whole milk powder, are taking over their market. On the huge Brazilian market, fierce competition between local products, products from neighbouring Mercosur countries and the subsidised imports from the EU is driving down profitability for the hundred thousands of Brazilians involved in milk production. The EU exports some 225 million kilos of milk equivalents to Brazil; using more than 30 million Euro in export subsidies annually.

There are indications that efforts in several African countries to set up a dairy industry with the support of development co- operation funds are actually undermined by the abundant supply of subsidised EU milk products. In Tanzania, projects like the Tanga Dairy Development Programme supported by Dutch Development Co- operation for over 20 years, have only made very slow progress in marketing locally produced milk products to the urban consumer in Dar Es Salaam. There are several constraints, but clearly the availability of low-priced powdered milk products from the EU (including the Netherlands) and from Switzerland (donated as food aid) is a main factor. While Dutch Development Co-operation invests some 200,000 Euro per year in the Tanga scheme, Brussels provides 600,000 Euro as export subsidies on European dairy products to Tanzania. Is that a coherent European policy?

Subsidised EU beef exports disrupted regional cattle trade in West Africa at the beginning of the nineties, undermining the livelihoods of hundred thousands of cattle farmers in the Sahel. However in 1993-94, subsidies to the region were reduced after NGO protests in Europe, including a campaign led by Eurostep. This coincided with a sharp devaluation of the CFA and EU exports to West Africa dropped significantly. But then EU dumping of the same beef products appeared to be shifting towards South Africa, that had just opened its post-apartheid borders. Not only South- African farmers, but also cattle farmers in neighbouring countries -- Namibia in particular -- suffered from the increased imports. The government of South Africa and farmers' organisations of both countries protested in Brussels. Again EU beef export subsidies were reduced in 1997-1998 and EU-beef exports to South Africa now seem to be back to more normal levels. But with the rouble crisis in Russia and the reduced EU beef consumption in the wake of the mad cow disease, EU-beef stocks have increased to nearly half a million tonnes. Part of it is now donated to Russia as 'food aid'. Where will the rest be dumped this time, one wonders?

As a result of drastic import liberalisation, farmers in Eastern and Central Europe seem to be facing similar problems with subsidised EU-exports as farmers in many developing countries. Last year farmers in Poland were out on the streets to protest against low prices and cheap imports, in particular from the EU. Poland, the Czech Republic and Hungary were flooded in 1998 by surplus pig meat from the EU. In order to restore internal prices and to get rid of surpluses, the European Commission had increased export refunds on Central Europe to 400 Euro per tonne (almost 50% of the value). Yet this was at a time when these countries had practically lost their own traditional export market for pig meat in Russia, due to the rouble crisis. Only after strong protest from the Czech government did the Commission agree in November 1998 to again reduce export refunds to Central Europe. But in order to 'help' Russia in its economic crisis, export subsidies on pig meat to Russia were drastically increased. This can hardly be called consistent with the EU SAPARD program, which aims to prepare the Central and Eastern European countries for accession to the EU.

While the European fruit and vegetable canning industry continues to benefit from huge processing and export subsidies, South Africa has cancelled its export subsidies system when it liberalised trade after apartheid. Because of this change and stiff competition with the EU on third markets, one of the Langeberg canning factories in South Africa was closed down in 1997. Some 400 permanent and 2000 seasonal workers, mostly women, lost their job.

In this dossier Eurostep argues that the forthcoming Agenda 2000 reforms will only marginally reduce these detrimental side effects of the CAP. Despite a gradual shift from guaranteed prices to direct income support to farmers, export subsidies and processing subsidies will remain abundantly available to back up the marketing of EU products outside the Union. Production quotas for milk (already in large supply!) are to be increased. Products like tomato concentrate, sugar and canned fruits are not covered by the reforms. The continued high level of overall support guarantees EU agriculture a leading position on the world market. Eurostep sees the disruptive side effects of the CAP as blatant cases of the lack of coherence in EU policies towards developing countries.

In article 130 of the Amsterdam Treaty and in article C of the Union Treaty, the EU has explicitly committed itself to ensuring policy coherence between its development co-operation efforts and other policies, which are likely to affect developing countries. The EU Development Council has for years asked for action by the Commission, but apart from one or two occasional interventions, (as around beef dumping in West Africa), little was done.

In June 1997 the Development Council adopted a resolution, specifying key issues and suggesting practical procedures to improve policy coherence. "Ensuring that agricultural exports and food aid in kind do not damage the production capacity and marketing of developing countries" was identified as a key issue by the Council.

Almost two years later, however, the Development Council is still waiting for the first progress report of the Commission on how they are implementing these and other long standing issues. Even the reform proposals of Agenda 2000 have not been assessed in view of their effects on developing countries' agriculture. Nevertheless, coming WTO negotiations make an assessment of CAP and Agenda 2000 more and more urgent.

In conclusion, Eurostep calls on the European Council and the new European Commission to start acting on these issues now.

There should be immediate action to ensure that the CAP no longer damages the production capacity and marketing of developing countries, including the countries in transition in Eastern and Central Europe:

* The Commission should make an overall coherence impact assessment of the current CAP-regime and the forthcoming Agenda 2000 reforms. Such assessment should lead to clear recommendations on how to fine-tune and change current proposals in order to minimise their negative impact on agriculture in developing countries, and provide a basis for the EU's WTO negotiation mandate.

* Phasing out export subsidies to countries who are developing their own production capacity and limiting processing support to production levels covering internal EU consumption, should be a policy priority.

* A special joint Council meeting of Development Co-operation and Agriculture should be held to discuss the outcome of the impact assessment and propose appropriate decisions, also in view of the forthcoming WTO negotiations.

* The Commission should set up a surveillance and monitoring mechanism for all exports of CAP-products that are likely to affect production in developing countries. Immediate investigations and consultations (with governments, private sector and civil society organisations) should start on the cases concerning processed tomatoes, dairy and meat mentioned above. In implementation of the June 1997 Coherence Resolution on the broader issues of Coherence of EU policies, the Commission should:

* produce regular, yearly, progress reports, covering at a minimum issues like Agriculture, Fisheries, Migration and Conflict Prevention & Arms Trade;

* make impact assessments on all relevant new legislation; and

* investigate the use of joint monitoring procedures with developing countries for prompt identification of possible incoherence.

Addressing cases of policy incoherence may need the organisation of joint Councils and Expert Meetings.

For this, the Commission should create within it the capacity and the competence to systematically address policy coherence issues; and set up a special Coherence Office, headed by an Ombudsman.

The Ombudsman should have the task of (i) investigating complaints from governments and civil society organisations concerning adverse impact of EU policies in developing countries; (ii) advising the Council and the Commission on actions to be taken to address issues of incoherence; (iii) make coherence impact assessments of new legislative proposals; (iv) prepare and present annual reports on progress in addressing issues of incoherence. (SUNS4445)

(*EUROSTEP is a coalition of development NGOs of Europe. The above is extracted from a summary of conclusions and recommendations in the dossier issued by EUROSTEP)