Australia, EU and the CAP
Australia has always shown a great interest in European Union (EU) and in its policies and affairs. Among those, and like many members of the WTO, special interest has been given to the European common agricultural policy (CAP). Agriculture is one of the main areas of cooperation between the two blocks, being the EU Australia’s main trading partner and Australian exports to the EU mainly of agricultural products.
After going through very significant structural and macroeconomic reforms since the 1980s, aimed at reducing or removing distortions to competition in order to improve the functioning and flexibility of markets, Australia has seen its productivity and improved competitiveness rising in world markets, becoming a world-class exporter.
On the EU side, in 2003, there was a significant reform of the CAP by decoupling farm production from the EU payments to farmers and by introducing a single farm payment system. Following this reform, the 2005 reform of the CAP aimed at increasing the competitiveness of the agricultural sector and enhancing the environment and quality of life in the countryside.
Australia welcomes these and previous reforms of the CAP. Nevertheless, we believe that they do not address what Australia sees as the fundamental problem of the CAP – it does not adequately expose EU agriculture to international market forces.
Consequently, we would encourage a substantial reduction in the size of payments to manage the market. In fact, despite the decoupling, current payments still distort production through risk-free access to capital and constrain farming enterprises to certain agricultural activities. Moreover, the production-linked subsidies still existing can encourage inappropriate farming practices, such as the over-application of fertilizers. And although subsidies and tariffs result in short-term gains to some farmers, they result in long-term declines in productivity when compared with countries that have adopted a market based approach. Finally, they also mean additional costs to consumers, as they result in higher food prices and are responsible for the increase of the cost of inputs to processors, making them less competitive and forcing them to pass these higher costs onto consumers. Further decoupling is therefore needed.
We would also encourage any move to fund genuine capacity building, structural adjustment and sustainable rural development objectives.
In a global trade perspective, CAP reforms do not address the issue of high tariffs and restrictive quotas which impede imports of agricultural products to the EU. Despite being the largest importer of food, much of Europe’s imports are on the basis of highly discriminatory preferential trade arrangements that exclude many developing (and developed) country exporters that can lay equal claim to meeting the needs of European consumers. Preferential trade access is not always positive and it can often increase dependency on a narrow range of markets, and lessen the capacity of these countries to adapt to changes in EU policy or market settings. Australia offers duty-free, quota-free access for all products for all LDC’s, unlike the EU’s partial access of the “Everything but Arms” package which still excludes sensitive products such as sugar, rice and bananas.
Reforms that, over time, end the current production and trade distorting effects of the CAP will work to ensure the long-term competitiveness and sustainability of EU agriculture. EU money devoted to subsidies could instead be used to help farmers adjusting to a more market oriented system and to fund investment in measures to enhance EU’s productivity, such as research and development.
There is strong evidence that agricultural trade reform can help deliver a more productive, outward looking economy with higher incomes and better job opportunities, more appropriated use of resources, lower prices and better quality choices. Indeed, Australia’s experience has been that, although the transition period is difficult, reform has made our farms stronger, more financially viable, more environmentally sustainable and more export oriented. Reforms are urgently needed if the EU is to continue to compete against leading developing country exporters.
Both Australia’s Government and industry would be happy to assist in demonstrating and sharing our experiences of agricultural reform.
Luke Williams, Australian Ambassador to Portugal
The above article was published on 14 September 2007, in the Portuguese Newspaper, “Diario Economico”.