• 2008-05-22

It is a matter of sheer bewilderment that agriculture comprises some 3 percent of the gross output of the European Union yet gobbles up 40 percent of its annual budget of approximately 110 billion euros. The 10 million full-time farmers from Ireland to Bulgaria devour almost half the common pool of funds designated to establish a semblance of economic harmony among 500 million residents. Among farmers, 20 percent receive 80 percent of the subsidies. Does the word inefficiency come to mind, anyone?

This week the European Commission proposed overhauling the current system 's the Common Agricultural Policy 's that has led to these stupefying imbalances. Along with energy, reforming CAP is the commission's most daunting task. With the money at stake, and the vested interests involved, Brussels is requiring nothing less than a miracle.

When it was created in the early 1960s, the CAP policy was no doubt necessary, and effective, for a disoriented, war-scarred Europe still coping with the challenge of feeding itself. As time passed, it created an insulated European food market that limits production and guarantees farmers a steady income regardless of harvest volumes or external demand. A half-century on, in a global economy, the CAP has become shamelessly protectionist and, as the past year has shown, actually abet the world food crisis. European consumers pay higher food prices than elsewhere in the world, even though they could produce more food than anywhere in the world (save for America).

Wisely, the commission isn't trying to overhaul the system. Rather, it wants to adjust the continent's agricultural system so that European farmers "are free to meet growing demand and respond quickly to what the market is telling them," in the words of Commissioner Mariann Fischer Boel. "I am not interested in a protectionist approach to the agricultural production in Europe 's a Fort Europe, if that is the idea. It might be beneficial in the short run, but extremely dangerous in the long term," she was quoted as saying. Her proposals, for instance, would abolish subsidies for the so-called "set-aside" 's letting land fallow to replenish the soil 's and phase out milk quotas by 2015.

In a nutshell, the package of proposals is broadly market-based, and therefore likely to fail. Indolent leftists and dysfunctional land barons in Germany and France, as well as prominent agricultural countries of the Mediterranean such as Greece and Spain, will prefer to soak up money in exchange for letting land lie fallow. As Orama, a French lobbying group, was quoted as saying, "Grain markets have entered an era of high volatility, so public storage and true security nets for farmers are more than ever necessary."

The Baltics, where the agricultural sector is characterized by an abundance of small farms, are more disgruntled about the payment system rather than the overall policy. Under the system, old member state farmers receive significantly more per hectare than their competitors/counterparts in new member states 's an arrangement that East European countries readily agreed to in 2002 for the sake of gaining membership. In the words of Latvia's Agriculture Minister Martins Roze, "It is important that these payments are based on… objective criteria. Even if it turns out to be impossible to increase payments for Latvia and other new member states…we consider that, in this case, payments to other member states must be adjusted appropriately 's that is, reduced to the level of new member states."

But with France and Germany beating the same drum, it will prove extraordinarily difficult to reform either the Single Payment System or the Common Agricultural Policy. And the Europe that not so long ago proclaimed an objective of becoming "the most dynamic and competitive knowledge-based economy in the world" will continue to flounder in a morass of ineffective economic policies.