• 2001-11-08
As Lithuanian politicians debate yet again whether or not to allow foreigners to purchase agricultural property, this brings to the forefront a related issue: the European Union's Common Agricultural Policy (CAP) and its effect on those who wish to join its ranks.

The agricultural lobby in the EU has grown stronger and stronger thanks to increased subsidies. Agriculture is an immense lobbying machine in the EU. Its strength can be seen in terms of the budgetary support for agriculture: from 2 billion euros ($1.82 billion) in 1970, to 11.6 billion euros in 1980, to 31.6 billion euros in 1990. In 1995, 46.8 percent of the EU's total budget was devoted to CAP.

Central and Eastern European nations with large agricultural sectors, such as Poland and Lithuania, look on green with envy.

The incredible level of support through subsidies and the complexity of the CAP have created a system of farming not unlike central planning in the Soviet system. Distorted prices, huge handouts and managed foreign trade dominate. CAP has allowed farming to become wasteful. High subsidies encourage farmers to produce more than the EU can even use. Mountains of food end up going to waste.

Agriculture isn't just a problem for the EU. The Baltic countries adopted from the Soviet Union a sorely neglected rural society, characterized by a low level of investment, low productivity and poor infrastructure. What to do?

Some of the Baltic states' neighbors have adopted CAP-like subsidies, such as the Visegrad countries. All EU aspirants have, to some extent, been waiting to see how the union reforms CAP, holding out to see if one day they too will be eligible for subsidies.

It's not likely. In Agenda 2000, the EU has already begun to lower its intervention prices for certain products. It also set ceilings for how much farmers who receive subsidies are allowed to produce. Essentially, it's paying them not to farm.

The best policy for pre-accession countries would be to maintain a low level of support for agriculture. High subsidies are popular with farmers, but they only hinder the rate of change in an already backward segment of the economy.

Agriculture will struggle to become more efficient, to compete on world markets. The domestic food industry will be able to maintain competitive prices for raw materials, which will attract foreign direct investment. Such an open policy would also prepare them for whatever type of CAP is in place at the time of EU membership.

Of course, farmers need to be supported in some ways. This should be done through non-price assistance: maintaining roads, assisting rural development, helping rural communities engage in value-added activities, providing training to those who want to get out of farming. It's these measures that need to be funded by national governments and also by structural assistance from the EU.

Oh, and a suggestion to Lithuania: let the foreigners in.