Death by food support

2005 is in danger of becoming the year when Europe lost its nerve. But, after the debacle over the EU constitution, and with the WTO talks in danger of collapsing, now is the time to regain momentum.

European Union members last week again lambasted their current president, the UK, for refusing to give up its rebate from the EU budget unless others, mainly France, agreed to greater reforms of the Common Agricultural Policy (CAP).

Britain is on rocky ground, but has at least got it right on the need for more research spending.

The EU this year blew more than 40 per cent of its budget on the CAP. That means €49bn in agricultural aid, compared to just €4bn on research. The bloc even managed to fork out €6bn on administrative tasks.

Moreover, a deal to implement CAP reform in 2003 locked agriculture spending at the same level until 2013, albeit spread over at least 10 new members.

The CAP, in short, has increasingly defined Europe's defensive posture, to the detriment of both competition and innovation.

The wine sector is just one example of this, with the European Commission setting aside crisis distillation funds to get rid of excess wine in all but two years since 1982. This year the crisis budget was €145m, on top of the annual €200m regularly put aside for distillation.

Meanwhile, the Commission proudly announced it would spend €61m on five big food research projects to sharpen Europe's competitive edge in food and drink, specifically including wine.

No one seems bothered that this whole package is less than 20 per cent of what the Commission forked out to prop up uncompetitive areas of the wine sector in the first place.

A heavy reliance on support payments has also created an artificial market that has distorted prices throughout the EU bloc.

The OECD said European consumers collectively paid an extra €55bn for food and drink in 2003 because agricultural support had inflated prices.

The current EU sugar regime is perhaps the best example, decreed illegal by the World Trade Organisation for maintaining prices at three times the world level.

The EU spends more than €1bn every year to keep this system in place. Ministers agreed to reforms on Thursday, although late compromises mean the sugar price cut will be lower, at 36 per cent not 39, and will be spread over four years instead of two.

A number of food firms, including sugar processors and big dairies like Arla Foods and Campina, have said subsidy cuts for commodities, as part of CAP reform, are pressuring their profit margins.

This, unfortunately, is only because the EU has allowed them to live under false pretences for too long.

The impression given to the world is that the EU, one of the most powerful economic blocs, is scared of competition.

The world's view of Europe is changing as a result.

The bloc appears backward and entrenched. It has already bungled a new constitution and its own budget as well as having taken the wrap for a meltdown on World Trade Organisation talks; and all before Christmas.

The point is, we must all face periods of transition and the EU members must face one now. The world will not stop and no one is getting off.

Europe could begin by resuscitating its own Lisbon agenda. The policy was devised in 2000 to stimulate sustainable growth and jobs, but a lack of action has long since soured the bravado and promises.

A mid-term review this year pronounced the strategy dead-in-the-water, despite the new Commission's efforts to save it. Yet, Lisbon could be the engine the EU needs. What if the bloc invested in this pro-active strategy instead of subsidies?

One wine industry researcher in Chile said recently that Europe has heritage and the New World has R&D.

It is not just wine, however. The European Commission's director-general for research said this year that increasing competition from the US, China and India meant the EU needed to spend more time and money developing products to meet consumers' needs.

The Commission said itself that only around one per cent of the food industry's turnover was put into R&D.

The CAP, meanwhile, continues to suck money into the wrong pot.

It would be politically untenable and not very clever to 'scrap the CAP', as some critics have suggested, but more of its funds should go towards pro-active policies that, at the least, inspire investment.

This is the only way to develop the higher value products and marketing strategies that will enable Europe to compete more openly.

The alternative is a Europe caught in no-man's-land, uselessly attempting to hold back commodity products from developing countries with one hand, yet scrabbling for the coat-tails of its economic peers with the other.

Chris Mercer is editor on BeverageDaily.com and DairyReporter.com. He has also worked as a freelance writer and researcher for BBC radio and television and other media. Send any comments to puevf.zrepre@qrpvfvbaarjf.pbz​.​