The Political Economy Of Agricultural Trade And Policy

Toward A New Order For Europe And North America

Hans J Michelmann, Jack C Stabler, Gary Storey

• Publisher: CRC Press
• Year: 2019
• ISBN:
  9781000304428
• Edition: 1
• Topic: Biological Sciences
• Subtopic: Biology
• Index: Biological Sciences

This book presents a descriptive analysis of the political economy of the European Community, the U.S. and Canada. It describes the structural changes and the crises in agriculture and focuses on impact of GATT on agricultural policy and trade in the post-Second World War era.

Section One
The Political Economy of Agriculture

1
The Political Economy of Agriculture in the European Community

Michael Tracy

This chapter discusses the development of agricultural policy “with particular focus on the political and economic forces which have given rise to current agricultural and trade policy positions,” and explores “the forces which will determine future policy choice.”

In the case of the European Community (EC), this task is not easy. In any country, agricultural policy results from a complex interaction between numerous forces: one might say broadly that politicians take decisions in the light of their assessment of the likely reactions of farmers and other interest groups, and subject to a variety of constraints. An examination of the European Community also has to take account of the different interests of twelve member states, in whose economies agriculture plays widely differing roles, and in some of which, moreover, there are wide regional differences.

This chapter deals first with the most important national attitudes and explains how they influenced the formation and development of the Common Agricultural Policy (CAP); it then discusses the recent reforms, and tries to explain the background to the EC proposals in the context of the Uruguay Round.

National Interests and the Evolution of the CAP

The Founding Members

It should never be forgotten that the prime motive for the formation of the EEC was political: in less than a century, France and Germany had fought each other three times, twice in the context of European-wide and ultimately world-wide wars. Already in the 1950s, the European Coal and Steel Community had bound together these key industries of the six original member states, and above all those of France and Germany. The European Economic Community was seen as a further vital step along this path.

Agriculture, however, presented a problem. Each of the Six already protected its farmers, but to varying degrees and in varying ways. But agriculture could not be left out of the “common market.” French agriculture, in particular, was already producing surpluses for which outlets had to be found; and in the expansion of agricultural exports, France saw a valuable source of foreign exchange. Moreover, France feared German competition in the industrial sector, advantages in agriculture were the necessary quid pro quo, and for France this meant including agriculture in the common market. But the powerful French farm organizations were not prepared to give up the protection and support that French agriculture had enjoyed for many years; so protection against imports from third countries had to be maintained, and common market organizations had to replace national ones.

The German Federal Republic, with a strong political and economic interest in the creation of the EEC, was ultimately prepared to concede the essential French demands. It too, however, had its farmers to worry about; although Germany was highly industrialized, and the agricultural population was relatively small, farmers’ political strength was considerable. This was largely because of the close links between the main farm organization, the Bauernverband, and the ruling Christian Democratic party (CDU). So for Germany, too, continued support and protection was essential; moreover, the common price level could not be too much below the existing national level.

The Netherlands, like France, had a strong interest in access to the German market for its agricultural exports. As a highly competitive producer, the Netherlands might have preferred a relatively low price level. However, in the Netherlands, too, agricultural markets were quite extensively organized, and the Netherlands was prepared to acquiesce in setting up interventionist common market organizations.

In Belgium and Luxembourg, farmers were accustomed to high levels of support. In both countries, in spite of a high level of industrialization, farmers remained powerful. In Belgium this was—and remains—due to close links between the Boerenbond and the Flemish Christian Democratic party (CVP).

For Italy, an agricultural common market offered the prospect of improved outlets for its exports of agricultural produce. But due to political and economic weakness, Italy exerted relatively little influence on the early development of common market organizations.¹

So the CAP was not created in a vacuum, but was an amalgam of existing national measures. The system of variable levies on imports from third countries, together with intervention boards to maintain a steady price level within the EC, owed most to the German Einfuhr- und Vorratsstellen. The system of export “refunds” was thrown in almost for good measure; at the time, with the Community of Six still a net food importer, this was not seen as a major issue. The common price level was fixed, after much argument, somewhat nearer the high German level than the lower Dutch or French ones.

For France, a key element was to ensure that the financial responsibility for market support would lie with the EC; this aim, too, was realized with the first regulations, adopted in January 1962. The French were then able to claim that three essential “principles” had been accepted: the unity of the internal EC market, preference for EC suppliers over third countries, and financial solidarity among the member states for agricultural support. Further, the ultimate success in reconciling such different national positions enabled the CAP to be described as a “pillar” of the European Economic Community. Invocation of the principles and of the pillar concept became part of the rhetoric of the CAP, subsequently to be invoked whenever the CAP was challenged.²

For a long time, the French remained quite fiercely attached to the CAP, resisting pressures for change from every quarter. Even the word “reform” was taboo for some considerable time, and without the French, not much could be done about the CAP. In annual price reviews during the 1970s, the French minister of agriculture was usually among those pressing for price increases. This may have been a mistake; French interests might in the long term have been better served by keeping down the price level in order to force out German producers, but almost all the militant French farm organizations continued to demand price increases at every opportunity.

For some time the British were inclined to hold the French responsible for the protectionist aspects of the CAP; “inefficient French peasants” were supposed to be at the root of the problem. But this was only partly true. A perceptive article in The Economist of November 5, 1977, made the point: “Critics of the EEC’s common agricultural policy normally blame the French for its wilder absurdities. But they are wrong. The real blame lies with the Germans.” Reference was made above to the paradoxically strong position of farmers in the Federal Republic, due initially to the link between the Bauernverband and the CDU. Later, when Socialists (SPD) and Liberals (FDP) formed a coalition, the very farm-oriented FDP minister of agriculture, Josef Erti, was usually able to get his own way because his party was essential to the coalition. His successor, Ignaz Kiechle, another Bavarian farmer, was also in a strong position, representing the minority Bavarian wing (CSU) in a CDU-led government. Although by the 1980s the farm population in the Federal Republic was down to about 5 percent of the total, politicians still considered it significant enough to sway the voting outcome in a numb«־ of marginal constituencies.³

A word must be said at this stage about the “agri-monetary” problem. This is impossible to explain in a few sentences, and is mainly an internal EC issue. However, it is necessary to point out the implications for Germany, as a result of the successive revaluations of the mark. Under CAP rules, common agricultural prices in European currency units (ECU) should then have been translated into reduced prices in marks for Goman farmers. The so-called “green rates” and “monetary compensatory amounts” (MCAs, and other devices too complicated to mention here) have served to avoid or mitigate this effect, but at the cost of constant friction. At every price review since the early 1970s, the French and others have attacked Germany on this issue, with limited success. The MCAs, moreover, require controls at the EC internal frontiers that are inconsistent with common market principles and in particular with the 1992 single-market aim, a problem that at the time of writing remains unresolved.

The British Problem

The United Kingdom (UK), having opted out of the preparatory talks on the EEC, was in no position to influence the negotiations among the six on the establishment of the CAP; and when the British Conservative government under Ted Heath finally took Britain into the EEC in 1973, it had to accept the CAP as it then stood, with only minor concessions and temporary derogations. This meant abandoning the “deficiency-payments” system, and accepting the import-levy system in place of virtually free food imports, with a consequent rise in consumer prices; it also meant accepting “Community preference” in place of “Commonwealth preference.”

This absorption of the large British market into the protective EC market had dramatic implications for agricultural trade—for Commonwealth countries (grain from Canada and Australia, dairy products from New Zealand) and for other world exporters (the U.S., and perhaps, above all, Argentina and Uruguay for beef). The UK did obtain a concession on New Zealand butter, and has contrived to maintain this—though for much reduced quantities—to the present day. It is arguable, however, that the bargaining power periodically exercised in pushing through this concession restricted the UK’s ability to gain other negotiating points.

With the growing budgetary cost of the CAP—which will be discussed shortly—the major UK concern became its high net contribution to the EC budget. Because the UK is still a major food importer, it has more import levies to pay into the EC budget than anyone else, while the relatively small size of its farm sector limits the financial benefits it can draw back from the farm fund or FEOGA (much the bigges...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• List of Tables
• List of Figures
• Preface
• About the Authors
• Introduction
• Section One: The Political Economy of Agriculture
• Section Two: The International Agricultural and Trading Environment
• Section Three: Prospects for a New World Agricultural Order
• Section Four: Conclusion