Leiden, a.d. VII Kal. Sep. MDCCLXVIII A.U.C.,
Yesterday farmers protested in Brussels to ask the European Union to give them more money, after protests in France had proven to be successful in obtaining more government support. And indeed, the European Union indeed pledged to spend some €500 million to help dairy farmers. I guess this is the right moment to discuss Europe’s €58.000.000.000 agricultural program, the Common Agricultural Policy (CAP), paid for mainly by Northern European citizens. CAP was started in 1962 as a reaction to the food shortages caused by the Second World War, and formed one of the main pillars of the nascent European project. During Cold War food security was certainly under threat, and subsidizing farmers thus made sense from a security perspective, if not from an economic perspective. After the fall of the wall, expenditure on CAP as percentage of the EU budget indeed diminished, from 75% in the 1980’s to 40% right now. However, CAP does not still exist because it is such a great policy, it still exists because farmers threaten to become violent and to disrupt society every time policy changes are proposed. It is time that European citizens no longer accept being blackmailed by farmers.
According to the EU there are a few arguments in favour of CAP, it provides food security, it support farmers on low incomes, it protects the traditional rural way of living and lastly it is supposed to support farmers in maintaining Europe’s landscape. Every argument is fundamentally flawed. Firstly, we can import food from all over the world, the world is no longer divided in two opposing ideological camps, so our food supply is safe. Secondly, it is true that farmers earn far less than the average European citizen. That is exactly a reason to not subsidize them, the fact that they earn so little is a sign that they should stop farming, and should start doing something else. Thirdly, why do we need to maintain the rural way of life? Do we need to do that for the people living there, because no one is prohibiting people from living there. But I do not want to have to pay for their personal desires, just like I do no ask them to pay to sustain my urban way of life. If we pay to maintain the rural way of life for the European consumer, the consumer can simply go on holiday and pay entrepreneurs to give them the rural experience. Cutting down subsidies will not lead to the complete collapse of traditional farming, if farmers realize they can make money from tourism. If, however, tourists are not interested in traditional farming, then I do not see a role for the government in sustaining something consumers do not want. Lastly, it is nonsense that landscapes need maintenance, nature has been able to maintain itself for billions of years before humans came around. If anything, farmers ruin Europe’s landscapes, by pollution and by reducing habitat size and species diversity. If anything farmers should pay us, as citizens, for the externalities they cause, or the government should directly interfere in the market, to make sure externalities are prevented or internalized in prices consumers pay. Paying those who disrupt ecosystems to stop doing so is exactly the opposite of what should be done to prevent ecological problems.
Meanwhile, there are plenty of arguments to be made against CAP, all based on the fact that it interferes in markets and thus gives the wrong incentives to farmers. A lot of European farmers should not be producing at all, we should rather be importing from cheaper farmers outside of the EU (more on that in a future post). Currently there is overproduction, and prices are so low right now because farmers produce way too much. That is not a reason to give them even more money, thus perpetuating the problem, it is a reason to let the least efficient farms go bankrupt. The remaining farmers should be investing in capital, thus becoming more efficient. CAP is exactly doing the opposite, by subsidizing small and inefficient farms. Case in point, France receives by far the most subsidies, yet is also known for its small inefficient farms. Right now, production is partly guided by how the subsidies are handed out. Even though subsidies are no longer given based on production, it should not be a surprise that a milk farmer is going to produce milk if his farm is subsidized and thus unnecessarily prolonged in its existence. Lastly, farming puts pressure on ecosystems, so less farming in Europe would allow European ecosystems to develop once more. A greener Europe is achievable if we have less farm lands. In other words, CAP distorts the price mechanism, thus leading to a difference between supply and demand. It prevents modernization by subsidizing small and inefficient farms.
So why is this wasteful policy still around? That mainly has to do with the violent measures farmers have resorted to every time people have tried to change CAP. The current protests are a result of a change in policy in April and the boycotts put in place by Putin. Until recently there were milk quota, which prevented farmers from producing too much milk, which they have an incentive to do, because they are subsidized. As part of the reforms of CAP, these quota have been lifted, and lo and behold, milk prices have slumped as milk started to be overproduced very rapidly. Unsurprisingly, farmers now feel that they have a right to take taxpayer’s money to keep their businesses afloat. However, the fact that the milk price is so low reflects the fact that consumers, or we as European taxpayers, do not want their milk. Ironically, the leader of the Belgian dairy association, Mr. Schöpges, has threatened to drain the milk, which somehow would be a problem to us. It is actually the only solution, it would lower supply, and thus the price would go up. By all means, drain that milk, Mr. Schöpges, it is your property and consumers do not want it.
As European citizens, we should really ask ourselves, should we keep succumbing to the blackmail of inefficient farmers, or should we just let the market do its job, and let those companies go bankrupt? To me the answer is very clear, I do not want to have to pay for products I do not want. Unemployment benefits are available and, together with reintegration tracks, are the solution to making sure that bankrupted farmers are treated just like any other person who lost his job. It is an inherent part of capitalism, and indeed it is a painful part of capitalism, but it is also why capitalism works: rather than subsidizing inefficiencies, it rewards the successful. It is time we start applying the principles that guide economic policy in almost all our sectors to the agricultural sector.
Bottom Line: Subsidizing farms is just as inefficient as subsidizing most other producers. The only reason CAP still exists is because farmers threaten to use violence and to disrupt society on a large scale every time someone politely asks them whether they could stop wasting other people’s money. It is about time European citizens refuse to be blackmailed any longer.