Thursday, June 23, 2005

CAP and Fair Trade

At last, from David Vance's underground lair, a point I almost completely agree with! In his usual calm and carefully-toned style, David points to the results of CAP pricing mechanisms in terms of its impact on farmers in developing countries:
If the EU markets were opened up to the likes of African farmers, everyone would prosper. Africa would enjoy the cashflows of new trade and new markers, the tax-payers of Europe would enjoy the benefits of NOT paying CAP (which constitutes almost HALF the entire European budget) and lazy inefficient farmers in the UK, France and elsewhere in Euroland would be shocked into finding better things to do with their time than bank sweeter than sweet subsidy cheques.
By way of response,1 one of the most striking facts thrown at us during my economics degree was that, if the CAP was abolished, world food prices would rise by 10%, solely because of the dumping practices of the EU. At the very least this practice must be reformed.

That said, the manner in which trade is to be opened up should be addressed very carefully. Ironically, although the CAP is inefficient in public policy terms (i.e. that we Europeans produce far more food than we need), it has created massive efficiencies in the farming sector, contrary to what David says above. Given that, until recently, the more you produced the more you got, there has been a huge incentive since the foundation of the Union for farmers to produce huge amounts very cheaply, which they have certainly done. Of course, this hasn't led to low prices for the consumer, because we have dumped the surplus rather than exposing the farming industry to price competition.

The problem now is that, if completely fair trade was imposed, farming industries in developing countries would be decimated in the face of European and American (who have a roughly similar system) economies of scale. I say, let them protect their sectors (in terms of tarriffs and in terms of restrictions on land-ownership) on a diminishing scale over, say, 25 years, and expose our sectors to the competition. There'd be perverse spin-offs from such a system as well, but I doubt they'd be as perverse as the current dispensation.

1 You may have noticed that I've been a wee bit cheeky and lifted the comment I left on ATW verbatim (too lazy to write it again, ya know...). Indolence reigns!

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