Farm subsidies in Europe to be redirected

EU Redirects Farm Aid to Businesses as Prices Fall - WSJ.com

BRUSSELS -- The European Union will double the portion of farm subsidies it steers away from farms to other rural businesses, after France abandoned a fight to boost the subsidies rewarding farms for producing more.


European tobacco growers set a pile of tobacco leaves on fire outside EU headquarters in Brussels Wednesday, protesting the talks that would result in cuts to the subsidies they receive.

With world food prices rising recently, France had argued that increasing production -- with the help of government aid -- would be a boon that would help alleviate price pressures. But the move also would have reversed a decade of efforts to cut Europe's state-subsidized agricultural output, which has hampered the agricultural development of poorer nations elsewhere.

On Thursday, with food prices collapsing, Paris abandoned the fight. "The political and economic contexts have changed since June," says Pierre Sellal, France's ambassador to the EU. Wheat prices have fallen to less than $6 a bushel on the Chicago Board of Trade, down from a peak of more than $12 a bushel.

With France's agreement, the EU will go in the other direction and double the portion of the bloc's $75 billion-a-year farm subsidies that it steers to nonfarm rural businesses, to 10% by 2013 from 5% this year. The EU also will increase paying farmers their subsidies as lump sums regardless of what or how much they grow. France also conceded defeat in agreeing to phase out direct aid for tobacco farmers by 2010.

Still, France prevented any cuts to the EU's overall farm budget until at least 2013. It also watered down the proposal shifting funds to rural development, allowing France to keep up direct payments to sheep and goat farmers, and to buy up to three million tons of wheat for bread per year from French growers.
The Food Crisis


France effectively designed the EU's farm-subsidy program in the era of post-World War II food shortages, aiming to guarantee food security and a livelihood for millions of farmers. The EU gave farmers a set amount per ton of crops produced, leading to huge surpluses. Under pressure from the World Trade Organization and from developing nations -- where the EU sold its surplus foods cheap, undercutting local farmers -- the EU cut back subsidies linked to production over the past decade to 12%, down from almost 100% in 2000. Meanwhile, 5% now goes to rural development, meaning rural businesses such as golf courses, farmers' market shops or riding clubs.

Some countries including the U.K. were unhappy with Thursday's compromise, arguing that overall EU farm subsidies -- about 40% of the EU's budget -- still need to be cut. The U.K. earns $7 billion per year in EU farm subsidies, half what France gets.

Write to John W. Miller at john.miller@dowjones.com

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