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TRADE: France Conned EU’s Controversial Subsidies Scheme

Hilaire Avril

PARIS, Aug 21 2009 (IPS) - The European Commission is demanding that the French government pays back 500 million euros spent on aid to French farmers. The scheme is in breach of European competition law as it financed competition with France’s neighbours by providing vegetable and fruit producers with hefty subsidies for more than a decade.

Europe is the world's largest exporter of agricultural products, accounting for 519 billion dollars in 2007 alone, according to World Trade Organisation figures. That year, 15 billion dollars' worth of agricultural products was exported exclusively to Africa, a continent where agriculture provides for the livelihoods of most Africans.

France, with its ex-colonial ties to many African countries and a lion's share of European farm subsidies, is often decried for "dumping" crops in African markets which are unable to compete. Now it transpires that, besides the perennial global controversy, these subsidies did not even comply with the EU’s own rules.

Bruno Le Maire, France’s recently-appointed minister for agriculture, caused an uproar when he announced on Aug 3 that farmers would have to reimburse the subsidies granted from 1992 to 2002. Failure to comply might mean the French government would face an even heftier penalty from Brussels.

Faced with collapsing revenues despite years of assistance, French farmers are up in arms. Weighed down by some of Europe’s highest costs of labour, French fruits and vegetables struggle to compete with cheaper produce from Spain, Italy and other European Union member states.

Producers’ unions have categorically rejected all calls to refund any of the aid, pointing the finger at the consecutive governments which supported them.

Coordination Rurale, one the largest unions of producers who benefited from the scheme, has stated it is "out of the question for producers to be stuck with even part of a bill (which is the result of) inconsistency in French and European agricultural policies".

The ensuing blame game, avidly reported by the press, is a vivid illustration of the consternation that has afflicted French agricultural policy for decades. France is one of the main beneficiaries of European agricultural funds, netting close to 10 billion euros from Brussels every year.

The minister’s call to refund the aid before Brussels slaps France with a fine has also met with undisguised contempt from his peers and predecessors. Former agriculture minister Jean Glavany, who supported the system in his time, has frowned upon Le Maire’s declarations and publicly derided it as a "youthful mistake".

Strangely enough, most accusations end up on Brussels’ doorstep, as a French agricultural policy expert, who does not wish to be named, points out. "No one, in the press or otherwise, has bothered mentioning these are millions in taxpayer’s money," he deplores.

"Once again, farmers are posing as victims, the European Commission is portrayed as the villain, and the taxpayer is left holding the bill.

"The problem remains that our political class is not ready to face the fact that some agricultural sectors cannot compete with foreign products. This simple reality is not politically acceptable in France, and so we keep fire-fighting, instead of tackling the long-term structural problems," he adds.

This year has already qualified as an annus horribilis for the embattled ministry of agriculture, confronted with strikes and riots by struggling fishers in April and with mass protest by milk producers in June. There are concerns that other sectors benefited from similar schemes and may be next in the Commission’s crosshair.

Despite the vociferous protest, several documents show the government was aware that the scheme was in serious breach of European competition law by unduly favouring French producers over their European counterparts.

According to the European Commission, some trade associations also insisted that their members maintain "discretion" and refrain from publicising the million-Euro scheme, as was recorded in meeting minutes.

Under the scheme, public funds were channelled, ironically, to the body responsible for implementing European regulations and managing European credits for the French produce sector.

It then directed funds to "agricultural committees", which cluster farmers for each produce. The committees, although theoretically supervised by the ministry of agriculture, disbursed the sums largely as they saw fit.

The subsidies were aimed at lowering French produce prices (by paying farmers for the difference), in order for French produce prices to remain competitive despite some of the highest labour costs in Europe.

They also aimed at "correcting" oversupply: instead of flooding France’s markets with too many fruits and vegetables, causing prices to crash and farmers’ revenues to collapse, the subsidies compensated producers for destroying part of their crops.

Tipped off by an anonymous complaint, the Commission addressed a letter to the French government requesting explanations on these so-called "countryside plans" in July 2002. Assistance was discreetly terminated after the Commission’s request, and Europe’s statutes of limitation of ten years prevented the investigation from covering subsidies prior to 1992.

The Commission stated last January that the scheme was "not aimed at developing the economy of regions afflicted with abnormally low standards of living or exceptional unemployment." The subsidies therefore provided an unfair advantage to France’s produce farmers, distorting competition with their Europe colleagues.

But, as producers’ syndicates are fond of pointing out, should the illegal subsidies ever be reimbursed, their precise amount is very hard to establish. The ministry claims 330 million Euros were disbursed between 1992 and 2002, totalling 500 million with interests.

Although Le Maire claims this sum is grossly overestimated, Brussels has hinted the total may be closer to 700 million Euros as produce farmers have benefited from additional subsidies from their trade associations.

It may take years to settle the real figure. Given their dubious nature with regard to European law, many subsidies were never properly recorded. Some archives have been destroyed, some registries "misplaced". Many beneficiaries have since gone out of business or retired.

"Establishing who should reimburse what would be horrendously complex, and the system was precisely designed to make such restitutions near impossible," says the French agricultural policy expert.

"What’s more, with regional elections looming in a few months (March 2010), no reimbursement scheme will ever be forced upon such a sensitive constituency as produce farmers," he adds.

Revenues of the French produce sector were once again dropping in 2008 and farmers are demanding more assistance.

Coordination Rurale has released scarcely veiled threats to the government, claiming that "French agriculture, stricken with distress, expects its government to demonstrate support if we are to grant any credit to our political representatives. Otherwise, reactions to such contempt and lack of understanding will rapidly grow unpredictable and incontrollable in the countryside."

Predictably, the ministry of agriculture is now working on a new financial support plan for the sector.

"Direct assistance is now ruled out, but debts can be cancelled and producers’ taxes lowered," says the policy expert. "These are measures which are typically funded by raising more taxes," he adds.

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