Money for services - the real nature of agricultural subsidies

Source: Jochen Schiebler

Citizens are now given comprehensive information about the allocation of EU budgetary resources. Knowing where this money flows to raises the question of why it flows there. This is the very discussion that has been stirred up by the publication of recipients of EU agricultural payments in Germany.

At the centre of public criticism are export refunds, so-called export subsidies for large food enterprises. These refunds benefit first and foremost, albeit indirectly, domestic farmers rather than the enterprises which export the products. That is because refunds cover part of the difference between higher prices on the internal market and lower prices on the world market. Enterprises need these subsidies to purchase primary products from our agricultural sector which are more expensive on the internal market. And yet, export subsidy expenditures are steadily declining at European level. Over the past 20 years, their volume has dropped to less than 10 percent of previous levels.

Removing trade-distorting export subsidies

At the same time, it must be ensured that no subsidies are granted for exports to particularly vulnerable, less developed countries. I have therefore called upon the European Commission several times to guarantee this. In order to minimise the repercussions of subsidies for third countries, negotiations within the World Trade Organization are aiming to remove all trade-distorting export subsidies by the end of 2013.

Last year, export subsidies made up less than two percent of total EU agricultural spending. Thus, direct payments are much more important for farmers. The initial purpose of these payments was to compensate for the removal of the market price support that was formerly laid down in Community law. The larger the enterprises, the higher were the incurred income losses. It is therefore necessary that larger enterprises also receive higher amounts of direct payments as compensation. Furthermore, we are now using the instrument of modulation: direct payments to larger enterprises are reduced and the money saved in this way is used on targeted measures designed to develop and strengthen rural areas.

What do we expect from agriculture?

At the end of the day, we, that is, both politics and society at large, must ask ourselves what we really want from agriculture? Do we want to ensure large-scale and sustainable land management? And what quality should it be? Are consumers ready to ultimately pay more for this quality? How important are requirements regarding environmental, nature, animal and consumer protection to us? My position is clear: this is what I want. As a consequence, we must also recognise that high-quality, sustainable agricultural production in Germany and Europe comes at a certain price. This will be met less and less through direct market control but rather by remunerating services provided by agriculture for the benefit of the general public. Thus, agricultural subsidies are by no means presents handed out to farmers, but rather a way of remunerating them for services demanded by society.

I will therefore strive to keep direct payments as area-based basic remuneration beyond 2013 as well, in combination with compensatory allowances for less-favoured areas. The same also applies for rural development measures. This overall concept is perfectly in tune with further, equitable liberalisation of agricultural trade within the framework of the World Trade Organization. One of the key priorities of the negotiations on the future of direct payments, which are to start in Brussels next year, will be the issue of further improving social acceptability of direct payments.

I would therefore like these topics to be at the centre of the discussions surrounding the publication of EU agricultural payments and the future of the Common Agricultural Policy. For the largest part of agricultural expenditures by far is used for the diverse services provided by farmers which benefit all citizens, and this will remain the case in the future.