From 1st January 2005, 10 EU member states introduced a fundamental reform of the Common Agricultural Policy (CAP).
CAP pays farmers to produce crops which were not economically viable for western producers, to protect them from the effect of cheaper third world and developing world producers. This system allowed the growth of the famous "butter mountain" (although this was not by any means the only product to be affected by CAP). A huge quantity of perfectly good food is stored and allowed to rot because allowing it on to the market would cause the price to plummet, hurting the producers (who could not compete with low labour costs in poorer countries). Meanwhile huge subsidies are paid to western farmers to make sure their profits remain high (and we foot the bill through tax and higher prices for basic items such as bread).
Oxfam note "The $1.6bn a year the EU gives to the sugar barons of East Anglia and the Paris Basin generates surpluses that deprive countries such as Thailand and Malawi of markets. Mozambique loses almost as much as a result of EU sugar policy as it gets in European aid."
The EU believes the reform will make farmers more competitive and market orientated while still allowing them to retain income stability. They also claim that more money will be available to farmers for environmental, quality or animal welfare programmes by reducing direct payments for bigger farms.
Mariann Fisher Boel, Commissioner for Agriculture and Rural Development cheerfully advises: "The CAP at the beginning of 2005 is nothing like its popular caricature. The reform will allow Europe´s farmers to become true entrepreneurs. Our rural areas will be offered a sustainable future, a chance to diversify and to contribute to making Europe more competitive. The reform will allow us to play to our strengths, producing world-renowned foods of the highest quality. And it sends out a strong signal to the world, boosting the chances of a successful outcome to world trade talks."
So, EU farmers will (in theory) produce what the market wants. But, fear not, they will not be subject to free market economics. The payments will not stop; they simply become independent of the volume of production. Farmers can continue to get subsidies of at least £230 a hectare until 2012 even if they produce nothing at all!
Some farmers could carry on producing uneconomic crops simply because they can't be bothered changing to a different crop. At the other extreme farmers could sell off all their land and keep the subsidies - or sell the subsidies and keep the land. The gravy train has not quite rolled to a halt.
However, this reform is a step in the right direction. The World Bank recently reported that abolishing the subsidies for US cotton farmers would increase revenues for cotton farmers in West and Central Africa by $250 million! Don´t hold your breath for reform in the US, Agri-business is highly profitable and their lobbyists are very wealthy.
The International Herald Tribune reported in December 2004 that while US farm income doubled in the previous two years, federal subsidies rose by almost 40 percent over the same period ($15.7 billion in 2004). Subsidies can be boosted by selling crops early at a high price, then claiming subsidies when the price falls later in the season. Even worse, you don´t actually have to sell crops to get a subsidy, just show that the price has fallen!
Habibullah Qaderi (Afghanistan's "Drugs Czar") has proposed subsidies to counter the cultivation of poppies. Since the removal of the Taliban, poppy cultivation has increased to make up 60 percent of economic activity (87 percent of the world´s opium and heroin derivatives according to the UN). He estimated that 2.3 million farmers involved in cultivating opium would have to be paid at least double the market price for cash crops to make it profitable enough to move away from poppy farming.
Of course, we could solve the problem immediately, by dropping the US and European subsidies of cash crops such as cotton, rice and wheat. Then the farmers could compete, and remain profitable without the need for subsidies. The Guardian estimates that $300bn is currently being spent by western governments (over $200 per capita) - every year on subsidies.
Meanwhile multinationals like Nestle and Kraft argue that they will not take part in fair-trade agreements for tea, coffee and sugar as they support free market capitalism. They get the best of both worlds - they buy products from markets which cannot apply western subsidies, but sell them into lucrative western markets. Their profits are huge.