Wednesday, December 28, 2005
We shouldn't just scowl - we should also laugh at their folly
The continual refusal of the EU to reform its Common Agricultural Policy(CAP) has been widely cited as helping itself, at the expense of third world farmers. But the truth is, they are doing even more damage to their own economies than they do to third world countries. By failing to keep their own agricultural industries competitive, they have given free reign to Brazil and Australia (for example) on even products such as olive oil and wine. The truth is they can't afford to protect everything they hold dear for ever, and as each new niche presents itself in agriculture, they will be stuck making boring commodities at high cost, missing every possible new product and even variations on the commodities due to their regulated regime. In fact, the longer they persist in lavish subsidies, the lower the percentage of agricultural products that will have distorted markets. The inevitable demographic time bomb will mean that due to all of the pensions/aged health care increased costs, they just won't be able to afford the costs of the CAP for too much longer. I sniggered when the EU accused the Australian Wheat Board (AWB)of monopoly power abuse etc. The truth is that EU's subsidised wheat can't compete with Australia's unsubsidised Wheat especially when quality and service is factored in. EU took the opportunity now that the sugar price is high to reduce its subsidies on that commodity. They should have given up on sugar long ago anyway. I figure they will start to see the light too late to keep competitiveness in any of their remaining agricultural exports. I laugh at their folly, and us Australians should say "Thanks EU! You've made it so much easier for us." The lesson is - If a country, whether third world or first world wants to export agricultural products, reduce its subsidies especially on those products (instead use money to compensate struggling or exiting farmers), reduce tariffs on everything possible, and let the market do the hard work of allocating money correctly.