Irish beef avoids EU budget chop. Is agricultural subsidy reform on the menu?

Agricultural subsidies account for a whopping 40 percent of the EU budget. Ireland, which holds the EU presidency, hopes to push through subsidy reforms next.

As negotiations at the EU budget summit enter their second and final day, Irish farmers and others in Europe's agricultural community are breathing sighs of relief.

Agriculture subsidies account for a massive 40 percent of the EU's soon-to-end seven-year, 1 trillion-euro budget.  A key interest of countries including France and current EU president Ireland, they appear to be safe from budget hawks' efforts to cut the EU budget.

But while agricultural spending won't face the ax, the new budget is only one hurdle in the implementation of one of Europe's most ambitious long-term plans: reform of agricultural subsidies.  And Ireland hopes to use its position as both seat of the EU president and major agricultural player to make those plans into reality.

What's the big deal about agriculture?

The EU's success in bringing an end to war among member states, if not always neighboring regions, has always been industrial as much as political. Founded in 1951 as the European Coal and Steel Community, the idea, largely correct as it transpired, was that the unification of key industries in Europe would make war such a logistical nightmare as to be impossible. But it's not only coal and steel that the nascent euro club concerned itself with. Food was also high on the agenda.

Starvation loomed large over Europe in the wake of World War II. At the very least, Europe could not feed itself, so by 1958 the nascent EU made agriculture a central plank of pan-European politics, and state intervention was the order of the day. The Common Agricultural Policy (CAP) was born, and despite reforms in the 1990s and 2000s, it remains central to Europe's political and economic program, accounting for 40 percent of EU spending. Despite this, agriculture accounts for just 3 percent of the EU's GDP.

Rowena Dwyer, an economist at the Irish Farmers' Association, says agriculture needs subsidy, and that without support, entire regions of EU countries would become depopulated.

"We see that support is required in virtually all developed countries, particularly ones that want to keep family farms," she says. "Food plays a unique role within any society. It's a decision about what kind of food quality you want and what environmental standards you want."

Homegrown Irish industry

It's a thorny issue in Ireland. Having struggled for decades to rid itself of its agrarian image, the recession-hit country is in a position where agriculture and food production is one of the few truly domestic growth areas. While foreign-direct investment sectors in the economy, such as software and pharmaceuticals, continue to thrive, the country's crushing bank debts and housing bust have flattened much domestic economic activity. Food and drink production, however, remains a viable export business.

Irish beef is found on more shop shelves in Europe than meat of any other origin, and one-fifth of the beef used by McDonald's in Europe hails from the country. Milk, cheese, and drinks such as Guinness, Baileys, and whiskey are also strong performers, while Ireland also produces a tenth of all the baby formula consumed in the world. And despite no longer being a labor-intensive industry, there are 130,000 people directly employed on Irish farms, and a further 170,000 in related industries and services.

"Farming and the food sector amount to €24 billion ($32 billion) in sales, including €9 billion ($12 billion) of exports. Ten percent of all of Ireland's manufacturing exports are food and drink," says Ms. Dwyer.

Tight times

But tight times and arguments over the size of the overall EU budget are making some take a second look at farming policy, asking if quite so much money should be spent insulating agriculture from market forces.

Britain in particular is seeking to rein in EU profligacy, with Prime Minister David Cameron demanding a one percent cut in spending – and it's not just conservatives saying so.

One center-left think tank says the food industry is gorging on too much cash.

"While there can be a case for some farm subsidies – it's a business that is volatile and at the mercy of the elements, and there are also issues of biodiversity – it should be asked 'Why do we need to coordinate this at an EU level?' We could save that money and put it into innovation: low-carbon investment and other growth areas," says Will Straw, associate director for globalization and climate change at the Institute for Public Policy Research in London.

Mr. Straw says Britain should put its rebate of EU funds – the country receives 3.6 billion euros ($4.8 billion) of its payments to the EU back annually, a measure negotiated by Prime Minister Margaret Thatcher in 1984 as a counterbalance to CAP payments to other countries – on the table in return for major reductions to agricultural subsidies.

Politics of food

Food remains a politically charged issue, though. Genetically modified (GM) crops are still viewed with suspicion in Europe, despite recent backpedaling by former anti-GM campaigners such as Mark Lynas. A scandal over the discovery of horse meat in Europe-wide beef products has also roused memories of other EU meat arguments, from foot-and-mouth disease to BSE, or so-called "mad cow disease."

James Heartfield, lecturer and author of the forthcoming book "The European Union and the End of Politics," says farming – and farm subsidies – have always been political.

"It's not like agriculture is 40 percent of the EU's industry. There are social reasons why people want to subsidize agriculture. Look at an electoral map of England – the countryside votes Tory and the towns vote Labour. It's the same in every advanced industrial country," he says.

Ireland has been at the forefront of previous economic reforms in agriculture, including ones that have had significant consequences. Mr. Heartfield points to 1992 reforms of the CAP by Irish EU Commissioner Ray MacSharry.

"The previous system rewarded small and large farmers alike, [and so] small farmers persisted without being punished for their poor economies of scale. Small farmers suffered and the reforms led to a concentration of agriculture in fewer hands, but now there is no subsidy for overproduction. If anything, there is a subsidy for underproduction, with farmers being paid to retire land," he says.

The next course?

CAP reform is on the table, but it's not yet the main course.

Roger Waite, European Commission spokesman for agriculture and rural development, says the EU wants to reform subsidies to be "fairer and more sustainable," but that the EU's budget negotiations must be concluded first.

"There is a clear sequence of events that need to happen. The next is, the heads of government agreeing on the overall [EU] budget for 2014-2020," he says.

Today's summit is hoped to finally conclude the deal on the seven-year budget, currently valued at just under €142 billion ($190 billion) annually. As the CAP accounts for two-fifths of the budget, agreement on reform will have to wait until a deal is done.

The EU's byzantine power structures can make agreement difficult, not only between member states but between the European Commission, the European Council, and the European Parliament. Can a temporary rotating presidency, usually seen as a symbolic office, really make a difference in stalled multibillion euro negotiations?

Dáithí O'Ceallaigh, of the Dublin-based Institute for International and European Affairs, says Ireland can have an impact.

"It's not just symbolic," he says. "The Lisbon treaty changed things a great deal. There is now a permanent president of the European Council [currently Herman van Rompuy] who does the 'big ticket' stuff, but there is still a huge role for the rotating [EU] presidency."

"The presidency is in control [of negotiations] and has a load on it shoulders. As an analogy, the EU parliament is getting some of the powers of the US Congress," he says.

Whether this means more or less log-jam will be apparent soon.

European Commission agriculture spokesperson Roger Waite says the rewards are there to be reaped if Europe becomes an exporter of high-value foodstuffs to growing economies worldwide.

"It's clear that in emerging markets like China, Russia, Brazil, and India that as soon as people get more money, their diets change. In many ways, they start to eat more like Europeans," he says.