Here’s a challenge for you: After you finish watching this video, go to your kitchen and
open the fridge.
Then, try to find something that has been produced outside of your country.
And if you’re watching this video from a European Country, try to find some product
produced outside of the European Union.
I bet you can’t even find one.
Doesn’t it surprise you?
Well, think about it… your Mobile phone has been manufactured in more than 20 different
countries.
The pants you’re wearing right were manufactured in a country like China or Bangladesh.
And maybe the company you work for is also foreign.
No surprises here, right?
We all agree that we live in a globalized economy.
Nonetheless, food is the exception to the rule.
Agriculture is an industry that is completely protected from foreign competition.
And make no mistake: this has nothing to do with Donald Trump.
In fact, if you think he’s the creator of trade wars…
Well, you’re absolutely wrong.
Actually, the primary sector exists in a never ending cold war.
That’s why, from time to time, we see headlines like this one…
Trade War Rips Through Farm World; Soybean, Hog Prices Fall
Or this other one…
EU cuts import tariffs in a bid to end 'banana wars'
But there are more than tariffs here.
In fact, tariffs are just one of the many tools used to attack foreign markets.
And it’s not even the deadliest.
Here’s an example: America spends more than 20 billion dollars a year in subsidies for
their farmers.
Sound like a lot?
Well, not compared to the whopping 72 billion dollars that the EU spends in subsidies every
year.
And now you might wonder… but what do subsidies have to do with trade wars?
The answer is…
A LOT!
For example, this milk break you see on the screen is worth an average of 60 euro cents
in a Spanish supermarket.
From those 60 cents, the Spanish farmer would get 30 cents.
But his actual revenue is going to be 44 cents.
Why?
Because the European Union will give him a subsidy of 14 cents per liter.
Thanks to this Grant, the farmer can sell cheap and still make Money.
And this is why Europe doesn’t need to buy African sugar despite it being cheaper.
Or even more surprisingly, why American or European producers can smash the competition
in African markets despite having higher wages.
But wait a minute because things are about to change.
And this time, the free market champion is not America, nor Japan, nor Australia…
My dear viewers, despite what you might expect, if there is somebody willing to start an agricultural
liberalization, it’s the EUROPEAN UNION.
Emmanuel Macron breaks French taboo on farm subsidies
A French President questioning the subsidies on farming is like… a hipster closing his
instagram account.
Something never seen before.
For years, the so called, “Common Agricultural Policy”, also known as the CAP has been
one of the pillars of the European Union.
And France is, by far, its biggest supporter.
But, as I said, things are about to change.
So now the question is…
Is Europe ready to liberalize its agricultural sector?
Are we about to see the end of the food trade wars?
And most importantly of all… is this good or bad news?
In this video, we are going to answer all of these questions but, before we do, let’s
take a look back at history.
WHAT IS CAP USED FOR?
Let’s imagine we have a wheat farm in ESSEX, in the United Kingdom.
We harvest the crop and go to sell it to the market.
Last time we did, we received 175 Pounds per ton.
So it makes sense to expect to sell it for a similar price this time around, right?
Well… no.
This time, maybe the market price for wheat is just 150 pounds per ton.
This is the reality every farmer faces every year.
By contrast, the price of an iPhone doesn’t change much over time, so if we sell iPhones,
we can make good predictions about our income.
But wheat, corn, oil or any other commodity can change their market price from one day
to the other.
And now you might wonder…
why?
What’s the difference between wheat and an iPhone?
Well, the difference is that commodities are the same everywhere.
Did you eat bread today?
Could you tell me where the wheat it was made from was produced?
Almost certainly not.
The same goes with the oil used to produce the gasoline you put on your car.
You don’t know if it is Saudi or Canadian oil and… you don’t care.
You just want it to be as cheap as possible.
Nonetheless, there are just a few dinosaur juice producers…
while wheat, corn and potatoes can be harvested anywhere.
So, if one big producer had a good harvest… that’s going to affect the market price
for everybody.
Add to this the weather.
Too little rain, too much rain, or an unusually cold winter can be enough to kill off all
of your revenue.
Nonetheless, we need agriculture because, unfortunately, you cannot eat dinosaur juice
or iPhones.
So how can we keep eating while farmers don’t starve?
This might seem like a stupid question, but believe me, it is one of the hardest problems
in economics.
And this is where the Common Agricultural Policy, also known as the CAP, comes into
play.
This is how the European Union protects their farmers.
When we talk about CAP, we’re talking about the cornerstone of the European Union.
It was a thing even before the Schenghen area or the Eurozone where born.
Actually…
do you know who was the actual father of the CAP?
Exactly!
The former French president, Charles de Gaulle…
“A nation has no friends.
Only interests.”
–Charles De Gaulle.
If you’ve been subscribed to VisualPolitik for a long time, you already know that Charles
de Gaulle was not a big fan of the free market economy.
Well… he wasn’t a big fan of anything except himself, really.
This is why, when France became a member of the European Single Market, what later would
become the European Union, he added a condition.
“OK, we’ll sign up here buuuut, you gotta promise us that nobody is gonna become competition
for our farmers”.
And this is how the CAP was born: a policy that is so interventionist, it makes Bernie
Sanders look like Warren Buffet.
Basically, in order to compensate for potential loses when market prices go down, the European
Union gives them direct cash.
For example, if you have a barn with cows in Spain, Brussels will give you cash straight
away for each cow you own.
And if you wanna buy a milking machine that is going to make you more productive…
Brussels will help you too.
This way Europe is not guaranteeing your income.
It is also helping protect you from American or African producers.
And as you might have already imagined, all this aid costs a shitload of money (read it
as it is so I can censor it).
If you wanna get a better idea, during the 90s, this CAP comprised 80% of the whole European
Budget.
And now that Europe is bigger and has more things to do, CAP still makes up 40% of all
EU spending.
And… surprise surprise!
Guess which country receives the most aid!
Of course, that would be…
FRANCE!
But wait a minute because things don’t stop there.
Beyond direct aid, Europe has other tactics to avoid price fluctuation: quotas and tariffs.
For example, in order to avoid a price drop in milk, Europe used to but a production limit
on each country.
That means that you couldn’t produce more than a certain number of liters.
And, of course… who was benefiting the most from those production quotas?
You can guess… the country of croissants and baguettes.
As you can imagine, this milk quota created all kinds of problems among the other members.
And this is why, despite French pressure, Europe had to put and end to this.
END OF EUROPEAN MILK QUOTAS: A NEW ERA FOR THE FRENCH
DAIRY SECTOR
And, of course, we also have the tariffs.
Tariffs are like sniper bullets to stop very specific products from getting into European
markets.
For example, imagine that you are an Argentinan coffee producer.
If you want to sell your RAW coffee, meaning you take it from the plant and sell it, Europe
has no problem.
0 tariffs for you.
Why?
Because no European country grows coffee.
But, oh boy!
If you want to sell this coffee already toasted and processed…
good luck!
You will have to pay a tariff of 7.5%.
Why?
Because Europe has factories that process and toast coffee.
And they don’t like competitors.
But I know what you’re thinking!
Oh, that evil European Union is punishing the third world!
Those Brussels bureaucrats want to destroy free trade!
Well, I have bad news for you, guys… the truth is EVERY country on this planet does
the same thing.
In fact, when it comes to tariffs, Europe is one of the most open regions.
For instance, if this Argentinian farmer wanted to sell his processed coffee in Japan, we
would pay a 20% tariff.
If we wants to sell bananas, then we has to pay between 40 and 50%, depending on the season.
And what about America, the land of the free?
More or less, the same.
Almost no country is willing to leave its farmers alone to compete in a fair competition.
Nonetheless, all of this can change.
Why?
Let’s have a look.
BAD TIMES FOR PROTECTIONISM
Every year, Europe spends over 72 billion dollars subsidizing its own farmers.
But, as you can imagine, not all the country members pay the same amount.
Just look at the chart.
Here you can see the main net contributors.
That is, the countries that pay more than what they get.
And surprise!
Surprise!
Who is the third biggest CAP net contributor?
Of course, that would be the United Kingdom, the country that will no longer be a member
of the club.
As you can imagine, that leaves a hole of more than 12 billion euros.
This is why many are suggesting that other countries have to start paying more to keep
the spending where it used to be.
European Commission urges EU countries to pay more into budget
Nonetheless, who wants to pay more?
At a time where euroskeptic parties are stronger than ever, no politician wants to come back
to his own country saying “hey guys, take out your wallet because now we gotta pay more
for being in the EU”.
So… if you do the math, you realize that there is just one option left.
Brussels plans to cut its payments to Europe’s biggest farms
Basically, Europe had to reduce the direct aid given to the farmers.
And they have started with the wealthiest ones, since they’re the ones who needed
them the least.
But the biggest surprise came with Emmanuel Macron’s speech.
Everybody in Brussels might expect France to come out as the biggest old school CAP
supporter, right?
But Macron has other priorities.
And this means a green light to cut aid in the future.
Meanwhile, trade deals are in fashion.
EU and Mexico agree new free trade pact
Yes, yes, yes… and we are not only talking about Mexico.
Look at this news…
The European Union rushed to promote its preliminary free-trade agreement with Japan by stressing
the benefits for EU farmers
Yes, my dear viewers, slowly, the European Union is reducing subsidies, reducing tariffs
and getting rid of production quotas.
And I know what you are thinking now…
Come on, Simon!
Are you telling us that BREXIT is the only reason for this change?
Of course not!
In fact there are two other important reasons.
On one hand, European Agriculture is already more productive than elsewhere.
In this video, we told you about the Netherlands being one of the biggest agricultural powerhouses.
In fact, they have what we can call the Food Silicon Valley.
But they are not the only ones!
Food exports can’t stop growing.
In fact, things like Camembert Cheese or RIBERA DEL DUERO wine can be found almost everywhere.
And they come from Europe.
In other words, Europe doesn’t need to protect its own market anymore but, instead, sign
lots of trade deals.
And I know what you might be wondering now…
Will farmers be happy when they stop getting all those subsidies from Brussels?
Most likely…
no.
But, the question is…
Does it really matter?
Look, Peasants unions used to have a big political grip.
During the 60s, when De Gaulle was the French President, France had millions of people working
in the primary sector.
Now, they aren’t even 3% of the population.
This means way less political sway and way less votes.
But not only that!
Who do you think those European farmers vote for?
France's disillusioned farmers turn to Le Pen
Exactly!
Generally speaking, the biggest place for euroskeptic parties to get their votes is
the rural areas, where farmers live.
So if you’re a European politician and you want to make your voters happy… you wanna
pay more attention to the urban, Europeanist voters, instead of the rural, euroskeptic
ones.
And your average city guy doesn’t even know what the CAP is all about.
That is why today’s question is…
Does the CAP have any future whatsoever in Europe?
Will we see greater liberalization of agriculture in Europe and the rest of the world?
Please, leave your answer in the comment section below.
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