Food & Ag Policy Briefing: CAP corruption claims, 2nd round of US farmer payouts, beef lawsuit
The system by which Common Agricultural Policy subsidies are distributed came in for some fierce criticism last week following the publication of a newspaper exposé on corrupt misuse of EU funds in some Central and Eastern European countries.
The New York Times (NYT) article primarily focused on Hungary, where it was revealed that a large portion of the circa €1.3 billion the country receives in area-based CAP direct payments ends up in the hands of a select few individuals closely connected with prime minister Viktor Orban.
One of the most serious criticisms levelled at the CAP by the investigation is the allegation that the Hungarian landlords have obviated the per-farm ‘degressivity’ rules by splitting their holdings up into smaller units which fall below the aid cap limit.
As the NYT notes, Hungary applies the “seemingly progressive policy” of an absolute cap on aid payments of €176,000 per farm – i.e. with 100% degressivity beyond that level.
This policy has long been criticized, though, on the basis that large landowners could skirt around the limits by simply sub-dividing their holdings to bring each unit below the ceiling level, and there is evidence that this has happened in many places in Hungary.
The reform proposals for the current CAP would see this limit reduced to €100,000 per farm - but a clause allowing farmers to exclude farm salary payments from this ceiling is already expected to seriously reduce its impact.
The European Commission responded to the NYT report by declaring that it has a “zero tolerance” for fraud with the EU budget and “very clear rules” on how funds should be managed but stressed that the main responsibility for the correct spending of EU money lies with the national authorities.
As IEG Policy analyst Chris Horseman argued in his analysis article last week, this is the crux of the problem – that under the current CAP system there are limits to the EU’s powers when it comes to overseeing issues that fall under national competences, such as land ownership, sales and leasing.
As long as subsidies are paid out on a per hectare basis, then those who own large areas of land, whoever they may be, will receive large subsidy cheques from the EU.
As such, investigations such as the one by the NYT could help to support the shift away from area-based payments and towards a more outcome-based system of support for EU farmers and rural communities. But any such changes, if they do come, will not take effect before 2028 at the very earliest, leaving the field open in the meantime for the oligarchs of Central Europe to cash in.
Perdue confirms farmer payouts
On the subject of agricultural payments, USDA secretary Sonny Perdue confirmed last week that a second round of payouts to farmers under the agency’s trade mitigation efforts have been given the green light by the Trump administration.
“We’ve just gotten authorization on the second tranche” of aid payments and USDA is working to get them ready “hopefully by the end of this month, early December,” Perdue said during a press call following an ag trade mission to Mexico.
The USDA unveiled details in July of its second trade aid package for farmers impacted by ongoing trade disruptions, particularly the dispute with China, including new county-based payment rates and increased payment caps compared with last year's effort.
The US$16 billion package is meant to provide support to US farmers as the Trump administration "continues to work on free, fair, and reciprocal trade deals," the USDA said. Like the original aid package implemented last year, the 2019 programme consists of three ’prongs‘: direct payments to farmers through the Market Facilitation Program (MFP 2), a Food Purchase and Distribution Program (FPDP) and Agricultural Trade Promotion (ATP) funds to organisations conducting market development activities for US food and agricultural goods.
Asked whether a third MFP program might be in the works for 2020, Perdue said: “We're very hopeful that the China negotiations can come to a favorable conclusion ... and we're hopeful that trade would supplant any type of farm aid needed in 2020.”
Price fixing lawsuit
Meanwhile, the ‘Big 4’ US beef processors are facing a class action lawsuit alleging they conspired since 2015 to inflate prices.
The complaint from California-based distributor Pacific Agri-Products targets Cargill, Inc., JBS USA, National Beef Packaging and Tyson Foods – collectively the four companies control some 80% of U.S. beef at wholesale.
“As the ‘big four’ players in this highly concentrated industry, the defendants interact frequently at industry events and trade association meetings, and their respective executives are well-acquainted,” according to the lawsuit, filed in the U.S. District Court for the District of Minnesota. “The market is therefore highly conducive to collusion.”
The complaint mirrors similar antitrust actions brought against major U.S. poultry and pork producers, arguing that the companies used their market power and insider information to manipulate production and drive up prices.
The beef companies have yet to respond to the 78-page lawsuit.
Finally, in Poland, new legislation will allow meat, milk and eggs to be labelled as free from genetically modified organisms (GMO), even if the animal was fed with GM products at some point.
The draft regulation is currently on standstill until January 16 to give the Commission and other member states time to comment or raise any concerns about its potential impact on free trade within the single market. But providing it is not amended or blocked, will take effect on January 1.
The ‘Brief Statement of Grounds’ in the Polish notification on the draft regulation notes that it is “obvious” when animals, poultry or fish are only fed GM-free feed their entire life that the products from them can be labelled as ‘GMO free’.
“However, the use of GMO feed is necessary in some periods of life for certain animal species, which is due mainly to the nutritional needs of contemporary animal breeds and the need to keep livestock farming profitable,” the notification argues.
“A compromise in this situation is to allow for foodstuffs of animal origin to be labelled as GMO-free, provided the animals are fed with GMO feed only in certain, justified periods. In such a case, however, withdrawal periods during which GMO feed may not be used should be respected; the withdrawal period should immediately precede the obtaining of products intended to be labelled as GMO-free,” it continues.
The notification points out that other member states, such as Austria and Germany, “have introduced such a solution to their legislation.”
The withdrawal periods range from 12 months for cattle down to 6 weeks for birds from which eggs are obtained.