The importance of Fair Trade products for the world economy has been significantly growing within the last decade. In 2010, the global Fair Trade turnover reached €3.4 billion showing an upward trend with double-digit growing rates per year. One of the biggest selling markets for certified Fair Trade products is the European Union (EU) which is thus a crucial actor when it comes to promote and market Fair Trade goods (see attached table 1).
Yet, besides the EU’s effort of achieving a fairer international trading system, it can be argued that the EU might be even partially responsible for the misery in those countries. In this context the Common Agricultural Policy (CAP) of the EU is controversially discussed. About €60 billion which account for 42% of the total EU budget are currently spent on agricultural subsidies. They are provided to European farmers to support and protect the internal agricultural market. Consequences for other agrarian countries are immense.
In our research paper we want to investigate the paradox on Europe spending money on Fair Trade on the one hand, while dishing out harming subsidies on the other hand. We question whether it would be more beneficial for developing countries if Europe stepwise reduces its agricultural subsidies to a minimum rather than investing in Fair Trade.
First of all, a brief introduction to the Fair Trade principles and its history is provided. The main efforts of the EU to achieve a fairer trading system are identified in Chapter 3. Chapter 4 will briefly present the basic principles of the EU’s Common Agricultural Policy (CAP) including the payment of direct farm subsidies to European farmers. Chapter 5 will reveal how Europe’s agricultural subsidies influence the world market and which consequences arise for developing countries. A comparative analysis contrasting the fair trade concept and the reduction of subsidies is conducted in chapter 6. A conclusion is provided in chapter 7.
Table of Contents
1 Introduction
2 What is Fair Trade
3 Fair Trade in Europe
4 EU Common Agricultural Policy (CAP)
5 The Impact of Subsidies on Developing Countries
5.1 How Subsidies Affect Market Prices
5.2 Subsidized Exports to Developing Countries
5.3 The European “Sugar Regime”
6 Abandoning Agricultural Subsidies versus Promoting Fair Trade
7 Conclusion
Research Objectives and Core Themes
The research paper investigates the paradox of the European Union simultaneously promoting Fair Trade while implementing agricultural policies that may negatively impact farmers in developing nations. The primary objective is to evaluate whether transitioning away from subsidized agricultural exports towards a more market-oriented model, while maintaining Fair Trade initiatives, would better support economic development in poorer regions.
- The role and history of Fair Trade principles in Europe.
- The mechanics and impact of the EU's Common Agricultural Policy (CAP).
- Distortions of global market prices caused by agricultural subsidies.
- Case studies on the impact of EU subsidies on African producers (sugar, cotton, milk).
- The effectiveness and necessity of integrating Fair Trade with policy reform.
Excerpt from the Book
5.2 Subsidized Exports to Developing Countries
Even in Africa a lot of convenient stores can be found which offer groceries from all around the world. As it reveals a main problem, a closer look is taken on the case of one shop in Cameroon, close to the city’s capital Douala: There are hardly any products sold that have been produced in Africa, let alone Cameroon. Cheap milk-powder imported from the EU is offered, although Cameroon has its own milk farmers. Even though production inputs like labor are rather inexpensive in Africa, the country’s products can still not be sold at a lower price than the subsidized ones from the European Union. Thus the farmers in Cameroon face a cut-throat competition which they are not winning. Consequently they struggle to make their livelihoods. Meanwhile in developing countries, where even social security benefits are provided, farmers get a larger share of the subsidy budget the more land they own. At this point, subsidies may not result in an increase of production, but in export-prices ranging below the production costs, leaving no room for competition.
Milk products, which are exported for a price less than half of their production costs, are only one example of how EU subsidies hamper farmers in developing countries to find their way out of poverty.
Summary of Chapters
1 Introduction: Introduces the growth of Fair Trade and the contradictory role of EU agricultural subsidies in global trade.
2 What is Fair Trade: Defines Fair Trade as a movement empowering disadvantaged farmers, beyond just price premiums.
3 Fair Trade in Europe: Outlines the institutional efforts and policy integration of Fair Trade within the European Union.
4 EU Common Agricultural Policy (CAP): Explains the origins and objectives of the CAP, focusing on its role in protecting European farmers.
5 The Impact of Subsidies on Developing Countries: Analyzes the negative consequences of EU subsidies on the economic viability of farmers in developing nations.
5.1 How Subsidies Affect Market Prices: Provides a theoretical analysis of how export subsidies distort global commodity prices.
5.2 Subsidized Exports to Developing Countries: Details specific instances of market competition failure in African markets due to cheap EU imports.
5.3 The European “Sugar Regime”: Examines the specific case of the EU sugar market, its reform, and impact on international competitors.
6 Abandoning Agricultural Subsidies versus Promoting Fair Trade: Discusses the necessity of a mixed policy approach to sustain both European stability and global equity.
7 Conclusion: Summarizes the findings that while subsidies harm developing countries, they are essential for European stability, suggesting a balanced approach for the future.
Keywords
Fair Trade, EU Common Agricultural Policy, CAP, agricultural subsidies, developing countries, export subsidies, market distortion, food security, economic development, trade policy, commodity markets, global trade, poverty reduction, protectionism, supply chain.
Frequently Asked Questions
What is the core focus of this research paper?
The paper examines the contradiction between the European Union's support for Fair Trade initiatives and its continued implementation of agricultural subsidies that negatively affect farmers in developing nations.
What are the primary thematic areas covered?
The main themes include the definition and history of Fair Trade, the structure of the EU's Common Agricultural Policy, the mechanics of market distortion through subsidies, and case-specific impacts on the sugar, cotton, and milk sectors in Africa.
What is the central research question?
The research questions whether it would be more beneficial for developing countries if the EU reduced its agricultural subsidies to a minimum rather than focusing solely on investing in Fair Trade.
Which scientific methodology is employed?
The authors use a comparative, qualitative analysis, contrasting the socioeconomic impacts of Fair Trade against the economic outcomes of protected agricultural regimes, supplemented by statistical data and case study reports.
What topics are discussed in the main chapters?
The main chapters cover the origins of the CAP, the mechanism of export subsidies, the specific negative impacts on African livelihoods, and the potential for a combined approach of policy reform and Fair Trade.
Which keywords best describe this study?
Key terms include Fair Trade, agricultural subsidies, market distortion, EU policy, developing countries, and economic empowerment.
How does the "Sugar Regime" illustrate the problems discussed?
The "Sugar Regime" demonstrates how the EU formerly used high tariffs and export subsidies to dump surplus sugar onto the global market, thereby suppressing prices and devastating sugar farmers in developing nations until WTO-mandated reforms occurred.
Why do the authors argue that complete removal of all subsidies might be risky?
The authors conclude that while subsidies harm global competition, a complete, sudden abolition would threaten the survival of European farmers and could lead to significant unemployment and increased dependency on long-distance food imports.
- Arbeit zitieren
- Maximilian Ide (Autor:in), Olivia Achtelik (Autor:in), 2011, The Impact of European Farm Subsidies on Developing Countries, München, GRIN Verlag, https://www.grin.com/document/195006
