Controlling EU Farming Subsidies
October 10, 2005
Across Europe, farmers are becoming increasingly disgruntled with the distribution of EU subsidies. Lutz Ribbe of the Euronatur environmental institute, for example, has been applying for the EU aid for small agricultural businesses and eco-production for years, but he's had little success so far.
According to Ribbe, the problem lies in the fact that Germany and Europe would rather promote big businesses and job cuts than small agricultural initiatives.
"The German dairy giant Müller set up Europe's largest dairy plant in the East German town of Leppersdorf in Saxony," Ribbe said. "They went to the EU and asked for financial support, claiming that they were going to create 142 jobs in this structurally weak region."
Müller fulfilled its promise and opened a new plant. Having received the EU subsidy, however, the German company announced it was closing two of its branches elsewhere -- meaning a total reduction of jobs.
"We don't think its right to pay out 70 million euros ($85 million) for job cuts," Ribbie said.
Misallocated subsidies
According to Ribbe, the Müller plant is not the only example of misallocated subsidies in Europe. Brandt, a company which produces biscuits, received millions in EU subsidies for opening a factory in Eastern German state of Thuringia. But around the same time, it also closed a production plant in the western German city of Hagen. In total, some 500 jobs were lost.
Instead of creating jobs, the businesses just move their factories from one region to another. According to Germany's Christian Democrat member of parliament Markus Pieper, who serves on the regional committee which decides how EU funds are allocated, the problem exists across the European Union.
"Business relocation is an especially big problem, because until now, the European regulations have permitted it," Pieper said. "For example, French firms relocated their companies from France to eastern German states, and received EU aid for that. And it's happening across eastern Europe. As far as we're concerned, it's a no gain situation."
Sophisticated system of controls
The EU Commission admits that money is sometimes given out in the wrong situations. However, spokesperson for the EU Agricultural Commission, Michael Mann, emphasized that the agency was using a sophisticated system of controls, such as satellite monitoring of farm lands.
"There are satellites flying around the earth as we speak, which have incredibly accurate capabilities -- they can actually focus down on a very small piece of land, and see what's on that land. We can actually check if the farmers are still farming the land and keeping it in good environmental condition," Mann said.
But there are also limits as to what the EU Commission can do about the problem of funds gone astray.
"Basically, it's not the commission which divides up the money, it's the individual member states who leave it up to their authorities," said Guillaume Durand, a political scientist from the European Policy Center, a Brussels think tank.
"That means that it's not the EU Commission which is responsible for how the money is used, but the member states themselves," Durand said. "However, the commission does double-check the control mechanisms the member states implement."
A new industrial sector
According to Ulrich Rössler from the consulting firm Schuman Associates, these controls have created a whole new industrial sector of overseers, at both national and European levels.
"A new market has emerged, where firms are specializing in the checking, evaluating and monitoring of projects," Rössler said. "That doesn't just mean looking at where the money is actually spent. It also means asserting whether EU subsidies actually achieve the political goals they are intended to. And this, of course, leads to greater transparency."
As a result of the multifaceted controls, very little EU money ends up in the wrong place. Still, according to the Agricultural Commission spokesperson Michael Mann, the EU regularly demands money back from its member states.
"In July, Greece, for example, had to reimburse 38 million euros because it didn't control properly how premiums were paid to sheep and goat farmers," Mann said. "Another example was about 18 million euros from France for double payment of rural development money."