The EU paid €1.0 billion in export subsidies in 2008 and 650 million in 2009. This is much less than in the past - but it still constitutes a problem.
- Export subsidies distort competition. They bias the economy in favor of agriculture – to the detriment of manufacturing and services – and they bias agricultural production in favor of those products that receive most support.
- Export subsidies depress world market prices for agricultural products. This harms foreign farmers and lowers, especially in developing countries, the wages for unskilled workers who are frequently employed in agriculture. In the worst case, export subsidies disrupt local production in developing countries. Once subsidized products are no longer delivered to the local market, food security may be endangered.
- Export subsidies are strongly resented by the EU’s trading partners. They offer a welcome pretext to developing countries for maintaining tariffs against unfair competition – also on products that do not receive
(significant) export subsidies.
- Export subsidies require controls on whether the products for which payments are made have actually been exported – and still, they remain vulnerable to fraud.
- Export subsidies can be legally claimed by companies that do not export food in the normal sense. For instance, airlines get subsidies for in-flight meals: a windfall gain they pocket.
Revolting as export subsidies are, their abolition in the post-2013 CAP should not be taken as a measure of success by reform promoters. The EU has already committed to removing export subsidies by 2013 if a WTO Doha agreement is reached. The end of all export subsidies is a minimum requirement, the hallmark of successful reform is the targeting of direct payments at public goods.