May 23. 2024. 7:27

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 EU must start paying attention to unintended consequences


The effects on consumers of poorly thought-out EU rules on deforestation, are starting to become apparent. Hundreds of thousands of tonnes of coffee and cocoa stores in EU warehouses risk being destroyed in the coming months, because of inflexibility in new rules under the EU’s Deforestation Regulation. An investigation by the Financial Times found that at least 350,000 tonnes of coffee and cocoa are at risk of being thrown away once the Regulation comes into force at the end of this year. Similarly, imports of palm oil, soy, and rubber could all similarly see their supply reduced or stockpiles thrown away, writes Polish ECR MEP Ryszard Czarnecki.

These commodities are essential elements in almost all of the food consumed by European families – palm oil alone is said to be an ingredient in 50 per cent of products in the average supermarket. What this means for families and communities across the EU is very simple: price rises.

Unfortunately, this is only the latest episode in a long history of EU regulations being promoted and published without proper consideration of the unintended consequences.

The “butter mountain” is perhaps the most infamous and egregious example, with surpluses starting in the 1970s that continued all the way up until 2017. Piles of waste have also gone by ‘grain mountains’, ‘wine lakes’, or ‘beef mountains’.

In each of these cases, the goal was to “stabilise prices for producers” but, in reality, this just meant artificially high prices, so supply always far outstripped demand. Faced with the same angry farmers, the EU routinely bought up the excess tonnage of produce and left it in enormous stockpiles.

Although any student of economics could quite clearly explain why wasteful surpluses were the only possible result of such ill-thought-through interventionism, EU regulators have refused to learn the lesson. The political benefits of appeasing the farmers were thought, quite clearly, to be more important than easing the cost of living for families.

The EU makes much of its “Green Deal”, the flagship programme to develop its environmental law and, in effect, impose production rules to reduce environmental impacts of EU imports. It should come as no surprise that, in many cases, it achieves exactly the opposite of what it was supposed to.

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It is worth remembering that coffee, cocoa, and palm oil are all produced by smallholders in developing countries – millions of small farmers and families who feed their produce into European supply chains. How are those farmers supposed to access satellite geolocation imagery, as demanded under the Deforestation Regulation? How would they pay for the expensive appraisals mandated under the Carbon Border Adjustment mechanism (CBAM)?

The incentive structure is obviously perverse. Rather than making rules clear and cheap to comply with, the EU has effectively made the prospect of “going green” unaffordable. Thousands of small farmers and businesses that could have made changes will have chosen not to because the appropriate certification would be too difficult or expensive. Those products may well be diverted to markets where no such regulations exists, in China or India for example. The Green Deal will perversely end up incentivising developing world farmers not to adopt sustainable practices.

The irony is that many of these nations are already convinced of the need for sustainable production, and are implementing it without the EU’s help. Malaysia has cut deforestation to effectively zero, banning the conversion of forest and peatland to plantations, and mapping land titles and agricultural areas (which should obviate the need for satellite imagery) while enshrining in law that 50% of the land must be protected as forest. Large companies from countries such as Malaysia, Brazil, Thailand and others will no doubt be able to comply with the Green Deal regulations. The small farmers will not, and yet demands for flexibility fall on deaf ears in Brussels.

The EU is not the only culprit. More bad ideas with terrible unintended consequences will surely surface at COP28. ‘Food miles’ appears to be back in fashion as an idea designed to be easy for voters to understand, notwithstanding the fact that it just doesn’t help. Goods with supposedly high CO2 transport costs actually travel on planes making return journeys that are rarely full. The marginal extra emissions generated are close to zero. In such cases, and dozens more, implementing levies on food miles would make products more expensive without any commensurate climate improvement.

There is a common thread to all of this. Coffee, cocoa and palm oil are not grown in Europe. Protectionist sentiment is rising, especially ahead of elections. Will restrictions on foreign farmers be electorally popular? Maybe. But the future prices rises – an inevitable consequence – will not be.

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