France harms EU clout with fruit bribes: Paul Taylor

-- Paul Taylor is a Reuters columnist. The opinions expressed are his own --

By Paul Taylor

SAINT-REMY-DE-PROVENCE, France (Reuters) - It's summer in Provence and orchards are groaning under the weight of luscious apples, pears and peaches that farmers struggle to sell at break-even prices.

The French government has just admitted it paid illicit hand-outs to fruit and vegetable growers for a decade in 1992-2002, on top of official European Union subsidies, until the European Commission began investigating a complaint.

Agriculture Minister Bruno Le Maire infuriated farmers by announcing they would have to repay about 500 million euros to the state on the basis of a ruling by the EU executive.

When cash-strapped peasants revolted, dumping tractor-loads of potatoes outside a provincial government office, the minister began to back-pedal. He vowed to negotiate the sum down and to appeal to the European Court of Justice and, yes, he promised fruit and vegetable growers new subsidies in compensation.

Farmers' leaders dismissed his offer of 15 million euros in "Euro-compatible" emergency aid as paltry and threatened more protests. So spins the French farm merry-go-round.

The fruit fight surfaced at an embarrassing moment, before negotiations begin next year to reform the subsidy-laden Common Agricultural Policy, criticized by free marketers, rival exporters and developing countries as a giant trade barrier.

France is the biggest beneficiary of the system, receiving nearly 10 billion euros a year of the 50 billion euro farm budget, which swallows roughly 40 percent of all EU spending.

Most subsidies go to the grain barons and agribusinesses of the north and west rather than to the majority of poor smaller farmers such as fruit and vegetable producers.

Highlighting how the French distorted the EU's common market with under-the-table payments to buy off rebellious peasants may drive a wedge between Paris and its traditional allies -- Spain, Italy, Portugal and Greece -- which compete in the same sector.

It also gives fresh ammunition to countries such as Britain, Sweden and the Netherlands that want to slash EU farm spending and redirect the money toward research and innovation in areas such as renewable energy and clean coal technology.

"This is a gift to all those who are sharpening their knives as the great agricultural horse-trading approaches next year," said Nicolas-Jean Brehon, an agriculture expert at the Robert Schuman Foundation in Paris.

French analysts say Le Maire's move to clear up the fruit and veg mess which his predecessor, Michel Barnier, had swept under the rug, is an attempt to remove that handicap before the negotiations on the EU's 2014-20 budget.

But the scandal is unlikely to die quietly because the underlying causes are as acute as ever.

Little of the illegally distributed money may be recovered, and only in slow motion. Growers have died and farms changed hands, records are incomplete and it will be hard to make farmers reimburse funds they accepted in good faith.

The government may have to lend growers the money to pay it back over a long period at subsidized interest rates, risking new disputes with the European Commission.

After two fat years when world prices soared on growing demand from emerging markets such as China and India, French farm prices and incomes fell sharply in 2008 and the lean years are set to continue due to the global recession.

Many farmers complain that they cannot compete with imports from European neighbors with lower wages and social charges.

French governments of all political colors have shielded farmers from economic reality out of fear of a tradition of "jacqueries" (peasant revolts).

Former President Jacques Chirac personified this mixture of head-in-the-sand economics and electoral realpolitik. His annual pilgrimage to the Paris agricultural fair was a love-in with a rural world that supplied the bedrock of his electorate.

Chirac's successor, Nicolas Sarkozy, has no country roots and took office in 2007 promising to modernize France and make it more economically open to the world. Agriculture now accounts for just 3.5 percent of French gross domestic product and 4.0 percent of employment.

Yet electoral arithmetic and the French establishment's unchanged sense of the national interest have made Sarkozy just as supportive of the farm lobby as his predecessor, and as resistant to freer trade in agricultural produce.

Despite the bad smell left by rotten fruit and vegetable payments, France is already preparing to negotiate another stitch-up with Germany, as it did in 2002, to perpetuate EU farm spending at current levels until the cows come home.

(Editing by David Evans)