C.A.P. Reform: 'Chance to Export Freely'
September 01, 1997
by Teresa Acklin
European Union officials unveil “Agenda 2000” outlining contro-versial reforms to the Common Agricultural Policy.
Declaring that “farmers must be competitive, they must become entrepreneurs for the future, they must have the chance to export freely,” Franz Fischler, commissioner of agriculture in the European Commission, joined Jacques Santer, president of the Commission, in making the case for “Agenda 2000.”
The agenda, introduced in mid-July in a 1,300-page report, proposed what Mr. Fischler called the greatest change in the Common Agricultural Policy since the system of agricultural supports became the centerpiece of the creation of the European Community in 1962.
“The 1992 reform of the CAP has been highly successful,” Mr. Santer said. “But the time has come to deepen the reform and to take further the movement towards world market prices coupled to direct income aid. Several reasons militate in favor of such an approach: the risk of new market unbalances, the prospect of a new trade round, the aspiration towards a more environmentally friendly and quality-oriented agriculture and ... the perspective of enlargement.”
Farming groups and some E.U. member nations, including France and Germany, immediately attacked the CAP changes as unacceptable and demanded a complete rewriting, The groups threatened mass demonstrations in opposition to the change, and COPA, the principal organization of farmers working with the E.U., called the proposals “an act of aggression.”
But Mr. Fischler was optimistic about their eventual acceptance. He predicted that “after a period of reflection,” farmers would accept the argument that there was no alternative to change of the dimension recommended in Agenda 2000.
Objections primarily centered on Agenda 2000's recommendation for sharp reductions in intervention price supports for cereal grains (wheat and barley), beef and dairy products at the start of the 21st century. In the case of the cereal grains, the proposal calls for a 20% reduction in cereal intervention prices to “a safety-net level” of Ecu95.35 (about U.S.$105) per tonne from Ecu119.19 (U.S.$131) currently. The cut would take place in a single year, 2000.
To compensate for 80% of the proposed reduction in prices for cereal grains, Agenda 2000 would provide for a non-crop-specific area payment to be established at Ecu66 per tonne, multiplied by the regional cereals reference yields established in the 1992 CAP reform. The assumption is that market prices would fall slightly less than intervention prices were cut. The 80% rate reflects the Commission's belief that grain farmers had been over-compensated for the 1992 reforms, with the excess total since 1992 estimated at Ecu8 billion (U.S.$8.8 billion).
That excess resulted from market prices falling less than forecast. To avoid a similar situation with Agenda 2000, the proposal said the area payment rate would be reduced “if market prices are sustained at higher levels than currently foreseen.”
In another modification, the Commission recommended the introduction of an individual ceiling covering all direct income payments granted to farmers. This aspect was especially controversial in the United Kingdom, where farm sizes are generally larger than in the rest of Europe. Furthermore, the Commission, while excluding “renationalization,” suggested that member states should be allowed to introduce differentiation criteria in accordance with rules that have been jointly agreed.
Another important change in the CAP would fix the set-aside rate at zero percent, meaning that farmers would not be required to withdraw arable land from production in order to be eligible for intervention. The compulsory set-aside rate in the E.U. has been 5% for several years. At the same time, a voluntary set-aside program would be allowed, and land in the set-aside would be entitled to the area payments.
Current supplementary aid for durum wheat and protein crops would be continued.
In recommending these major CAP changes, the E.C. said cereals intervention stocks by 2005 could rise to some 58 million tonnes, more than twice the previous record, while the trade deficit in oilseeds would remain very substantial. In these circumstances, the Commission favors a more offensive approach, which would have the advantage of simultaneously avoiding the routine use of export subsidies, reinforcing the competitiveness of cereals on the internal market and overcoming the Uruguay Round constraints for cereals and oilseeds.
The Commission estimated that the reduction in intervention prices would save Ecu3.7 billion per year but that the expanded direct aid would cost Ecu7.7 billion, for a net cost increase of Ecu4 billion per year. Creating alternative jobs in rural areas would involve an annual outlay of Ecu2 billion.
In addition to the 20% cut in cereal grain intervention prices to be carried out in the single year, 2000, “Agenda 2000” proposed a 30% decrease in beef price supports and 10% in dairy prices.
A further important part of the CAP reform would be the adoption of rural policies that would help bolster local economies and provide alternative employment for people currently engaged in farming.
Agenda 2000 also gave major attention to the impact of E.U. expansion eventually to include many of the nations of central and Eastern Europe. The Commission told 10 aspiring nations from the former Soviet Bloc that none currently meets economic criteria for membership but added that five should do so soon. These are the Czech Republic, Estonia, Hungary, Poland and Slovenia, plus Cyprus. This list is likely to be revised before the first wave of accession negotiations are scheduled to begin in 1998, when Britain will hold the presidency of the E.U.