Facing up to CAP dilemma

Date: 02/11/1995

By Michael Mann

The European Commission looks ready to admit that if enlargement to the east is to take place, further reform of its Common Agricultural Policy will be inevitable. Michael Mann reports that calls for a change to CAP, accounting for half of the EU's total expenditure, are becoming too loud to ignore.

THE European Commission may finally be preparing to admit what outsiders have been telling it for months - that the Common Agricultural Policy (CAP) will need further reform if the Union is serious about enlargement to the east.

Despite repeated claims about the success of the 1992 CAP reform, DGVI, the Directorate-General responsible for agriculture, appears to be preparing to shift its ground when it reveals its long-awaited options paper on CAP and enlargement in the coming weeks, in time for the December summit of EU leaders in Madrid.

Strong indications that the EU's worst-kept secret may be about to be brought out into the open came last month in a speech by Agriculture Commissioner Franz Fischler to an audience of EU officials in Bonn which went a lot further than anything either he or his predecessor René Steichen had said before.

That his comments were still guarded and that the speech was only published in German underlines the political difficulties DGVI faces when it attempts anything which threatens to upset the apple cart of agricultural policy.

“In 1992 we perhaps didn't follow things through to their logical end. Price reductions in the final agreement were less marked than initially proposed,” Fischler said, adding: “Decisive for us is to be able to compete on the world market without export subsidies.”

DGVI has consistently stressed that, on the initial evidence, CAP reform has been a resounding success. It has also resisted any talk of the need to undermine the support system enjoyed by existing EU farmers in order to enlarge the Union to include up to ten Central and Eastern European countries (CEECs).

Yet Fischler's remarks suggest the Commission may finally be preparing to admit publicly that this is an unrealistic view, particularly in light of the recent embarrassing leak of a paper from DGXVI, the Directorate-General for regional policy, which estimated that extending existing structural and cohesion policies to the CEECs would add 38 billion ecu to the annual budget.

This highlights the extent of the task facing agricultural policy-makers, as the CAP budget is far larger than the structural funds - still accounting for roughly half of the EU's total expenditure of 80 billion ecu a year. As shown by recent Commission reports on the agricultural situation in the CEECs - Poland, Hungary, the Czech Republic, Slovakia, Bulgaria, Romania, Slovenia and the Baltic States - the situation in the east lags way behind standards throughout most of the EU.

In 1992, the agricultural workforce of Poland was approximately half that of the entire EU-12. Around a quarter of the workforce in Poland, Bulgaria and Romania are still involved in the farm sector, compared with about 6&percent; in today's EU.

But no-one genuinely believes that any further changes will be made to the CAP until they become absolutely unavoidable. Agriculture ministers are notoriously conservative and unwilling to upset a lobby which still maintains an influence extending far beyond its relative contribution to the EU economy.

There are not many who envy the task faced by Fischler and his officials, given the large number of studies already submitted to the debate on the future of the CAP. Commission Vice-President and committed liberaliser Sir Leon Brittan commissioned four reports late last year from eminent agricultural economists which forecast that to transfer existing policies to the CEECs would be unrealistically expensive.

Both the UK and Sweden, who regard the CAP as the greatest single waste of taxpayers' money, have also submitted studies describing further reform as inevitable.

Fischler's recent comments appeared to point towards a deepening of the approach adopted in 1992. This would entail the further liberalisation of prices, bringing EU prices closer to the world market and rendering superfluous the General Agreement on Tariffs and Trade (GATT) limits on subsidised exports. Production controls may also be weakened, as indicated by the decision at September's meeting of EU farm ministers to substantially reduce arable set-aside.

It also seems likely that aid payments received by farmers will be based less and less on production factors, being awarded instead according to environmental or social criteria and possibly reduced over time. Aside from saving money, this 'decoupling' would also tie in with Commission President Jacques Santer's philosophy of making EU policies more palatable to the general public.

By the time former Agriculture Commissioner Ray MacSharry managed to force through CAP Reform in May 1992, the situation in EU agriculture had become untenable, thanks to the infamous food stockpiles in intervention stores and severe budgetary pressure. Changes were also crucial to unblock the negotiations in the Uruguay Round of the GATT.

Although some commentators are pointing to the need to take measures to fill the policy vacuum when the third and final year of CAP reform is completed in June 1996, Fischler has insisted all along on the need to sit back and take stock of the impact of the reform before any further decisions are taken.

Yet the case for change will eventually become irresistible, with most experts looking at the last couple of years of the decade as the most likely time for serious talks on reform. For political reasons, the Commission will undoubtedly choose to deny that this constitutes reform of reform, preferring instead to use Fischler's favourite expression: “evolution not revolution”.

Aside from the geo-political necessity of preparing the ground for enlargement, policy-makers will face similar pressures to those faced in 1991/92. Severe budgetary concerns persist. The preliminary draft budget for 1996 foresaw agricultural spending of almost one billion ecu above the spending guideline, a situation only improved by some financial juggling by the Commission in the course of this year.

By the turn of the century, the EU will also be preparing for the next round of world trade talks, the follow-up to the Uruguay Round, which runs out in mid-2001. The next round is certain to include further cuts in farm subsidies, including those compensatory payments exempted from the Uruguay Round.

Further pressure for reform will come from the other side of the Atlantic, where the Republicans in the US Congress have pledged to make sweeping cuts to the agricultural budget in the Farm Bill, which must be decided by the end of 1995. Reductions in farm subsidies in the world's other major agricultural subsidiser would have an obvious knock-on effect in the EU.

Some observers also fear that the EU may run into problems respecting its GATT commitments, as the effects of the 1992 reform are weakened by technological advances and rising yields. Under the accord, the Union agreed to reduce subsidised exports by 21&percent; and expenditure on subsidised exports by 36&percent; compared to the 1986-90 base period. It must also reduce import tariffs by 36&percent; and increase access to the EU market from 3&percent; to 5&percent; of market requirements.

Although the Commission denies any danger of missing GATT targets, Fischler admitted in Bonn that “at the end of the decade and even more so after the turn of the century, we expect that the positive effects of the reform will weaken, principally because of increased productivity”.

The Commission insists that agriculture will not feature on the agenda of next year's Intergovernmental Conference, although there is no doubt that opponents of the CAP - led by the UK - will try to use the occasion to step up the pressure for change.

In the meantime, Fischler continues to maintain that enlargement cannot be used as an excuse for a revolution in EU agricultural policy. With rapid changes taking place in the east, it is impossible to forecast how much enlargement will cost the CAP budget, Fischler believes, but insists that “the costs will not be so high that they would endanger enlargement”.