Farm agreement reached despite UK’s resistance

Date: 26/10/1995

By Michael Mann

EU FARM ministers this week adopted a controversial scheme allowing member states to pay farmers compensation for income losses brought on by currency movements in neighbouring countries.

But the meeting ended in acrimony after UK minister Douglas Hogg plunged the Council into temporary chaos by seeking to delay a decision by invoking the 'Ioannina compromise'.

The agreement will come as a relief to French Farm Minister Philippe Vasseur, on whose initiative the scheme was drawn up in the first place. But there are those who fear that it represents the thin end of the wedge and could lead to the end of the “level playing field” of the Common Agricultural Policy (CAP).

After the meeting, Hogg received considerable criticism from several of his colleagues for using the Ioannina compromise on a question of apparently minor importance. Vasseur commented: “I thought it was meant for matters of general importance.”

His anxiety was evident as France has already prepared two schemes, one to compensate beef producers for losses caused by the depreciation of the Italian lira earlier this year and the other to help fruit and vegetable growers affected by cheap competition from Spain.

But UK officials suggested that the first use of Ioannina had been successful. “The Ioannina compromise was helpful in securing a significant change to the proposal. Instead of rushing it through against a minority with 24 votes, the Council continued working to bring more member states on board,” a UK official claimed.

Hogg's resistance was indicative of just how dangerous a precedent some people believe the measure to be. “Any state aid is an important point of principle. We want to see greater clarity on the regulation. It is necessary to set out the criteria in advance so that we know the benchmarks,” he insisted.

The impasse reached after Hogg's tactical use of Ioannina finally persuaded the Commission to make an adjustment to its proposal which saw Sweden vote in favour of the deal and the UK abstain.

The rules were changed to allow the Commission to end the payments in the second or third years if exchange rates swung back in favour of the recipient farmers. Officials stressed that it was mainly a cosmetic change because the Commission would have ensured anyway that farmers were not overcompensated.

Under the agreement, aid will in principle only be paid in cases of “considerable” income loss due to “significant” currency movements and will only apply to the period between July 1994 and the end of 1995. Compensation will be reduced over three years, after which point it will cease.

There are still fears, however, that this could be the first of many initiatives by member states with a political interest in propping up their farming lobby, which would distort fair competition within the internal market.

Already, Germany has asked for permission to aid its farmers through the Value Added Tax system. The idea was put to EU finance ministers on Monday (23 October), where Spanish Minister Pedro Solbes pointed out that it risked contravening the EU's GATT commitments. Internal Market Commissioner Mario Monti suggested that it went way beyond the scope of the national aid scheme and would require changes to EU tax rules, requiring a unanimous vote in Council. “The draft regulation [on national aid payments] was arrived at as a political compromise to avoid using VAT,” Monti concluded.

The UK - supported initially by Sweden, Italy and Portugal - had long insisted that the Commission put more detail in the proposal to ensure that payments were made only for genuine losses, linked purely to currency fluctuations and did not exceed losses incurred.

The Commission consistently resisted making changes to a scheme agreed in principle at the June meeting of EU farm ministers as a condition for French support for a range of measures including agrimonetary policy, animal welfare and farm prices. It feared that anything more specific would undermine its competence for deciding on the legality of national aids.

Sceptics will now be watching closely to see if this decision really does mark the start of the 'renationalisation' of the CAP. Those outside the agricultural sector will wonder why farmers alone should be cosseted from the effects of movements on the currency markets.