US stirs up Union farm subsidies

Date: 03/04/1997

By Michael Mann

AMONG its many knock-on effects, US President Bill Clinton's crusade to balance the US federal budget will have a growing influence on the EU's Common Agricultural Policy as the century draws to a close.

Agriculture Commissioner Franz Fischler knows reform is vital if the CAP is to meet the challenges of the next century. Perhaps the greatest of these is to prepare Europe's rural policy for the next round of world trade talks beginning in 1999.

Washington has stolen a march on the EU, and could find itself in the negotiating driving seat unless Fischler is able to persuade reticent farm ministers of the need for change.

The 1996 US Farm Bill - known as the Federal Agricultural Improvement and Reform (FAIR) Act or 'free to farm act' - goes further than ever before on either side of the Atlantic in cutting the historical link between aid payments and production.

US farmers will continue to receive support cheques, but “within reason, they can now select what they want to grow, allowing them to react to market developments”, explains an official from European farmers' lobby COPA.

This 'decoupling' of aid from production should mean that such payments are largely protected from attack in the next set of trade talks. The EU will have to do something similar if the payments introduced in the 1992 CAP reform are not to be declared inconsistent with the rules of the World Trade Organisation.

The so-called 'MacSharry' payments are still intended as direct compensation for the reductions in guaranteed prices which formed the centrepiece of the reform.

But Washington will be able to argue with some justification that they have a marked distorting effect on production as they are paid according to which crops farmers choose to sow.

That is why the European Commission is racking its brains to find another way of channelling aid to farmers. There have long been calls for payments to be redirected towards the fulfilment of certain environmental targets, but nobody has got near to a blueprint of how this should be done.

Even if the Union can defend the basis on which it pays its subsidies, the FAIR Act poses another major problem in that it will reduce internal support by 30&percent; up to 2002. In the last trade round, the EU had no problem in respecting the required 20&percent; cut in such support. Next time, things could look very different.

As world grain markets expand, sharp reductions in the amount of US land in set-aside will help Washington gain more of a foothold overseas.

Unless the Union can bring its grain prices nearer to world market levels, it will have to continue subsidising exports, a practice which will become increasingly constrained by the GATT deal signed in 1994.

US Agriculture Secretary Dan Glickman has recently become increasingly agitated about EU subsidies, threatening to use his “big stick” - subsidies under the Export Enhancement Program - to fight unfair competition.

Fischler is refusing to be bullied, but he is well aware of the scale of the US threat. Food industry analysts Produce Studies have estimated that, thanks to the Farm Bill, the US share of world trade in coarse grains will rise from 27&percent; to 34&percent;, while its share of trade in beef will rise from 17&percent; to 25&percent;. It is also set to make enormous inroads into the pigmeat and poultry markets.