Flexible cap on farm spending boosts hopes for budget deal

Date: 04/02/1999

By Tim Jones

FINANCE ministers are set to give their qualified approval next week to a flexible ceiling for farm subsidies in the EU's budget for the coming seven years.

The proposal is aimed at meeting demands from pay-master governments for Union spending to be frozen in real terms in 2000-06 while providing the budgetary flexibility needed to compensate farmers for deep cuts in guaranteed agricultural prices.

During a series of talks ahead of an EU finance ministers' meeting next Monday (8 February), diplomats rejected the idea of fixing the annual cap on farm spending at a rigid €40.5 billion throughout the seven-year period covered by the Agenda 2000 proposals.

Instead, most want to set a 'target level' for 2006 of €40.5 billion, but allow agriculture ministers the flexibility to spend more heavily until 2003 to cushion the impact on beef and dairy farmers of the price-cutting reforms to the Common Agricultural Policy.

To ensure that the farm budget is kept under control, finance ministers will agree that spending could exceed €283.5 billion (€40.5 billion multiplied by seven) by a specified percentage. In principle, higher spending in the early days of CAP reform will mean tighter budgets in 2003-06.

Coming just a week after the agreement to create a 5-billion-euro fund for efficient regional aid schemes, this latest compromise has boosted hopes among diplomats that governments will meet their deadline for an overall budget deal by the end of March.

Negotiators have still to agree how to deliver tighter CAP spending in the final years of the programme. However, France proposed this week that payments to farmers based on the acreage they have planted or their livestock head-count should be gradually eroded.

Farm reform has tended to increase direct aid - rising from €15.5 billion in 1995 to €18.2 billion in 1997 - as the costs of the CAP have been shifted from consumers to taxpayers. Under the French plan, these subsidies, most of which are paid to cereals farmers, would be slashed by 35% by 2006.

The French move is designed to end the German-led campaign to transfer responsibility for paying up to one-quarter of direct farm aids from Brussels back to member states, with the aim of cutting Bonn's excessive net contribution to the EU budget by as much as €700 million.

Finance ministers are also likely to agree that the 'agricultural guideline', which sets the ceiling on how much public money can be spent on farming every year, should be lowered to align it more closely with the amount paid.

Between 1990 and 1996, the actual farm budget undershot the guideline by a total of €22 billion and, in the 2000 budget alone, the gap will be €4.7 billion.