Compensation threat to CAP

Date: 12/10/1995

By Michael Mann

EUROPEAN Union farm ministers will meet later this month to discuss a proposal which some observers believe signals the first step towards unravelling the Common Agricultural Policy.

Debate will centre on a particularly vague proposal from the European Commission which would allow EU governments to pay compensation to farmers adversely affected by currency fluctuations in another member state.

The Commission grudgingly agreed to bring the proposal forward after a marathon farm ministers' meeting in June, when France made its acceptance of a deal on animal welfare, farm prices and agrimonetary regulations dependent on an undertaking that it would be able to pay its farmers national compensation.

Although officials insist that any payments would be carefully monitored by the Commission under Article 93 of the Treaty of Rome dealing with competition policy, sceptical member states see the idea as yet another attempt by Paris to prop up its powerful farming lobby and undermine the so-called 'level playing field' of the CAP.

That the CAP still accounts for roughly half of the EU's annual budget is at least partly to do with the fact that it is the largest truly 'common' policy under EU administration.

Additional payments from national budgets are being viewed by some as the start of a 'renationalisation' of the CAP and a further move down the road towards allowing governments to provide direct support for threatened agricultural sectors and get around restrictions on aid caused by the GATT agreement.

The issue will be discussed by EU farm ministers at their meeting in Luxembourg on 24 October. Although only a temporary measure, agreement on the proposal could set a precedent, a prospect which would be greeted with dismay by farmers in countries which are known to keep a tight rein on additional spending.

The system envisaged by the Commission would allow member states to pay aid where it could be proved that currency movements in other member states had caused “considerable” income losses. But the proposal does not set out explicitly how a considerable loss should be defined, who should be compensated and by how much.

France has already prepared two schemes, one to recompense beef producers for losses in market share caused earlier this year by the weakness of the Italian lira and one for fruit and vegetable producers who have already been in the news for attacking convoys of cheaper Spanish produce.

Three countries voted against the principle of monetary compensation, the UK, Sweden and Spain. They point out, not incorrectly, that incomes differ for a number of different reasons. “A beef farmer's earnings could be affected by any number of factors which cannot be factored in objectively,” one member state official said.

Although the scheme would be limited to currency movements until the end of 1995, there is no explanation of what should happen to aid attributed in a case where the currency in question suddenly moves in the other direction.

Observers outside the cosseted world of EU agricultural policy-making wonder why farmers should receive any sort of compensation for something which is an accepted hazard for every other industrial sector. Even some of the countries who acquiesced in June to allow an overall agreement have expressed reservations about the way in which the Commission has put the idea into practice. Italy, Portugal and the Netherlands count themselves among this group.

But ministers from countries such as Ireland would probably find the adoption of the scheme a useful lever in persuading a nervous finance ministry to part with funds it would otherwise not feel able to make available.

For the moment, the Commission is unwilling to provide any more detail on paper as to how requests for aid should be judged. “There's no need for this. We can make our judgements on the suitability of each case under the usual procedures,” said one official, showing just how jealously it guards its competence on questions of competition law.

Germany, beside France the most influential country in CAP policy-making, would also favour the existence of such a system. It is likely to support the French line in return for French support for what it wanted on agrimonetary policy back in June.

This highlights the basic problem in the way decisions are taken by farm ministers. Few believe the Council of Ministers would ever have agreed to such a system had the success of a whole package of totally unrelated measures not depended on securing France's ten votes. After all, the welfare of animals in transit has little to do with movements on the currency markets.