Beginning of the end for the CAP

Date: 26/02/1998

By Myles Neligan

THE immediate problem the European farm sector faces is that, as international pressure for the removal of trade barriers grows, its main global competitors in the US, Australia, and New Zealand enjoy the upper hand - and they know it.

All three are dissatisfied with the trade concessions extracted from the EU during the GATT Uruguay Round, and will be demanding more - a lot more - at the WTO farm trade liberalisation talks in 1999.

At the same time, the likely accession to the EU of five central and eastern European countries (CEECs) with severely underdeveloped farm sectors early next century has called the Union's generous agricultural market support arrangements into question.

To make matters worse, the applicant countries are also lobbying hard for improved EU market access for their farm produce during the immediate pre-accession period. This has already provoked minor trade disputes with Poland and the Czech Republic.

Together, these developments spell the beginning of the end for the Common Agricultural Policy in its current form.

The European Commission, which has long wanted to reform the CAP if only to reduce its 48-billion-ecu budget, is due to present detailed proposals for reducing price support in the beef, dairy and cereal sectors next month.

It hopes that the consequent savings will pay for enlargement and that the greater export volumes which should result from lowering EU commodity prices to world levels will eliminate excess agricultural production.

Most observers agree that this scenario is highly optimistic.

Not least amongst the pitfalls along the way is the fervent opposition to the CAP reform project in several EU member states. Germany, France, and the southern countries form a hard core of resistance, while only Sweden and the UK are unequivocally in favour. More seriously, Spain, with tacit support from Greece and Portugal, is explicitly hostile to enlargement.

Madrid fears, not without justification, that its generous structural fund allocations will suffer when five cash-strapped new member states appear on the scene, and privately admits to concern at the prospect of an influx of cheap Polish fruit and vegetables on to the EU market.

Last November, Spanish Agriculture Minister Loyola de Palacio refused to endorse a Council of Ministers common position on agricultural reform in protest at a Commission plan to spend 500 million ecu a year of CAP money on pre-accession aid to the CEECs.

With regard to the EU's trade partners, the situation is scarcely any better. Australia and New Zealand, always highly dependent on exports, have the most competitive farm structures in the world.

The US, meanwhile, substantially abolished its limited market support arrangements in 1996. All three are thriving in the market-driven environment ushered in by the Uruguay Round. This is particularly true of the US, which enjoys a healthy and growing 2.3-billion-ecu farm trade surplus with the EU.

While they grudgingly admit that matters have improved since the 1992 CAP overhaul, all three also complain that the Union has been slow to implement the reduction in export subsidies agreed under GATT and have indicated that they will be pressing the EU on this in 1999.

Nor are they impressed with the present CAP reform project, which they see as a panic response to external developments rather than a genuine attempt to build a strong, competitive farm sector. "Everything that comes out of Brussels is a compromise. But sometimes you need leadership, not compromise," said one US agriculture official.

Finally, it is hard to exaggerate the severity of the practical problems thrown up by enlargement.

Approximately 27% of the CEECs' labour force works in agriculture, generating just 8% of gross domestic product. This compares with figures of 4% and 2% respectively in the EU 15.

Also, CEEC farms are small underdeveloped agricultural units and their veterinary and food safety standards frequently lag behind those of the EU. If they were to join the Union in one fell swoop, the extra cost has been estimated at 11 billion ecu per year.

Unsurprisingly, the Commission favours a gradual approach, under which the conditions for accession would be fulfilled by allowing commodity prices in the EU and the CEECs to converge through step-by-step trade liberalisation. Once again, there are many potential obstacles, including the strong likelihood that this price alignment will take place at different rates.

One thing is certain: this process cannot even begin unless the reform of the CAP is seen through to a successful conclusion.

Feature forms part of a major survey on world trade.