Chill winds of change blow through the EU countryside

Date: 27/02/1997

By Michael Mann

AGRICULTURE may only account for 2.5&percent; of Europe's gross domestic product, but it continues to swallow up almost half of the EU's 89-billion-ecu budget.

Opponents of such heavy spending, not least among MEPs, question why farmers are treated so differently from all other sectors of industry and business in a Union which is increasingly embracing the free market.

The answers are many and varied: some are rational, others less so.

The modern-day Common Agricultural Policy evolved out of the ashes of a Europe still looking back with horror at the hunger of the war years. Policy-makers were clear that this must never be allowed to happen again.

With farmers dependent on climatic factors beyond their control, there was a need to ensure they would stay in business in even the blackest of circumstances. Although radically reformed in 1992, the basic CAP safety net remains in place to this day.

Despite the often detrimental effects on the landscape of modern agricultural methods, farmers are still widely regarded as the guardians of the countryside.

As Agriculture Commissioner Franz Fischler's recent sponsorship of the 'rural policy' concept highlights, there is a general recognition that people have to be kept on the land, as much as anything else because there are not enough jobs to go round in the cities.

Whatever the justifications for the system, apologists for the regime reject financial arguments anyway. Agriculture may account for almost half of all EU spending, they say, but this is hardly surprising as the CAP and its fisheries counterpart are the only two 'common' policies where everything originates in Brussels.

But the CAP is now under more pressure than at any other time in its long and chequered history.

As EU governments strive to meet the convergence criteria for the single currency, finance ministers are finally biting the bullet and attempting to hold down annual increases in farm spending.

The 1997 farm budget is 1 billion ecu lower than originally proposed by the Commission, thanks to an almost unprecedented alliance between Union governments and the European Parliament.

Similar moves are afoot for 1998. The agricultural 'guideline' - the absolute limit on farm spending - looks unlikely to rise by more than 0.5&percent; next year.

All this comes at a time when the policy is under intense and continuing pressure from the BSE crisis, which has already cost the Union over 2.5 billion ecu and will continue to cost a small fortune for the foreseeable future.

But far from filling Fischler with fear, the continuing squeeze could play into his hands as he attempts to prepare the CAP for the challenges of the next century.

Despite defensive noises from farm lobbies and powerful member states, everybody knows that the CAP has to change if the EU is to survive enlargement to the east and the next round of world trade liberalisation talks. When the shortage of money is added to the equation, the need for change becomes even more pressing.

Aware of the sensitivities of his constituents, Fischler rejects the idea of a “radical reform”, referring instead to a “deepening and development” of the 1992 'MacSharry reforms'.

But he has already made the first moves, looking for sweeping reductions in the direct aid payments to cereal farmers introduced to compensate them for price cuts forced through in 1991.

With a likely 2.5-billion-ecu shortfall looming for 1998, that plan will be refloated when the provisional draft budget is prepared. Close on its tail will almost certainly be proposals for 'modulation', setting a limit on the amount of aid a single farmer may receive.

This idea was rejected at the last CAP reform, ironically by the UK, the greatest critic of the profligacy of the policy. Since then, stories have been rife of major landowners collecting enormous sums for leaving vast swathes of land fallow - hardly good for the CAP's image.

At the same time, farmers remain protected from the normal workings of financial markets through the bizarre 'agrimonetary' system under which prices set centrally in ecu are converted into national currencies.

Although the infamous 'switch-over mechanism' which falsely inflated farm prices by 20&percent; has now passed into history, most countries' farmers remain shielded from the detrimental financial effects of currency revaluations.

Besides the question of money, other pressures for change abound, not least from the US, the EU's traditional rival in the world market-place.

Last year's 'free to farm act' has gone further than ever before in removing the link between subsidies and production and cutting domestic support.

In response, the Union will have to think of some other basis for paying support to its farmers if it is to avoid the strictures of the next round of World Trade Organisation negotiations.

Further restrictions on subsidies will force the EU to export less of its products with export refunds, necessitating a move towards world market prices, which are still far lower than European levels.

Should this ever come to pass, it would finally avert allegations that the Union is quite happy to ignore its commitment to development aid to support its farming lobby.

Besides keeping out food exports crucial to the economies of a number of developing countries, the EU has not held back from subsidising exports to third world countries which have stifled their attempts to become self-sufficient.

Sometime in the next decade, the Union will also have to begin honouring its pledge to take in up to ten countries from central and eastern Europe (CEECs). This would more than double the EU's agricultural workforce and increase the amount of land devoted to farming by 40&percent; to 200 million hectares.

But the pitfalls are huge. Union farmers live in constant fear of a sudden deluge of cheap produce from the East. Economists argue it is unnecessary and impossible to pay eastern farmers support on the same basis as those in the existing EU-15.

Whatever happens, artificially inflated prices in the Union will have to move closer to those in the CEECs, which will reduce the need to pay export subsidies to make EU commodities competitive in overseas markets. This is Fischler's aim, but it faces a major hurdle in the shape of the Council of Agriculture Ministers, still a uniquely single-minded bastion of protectionism.

His vision for the future is to transform the CAP into a wider-ranging 'rural policy', with agriculture as merely one element of country life deserving EU support. But this idea has been knocked back by the major players, France and Germany. Fischler may be forced into a more direct approach, admitting that rechannelling support payments is the only way to preserve the viability of a policy under attack from all sides.

He is also looking to improve the CAP's green credentials by linking aid to the provision of environmental services, a task of almost impossible complexity.

Unfortunately for those looking for the type of 'big bang' reform muscled through by former Commissioner Ray MacSharry, events are forcing the European Commission into a piecemeal approach.

The slump in the beef market will require further reforms this year; the current milk quota arrangements expire in March 2000; curbs in arable spending are crucial. Market situation reports are expected soon, with options for change to follow in the autumn.

As if this were not enough, the Commission also has to cope with the day-to-day problems which have always blighted the CAP.

Disagreements with the US are never far from the agenda - this spring should bring the resolution of two trade disputes in Geneva. The BSE crisis has highlighted shortcomings in health policies and seen Fischler stripped of his responsibility for food safety. And with modern technology changing what we eat more quickly than ever before, consumers are finally beginning to ask questions about how their food is produced.