Fitting a new CAP on Europe’s farming

Date: 26/04/01

A mere two years after European Union leaders emerged blinking into the Berlin daylight after thrashing out a major round of farm policy reforms, Agriculture Commissioner Franz Fischler is gearing up to ask them to do it all over again.

Even without the foot-and-mouth crisis and the never-ending BSE tragedy, Fischler wanted to use next year's pre-programmed opportunity to push through his own vision for farming with lower prices and more spending on rural development. But the two major disease outbreaks have provided the Austrian with a better chance to reshape the Common Agricultural Policy (CAP).

Shaken by the twin food scares, many commentators were quick to blame the CAP and its supposed promotion of intensive agriculture for the crises. No politician was faster to read the public mood than German Chancellor Gerhard Schröder, calling for an end to "industrialised agriculture" and appointing Germany's first Green woman agriculture minister, the redoubtable Renate Künast.

The reality is very different. Far from boosting intensive agriculture, since its inception in the late 1950s the CAP has encouraged small-scale production in most sectors, with the notable exception of cereals. It has shielded farmers from the kind of economic pressures which led to their US counterparts setting up fast-breeder units with hundreds of thousands of pigs and thousands of dairy cattle.

This compares with an average dairy holding in the EU of seven cows (and only two in applicant state Poland). The sectors of farming where the most intensive practices occur are those areas - pig, poultry meat and egg production - which receive only a small share of the overall budget compared with big beneficiaries in arable and beef.

Nevertheless, public concern over foot- and-mouth and BSE has given policy-makers an unanticipated injection of political capital. France and Germany previously had little

interest in a new round of CAP reforms, but the crises have raised the likelihood of far-reaching changes being agreed next year as part of the built-in review of the 'Agenda 2000' changes struck in Berlin.

The problem is that France and Germany do not see eye-to-eye about what kind of CAP reform they want. French farm minister Jean Glavany stresses the need for a social model - code for targeting money at smaller farmers while ensuring that France continues to keep its place in the first rank of farm produce-exporting nations. Künast's priority, on the other hand, is to boost environmentally-friendly farming.

Like her fellow ministers in the Red-Green coalition government, Kunast has had to swallow a large dose of realpolitik since taking office. As she struggles to square her ideals with the harsh realities of an international agricultural market, she will have to swallow a little more.

Brian Gardner, agricultural analyst at PRM Consulting, argues that the Green will soon find out that the model of farming she envisages will need more subsidies and market protection.

But the EU's fellow members in the World Trade Organisation are demanding less support, not more. "The German Greens don't understand international trade policy. You have to argue for more subsidies and protection in international trade negotiations which are about liberalisation," said one official. The US and other major farm exporting nations such as Australia, Brazil and New Zealand have made it clear that they will fight to reduce the money the Union pays to support its farmers.

Fischler himself is acutely aware of the conflicting demands being put on farm policy. In a recent discussion on the future of the CAP, he told his fellow Commissioners: "Not all CAP objectives are mutually supportive.

The market approach can conflict with enhancing farm incomes. Environ-mental or animal welfare standards might not be compatible with the need to reduce production costs and to improve competitiveness."

Another pressing reason for reform is the impending wave of enlargement likely to take place in 2004-2005. The applicant countries, including Poland which alone has as many dairy farmers as the current 15 EU member states, insist that they are entitled to the same aid payments as their cousins in the west. But EU leaders have simply not budgeted for this cost - another incentive to reduce compensation payments before enlargement. The huge administrative complexity of the CAP will be a nightmare to apply in states such as Poland.

Fischler has already launched some ideas to cut the bureaucracy for small farmers receiving modest subsidies. "Anything we can do to simplify (the CAP), particularly with regard to small farmers will help the candidate countries even more than it helps our member states," he said recently.

The BSE crisis has meant that the EU has to take radical action next year to deal with the new beef mountain which could reach half a million tonnes in 2002, while the Union's difficulties in exporting its large surplus of bulk milk products will mean that these two sectors at least should be due for serious reform.

Substantial price cuts are the obvious way forward but these will only add to the total farm bill if the EU continues the pattern of the 1992 and Agenda 2000 reforms which made up almost 100% of farmers' income losses through direct income aids.

Yet EU leaders have made it clear every time they have discussed the worsening beef crisis that they will not provide extra money to deal with the costs of mad cow disease or foot-and-mouth.

Some CAP analysts believe that the recent wave of public concern about farm policy may finally put enough pressure on politicians to start to seriously scale back the enormous subsidies paid to an industry with many members who do not need help from the public purse.

Brian Gardner thinks that moment may come next year with greater support for 'degressivity', or gradual reductions in direct aid. "[Ministers] will try to reduce compensation payments. With all the ranting about the relations between intensive farming and the CAP the political mood will be more sympathetic to degressivity."

But the extent of reduced direct aid EU governments are likely to agree next year will almost certainly not be enough to restore public confidence in farm policy without additional steps.

Fischler has said that "responsible agriculture has to be synonymous with economic performance, social acceptability and environmental compatibility".

One way he favours improving the CAP's image is through 'compulsory modulation' to redirect aid away from large farms, ending the scandal of 80% of the money going to 20% of the farmers.

But this may meet opposition from Künast, who will want to protect the large former state farms in east Germany which would be hard hit by a limit on aids.

A way out may be to offer member states more flexibility on how they target their payments. Within fixed spending limits to be policed by the Commission, each member state would be allowed to spend funds where they were most needed, whether for struggling hill farmers in Wales or the Pyrenees or to meet tougher environmental standards.

The timing on next year's review of the CAP will be tight, with all bets off until after the French presidential elections in May. The applicant countries, meanwhile, will be turning up the pressure on member states to strike a deal early so that negotiations on agriculture do not drag on indefinitely.

BSE and foot-and-mouth have given EU politicians the impetus to push ahead with the bold reforms they ducked in Berlin in 1999. To miss the chance again would seem like an act of sheer political cowardice. 2002 will tell whet

Major feature. The farming crisis exemplified by BSE and foot-and-mouth has given EU politicians the impetus for a bold reform of the Common Agricultural Policy. But will they seize the opportunity?