WYN GRANT'S CAP PAGE

NOW I'M BLOGGING THE CAP

This page has now been changed to a blog format. This is because of prospective changes in Tripod's hosting policy and the ease of the blog format. This page will be maintained as an archive for as long as possible. If it does disappear, it should be possible to visit a cached version via Google. We now have a number of (hopefully) interesting stories on this new page at CAP Blog

The photograph shows the writer of this page acquiring an early interest in farming.

Seattle Conference on Trade Liberalization A report has been made available on a linked page. Go to Seattle conference.

Richard Baldwin has written a chapter on the CAP which students may find helpful. It is available at Chapter

For a reflective overview of the recent reform debate, placed in the longer term context of CAP reform efforts, please go to: Reform Overview

Visit to Western AustraliaI recently returned from a very interesting conference on the future of farmers' representative organisations held at the Edith Cowan University in Jondalup, Australia. A summary report can be found at Jondalup . This page is also acts as a general page for more detailed discussion of enlargement issues, e.g., a report has now been placed on there on the state of the food industry in the accession states and also on an earlier conference on eastern enlargement held in Tartu in Estonia.


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NEW BOOK ANNOUNCEMENT

Agriculture in the New Global Economy by William Coleman, Wyn Grant and Tim Josling will be published in September by Edward Elgar. The book examines the extent to which the political economy of the food chain is being transformed by globalization. Further details are available on the Edward Elgar web page (there is a special price for purchases on the web). Go to Edward Elgar and use the quick search facility.

BOEL PLAYS A STRAIGHT BAT

Incoming farm Commissioner Mariann Fischer Boel plays a straight bat in her written answers in preparation for the forthcoming European Parliament hearings on her appointment. Essentially she defends the current Commission line, confirming that no radical departures in policy can be expected.

She does express regret that the constitutional Convention and the subsequent IGC decided not to update the treaty objectives for the CAP which have remained unchanged since the adoption of the Treaty of Rome. As she notes, 'the list of objectives still reflects the post-war situation of the 1950s, when the primordial aim of the CAP was to ensure the European population a security of supply through increased agricultural productivity.' While her criticism is well founded, any attempt to re-draft the treaty objectives would have opened a can of worms.

She does signal a new look at the reform of the wine sector, expressing concern about both its competitive position and difficulties encountered in implementation of the existing policy. She notes that the new wine producing countries provide consumers with more information on varieties and their homogeneity. In contrast European quality control systems do not offer consumers the homogeneity they increasingly expect. She also notes that member states have found it difficult to regulate unauthorised and new plantings.

She is insistent that the CAP reform will have no impact on competition, arguing that member states can only maintain some limited dgeree of partial decoupling of direct aids. She is dismissive of any idea that there will be a progressive re-nationalisation of the CAP. However, this issue is likely to rear its head during her tenure. Some commentators consider, however, that there is considerable scope for countries like France to continued with coupled support in a way that could lead to ongoing surpluses. It is felt that the issue might need to be re-visited before the planned review in 2008.

A recurrent theme throughout her answers is an underlying concern about the financial position of the CAP. She admits that financial ceilings could be exceeded by 2007 with a likely overspend of approaching €1 billion by 2013. Single farm payments would then be scaled back. It is evident that she is concerned about the cost of future enlargements. She notes that in Bulgaria and Romania the share of agriculture in employment and GDP is higher than in most of the new member states. She also points out that these countries have an unfavourable market situation and large numbers of subsistence and semi-subsistence farmers. When they are fully phased in, they will account for six per cent of the CAP budget in the EU-27. She also admits that there are similar problems in Croatia, although she tries to brush the problem aside by saying that there are no official estimates yet of how much membership would cost the CAP. She also avoids the controversial question of Turkish membership by saying that she will be happy to discuss it in the future when the Commission report on the subject is available.

Speculation that she might take a harder line on GM crops is not evident in these answers. She states that 'I believe that no form of agriculture (GMO or non-GMO) should be excluded in the EU in the future.'26/9/04

€3.1bn FRAUD BILL

€3.1bn has gone missing from the CAP since 1971 and most of it has not been recovered according to a report from the European Court of Auditors. Just €537m or 17 per cent has been reclaimed from beneficiaries and only €252m had been written off by 2002. The remaining 75 per cent of irregular payments are supposedly still 'pending'. Spending on fruit and vegetables and export refunds accounted for over half the total. Italy was the main offending, being mentioned twenty-two times in the list of twenty-nine cases. One incident involved €171m of misspent funds in the oilseed sector while another Italian case involved €119m for cereal export refunds. The court blamed the low rate of recovery in part on national delays and in part on the Commission's reluctance to accept offers of partial settlement. A 'blacklist' of offending companies and individuals had proved unworkable.26/9/04

FISCHLER BLAST ON TURKEY

Outgoing EU farm commissioner Franz Fischler has attacked plans to begin EU membership talks with Turkey. In a nine page letter to fellow commissioners, he states, 'There remain doubts as to Turkey's long-term secular and democratic credentials. There could ... be a fundamentalist backlash.' Fischler warned that Turkish EU membership could cost €11.3bn a year in agricultural subsidies, a figure that other commissioners dismissed as speculative. He broke it down in terms of €8bn in direct payments, €1bn in market measures and €2.3bn in rural development spending. 'Broadly speaking, in Turkey agriculture is a highly protected sector', Fischler commented. Its supoport systems are very different from those of the EU and it would be vey difficult to implement sophisticated control systems such as IACS there. The Commissioner does not believe that the same methods of phasing in for CAP payment used in the esatern enlargement could necessarily apply to Turkey. Fischler argued that Turkish membership was largely backed by the US and the UK who might not be concerned that Turkish accession would weaken the EU's political project.

Fuschler returned to the subject in answering questions from the European Parliament's Agriculture Committee. He said that in broad terms Turkish enlargement would cost the CAP about as much again as the recent enlargement which brought in ten countries. He noted, 'there are areas in Turkey with considerably higher prices than in the Community now. Wheat prices are 30% higher than in the EU and it's not just wheat.'Updated 27/9/04

Budget pressures may came back

A panel on the CAP at the ECPR International Relations Standing Group at The Hague on 9 September agreed that international trade reforms had been the main driver of CAP reforms since 1992, but agreed that budgetary pressures could re-emerge as a key factor, particularly when membership was extended to Bulgaria, Romania and possibly Croatia. A paper by Nottingham Trent University's Robert Ackrill pointed out that part of the price of securing CAP reform included guaranteeing current national shares of CAP spending with France the main beneficiary in total terms and Ireland the biggest beneficiary per capita (€450 per person in 2002). In contrast the Netherlands has seen its receipts fall from a peak of €2 billion in 1988 to less than €700 million a decade later. Ackrill also pointed out that the new member states will receive lower per hectare payments even after 2013 because they are based on depressed yields in the transition period.

Budget pressures will also be exacerbated by new direct aid payments for dairy and sugar. One consequence is likely to be that the 'financial discipline' provisions agreed under the reform package will be utilised regularly. They provide for automatic reductions in Single Farm Payments whenever budget ceilings are under threat.12/9/04

BOELED OVER

As forecast in our earlier report below, former Danish farm minister Mariann Fischer Boel is to be proposed to the European Parliament as the new EU Commissioner for Agricilture and Rural Development. Like Franz Fischler she will be responsible for wider rural affairs, but it has sensibly been decided to detach the tricky subject of fisheries and give it to Malta's Jorg Borg. The new trade commissioner will be Britain's Peter Mandelson, a controversial figure in domestic politics but known for his dedication to European integration.

The nominee for Agriculture Commissioner

One characteristic that Mariann Fischer Boel does share with her predecessors in the job is that she is a farmer, or at least she was until she became a cabinet minister in 2001. After that she drew her salary from the state and left the running of the family farm to her husband. (She inherited it from her father who was the inventor of Danish blue cheese). However, the 330 hectare farm, on the island of Funen in central Denmark, qualifies for subsidies on the same terms as every other working farm in the EU and is believed to receive around €80,000 a year in direct payments. And this has led to complaints from Denmark's Red-Green Alliance, a far-left grouping of greens and former communists who claimed that Ms Fischer Boel would be incapable of acting without bias in the forthcoming round of agriculture subsidy discussions. However, most former agriculture commissioners have been farmers: even Franz Fischler has what amounts to a 'hobby farm' in an alpine region of Austria.

Fischler - hobby farmer?

Prime Minister Anders Fogh Rasmussen's office said that he had taken full cognisance of the rules on the business activities of commissioners in making the appointment. Article 213 of the Treaty of Nice bans commissioners from undertaking any form of business activity, either paid or unpaid, for the duration of their term in office. The prime minister's office stated, 'It is our opinion that Fischer Boel's ownership of a farm from which she does not draw a business-related income is not the same thing as the treaty's understanding of acting in a business capacity.' But it added that the Commission would have the final say on the matter.

On August 18th legal experts at the European Commission cleared the Commissioner designate of any financial conflict of interests between her land ownership and her new role. A Commission spokesman stated that the Commission's legal service had looked at the situation and had found that there was no incompatibility with EU treaty law. Mrs Fischer Boel's accountants submitted details of her financial holdings to Commission lawyers earlier in the week and they concluded that under Danish law she had done everything possible to avoid a conflict of interests. 'She has put clear distance between ownership of he land and exploitation of the land for agricultural purposes', a Commission spokesman stated.

Perhaps what the Red-Green Alliance was really worried about was her likely stance in the job. As an economic liberal from a northern state long associated with the reform camp, it is likely that she will continue to pursue the reformist path laid down by Franz Fischler. During the Danish EU presidency in 2002 she established a reputation as a firm but fair negotiator. The general assessment was that she had been a great success in securing progress on enlargement and future CAP funding. She is a strong advocate of improved animal welfare and made it one of her top priorities during her term as president of the EU Farm Council. She has also taken a consistently anti-GM stance, voting against Commission proposals to approve new varities of GM maize. Beth Hoghen of the NFU Brussels office commented, 'Franz Fischler was a strong personality who often forced his ideas through. Mariann Fischer Boel is more of a networker and an alliance builder. She's a reformist, but not driven to make changes for change's sake.Updated 23/8/04

WOMAN MAY BECOME NEW EU FARM BOSS

Traditionally the crucial role of EU farm commissioner has gone to a person fulfilling four criteria:

With all nominations for the European Commission in, it now looks as if the most likely candidate for farm minister is Danish food, farm and fisheries minister Mariann Fischer Boel. She was selected for the Danish nomination in preference to immigration minister Bertel Haarder. Her selection has been helped by other candidates dropping out along the way:

5/8/04

FRUIT AND VEG REFORM LESS FRESH THAN IT SEEMS

The Commission has been in a self-congratulatory mood recently about the success of the reforms to the fruit and vegetable reform it introduced in 2001. Admittedly, anything has to be an improvement on the old regime which saw large quantities of surplus produce being left in ditches to rot. But this page was suspicious of the somewhat corporatist producer organisations which now receive some €450 million a year, a larger sum than the €350 million which used to be spent on market intervention and export refunds. The regime as a whole costs some €1.6 billion a year. Of course, it has to be remembered that the regime was in part set up to correct the northern bias of CAP spending by providing some funds for southern products (many northern vegetables are outside the regime or only marginally involved)

In a review of the regime Agra Europe argues that the reformed regime has been of benefit to producers but has done little for consumers and taxpayers. The fruit and vegetable tariff system remains largely changed, often to the detriment of developing countries. In practice, the Commission is encouraging cartelisation in the sector, providing advantages for those producers within the producer organisations. Moreover, the scheme carries high administrative costs and lacks transparency. Much of the funding is in the hands of the producer organisations themselves, providing opportunities for misuse of funds and even fraud.

Agra Europe reckons that a fully liberalised system would drive down prices and improve availability and quality. This would in turn lead to higher consumption of fruit and vegetables, boosting producers' incomes and improving consumers' health. What this rosy picture overlooks is the existence of 'food deserts' in many inner city areas inhabited by the less well off where fruit and vegetables are either not available at all or are poor quality and highly priced. Consumer co-ops are trying to tackle this problem, but their coverage is patchy and they often depend on a few key individuals.24/8/04

DOHA ROUND FARM TRADE DEAL

The usual last minute agreement has been reached in the Doha Round on farm subsidies. At the moment it is still a framework agreement on so-called 'modalities' and more detailed discussions will be necessary beginning in September. As usual, the devil will be in the detail. The way for an agreement was paved during a long meeting between the so-called 'Five Interested Parties' - the EU, the US, Australia, Brazil and India. This is itself a reflection of the way in which power has shifted away from the old EU-US duopoly or from the 'Quad' which involved the other G-7 players in the form of Canada and Japan. Brazil's foreign minister Celso Amorim, a key player in the final discussions, saw the successful completion of the negotiations as a key component in Brazil's strategy of positioning itself as a world power and as leader of the somewhat disparate coalition of G-20 countries. For Commissioner Lamy and USTR Zoellick there was the incentive of concluding a deal before they leave office in a few months time.

We will be providing more analysis of the shape of the deal in the coming days, but against French opposition, the EU made a key concession to phase out all export subsidies by the end of the Doha Round implementation period. In return it got language in the text on the US's export credit and food aid programme and on so-called 'single desk' export selling bodies such as the Canadian Wheat Board whose future is now up for grabs. It was also agreed that overall domestic support ceilings will be reduced by twenty per cent in the first year of the agreement in an attempt to make the deal palatble to less developed countries. The principle has been established that higher levels of trade-distorting (i.e., not all) will be subject to the deeper cuts. This means that the EU with the highest Aggregate Measure of Support of any WTO member will be subject to the sharpest reductions. The Blue Box survives, but with a cap on the value, but this should not pose too many problems for the EU with the arrival of the Single Farm Payment. One possible problem for the future is a commitment to re-evaluate Green Box criteria to ensure that what goes in it is made up of genuinely non-distorting domestic subsidies. In practice, few subsidies have no distorting effect on international trade and some countries may use this as a mechanism to question the legitimacy of the EU's Single Farm Payment, although the Commission view is that it would survive scrutiny.

Market access

Market access has been one of the most difficult subjects to resolve during the agricultural negotiations, given the wide variety of interests involved. Import tariffs are to be reduced based on a 'tiered' formula with higher tariffs subject to bigger cuts. All countries other than least developed countries will have to offer at least some reduction. Countries will be able to nominate certain products as 'sensitive'. These products would be subject to less tough cuts, although even in these cases there would have to be some improvement in market access through a combination of tariff cuts and quota increases. A proposal to require a minimum cut in out-of-quota tariffs on such products was dropped at the last minute, in response to pressure from countries like Japan and Switzerland. At one time it was suggested that countries would be able to designate as many products as they liked as 'sensitive' provided there was a tariff rate quota which would have no doubt led to a very high sensitivity ratio. This absurd proposal was dropped and countries will only be able to nominate a 'appropriate number' of sensitive products. What this number should be will be one of the tricky subjects to be dealt with in further negotiations. It should also be noted that provision has been made for negotiated reductions in 'de minimis' payments (they are currently exempted from WTO rules when they account for less than five per cent of the value of production in any product).

Cotton has been a particularly sensitive topic in the negotiations, producing a direct clash between the interests of highly subsidised wealthy American farmers (in an election year) and poor farmers in the sub-Saharan states of Africa. A special sub-committee is to be set up to provide an 'ambitious, expeditious and specific' solution to the problem, but the compromise arrived at means that the final agreement will be framed within the overall Doha Round package on agriculture.

France

France has been very reluctant to see export subsidies scrapped and this caused significant negotiating difficulties for EU commissioner Lamy. President Chirac, once a minister of agriculture and often still seeming to regard himself as the real French minister of agriculture, felt that Mr Lamy was not defending the nation's farmers with sufficient ardour. President Chirac appeared at one time to be willing to sacrifice the Doha Round to protect France's farmers. However, it became increasingly difficult for him to defend export subsidies and at the same time claim that he was a champion of the market access needs of developing countries. With his eye on history, the role of statesman became more important than the mantle of politician.

Canada emerges bruised

Once a major deal maker through the 'Quad' structure, Canada emerged bruised from the deal in Geneva. Canadian Trade Minister Jim Peterson commented, 'I have to be honest with you, we were under attack, It was once against 146. We had absolutely no allies at the negotiating table.' The Canadian Wheat Board, monopoly marketer of wheat and barley for 85,000 farmers making it one of the world's biggest grain exporters, considered itself placed in jeopardy. Board chairman Ken Ritter complained that the US, the EU and Australia had ganged up against Canada. However, there are some Canadian farmers who feel that they could get a better deal from a more competitive system. Cherilyn Jolly, president of the Western Canadian Wheat Growers Association based in the prairie province of Saskatchewan, said that the wheat board should exist as an option rather than a monopoly (thus undermining the Board and possibly creating better opportunities for some westren producers). The government guarantees on Wheat Board losses now provided by Ottawa are specifically targeted in the framework agreement and a possible compromise would be to dismantle government guarantees while maintaining the single-channel marketing system. Updated 9/8/04

CROATIAN AGRICULTURE PRESENTS ADMISSION CHALLENGE

The decision at the European summit to start admission negotiations with Croatia poses a challenge in terms of the state of the ex-Yugoslave state's agriculture, particularly if the country's own target of admission in 2007 along with Bulgaria and Romania is to be set (but their membership could well be delayed). The country's farm structure is typified by smallholdings. Agriculture, fishing and forestry account for one about one fifth of all jobs in Croatia which currently has an unemployment rate of sixteen per cent. Croatian premier Ivo Sanader told European Voice , 'We want to change the culture of agriculture. We would like to encourage people to switch to more attractive products in order to be able to export.' Such a switch takes time, however, and at the moment Croatian agriculture seems to have quite a similarity to that of Poland, although with far fewer farmers in total.3/7/04

LEAKED SUGAR REFORM PLANS CONFIRMED, BUT ONE MAJOR CHANGE

Franz Fischler's widely leaked plans to deal with the unreformed sugar sector have confirmed. However, there is one major and politically interesting change: the new direct aids will also be given to new member states. Until now, the Commission has always taken the view that any direct aids introduced after the accession agreements were signed must also be phased in. The change made for sugar comes as Poland launched a legal challenge against the Commission's view on the phasing in of direct aids. Agra Europe described the concession as a 'stunning victory' for the new member states and it is certainly suggestive of the way the balance of power has changed in the EU since the latest enlargement. The cost of the concession may be a concern for EU-15 governments, particularly as it might mean less money for western memner states. It may also open up the question of other direct aids agreed after the accession treaties were signed, notably milk.

Under the reform proposals the intervention mechanism and price would disapper and be replaced by a reference price. This would be used to determine the minimum price to be paid to beet producers, the trigger level for private storage and import prices. The guaranteed sugar price would be cut by one third between 2005 and 2007. The A and B production quotas would be merged and sugar quotas would be cut from 17.4m tonnes to 14.6m tonnes a year. Quotas would be transferable between member states to facilitate the restructuring of the industry. However, no changes would be made in the arrangements for so-called C sugar, over quota production that is currently exported without subsidy. Countries such as Brazil argue that the C sugar exports are effectively cross-subsidised by A and B quota export subsidies. Subsidised sugar exports would drop from 2.4m to 400,000 tonnes a year to the benefit of developing countries. However, the EU comtinue to insist that a quantity of subsidised exports equivalent to the 1.3mt which the EU imports from the ACP countries is exempt from WTO subsidy limits. A new direct payment would make up for about 60 per cent of the revenue loss suffered by beet growers as a result of price cuts. While the reforms of themselves may not seem startling, as a senior Commission official told the Financial Times 'The system resembled a house of cards - and if you pull one card out, the house starts to collapse.' Agra Europe commented in its 25 June issue, 'The charmed life which the European sugar industry has led for the last 30 years appears to be coming to an end.'

The EU faces a number of pressures for change. Export subsidies on sugar are a key issue in the Doha Round given its importance as a crop to a number of developing countries. Imports will start to increase once the Everything but Arms agreement affects sugar in 2009. The sugar regime itself has to be renewed every five years or so and the current regime expires in July 2006. Franz Fischler wants an orderly transition to a new system that would allow the most competitive sugar beet farmers in Europe to survive. But there will be many losers and many of them are in politically sensitive areas while the sugar lobby is a formidable foe. There can be little doubt that the proposals will be watered down before final adoption. Fischler will not be in post to see the reform to fruition (the Dutch farm minister is now being tipped as his successor), but at least he will have started the ball rolling. Agra Europe notes that 'The present EU sugar regime is probably the closest thing to a Soviet-style command economy that western Europe has ever seen.'

Oxfam and WWF issued a joint statement criticising the reform plans as 'half-hearted'. They stated that the planned changes would not reduce poverty or achieve higher environmental standards and would continue to allow subsidised exports which damaged producers in developing countries. Elizabeth Guttenstein, the Head of WWF's European Agriculture Programme, commented, 'Today's propsal shows that the EU has shut its ears to the needs of developing countries and placed the interests of big farmers and processing companies ahead of everything else.' However, two of Europe's biggest sugar producers, Danisco of Denmark and Sudzucker of Germany, saw the value of their shares fall after the announcement. Danisco warned that profits from its sugar division would be cut by a quarter in a couple of years. Sudzucker, whose quota accounts for 22 per cent of the total annual production quota, said that the changes would result in redundancies.

Nevertheless, the bigger players in the industry should be able to ride out the storm. An industry source told European Voice , 'Some of the more peripheral areas of Europe see their very existence being questioned whereas the bigger players in France, Belgium or Netherlands and Germany say "we can handle this." We all recognise reform is going to happen. With Everything But Arms and the flow of imports it will lead to, things have been arranged in such a way that the status quo is not an option.'

Implementation delayed

Implementation of the reforms will no longer be possible from the beginning of the 2005/06 marketing year as the Commission suggested in July. Following the favourable WTO decision on the complaint about the sugar regime lodged by Australia, Brazil and Thailand, the Commission's view is that it would be sensible to await the final outcome of the WTO panel before tabling full legal reform proposals. The WTO ruled that the EU's sugar export system contravenes world trade law in certain respects. In particular, it found that the EU's officially unsubsidised exports of non-quota 'C' sugar were in fact cross-subsidised by the high prices derived from 'A' and 'B' quota production. The WTO panel also said that the EU is not justified in excluding from its subsidised export declarations volumes of sygar equivalent to the 1.6mt sugar the EU buys each year, at the full EU price, from developing counrries.Updated 27/9/04

RICH FARMERS STILL RECEIVE BIG SUBSIDIES

Farmers in rich countries received €229bn (£140bn) in financial support from taxpayers and consumers in 2003, amounting to 32 per cent of gross receipts according to the OECD in its latest survey of member states' agriciltural policies. However, the good news is that many countries are moving towards subsidies that are less trade distorting. Farmers in Switzerland, Norway, Korea and Japan are the most heavily subsidised, receiving between 58 and 74 per cent of their gross receipts through government support. The OECD also criticised the US for its failure to implement anything but 'modest' reforms in the farm sector. While support is lower than the 1986-88 average, it is above the level of the mid 1990s and the most production and trade distorting forms of support are still significant. However, farmers in the US are still substantially less reliant on subsidies than their European counterparts.

Agricultural market support measures accounted for 37 per cent of the value of EU farm production in 2003, the highest figure since the late 1990s and not far short of the all time peak of 39 per cent of PSE. However, an indication of the way in which the CAP has evolved is that the prices received by EU farmers in 2003 were on average just 34 per cent above the international market level compared with 72 per cent in 1986-88. The OECD thinks that the recent CAP reforms will have a modest impact on levels of output, although the effect on net exports could be somewhat larger.13/6/04

IS CAP GOING TO BECOME LESS GREEN?

A report in the Financial Times in June suggested that agri-environmental schemes may be made voluntary rather than compulsory, but the Commission confirmed that they would remain a requirement when it announced its rural development plans in July. If they had become optional, yhis would certainly have meant that fewer such schemes would have been introduced, particularly in the newer member states where they are particularly needed to deal with threats to biodiversity. There has been some concern about the mixed track record of past agri-environmental schemes which have been criticised for poor delivery and high administrative costs. However, recent schemes have overcome such problems and are now considered to be more effective. The threat drew an angry reaction from leading environmentalists. The Financial Times noted, however, that 'the move would be welcomed by European farners concerned that the emphasis on environmental farming could undermine their international competitiveness.' A spokesman for commissioner Franz Fischler insisted that 'The environment is a sacred cow for Mr Fischler. The overall objective is that the environment will be important, not less.'

Is multifunctionality for real?

The EU's multifunctionality policy is often criticised as a means of perpetuating existing agricultural subsidies in a more acceptable form in a liberalised agricultural trade regime. However, its role in appeasing public opinion within Europe is often overlooked. Last week I was involved in the examination of a very interesting PhD at the University of Southern Denmark concerned with the institutionalisation of the discourse of organic farming in the EU. This led me to think about how far multifunctionality in general, and organic farming in particular, is a form of window dressing that promotes an acceptable face for the CAP while intensive forms of farming continue in the background. Equally, there could be a plausible policy case for having a more multi-functional emphasis in marginal areas and a more competitive emphasis in more productive areas (but still with environmental safeguards protected by cross-compliance).6/6/04

THE BATTLE OVER KING COTTON

Most of the stories we post on this page are about the Common Agricultural Policy and its effects on third world countries, the environment and taxpayers. That's appropriate enough given that this page is produced from within the EU. But we are aware that agricultural politics is just as murky in other parts of the world: in Japan and Korea; in Switzerland and Norway; and, most significantly, in the United States. Our story about King Cotton is not just a story about misplaced subsidies, it is also a story about a threat to the ability of academics to speak truth to power.

In a preliminary decision in late April, the WTO ruled that the US regularly exceeds its WTO limit of $1.6bn of subsidies to American cotton producers. The challenge was mounted by Brazil, although it is poor countries in Africa that lose out most. According to US Department of Agriculture data, American cotton producers received nearly $20bn in direct and indirect subsidies from 1995 to 2004. In his excellent 'Letter from Illinois' that appears in the UK publication Farmers Weekly Alan Guebert notes the symbolic importance of cotton in the United States. He states, 'Cotton is to America what wine is to France ... and sheep are to New Zealand. Attacking US cotton is like spitting in church; it is simply not done.' He notes some facts about the composition of key committees in Congress:

Guebert concludes, 'American cotton farmers are protected by rock-hard layers of thick political insulation that no one has successfully penetrated since the rise of modern American farm programmes in the 1930s.' Now, for the first time, the Cotton Club is being challenged. The New York Times and the Wall Street Journal have run critical editorials. And Big Cotton doesn't like it.

Is criticising cotton a treasonable act?

The Brazilians happened to hire the Chicago-based law firm of Sidney, Austin, Brown and Wood to make their case against US subsidies. They in turn hired University of California economist Dan Sumner to carry out some econometric analysis of the impact of cotton subsidies. He concluded that without the subsidies US cotton exports would have fallen by 41 per cent between 1999 and 2002 and the world price for cotton would have risen by at least 12.6 per cent. He now finds himself accused of betrayal by the cotton industry. Earl Williams, chief executive of the California Cotton Growers and Ginners Association, stated, 'If this was governmental or military related, it might be called treason and court-martial proceedings would be in order.' Mike Frey, chairman of the California Wheat Commission (quite why cotton is their business is unclear to me), stated, 'Here you have a university employee working for a quasi-governmental agency, whose wages are paid in large part by the agricultural community, and he's using his position against us.' Without having specific knowledge, I would have thought that the professor's salary was met by taxpayers at large who might not think it in their interests to give large subsidies to cotton farmers.

These fulminations of industry representatives might be dismissed, but the response of the University of California would seem to be less than satisfactory. Admittedly, state universities in the US were originally set up in many cases as 'land grant' schools with a mission to help farmers and there is a long tradition in many such universities of working closely with agriculture. Nevertheless, does this justify the comment by Jim McDonald, executive associate dean at the agriculture college at the University of California, that while Professor Sumner is free to research whatever he wishes, he has compromised his position as director of the university's Agriculture Issues Centre, 'which carries out research intended to be beneficial to the state's farmers.' Without being familiar with the mission statement of this institute, one might have thought that it would have been required to undertake objective analysis of agricultural policy problems. Fortunately, Professor Sumner is refusing to back down.23/5/04

GM MORATORIUM IS OVER

The unofficial European Union moratorium on approving new GM products is over with the news announced on 19th May that the Commission has approved a new product for the first time since 1998. The College of Commissioners voted to allow Syngenta to market its Bt. 11 maize for food use in the EU in the form of sweetcorn. Because the Farm Council did not have a qualified majority against authorisation in April, the decision passed to the College of Commissioners. The Standing Committee on the Food Chain and Animal Health was also deadlocked. The original marketing application was lodged in the Netherlands and received a favourable opinion.

This does not mean that all other applications in the pipeline will be approved as each one will have to be considered on its merits. Nor will it necessarily dipose of the complaint brought before the WTO by the United States and other countries. A US official commented that it was a first step in a long process and they were adopting a wait-and-see attitude. The official noted that 'Even this ine case took a long time, going to the Council, then to the Commission.' The US had hoped that a scientific endorsement based on risk assessment would have been sufficient. Consumer resistance to the products will remain high (Monsanto has had to abandon its plans to market GM wheat) and no doubt retailers will be pressurised not to stock them.19/5/04

EU OFFER TO ABOLISH EXPORT SUBSIDIES

The European Union has offered to eliminate export subsidies on farm produce in an effort to revitalise the Doha Round trade talks, assistance that is currently worth €2.8 billion. Such a step has often been called for by trading partners, but it does not come without strings attached which may pose problems in an election year in the United States, although the Commission takes the view that there is a small window of opportunity between now and July before the election campaign gets fully under way. Trade commissioner Pascal Lamy has insisted that the US would have to offer a serious reform of its system of domestic support. 'Parallelism' in the elimination of export subsidies has long been a central demand of the European Commission. What this means is that the subsidy element of US export credits and food aid (which Brussels does care about as an issue), along with the State Trading Enterprises ('single desks') that play such a central role in the food economies of Australia, Canada and New Zealand, would have to be eliminated. Yet officials acknowledge that calculating this subsidy component will not be straightforward. Moreover, following the OECD talks in Paris, Canada made it clear that it could not countenance any curtailment of the role of the Canadian Wheat Board. The underlying political reality is that Brussels is not that much bothered one way or the other about STEs. However, jumping on the bandwagon of Washington's campaign on the issue is seen as a useful way of driving a wedge between the US and the Cairns Group.

Some concerns were expressed by member states about the Commission's initiative at an informal Farm Council in Killarney on 11 May with France being the most vocal critic. A common complaint was that the timing of the offer was poor and that it represented a tactical error since it meant that the EU had put its cards on the table before trading partners had done the same. French farm minister Hervé Gaymard argued that the EU risked 'paying twice' by making two sets of concessions, one in the current talks with the Merocosur bloc, and then again in the WTO.

The initiative comes against the background of attempts to revive the stalled talks in which USTR Robert Zoellick has been prominent, purporting to act as an 'honest broker'. A select group of trade ministers met in London at his invitation at the end of April. As well as the US and the EU, ministers from Brazil, South Africa, Mexico and Kenya represented key developing country constituencies. There was then a bigger mini-ministerial in mid-May hosted by Mexico on the sidelines of the OECD meeting in Paris involving twenty-eight countries. Zoellick was relatively upbeat after this meeting arguing that the WTO now had a better than 50-50 chance of meeting its end of July deadline for elaborating a 'framework' agreement on agriculture. However, he criticised Japan for its reluctance to agree to further opening of its highly protected markets for rice and other key products. Other countries faced politically sensitive issues, he noted, but they did not allow themselves to be paralysed by them.

Market access issues remain a difficult area with Brazil raising again on behalf of the G-20 the issue of cuts in farm import tariffs following the Paris meeting. The EU and the US favour a 'blended' tariff reduction formula which would allow the EU and Japan together with South Korea and Switzerland to keep high tariffs on some politically sensitive goods, while making more generous concessions on others. However, the Cairns Group argues that this approach would prevent them from gaining genuine increases in access to rich countries' agricultural markets. Tensions within the G20 group have complicated the situation. Some members such as Brazil have indicated that they are prepared to be more concilatory but others such as India are taking a harder line and resisting amy agreement that would require them to cut their own farm import barriers. In Zoellick's view the hardest issue in the farm talks could be how much such countries are prepared to open their own markets in exchange for subsidy cuts by the EU and the US.

Signs of flexibilty are evident in the acknowledgement by least developed countries that they may drop their insistence that cotton subsidies are treated as a separate issue in the negotiations. They have not given up on their determination that cotton subsidies should be curbed: campaigners argue that they are ruining the market for millions of growers in poor African states. However, by accepting that cotton aids could be dealt with in the framework of the overall agricultural agreement, they are moving closer to the position of the US which, as the world's leading cotton subsidiser, has been implaccably opposed to a separate agreement on the subject. The LDCs made a further step towards flexibility by agreeing to WTO talks on trade facilitation, one of the so-called Singapore issues that wrecked the Cancún talks.

11/5/04

WHAT ENLARGEMENT MEANS FOR AGRICULTURE

The enlargement of the EU from fifteen to twenty-five countries with most of the new members former Communist states that are considerably poorer than the EU-15 is a major milestone in the history of European integration. The immediate implications for agriculture are less dramatic with no 'big bang' effects expected. There has effectively been free trade in many commodities for many of the accession states for some time. Farmers in the new member states will receive considerably less in the way of subsidy than their western countrparts. In the medium there are a number of uncertainties:

Enlargement will add 38 million hectares of farmland to the EU's existing 130 million, an increase of thirty per cent, but the value of agricultural production will increase by only six per cent. What this points to is the existence of a large number of highly inefficient farmers, not least in Poland. Agriculture still accounts for 18.8 per cent of national employment, but only 3.3 per cent of GDP. There are some larger farms, mostly in the north and west close to the German border, but 57 per cent of farms are less than five hectares. Over half of the country's farms are subsistence only.

In contrast, Hungary offers the potential of a highly commercial agriculture that could be very competitive within the EU. Hungary has traditionally been an agricultural exporter, at one time for the Soviet bloc, and was a founding member of the Cairns Group. Its agriculture is almost certainly the most advanced of any of the accession countries. Over 75 per cent of the land is arable, producing large volumes of cereals, maize and oilseeds. There are large numbers of smallholders, but about forty per cent of the land is farmed by large corporate farmers with average farm sizes of over 300 hectares. There has been some significant British inward investment through leasing arrangements.

In the Czech Republic, the overall contribution of agriculture to national GDP is only 1.2 per cent. There are very few peasant farmers and the overall pattern of farming is very similar to that in the EU15. About 75 per cent of the agricultural land is arable and average farm size is 64 hectares (158 acres). Of the remaining countries:

The payout

Direct payments will be phased in over the next ten years in the new member states. The starting point is 25% of the full rate in 2004, 30% in 2005 and 35% in 2006. But, as part of the deal agreed at Copenhagen in 2002, the new member states will be able to top up these funds by 30%. Some of this money will come from national treasuries and budgetary constraints (and probably the lack of political clout resulting from a relatively small farm population) mean that Czech farmers will be getting less than those in neighbouring states. More worryingly, some of the money can be vired from EU funds that would otherwise go into rural development, much needed in many of these countries. The overall effect is that most accession states will be paying 55% of the full rate of direct payments this year (48% in the Czech Republic), rising to 60% in 2005 and 65% in 2006.

Under the terms of the Copenhagen agreement, the accession states either pay the aid as a conventional arable area aid or livestock headage premium, or they may operate a 'single area payment scheme' for the first three years of membership. This involves dividing all of a country's aid over its entire agricultural area to produce a single flat rate payment. Eight of the ten are adopting this approach.

EEA warns of agri-environmental damage

One of the concerns of this page about enlargement has been that it might lead to habitats that support biodiversity being destroyed. These concerns are reinforced in a report recently issued by the European Environmental Agency. EEA Report . The report suggests that increasing environmental damage may result from more intensified forms of agriculture combined with land abandonment. There has already been a moderate intensification of agriculture in productive areas raising the use of pesticides, fertilisers and machinery which in turn contributing to the problems of pollution of ground water and soil erosion already familiar in the EU-15. After Mediterranean countries joined the EU, intensification of agriculture led to enhanced soil erosion and water management problems. The abandonment of marginal farmland is an issue because such land often plays host to a diverse range of species and the habitat becomes less favourable if it is not used or managed to some extent.

REFORM DEAL DONE ON MED PRODUCTS - AND THEN A TWIST IN THE TAIL

It took an eighteen hour old fashioned 'negotiation by exhaustion', and there were some last minute fudges, but the Farm Council continued with its step-by-step reform of commodity regimes with a deal on Mediterranean products at its April meeting. Usually such decisions are reached by consensus, but this one was so controversial that Spain, Denmark and Sweden announced that they would vote against, but that was not enough to stop the possibility of a qualified majority decision. As in other areas of EU policy, the imperative to reach a deal before the accession states join was an important consideration in leading to agreement.

The deal extends the principle of decoupling, the removal of the link between production and subsidy, to Mediterranean products. Coupled aid for tobacco will be abolished by 2010, while cotton and olive oil will have decoupling rates of 65 per cent and 60 per cent respectively. The higher rate for cotton was necessary to placate Greek concerns. Greece also got side payments in the form of an increase to its base area for coupled payments and a lower rate of transfer of funds from the first to the second pillar. Spain's new farm minister Elena Espinosa had asked for a boost of €120 million in her country's olive oil subsidy, but only €23 million was left in the kitty after payments to France and Portugal, hence Spanish opposition to the deal (also not surprising when one is dealing with a new national government eager to show that it will stand up for its country's interests in Europe). However, it was probably tobacco that was once again the most difficult topic with Denmark and Sweden objecting to the delay in dealing with the health threatening product which is nevertheless important for some marginal farmers who claim that there are no readily available substitute crops. As British minister Margaret Beckett commented, the reforms should have gone further and faster, but they represented a step in the direction of a more liberalised and market oriented agriculture.

Twist in the tail: 'I am from Leamington. I know nothing'

Even for a so-called 'expert' it is sometimes difficult to keep up with the twists and turns of the CAP. I'm still not clear what has happened but it appears that through manoeuvring in that shadowy buy key body, the Special Committee on Agriculture, Spain has managed to get €20 of extra cash out of the Mediterranean products reform package which was supposedly a done deal. I'm not sure where the money came from, but the politics are clearer:

Updated 5/4/04

DIVIDE AND RULE? NOT US, SAYS COMMISSION

The European Commission has reacted angrily to suggestions that it is using classic 'divide and rule' tactics to split Mercosur from other emerging and developing countries in the Doha Round trade talks. The Financial Times had suggested, 'The move is designed to weaken pressure on the EU to lower its farm trade barriers by, in effect, buying off Argentina, Brazil, Paraguay and Uruguay with the offer of preferential trade concessions. These countries have been among the fiercest adversaries of Brussels in the global trade talks.' Agricultural goods have been a problem area in the EU-Mercosur talks, but the Commission is to table a more generous offer in this area with the focus on the sensitive commodities of beef and sugar. (The proposals will exclude export subsidies which are seen as a matter for the Doha talks). However, a fuming Commission spokesman angrily denied that the strategy was to prise away key members of the Cairns and G-20 groupings. With all the fury of someone whose ploy had been found out, it was stated that the FT article was completely unfounded. The Commission spokesman did admit, however, that 'it would be naive to think that the Mercosur talks and the WTO round are unrelated.' That is one way of putting it and this preferential treatment is likely to anger other Global South exporters such as Thailand and Chile who both belong to the Cairns Group and G-20. It could upset least developed ACP countries that enjoy preferential access to the European market.

The EU has a lot to gain from a less confontational relationship with Brazil and Argentina in particular who have been among its most effective critics in the Doha Round. As José Alfredo Graca Lima, Brazil's ambassador to the EU commented, 'It would be an incentive for Mercosur not to push the EU hard in the World Trade Organisation. It would make Mercosur an ally, not an adversary.' The positive response from Mercosur has puzzled some analysts. One reason that Brazil is taking the offer seriously may be that cutting subsidies is a higher priority for them in the WTO talks than lowering farm trade barriers. Brazil is also eager to expand its range of trade partners to help counter US hegemony in South America. Remember that Mexico only decided to go into NAFTA after a presidential visit to the EU had failed to yield sufficient results.

Some trade diplomats think that the EU's strategy is high risk. In part, it reflects the increasing loss of political direction in the Commission with trade commissioner Pascal Lamy stepping down in October. Many observers think that he is no longer in effective charge of trade policy and that more hawkish negotiators are gaining ground. There are also questions about how far the EU could go given Brazil's potential ability to compete on a less restricted EU market, particularly in highly protected and politically sensitive commodities such as beef and sugar. Brazil's pending WTO challenge to the EU's highly trade distorting sugar regime is also a complicating factor. We live in interesting times. 20/4/04

OXFAM RENEWS CRITICISM OF SUGAR REGIME

Oxfam has produced another critical report on the EU's sugar regime. See Sweet Reason . This time their criticism focuses on a 'cartel' of sugar processing companies who are seen as the main beneficiaries of the regime. It is alleged that France's Beghin Say benefits by €236m a year, Germany's Sudzucker by €201m and Britain's Tate and Lyle by €158m. Oxfam estimates that six of the largest processors received export subsidies totalling €819m last year. 'The regime maintains a system of corporate welfare, paid by EU taxpayers, with the human costs absorbed by developing countries', the report claims.

Europe is not well suited to producing sugar, and has not grown cane sugar since Napoleonic times, while many developing countries have ideal growing conditions. The cost of producing a pound of sugar in the EU is, according to Oxfam, more than six times higher than in Brazil. The average support provided by the EU to twenty-seven of the largest sugar beet farms in the UK is estimated at £136,871 (€206,910) a year. Every €1 of EU sugar exported cost €3.30 in subsidies. A central part of the Oxfam case is that the EU has tried to conceal the true costs of its sugar regime. The EU states that the budgetary cost of export subsidies is €1.3bn, but the study found that it provided a further €833m in hidden support to cover the differences between production costs and export prices.

Oxfam estimates that the regime deprived the world's leading sugar exporter, Brazil, of €494m of potential export earnings in 2002. Thailand is also hard hit at about €151m. It put the costs to Ethiopia, Mozambique and Malawi at €238m since 2001. Mozambique's losses equalled a third of its development aid from the EU and its government's spending on agriculture and rural development. Malawi's losses exceeded its primary healthcare budget. The costs to Ethiopia are equal to the sums the country spends on HIV/AIDS programmes. One might argue that these are comparisons of apples and pears, but they are telling nevertheless. The subsidy regime causes so much sugar to be produced that it is exported to poor countries, hurting farmers who might otherwise be earning a living by growing it themselves. Excess sugar ends up in, for example, Algeria, Ghana, Congo and Indonesia, displacing sugar produced in countries such as India and South Africa.

Sugar is bought from ACP countries, but the quantity involved is not large, about 1.5m tonnes a year. Nevertheless, these purchases may be vital to poor sugar producers like Mauritius. Countries like this support the EU in its defence against Brazil's WTO challenge. Oxfam argues that full liberalisation would devastate poorer countries that enjoyed preferential access to the EU market at high guaranteed prices. It calls for cuts in EU production, an end to export subsidies, expanded market access and a competition investigation into European sugar processors.

Oxfam tend to spend about two years focusing on a subject and then move on and this may happen with the sugar regime. Nevertheless, the sugar industry faces other challenges, not least on the obesity issue which will be the theme of an address by the author of this page to the annual conference of the World Sugar Research Organisation in Budapest in May.21/4/04

Australia's bailout for sugar farmers

Australia has the reputation, based on its low PSE levels, of having one of the most market oriented agricultural policies of any OECD country. To a large extent this repuatation is justified, although drought aid, paid as an income support to farm families, escapes the PSE net. It might be argued that drought is a natural condition in large parts of Australia and in any case there is no accepted definition of what constitutes a drought.

Australia is also susceptible to farm policy decisions made on the basis of electoral politics as much as anywhere else. With a new and more vigorous opposition leader, prime minister John Howard faces his toughest fight yet in this year's general election. Much hope had been placed on a free trade agreement with the United States as a means of boosting the country's sugar farmers. Australia is the second largest exporter of sugar in the world after Brazil, but has been hit by low world prices and the subsidy regimes provided by the EU and other players. Then, at the last minute, sugar was removed from the free trade agreement. It's also an election year in the US and after lobbying by the powerful US sugar industry, President George Bush intervened personally to take sugar out of the agreement.

Hence the Australian Government came up with the fourth rescue package for the industry since 1998. This one is worth A$450m and farmers who agree to leave the industry can get up to A$100,000 each. Unveiling the package at Bundaberg in the heart of the Queensland sugar belt, prime minister John Howard said the assistance was a response to 'corrupt' world markets and was made on the basis that the industry was genuinely committed to reform. However, the Australian Democrat Party said that the package failed to address long-term needs by seeking to add value to sugar production through the development of an ethanol industry. Unless such a policy was adopted, argued John Cherry, Democrat agriculture spokesman, 'another bailout package will be needed in 18 months, because I can see no change in the corrupted world sugar markets that have produced this economic crisis.'

IS THE CAP BEING KILLED OFF BY STEALTH?

Concerns are growing in the Commission that the CAP is in danger of being killed off by stealth by the way in which the new Single Farm Payment system is being implemented. There are considerable variations in the choices being made (four different systems in the UK alone) with France opting to retain as much production related 'coupling' as the rules allow. There is now so much variety that questions are being raised about whether there will be a genuinely Common Agricultural Policy after 2005. But, even before enlargement, has a standardised approach been viable anyway given the variety of climates, geographical conditions and hence forms of agriculture already found in an EU that stretches from the Arctic Circle to the Azores? There is much to be said for an element of renationalisation provide it does not erect competitive barriers.

What is clear is that countries like England, Denmark and Germany are using the window of opportunity provided by the reforms to nudge the CAP in the direction of a common rural policy. That would seem to be perfectly compatible with the spirit of the 2003 reforms, particularly the emphasis on a more environmentally friendly agriculture. However, in a letter to agriculture ministers Franz Fischler has made clear his preference for a historically based system of payment rather than a regional average flat rate system. Fischler's view is that the SFP should be seen by farmers as compensation for the cutting back of market based support rather than offering an opportunity for re-distributing the available funds. He argues that 'the idea was to give farmers the possibility to change their production in the light of market signals but certainly not force them to do so because of a fundamental modification in their level of support.'

This then raises the question of how serious the Commission is about its commitment to the multifunctionality model. Many commentators particularly outside Europe have seen it as a cynical ploy to continue subsidies by other means beyond the Doha trade round. However, that is becoming increasingly less effective as developing countries realise that subsidies in any form enable marginal farmers to continue in production regardless of which box they are put in. What is perhaps not realised in this debate is that the intention may be to run green, low intensity farming alongside intensive, productionist, internationally competitive farming alongside each other in different parts of Europe. By supporting some 'green' farming, environmentalists and public opinion may be reassured sufficiently to allow more intensive forms of 'industrial' farming to continue unhindered.

Perhaps one sign of a move away from productionism is the Commission's response to a Czech suggestion that action should be take to improve the EU's self-sufficiency level in honey of 45 per cent. The Commission stated that an old-fashioned push for extra output would mark an unwarranted change in policy direction, although €16.5 million will be made available in 2004 for the fight against varroasis which is blighting the honey yield of EU hives.Updated 26/03/04

BUDGET BLOW TO FARMERS

Under pressure from powerful member states including the 'Big 3' (Britain, France and Germany) the Commission has cut back its budgetary plans for 2006-13. Instead of fixing the budget at no more than 1.24 per cent of gross national income (GNI), it is suggesting a lower figure of 1.15 per cent of GNI. This will not be enough to sustain the modest one per cent a year growth in CAP market support spending envisaged in the Chirac-Schroeder agreement of October 2002. The likely outcome is that farmers will receive less money. The Single Farm Payment could be eroded more quickly than has been anticipated and will no longer as Agra Europe put it constitute 'a kind of guaranteed pension cheque which could be relied upon as a secure income stream into the future.'

Cash for farm market measures would be cut back from €43.74bn in 2006 to just €42.29bn in 2013. This would be substantially lower than the 2013 ceiling of €48.5bn fixed in October 2002. Moreover, once Bulgaria and Romania become members, they will absorb an additional €3bn in 2007-9 alone with the amount rising after then. It should be noted that cash for rural development will go up each year from €10.54bn in 2006 to €13.2bn in 2013. It also has to borne in mind that is likely that a substantial sum of money will have to be put aside for compensatory payments for sugar beet producers once long overdue reform in that sector is implemented after 2007.

What is now becoming apparent is that the figures agreed in October 2002 represented maximum totals for CAP spending, not spending commitments as such. In an effort to avoid degressivity (regular cuts in farm aid), ministers signed up to a 'financial discipline' which stated that aid levels would be cut automatically whenever it looked as though market spending was moving within €300 million of the agreed upper ceiling on farm expenditure. No doubt the ministers hoped that this was 'the birch in the cupboard' (to quote a phrase from the history of UK farm policy), a discipline that would never be applied. With the new budget proposals, there is every chance that aid entitlements would be cut - and could easily reach the not insignificant level of seven per cent.

Nor can France be relied on to perform its usual role of rescuing the CAP in its hour of danger. It is one of the countries pushing for the EU budget to be pegged. Of course, it is an issue which could arouse internal conflict within the French Government, particularly given President Chirac's propensity to side with the farmers. Budgetary figures are also susceptible to all sorts of fudges that can ultimately weaken their utility as a driving force for reform.16/02/04

OXFAM NAMES SUBSIDY RICH FARMERS

Oxfam has named the farmers it thinks are the largest recipients of CAP subsidies in Britain. The figures are only estimates: in the US, freedom of information laws have allowed the exact figures to be put on the net. Curiously, there are no members of the Royal Family on the Oxfam list. The principal recipients are named as:

Oxfam calculates that the subsidies received by the Duke of Westminster, Britain's richest landowner, represent a subsidy rate which is more than eight times the national minimum hourly wage. Oxfam calculates that 224 cereal farmers in the UK, 0.4 per cent of all cereal producers, received £47m in subsidies in 2003, more than the total aid budget for Ethiopia. The NGO suggests that there should be a £50,000 limit on CAP payments to individual producers.

A spokesman for Defra said that such limits would be against the free market approach of the CAP and would also disadvantage UK farmers compared to those of Europe. 'There are more large farms in this country than in the rest of the EU which would have meant less money in terms of subsidies given out.' For the NFU, Sir Ben Gill commented, 'The underlying criticism seems to be that it is wrong to spend public money in agriculture when income levels in developing countries are lower than ours. On this basis, the same could be said about any other item of government spending.' However, other items of government spending are not generally used to subsidise activities by otherwise wealthy individuals that should be able to earn a return on the market. A more general problem arises from the confused objectives of the CAP which seek to promote an efficient, internationally competitive European agriculture and also one that is environmentally friendly. The report is available at Spotlight on Subsidies 26/1/04

BUDGET CONCERNS BACK AS REFORM PRESSURE?

The EU farm budget for 2004 will see spending on agriculture go past the €50 billion mark for the first time. On a like-for-like basis, the budget approved by the European Parliament on 22 December is 0.7 per cent lower than in 2003, but there are additional costs arising from enlargement. However, the new entrants will only add €2.4 billion to the total budget, a figure reduced by the fact that only eight months of the year will see payments to the accession states. Agriculture and rural development will account for 45 per cent of the total EU budget, a reduction on the days when it was over 70 per cent, but still a large amount for countries which include some of the most urbanised in the world.

In an interview with the Financial Times EU budget commissioner Michaele Schreyer has argued that the huge burden of the CAP means that priority areas, including economic reform, could be at risk. It's a message which has, of course, been heard from budget commissioners before and she admitted that her room for manoeuvre was limited by the Franco-German deal of October 2003 to 'set in concrete' farm support at current levels until 2013. She will shortly have to present the first draft of the EU budget for 2007-2013. She is thought to favour a figure of 1.1 per cent of gross national income, about €10bn a year more than the six net contributors want. Even that would mean sharp cuts in regional aid, particularly in areas of Spain and eastern Germany, which would lose out in any case as structural funds are diverted to new member states.

This is probably not going to lead to significant new pressures for CAP reform. Budgetary pressures were significant in the 1980s, particularly in the introduction of dairy quotas when rising costs threatened to bankrupt the EU. Other than in such times of extreme pressure, it is usually possible to 'fudge' a budgetary deal which looks as if it will bite but in fact does not.4/1/04

PEACE CLAUSE CONFUSION

Will the advent of 2004 and the expiry of the peace clause see the CAP hauled before the WTO's dispute settlement mechanism? Under the peace clause, subsidies that might otherwise be judged illegal under WTO rules are protected from challenge provided they comply with countries' subsidy reduction commitments negotiated in the 1986-94 Uruguay Round. However, an immediate flood of litigation seems unlikely. First, no one can actually agree when the peace clause expires. Until recently it was thought that it would expire on 1 January 2004, nine years after the WTO's agriculture agreement came into force. But the agreement defines 'year' as the 'calendar, financial or marketing year' specified in a country's commitments schedule. Since both the EU and the US use marketing years in their schedules, some lawyers argue that the peace clause such as grains and dairy products will not run out until the middle of 2004. In any case, countries are not queueing up to launch actions as they realise that an aggressive approach could derail any possibility of effective negotiations on agricultural trade.

Trade lawyers expect any cases that are brought to make use of the notion of 'serious prejudice' to a country's interests such as when a rival's subsidies depress prices or squeeze its products out of domestic or export markets. This section has never been tested in a farm dispute up to now, but this is about to change with a case brought by Brazil in 2002 alleging 'serious prejudice' from American cotton subsidies. It's a good test case because there is widespread acceptance that US subsidies to cotton farmers of three to four billion dollars a year are excessive and largely motivated by the political importance of the southern states. The verdict on this case is expected in the spring and the outcome will have a big impact on future actions.

Even if the short run impact of the expiry of the peace clause is limited, trade experts think it will be important in the longer run and will increase the pressure for deep cuts in farm subsidies in the Doha Round. Writing in the Journal of International Economic Law Richard Steinberg and Tim Josling argue, 'Ultimately, expiry of the peace clause will d what it was intended to do: light a fire under negotiations on trade-distorting agricultural subsidies.'4/1/04

COMMISSION CAUTIOUS ON PARMALAT BAILOUT

The financial scandal surrounding Italian food processing and dairy company Parmalat, one of the EU's biggest food groups, has already been dubbed Europe's 'Enron'. The crisis has posed serious problems for Italy's dairy farmers (those supplying Parmalat have gone unpaid since August) and has affected the whole image of the Italian food industry. The Italian Government has been forced to ask the EU to recognise crisis status for its dairy industry. Italy also said that it would ask for special dispensation from EU rules on state aid to help the industry and would also be requesting 'supporting measures' from the EU which sounds like code for money in one form or other.

However, the EU is not well disposed to prime minister Berlusconi who had what it is generally judged to have been a poor presidency of the EU. There is also a view that some of his own domestic policy measures helped to make the crisis possible. As it is, he has had to issue a decree re-writing the country's bankruptcy laws. The EU is concerned that the measures could be used to disguise state aid for Parmalat. An EU spokesman said, 'The bankruptcy decree will have to be assessed by us. The key point is fiscal neutrality.'

Political links in milk scandal?

There is speculation that investigating magistrates may look at the political links between Parmalat and the Italian farm lobby which may have protected the group from critical regulatory attention. There may be interest in the long-standing links between Calisto Tanzi, Parmalat's founder, and Ciriaco De Mita, a former general secretary of the once all-powerful Christian Democrats. An anonymous entrepreneur told the Financial Times that he recalled seeking Mr De Mita's political blessing for a big takeover in the 1980s, only be told that the deal could go ahead providing an important subsidiary was divested to Parmalat. It has also been alleged that the inflated price paid for municipal dairies during the privatisation wave of the late 1990s might have stemmed from the need to price in kickbacks to politicians or parties.

However, Renato Pieri, professor of food policy at the Catholic University of Milan commented. 'It's true, milk production is a very stable businesss, with long-term relationships between farmers, distributors and the big milk groups, but I seriously doubt that Parmalat was protected by political patrons.' Mr Pieri attributed Parmalat's collapse to years of chronic financial weakness, combined with overpriced acquisitions at home and abroad and adverse market developments.Updated 11/1/04

OLIVE OIL PLANS POSE BIGGER QUESTIONS ABOUT A GREENER AGRICULTURE

In the book I am working on with Will Coleman and Tim Josling on Agriculture in the New Global Economy we discuss four distinct paradigms of agricultural policy: dependent; competitive; multifunctional; and globalised. Current EU policy could be interpreted to move away, at least to some extent, from the dependent paradigm. In some parts of the EU, e.g., the grain producing areas of North-Central Europe, competitive agriculture will thrive. Elsewhere, the emphasis will be on using CAP funds to promote 'multifunctional' forms of agriculture that deliver desired public goods such as aesthetically attractive landscapes and environmentally friendly forms of farming. In fact, however, all agricultural policy is affected by the age old tensions between technology; market organisation and structure; and consumer demand, all of which are drivers of change which public policy then has to deal with. But often public policy has difficulty in shaping or even containing these broader drivers of change. It starts out by trying to be proactive and ends up being reactive, a dilemma illustrated by the EU's proposals for olive oil reform.

Olive oil has long been a problem sector. The support arrangements have long been viewed as inefficient and a major source of fraud in which criminal organisations have allegedly been involved. However, olive oil groves are a rich source of biodiversity. If the land is abandoned, biodiversity suffers. Moreover, this form of farming is the mainstay of many small communities in the Mediterranean. The Commission's suggested way forward is to convert sixty per cent of the olive oil subsidy into the new style Single Farm Payment. The rest would be handed out in 'national envelopes' to improve oil groves and finance quality improvement measures. Subsidies for the use of olive oil in processed foods would be dropped as consumers need little convincing of their supposed health benefits.

This all make sense up to a point, but one has to take into account changes in the olive oil sector which has been increasingly acquiring the characteristics of 'competitive' agriculture. Production in the leading five producer countries was growing by about five per cent a year in the 1990s. This reflected a growing intensification and mechanisation of production which has left smaller producers behind. Not only have planting densuties increased, but there has been great intensity of cultivation involving more use of irrigation (in areas where water is often short) and greater use of chemical fertilisers. This intensified production poses a potential environmental threat to the benefits of olive oil cultivation as well as producing a class of smaller producers who cannot survive without subsidy. Can policy be shaped in such a way as to deliver the hoped for multifunctional benefits? How far should the EU going in aiding the survival of a group of producers whose activities are clearly uneconomic? There are no easy answers, particularly when one implication is a redistribution of subsidies from north to south within Europe.

South gets more money

It has been a long standing complaint of Mediterranean countries that the CAP has been biased in favour of Northern European commodities, reflecting its historical origins. But recent budget figures from the EU show an increasing share of first pillar CAP funding. The share of Italy went up from 10.8 per cent in 1996 to 13.1 per cent in 2002 and that of Spain went up from 10.3 per cent to 13.7 per cent (although the cut received by Greece and Portugal remained virtually unchanged). One of the main losers was France whose share declined from 24.4 per cent to 22.6 per cent. However, the Netherlands suffered a bigger proportionate cut with its share going down from 3.9 per cent to 2.6 per cent. Ireland saw its share decline from 4.6 per cent to 4.0 per cent, but this is enough to sustain a record 65 per cent of farm income from subsidies in 2002, according to figures from Ireland's Central Statistical Office. The figure rises to 85 per cent in the west of Ireland.26/11/03

INSOMNIA PROBLEM? WE CAN HELP YOU

But, seriously folks, how the SFP is paid out really does matter

Our headline sounds like an entry line from a spam E mail, although the ones sent to me usually offer hair loss cures, magic weight reductions or industrial quantities of Viagra (which I can then recover from with on line Valuim). Indeed, anyone who could offer a cure for subsidising agriculture might be on to a real winner. Having gained your attention, the point being made here is that how the Single Farm Payment (SFP) is made in future really does matter. We are referring here not just to whether it is decoupled or coupled, but how it is applied. Broadly speaking, there is a choice between an historic payment based on what the farmer has received in the past or a regional payment based on the total subsidy received by a region divided by its total farmed area. In fact it's not as simple (!) as that as there are all sorts of hybrid variations which are already attracting their supporters, some of whom no doubt see fat consultancy fees in explaining to the rest of us what they mean. For example, Britain's Defra has mooted a scheme whereby payments to livestock and arable farmers would be adjusted by a variable coefficient. Anyone remember the switchover mechanism?

The general point is that the historic method favours the status quo while the regional system can have quite profound redistributive implications. Farm associations generally favour an historic system which protects their members' existing subsidies as far as possible, while unsubsidised sectors such as horticulture and processed vegetables like the idea of a regional system which would give them a slice of the action. The choice is thus how far one wants to retain a market-distorting system in which supposedly decoupled subsidies would be used to maintain uneconomic forms of production or to move to a more genuine social and environmental payment. The choice is not simply a technical one for civil servants guided by a 'steer' from their national farm association (which one incautious Defra civil servant admitted was what was happening in England and Wales). It is a question of how quickly one wants to move away from a subsidy obsessed agriculture to a new rural and environmental policy that delivers widely desired social benefits.Updated 17/02/04

POLICE RAID DG AGRI IN FRAUD PROBE

One hundred police in three European countries, acting in concert with Olaf, the EU's anti-fraud outfit, have raided DG-Agri in Brussels and also offices in France and the Netherlands in an investigation into an alleged price fraud. Six people were detained in France, but not formally arrested and two persons, one a Commission official, was arrested in Brussels. They were charged with corruption and criminal conspiracy. According to European Voice the Commission official is suspected of selling inside information to an organised crime network which is the subject of an inquiry by a Belgian judge. It is not believed that the Commission official was of high rank. It has been alleged that certain cereal companies (one believed to be French and the other reported to be based in Rotterdam) were tipped off by a person of Dutch nationality about grain prices two hours before they were announced. 'The information available at this stage points towards a case in which an official is said to have accepted bribes in return for passing on commercially interesting information to external companies', commented EU spokesman Reijo Kemppinen. Jos Colpin of the Brussels prosecutors ofice said that the investigation was far from finished since the evidence found, including computer files, had still to be studied. Prior to the raids taking place, officials had been moved from their posts as a precautionary response to information that suggested that something untoward might be taking place.

This page has often made the point that the very complexity of the CAP creates opportunities for fraud. The export subsidy system in grain is particularly complex, and it has been claimed that cereal companies were given advance warning of the amount of cereals to be made available and the size of the export subsidy to be attached to them. The grains management committee normally mets on a Thursday (the raids took place on a Wednesday) to decide the outcome of a weekly export tender, although it usually simply endorses figures determined by the Commission. The announcement of subsidy levels is usually preceded and accompanied by considerable trader speculation which can have a significant effect on prices. The EU has a commitment to 'simplification' of the CAP but translating that into action is difficult because of the political resistances it generates.16/10/03

FIRST CRACKS APPEAR IN G-21

The first cracks have appeared in the G-21 coalition of developing countries led by Brazil that has been held responsible for the collapse of the world trade talks in Cancún. Six Latin American countries have now left the grouping, Guatemala being the latest, a development widely perceived as being the result of US pressure. Costa Rica, Colombia and Peru also decided to leave the group. Instead, they will seek to work more closely with the US on trade liberalisation. Costa Rica is in free trade negotiations with the US and Colombia and Peru are eager to follow. Since Cancún the US has sought to isolate the leaders of the G-21, warning countries that participation in the group could jeopardise bilateral trade deals with the US. El Salvador actually left the Cancún meeting which may explain some of the confusion about the size of the group.

Australia's trade minister Mark Vaile has contrasted the Cairns Group's narrow focus on agriculture with the more broad-based agenda pursued by the G-21. The Cairns Group, he said, was a 'very strong, disciplined, professional outfit' which was clearly focused on agricultural trade liberalisation. However, although the knives are clearly out for G-21, the group may be able to shake off the defections, given that countries such as the Argentine, Chile and Mexico remain committed.11/10/03

SUGAR REFORM PLANS LAUNCHED

The European Commission has announced its plans for the reform of the sugar sector, the last major unreformed sector in the CAP. The present regime has to be renewed by 2006 when it is due to expire. World trade agreements, the Everything-But-Arms deal with the world's poorest countries and the recent WTO challenge by Australia, Brazil and Thailand could all lead to a rising tide of imports. Agriculture commissioner Franz Fischler commented, 'One thing must be clear. Any reform will have to bridge the gap between domestic and world prices.'

Three reform options are presented, the Commission having dropped a fourth option of fixing import quotas as a means of regulating the EU sugar regime. This option was favoured by some trade lobbyists, but was deemed to pose too many international political problems. The three options are:

The Commission's thinking is that the status quo and liberalisation options are economically and/or politically unworkable. Liberalisation is dismissed as leading to a major contraction in EU sugar production or even its disappearance in the long run (although a strict application of comparative advantage might suggest that that is a logical outcome). The status quo is thought of as too timid, failing to make the EU industry competitive enough.

After a transitional period, a second phase of reform would see prices cut to around €450/t or by forty per cent compared with the present level. This would be achieved by scaling down import tariffs (although a 'safeguards' clause would remain) and a gradual phasing out of export subsidies. Quotas would finally be abolished when the market was in balance and levels of production and imports had stabilised. If compensation is paid on the basis of half the revenue loss incurred (and the powerful sugar lobby could force this figure up), the cost to the EU budget should be around €1 billion a year. Aid will also have to be offered to growers in ACP countries who would see their guaranteed price for raw sugar cut. Sugar is of vital importance to the economies of countries such as Fiji and Mauritius. The real losers in any reorientation of the world sugar regime are likely to be poor labourers in the rural areas of such countries who may lose their jobs with no real alternative on offer.

By 2013 the Commission envisages an EU in which sugar production would total around 14 million tonnes, while preferential imports would account for a further 2.5mt. By this stage the EU would export virtually no sugar which would give a big boost to producers elsewhere in the world. One interesting aspect of the proposals is that permission may be given for sugar quotas to be transferred between regions and member states to maintain market balance. Although perfectly compatible with the idea of a single market, cross-border trading has always been a taboo in the CAP. In particular, it has been blocked as a perfectly sensible means of fostering restructuring in the dairy sector.

The impact study carried out by the Commission shows the near cataclysmic consequences for the EU sugar industry (as well as for those developing countries that are preferential suppliers) of doing almost anything except continuing with some mild modification of the status quo. Even the continuation of the present policy in the face of increased imports under the 'Everything But Arms; policy would mean that EU production would have to fall by twenty per cent by 2010-15. A major concern for the Commission is likely to be the impact of any reforms on the usgar refining industry which is an important employer in remoter areas. The impact study is at Sugar Reform

The politics of the proposals are both complex and interesting. They would effectively concentrate sugar production in north-western Europe. Greece, Ireland, Italy and many of the accesion states would have to reduce or even abandon sugar production, something which they may not welcome. The proposals have also received a less than sweet reception from the industry. British Sugar corporate affairs director, Chris Carter, believes that the Commission's favoured option goes too far. 'I can see the commission would be attracted to it, as it is simple to administer. But it is close to full liberalisation and the prices they are suggesting would be so low [that] almost none of the developing countries would be able to survive.' It would effectively hand the market to Brazil. Other industry sources have suggested that Brazilian sugar, which it is argued is cross-subsidised by fuel subsidies, could be fraudently diverted by EBA countries. The industry is going to lobby for the status quo option and the eventual outcome may veer in that direction.

Sugar chiefs boil over

The annual gathering of the leading bosses of Europe's sugar industry (known as the Comité Européen de Fabricants de Sucre, CEFS) was hardly a sweet occasion. Indeed, the industry chiefs boiled over in indignation, arguing that the Commisson's three reform options gave no real choice at all. They are asking for a fourth option which was in the impact assessment, fixed import quotas, to be reinstated. It is understood that this option was vetoed by the Trade DG as simply too complicated to achieve given the extensive negotiations with third countries it would require.

The sugar industry, both beet farmers and sugar refiners, has traditionally been one of the most effective European lobbies. But it may have met a match at last. There is a grudging acceptance that price cuts are on their way, in part because of the Everything but Arms agreement and in part because of the effectiveness of the Commission's blunt sugar policy boss, Russell Mildon.Updated 16/10/03

For earlier coverage of the sugar reform story go to Sugar

BLAME GAME IS ON AFTER CANCÚN

The search is on for scapegoats to blame for the collapse of the Doha trade round talks in Cancún. For some, the finger of blame has been pointed at the new G-22 grouping led by Brazil with the support of China and India which seeks to promote the views of developing countries on agriculture (somewhat confusingly it is sometimes referred to as the G-21 but there are twenty-two members). Critics argues that this heterogeneous grouping is internally divided and in any case really represents emerging economies rather than the least developed countries. Franz Fischler commented in Brussels that they had nothing in common except the desire to win maximum conc essions for developing states. A fiercely competitive food exporter like Brazil had little in common with a country like India which favours very high tariff protcetion for its market, observed Fischler. This page would argue that the interests of Brazil on sugar are very different from those of Fiji or Mauritius. Indeed, the African, Caribbean and Pacific (ACP) countries have come together with another group of least developed countries totalling 92 in all, of which 61 are WTO members. There has also been criticism of non-governmental organizations for telling developing countries that no agreement was better than a flawed agreement. Fischler told journalists that the NGO interpretation of a 'bad' deal was anything less than the developing world's full demands.

The US and the EU have also been criticised for seeking, if failing, to 'bully' developing countries. The EU certainly seems to have made an error in taking such a strong stance on the so-called 'Singapore' issues such as investment and competition policy. When it eventually started to back down, it was too late. Indeed, another target of criticism has been the Mexican conference chair, foreign minister Luis Ernesto Debrez who, it is argued, closed the meeting down prematurely at a stage when it might have been useful to focus on agriculture again. Fischler argued in his Brussels remarks that future ministerials would be a waste of time without a much higher degree of political and technical consensus before the event, contending that under-preparation was a major factor in the Cancún failure.

Updated 27/9/03

CAP 'REFORM' AGREED

After all night negotiations, Farm Council ministers agreed a partial reform of the CAP at 7.30 a.m. Luxembourg time on June 26th. Further analysis of the proposals will be required, but it is evident that further concessions had to be made to member states, especially France, to reach agreement. Only Portugal remains unhappy because of a lower rate of dairy quota for the Azores. As expected, further decoupling is carried out on a partial basis with some complex formulae. The basic principle is of a payment entitlement per hectare, based on dividing the aid received in the reference period by the utilised farmland in the same period. Decoupling will start in 2005, but countries such as France will be allowed to delay until 2007. This 'multi-speed' process could well complicate WTO negotiations. Franz Fischler has argued that partial decoupling will soon self-destruct because of its complexity and member states will use their option to go for full decoupling. He has also argued that the arrangements already agreed mean 90 per cent decoupling for arable aid payments and roughly seventy per cent for livestock payments. Renate Kunast has stated that Germany will opt for full decoupling, but with regional variations. All member states may filter up to ten per cent of decoupled funds as a national/regional envelope and target it at specific forms of farming important for environmental reasons or for improving the quality and marketing of agricultural products.

Modulation will go ahead on the basis of three per cent cuts in subsidies in 2005, four per cent in 2006 and five per cent from 2007 onwards to create extra revenue for rural development measures. The 'second pillar' will, however, remain very much a subordinate part of the CAP. By 2007, a mere 1.9 per cent of single farm payment money will be withheld for the second pillar.

There will not be degressivity as such, but there will be a financial discipline mechanism. This will, however, involve annual decisions by the Council which will leave plenty of room for the usual political games. The objective is to ensure that CAP budget limits up to 2013 are not exceeded. It has been suggested that the financial discipline will probably be triggered in the 2007 budget year, thereby requiring a Commission proposal on the rate by which CAP direct aids should be reduced in March 2006. Budget requirements from 2004 to 2008 will be higher than the original proposals to the extent that spending needs are forecast to overshoot the budget ceiling in 2007 by €417 million, on top of which there is supposed to be a €300 million buffer to cater for unforssen expenditure. Budgetary pressures are likely to remain a factor in CAP decision-making.

Big hit for dairy

An encouraging feature of the reforms is that butter intervention prices are to be reduced from 2004 by twenty-five per cent over five years (ten per cent more than agreed under Agenda 2000) and there will also be new butter intervention purchase ceilings. However, the dairy quota regime is extended until 2015. It has become increasingly apparent that the dairy sector has taken the biggest hit from the reforms. The level of direct aid payments to be paid to dairy producers from 2004 will be lower than previously indicated, although top ups will be available from 'national envelopes'. The Irish Farmers Association has claimed that by 2007 overall returns to milk producers will have fallen by 21 per cent and that only sixty per cent of this price drop will be compensated for by direct aid payments. Throughout Europe can expect an accelerated rate of exit from the dairy sector which is an important activity in some remote and less prosperous rural regions. Nevertheless, despite the policy changes, the butter price will remain more than double the current world price and the skimmed milk powder support price will be around a third above current market rates. Taxpayers can expect to be paying more than €3 billion in dairy aid payments by 2007, a figure that will increase as enlargement kicks in.

German model of partial decoupling

Essentially, the German formula of partial decoupling of livestock payments has been adopted. Member states will be able to retain the entire suckler cow premium as coupled and up to forty per cent of the slaughter premium. Member states will also be able to retain fifty per cent of the sheep and goat component of the single farm payment as coupled aid. The proposed intervention price cuts for cereals have been scrapped altogether as a concession to France. This issue seems to have posed greater problems for France than the principle of decoupling. There are special arrangements on durum wheat which seem to have been tailored to placate Italy. In relation to another Italian concern, there will be an annual ceiling on intervention purchases of rice. The intervention price is to be cut by fifty per cent, but 'normal' intervention will be triggered at €150/t compared with the proposed private storage aid with safety net intervention at €120/t. In compensation, direct aid is more than doubled, but over half of it is decoupled. Germany has been given a special tranistional regime for rye. Reports on reforms of the olive oil, tobacco and cotton regimes will be presented by the Commission in the autumn. It is expected that the proposals for this Mediterranean products will involve a similar switch in the way in which subsidies are provided. These proposals are likely to move forward under the Italian presidency. The highly protected sugar regime is not covered by the reforms, but the Commission is to receive two independent reports setting out the options in the next few weeks.

Cross-compliance has been reduced from the original thirty-eight to eighteen regulations. These will be phased in: five environmental and three public and health rules from January 2005; four public/animal health and three disease notification standards from 2006; and three animal welfare standards from 2007 onwards. The IACS system will be used to control cross compliance, with at least one per cent of farms receiving direct aids to be checked every year. Compulsory farm audits are not going to be introduced but from 2007 member states must offer a voluntary advisory system for farms receiving more than €15000 in direct aid. There will be a report on how the system is functioning in 2010 when a decision will be taken about whether to make it compulsory. The system is aimed at advising farmers on the application of cross compliance requirements.

The 'menu' of possible schemes for spending rural development funds will be extended from 2005 onwards to cover food quality, meeting standards, additional animal welfare provisions and late additions such as 'innovative approaches to food processing' and developing and applying new technologies.

The old adage that half a loaf is better than none comes to mind. Surprisingly, the media in Britain, notably BBC1, has boosted it as a 'fundamental' reform. This is the perception that enters public consciousness, reducing pressures for real reform as a belief develops that the problem has been sorted. Franz Fischler has hailed the agreement as 'the beginnng of a new era' but how far will it meet his aims of simplification, avoiding unwanted production incentives, improving market oriented production and avoiding trade distortions? He claimed that farmers would have the freedom to be market oriented while benefitting from income stability. He also claimed somewhat optimstically that society as a whole would be prepared to pay more taxes into the CAP budget as it saw its concerns over the environment, food quality and animal welfare being met. However, the reforms have been condemned by third world NGOs. Phil Bloomer, head of advocacy at Oxfam, said, 'These proposals confirm our worst fears, there is nothing to celebrate. European agriculture will still be subsidised to the tune of £30bn, creating vast surpluses that will be dumped on poor countries.' In terms of the political parameters, however, this is probably the best package that could have been achieved and Fischler deserves some credit. He can retire as Commissioner next year with a feeling of some satisfaction.

One early criticism has been that the reforms represent a move towards renationalisation of the CAP because of the extent of discretion given to member states over how they decouple. Concerns have been expressed that there could be distortions of competition within the internal market. Fischler has downplayed concerns that we will see beef cattle sent on tours round the EU in search of coupled subsidies.

US reaction

The WTO has given the measures a general welcome. In a joint US statement USTR Robert Zoellick and Agriculture Secretary Anne Veneman said that the next critical step was for the EU to translate its CAP reform into meaningful WTO proposals. The EU farm package could be a useful impetus to the trade negotiations if the EU made ambitious proposals for reducing trade-distorting domestic support, cutting agricultural tariffs and eliminating export subsidies. In a note of caution, they expressed the hope that the last minute compromises needed to strike the farm deal would not affect 'the EU's ability to contribute to global reform in agriculture.'Updated 27/7/03

FRANCE MAY USE VETO, WARNS CHIRAC

The failure to agree on CAP reform was not discussed at the European summit at Thessaloniki after European leaders turned down a request from President Chirac to put it on the agenda. Farm policy has only rarely been subject to the exercise of a national veto, but Chirac threatened to invoke the unwritten rule that member states will not outvote a country that cites 'vital interests'. President Chirac declared, 'The current proposal from the Commissioner is not acceptable. It is not accepted by France. This means everyone has to move, including the Commissioner.'

Progress towards a compromise package on CAP reform at the talks in Luxembourg was halted after an intervention by French President Jacques Chirac. Farm minister Hervé Gaymard had been showing a willingness to compromise until the presidential intervention. Although French resistance has been a key problem, other countries have concerns about the extent to which some subsidies can remain coupled, particularly in the livestock sector.22/6/03

Franco-German meeting once again important

As is so often the case at vital moments in the history of the CAP, the really significant event during the week was a meeting between the French and German farm ministers (Hervé Gaymard and Renate Kunast) which took place in Berlin on Tuesday. The nature of the deal was outlined by Gaymard later in the week. All arable sectors would be sixty per cent decoupled, while forty per cent of aid would remain coupled. There would be fifty per cent decoupling in livestock with specific exrmptions for the suckler cow premium, the beef special premium and the ewe premium. There would be a 'reasonable' amount of modulation. There would be no degressivity and no dairy and cereals reforms before 2013. Kunast appears to have been willing to sacrifice many of her views on modernising and 'greening' the CAP to maintain good Franco-German relations.

Franz Fischler has argued that partial decoupling would be 'the worst of both worlds', increasing bureaucracy without giving farmers the full flexibility of production choice. Fischler is also concerned about the possible increase in production surpluses after enlargement, especially a potential surge in butter intervention purchases. Not only would the reappearance of butter mountains be politically damaging for the EC, the wily Commissioner has pointed that there would be a very noticeable budgetary impact, thereby increasing further the net German contribution to the EU budget.

The key issue is how far the Commission is prepared to give ground on what it sees as the key issue of decoupling or whether it can make concessions elsewhere that it would give it additional room for manoeuvre on decoupling. The stakes are very high. A spokesman for Fischler commented, 'If we reform now, this will be the CAP for the next ten years.' The Commission is taking to view that any exemptions from decoupling should meet three criteria: they should avoid land abandonment; they should be administratively workable; and as 'green box' compatible as possible. The Commission would be more likely to accept a proposal that set EU wide conditions for retaining certain coupled payments for particular sectors or areas.

In terms of the international trade negotiations, the partial decoupling plan could only work if the most lenient version of the proposals on the table was adopted, i.e., a fifty per cent reduction in blue box payments rather than their abolition. Opponents of reform would argue that the phasing in of WTO agreements over five or more years means that it would be some considerable time before domestic subsidies were threatened. However, as Agra Europe comments in its 13 June issue, 'the CAP's misfortune over the past forty years it that it has been managed on the basis of "we'll reform it when we have to and perhaps not even then". Failure to take sufficiently decisive action now may lead to another crisis in 2006-7.Updated 16/6/03

Could treaty objectives be changed?

One of the many curiousities about the CAP is that it is based on treaty objectives that have not been changed since the Treaty of Rome, unlike all other major policy areas. It now appears, however, that the two extra scheduled plenary sessions of the European Convention will look at rewording the CAP objectives (currently Article 33) to reflect values such as sustainability and rural development. However, the draft constitution continued to use wording from 1957 condemned by the Commission as outmoded. The Commission commented, 'The provisions on agriculture ... reflect the ideas of the 1950s on growth and security of supply and are far removed from the key elements of the CAP reform designed to encourage production of high quality food whilst respecting environmental imperatives and developing the countryside by means of diversification.' Updated 23/9/03

CONVENTION PROPOSES BOOSTING POWERS OF PARLIAMENT OVER CAP

The 'draft EU Constitution' published by the European Convention suggests that most future decisions on EU agricultural legislation should be used reaching co-decision rather than the current system of consultation. The draft removes the reference to consultation, allowing for the CAP to be dealt with through the normal legislative procedures of co-decision. However, in the areas of fixing prices, levies, aid and quantitative limitations, the Council would retain executive power. The move to co-decision would give the EP considerably more input into final CAP decisions, as the Council would be obliged to seek to include amendments in the final legislation, as opposed to the current situation where the EP Opinion is merely 'taken into account'.

One might think that there was a need for more democratic input into a controversial policy which still takes up nearly half the EU budget and where lobbies and particular national interests have had a considerable influence. Critics have pointed out, however, that bringing in the Parliament would further delay changes to the CAP as the need for two Council and EP readings normally takes at least eighteen months. The draft constitution also proposes the abolition of any distinction between compulsory and non-compulsory spending in budgetary decisions. This would allow MPs to make changes to the budget lines relating to CAP market measures which still account for by far the greater part of the CAP budget.4/6/03

PRESSURES FOR TRADE DEAL WILL INCREASE IN 2004

Pressures for an effective international trade deal embracing agriculture would increase in 2004 suggested Reading University's Professor Alan Swinbank, speaking at a conference on Future Policy Prospects in Agriculture at the National Europe Centre in Canberra, Australia in mid-May 2003. Swinbank was pessimistic about the prospects of progress before or even at the Cancun ministerial. However, a worst case scenario would see the US out of the WTO in 2005 with the EU retreating into isolationism. It would then rely on its own market, plus a Mediterranean free trade area and the Lome countries.

However, the prospective demise of the Peace Clause was a powerful lever for change. Swinbank suggested that there were drawers full of potential conflicts and it was a question of which you chose to file first. It shouldn't be forgotten, however, that the existing Agreement on Agriculture had a lot of potential, as demonstrated by the Canadian milk case. It wouldn't happen this year, but industrial pressures for a settlement would increase in 2004. He noted that non-annex 1 food processors had a lot of lobbying influence which they had not used. But with no export subsidies, and faced with paying three times the world market price for sugar, firms such as Mars would be upset. There was, however, a danger of focussing on export subsidies and ignoring import access questions. To some extent this was a game that the EU was playing.

The conference as a whole spent some time discussing the question of multifunctionality which is viewed with considerable scepticism by the Australians. Alan Swinbank raised the issue of how 'joint' the production processes covered by the notion of multifunctionality were. In his presentations, the writer of this page agreed that multifunctionality could be used as a smokescreen for continuing protectionism and production distorting subsidies. However, European politicians faced a real domestic political momentum on issues such as animal welfare and had to make some coherent response. This had to be taken into account if a settlement was to be reached in the Doha Round.

The conference was accompanied by a field trip and a report on this is to be found at Field Trip 18/5/03

US Files GMO Complaint

The United States has filed its long awaited complaint at the WTO against the EU's resistance to genetically modified crops. The Argentine, Canada and Egypt jointly sponsored the complaint, while nine other countries, ranging from Australia to Mexico, associated themselves with it. Around 75 per cent of US soya and 34 per cent of maize grown in the US now consists of GM varieties and it has been claimed that the EU moratorium is costing agricultural exporters €300 million a year.

Why has the US taken so long to proceed to a complaint? There had been a concern that it could sour US relations with Europe, giving the opposition of the majority of European consumers to GM products. It could also sour the atmosphere in the Doha trade round. However, the backwash from the Iraq conflict has made the US more determined to ignore European public opinion. A complaint could have come earlier if it had not been for US efforts to woo European countries to support its actions in Iraq. The administration was then distracted by the war in Iraq. Just before the announcement, however, the powerful chair of the Senate Finance Committee, Charles Grassley, had been pressing for a complaint and had summoned senior administration officials to his office.

The EU has stated that it will defend the complaint vigorously, arguing somewhat disingenuously that there is no moratorium on the adoption of GM crops.21/5/04

FARM TRADE CONFERENCE TRIES TO STRIKE UPBEAT NOTE

Participants in a symposium at Imperial College at Wye on agriculture and the WTO negotiations tried their best to strike an upbeat note, despite the fact that agriculture has once again proved to be a central problem in trade round negotiations. The weather outside the well heated conference hall was sunny but with a cold wind blowing and one felt that the cautious optimism of some of the speakers would be offset by the cold wind of reality. Indeed, even the prospect of the US pulling out of the WTO altogether was raised. Another factor that had to be taken into account was the Iraq war and strains in relations between the US and France and Germany. The conference was presumably held on Chatham House terms so I have only identified myself and the conference organiser, Professor Tim Josling of Stanford who is also a visiting professor at Wye.

A well-known agricultural trade expert who now works for an international organisation, but who was speaking in a personal capacity, argued that there were some reasons for complacency. The debate about agricultural trade was no longer about very fundamental issues, but about very concrete and practical changes in existing commitments. The situation in agricultural trade was not very different from what it had been at the beginning of the Uruguay Round, but fundamental rules of the game had been changed. Market access issues raised some serious disquiet among different groups of developing countries. The export interests of some would require the opening up of access in other developing countries, producing south-south issues, in particular on tariff reductions. The extent to which Doha would be a development round and what this meant was increasingly confused.

EU's 'divide and rule' strategy

A well-known trade journalist commented that the EU was following a clientlistic strategy designed to increase divisions among developing countries. The round was much more of a trade officials' round rather than representing a high level political commitment by governments. Lamy and USTR Zoellick wanted to complete the review by the end of 2004 when their terms of office expired. It was important to remember that there was an important and vocal group of LDCs who favoured liberalisation, not least the seventeen in the Cairns Group. Agriculture was seen as the most potent symbol of inequities in north-south relations in the WTO, thanks to NGO campaigns which was something new since the Uruguay Round. It was not clear whether after 2006 the EU had agreed a ceiling on spending or a floor underneath it. There was not much time left to make progress with five months to the Cancun ministerial, particularly given the difficulty of getting a new EU negotiating mandate.

Could US pull out of WTO?

If Cancun was called on to agree on all unresolved issues, it could be a re-run of Seattle with the added attraction of hurricanes. It was questionable how high the Doha Round ranked on the agenda of world political leaders. The Iraq war had knocked trade off the radar screen, it might need a concerted high-level drive to get the round effectively under way. The expiry of the peace clause could mean that things could get a lot worse. There was a warning of what might come in the Australian and Brazilian complaints on sugar. US-EU trade disputes were festering unresolved and more piled up every month. A lot rested on the personal relationship between Zoellick and Lamy. There was an ugly mood in the US Congress towards the WTO and Europe. There was even talk of withdrawing from the WTO. How far would Bush fight this given his distaste for multilateral institutions? There was quite a high probability that the Doha Round would go nowhere for months or longer. However, it was important to remember that agricultural trade could not move faster in any forum, certainly not regional ones.

In discussion it was noted that the Chinese were having some difficulty in working out what their interest in agriculture is. They have thought about joining the Cairns Group and had been observers at a recent meeting. They had since cooled on the idea. It was noted that China had imposed new import regulations on GM products. China seemed to be joining the EU in terms of those who wanted to restrict GM exports when the US had been hoping for substantial exports. It was noted that some of the non-trade concerns would have to be dealt with, but this would be very difficult. It was emphasised that failure of the negotiations would affect domestic policy reform. One did not get the impression that, despite the available evidence, OECD member states were mentally or politically at the point where they understood that reforms were in their own domestic interest and trade is a mere by-product of that.

Commission sets out stall

The second part of the afternoon focussed on the CAP and started with a presentation from the Commission on their current perspective. It was noted that their reforms efforts had been criticised on three fronts: timing, mandate and scope. Post-BSE EU farm policy had become more demand than supply driven. The real dilemma was how to be competitive in world markets and meet environmental, food quality and welfare standards. The question was not if but how to support EU agriculture. It was taken for granted that one could not meet those two objectives without support. (!) The EU felt that in the current climate, consistency was penalised and reversals of policy were rewarded (presumably a reference to the US Farm Bill). The EU didn't want a re-opening of the SPS, but there had to be some reference to the precautionary principle. There was a risk of over estimating the gains from trade liberalisation and under estimating the losses. There would be losers and there was an absence of a mechanism to compensate them. The PSE approach as originally developed by the OECD was unhelpful because different policies had a different impact on trade. An increasing proportion of US support was under the de minimis rule, one third of the total by 2000.

Can one find grounds for optimism?

The writer of this page was asked to talk on the question of 'Can the MTR rescue the Doha Round?' As a political scientist studying the CAP it would be easy to give way to pessimism. The easy and realistic answer to the question would probably be no. Long-term obstacles to reform included:

More proximate factors were:

However, the CAP had changed and there was a potential for further change. Franz Fischler could see a window of opportunity to move towards a more multifunctional CAP that would be more acceptable to European public opinion and be more WTO compatible. He had an incentive to finish his term as Commissioner with a success. To secure movement from the EU, other countries had to take seriously concerns such as animal welfare. Ultimately, however, the trade round was more likely to force change in the CAP than the other way round. Decoupling was the key, but there was less support in the Farm Council for that than for modulation. However, the debate was heading in a particular direction and it wouldn't halt or reverse. Keynes said that 'the ideas of economists and political philosphers ... are more powerful than is commonly supposed.' This suggested that those who worked in the analytical community were not wasting their time. Unfortunately, his next sentence 'Indeed, the world is ruled by little else' is less true. At least in the world of the CAP.

Reform is never popular, but it happens

An well-known expert now working for a farmers' organisation pointed out that CAP reforms were never received with enthusiasm but still occurred. What was different this time? However, reforms were easier if commodity markets were going well and not much hope was evident in that area. The Commission was caught between the Tangermann bond, which it didn't dare present, and the realisation that some payments are made for environmental services, hence the recipient was meant to be an active farmer. Under decoupling, of course production would fall, that was the point. But it was an issue if decoupling led to environmental and social problems. Not enough money was being spent on pillar two.

A speaker with food industry links emphasised their interest in the successful operation of the DSM because the food industry was always put on the retaliation list. It offered packet sized trade that there was not made up of elements the average consumer would worry about, e.g., dried onions. This became even more relevant with the impending expiry of the peace clause. Standards were a key area for the industry. There were discrepancies in environmental legislation and implementation. The value of increased market access for the LDCs was limited for the food industry to a few large markets which offered high volumes. The speaker emphasised the importance of the geographical indications issue.

A well-known agricultural economists said that he was pessimistic about the run up to Cancun because of the peace clause. The blue box remained highly problematic. Even with the renewal of the peace clause, would it be possible to make blue box payments in the new member states.

What is partial decoupling?

One could almost hear the violin music in the background as the Commission spokesman returned to the debate to argue that the CAP was the scapegoat of everything. Only one member state had initially supported Agenda 2000, but it had happened. World market forecasts were worse. Internal discussions were now taking place in the Commission on the next financial framework. Partial decoupling [currently a buzz word] was problematic. If you asked ten people what it was, you would get twenty different answers. It was the worst possible scenario, a nightmare in terms of simplification, and you wouldn't get what you wanted at the WTO. The crucial issue was the complex one of market access.

Organiser Tim Josling tried to strike an optimistic note in his concluding remarks. There was a remarkable convergence between the US and the EU in the ways in which they thought about agricultural policy, but they were still stuck with different systems. The US Farm Bill was a grab for the budget by well-organised mid-western Congressmen, not a change in the policy of the US administration. There was a tension between the mid-west and California and Florida who said this is not our farm bill, it's a corn, soya and wheat farm bill. How might matters be resolved? Could you have another Blair House? No, there were too many actors. The developing countries were in the game but didn't know what they wanted. You could interpret the Harbinson proposals as an attempt to give the developing countries enought to take them out of the game. If this was the intention, it was not going to work. The Doha Round should be completing the Uruguay Round in terms of the inclusion of the developing countries. The price might be a less ambitious change in agricultural policy than one had hoped for.

My final impression was that the developing countries were still going to be rule takers rather than rule makers. I was also left relatively pessimistic about the chances of progress, despite the determination of speakers to be upbeat.11/4/03.

When is Parma ham Parma ham?

One issue that concerns the EU in the WTO negotiations is the question of 'geographical indications' (GIs). This is particularly important in Europe which has a number of traditional, high value added products associated with particular locations, e.g., Parma ham, Stilton cheese (which has to be made in three counties in the English Midlands) or even Newcastle brown ale or Whitstable oysres. Critics of protected geographical indications argue that such measures inhibit the free movement of goods. The EU regards GIs as a way of protecting traditional food products that derive much of their value-added from their association with their place of historic development. It has even tried to claim that the labels have a rural development function by providing a marketing boost to agri-food producers in less favoured areas.

The Farm Council has drawn up a framework regulation on the issue that extends to recognising the right of GI owners 'to prepare and package their products in the area of production' in order to ensure product authenticity and quality control which would reinforce the existing regulation 2081/92 that set up a registration mechanism. The development will be welcomed with Italy's Consorzio del Prosciutto di Parma which has been involved in a long-running legal dispute with UK supermarket chain Asda (owned by American giant WalMart) over its sale of Parma ham sliced and packaged outside the Parma area. In the fiercely competitive UK supermarket, Asda is known for competing on price. A spokesman for Asda commented, 'We are concerned that rules and regulations may be used as a smokescreen to keep prices high.' The European Court of Justice is due to rule on this dispute later this year.

Australia acts on GIs

Australia has taken the first step towards a possible WTO case on GIs. Like the US, Australia has requested WTO consultations with the EU on its eleven-year-old GIs regulation which covers 600 food products and 4000 wines and spirits (although Australia is not challenging these rules). After sixty days Australia has the option of asking the WTO to set up a panel on the dispute. Mark Vaille, Australia's trade minister, has argued that the EU rules impact on the way that Australian producers can use geographical indications when marketing their products in the EU. The Australian move may be a tactic in relation to the Doha round negotiations where the EU is pressing for the extension on WTO rules on GIs to food as well as wine and spirits, and for the creation of a global register of protected products. Australia and other members say the proposal is too complex and would distort trade in agricultural products. If its attempt to get WTo agreement fails, the EU may fall back on a network of bilateral agreements. As Agra Europe has commented, 'The core problem which the EU faces is that the "designation of origin" approach does not always sit comfortably with the reality of todat's complex, inter-linked, globalised food production system.'27/4/03

EVEN FARMERS DON'T BENEFIT FROM SUBSIDIES

It has long been known that relatively little of the large amounts of money spent on agricultural subsidies ($311 billion in the OECD in 2001) is actually received by farmers. Much of the money is absorbed by transaction costs, by input suppliers, traders and those who store intervention stocks. The extent of the problem is authoritatively revealed in a new study on farm household incomes by the OECD.

The study shows that because most support is production-based, the bulk of it goes to the larger, often richer farms. In the case of support to the market price of a commodity (e.g., through 'deficiency payments') the study estimates that only 25 per cent of the funding ends up as a net income gain to farmers. It can thus take four euros of aid to make a farmer one euro better off. Decoupled farm support schemes are more cost effective. Almost half of the gains earned through area support schemes end up in the pocket of farmers - although that still means that half the money does not.

Farm families are not necessarily worse off than families in general. Farm household incomes are on average close to that of other households (although that does not mean that there are not some very poor households), but this is achieved through non-agricultural wages and salaries, investments and social payments. Farmer bond schemes would be a more cost effective means of delivering help where it is needed.27/1/03

REFERENDA HURDLE OVERCOME IN ENLARGEMENT SAGA

With agreement reached on eastern enlargement, after further concessions on agricultural and other issues (the persistent Poles will get an extra €1 billion in cash for their government budget in 2004-6), referenda to be held in the accession states were the next hurdle to be overcome. If just one of the countries had not endorsed accession, it could have had a domino effect. In the event, all those who held referenda voted in favour, mostly with big majorities, although turnout was sometimes low. The big worry was Poland but the country voted 77 per cent in favour on a 59 per cent turnout. If voter turnout had been less than 50 per cent, as had always been the case in referenda since the fall of Communism, the result would have been non-binding. The decision would then have had to go to the fractious houses of parliament where a two-thirds majority would be necessary. This would have required the support of the Peasants' Party. The Peasants wanted subsidies in Poland's first year of membership set at 60-65 per cent of the EU level, something they have failed to achieve.

The accession deal allows arable aid and headage payments at a level of 55 per cent of the EU-15 level in the first year, compared with the 25 per cent originally on offer. These extra 'top-up' payments of 30 per cent compare with 20 per cent on offer at an earlier stage of the negotiations. Year two support will increase from thirty per cent to sixty per cent. By year three, farmers in the accession countries will, if their governments so decide, be allowed to receive 65 per cent of the full amount instead of the thirty-five per cent originally proposed. The CAP component of the aids will be phased in as originally proposed: 25 per cent in 2004, 30 per cent in 2005 and 35 per cent in 2006. The Copenhagen deal also includes improved quotas and reference yields for most accession countries. In particular what Agra Europe described as a 'technical but politically highly significant adjustment' was made to Poland's milk quota allocation.

The extra money will to a large extent be diverted from rural aid packages, effectively dynamic modulation in reverse. To deal with poor infrastructure problems, €9.8 billion had been set aside for rural development measures. Now some of this cash can be used by accession states to top up their basic direct payments in the first three years. However, no accession state will be able to use more than twenty per cent of its rural development allocation for this purpose in 2004-6. All payments have to be co-funded which means that national governments must find twenty per cent of the relevant funds themselves. The political deal here is that the accession states, especially Poland, have been appeased at no significant additional cost to the budget (there is about €400 million in 'new' money), but at some cost to policy objectives. From 2007 the accession states are allowed to top up EU direct payments by up to thirty per cent, but they have to meet the additional cost from their own budgets. This reflects the fact that the CAP budget will only go up by one per cent a year after 2007. Franz Fischler has already warned that any unforseen costs increases arising from dairy or sugar reform, or costs in world markets, could mean that direct payments will have to be cut.

On land sales, it was agreed that the CEECs should be entitled to operate a seven year derogation from the general requirement to open up land markets to foreign buyers. However, under a so-called 'seven plus three' formula, there will be an option to maintain controls in place for three additional years if there is evidence of 'serious disturbances in the land market' (decode: will be granted to any new member state that kicks up a sufficient fuss). This concession is particularly aimed at Hungary which has been concerned that its highly fertile farmland will be a magnet for foreign investors and speculators. Poland had already negotiated its own special twelve-year transition deal on land sales, although farmers currently leasing land will be able to buy their property after three years in eastern Poland and seven in the west of the country.

What one could variously describe as Polish negotiating skill or a display of French style massive intransigence won Poland its own special concession. Poland is to get €1bn paid into its national treasury in the form of what is called a 'cash flow facility' which is one way of describing a pay off. It will get €550m in 2005 and €450m in 2006. The country will receive a €550m cash donation in 2005 and €450m in 2006. In order to maintain budget neutrality for the EU-15 Poland's Structural Fund allocation will be reduced by an equivalent amount. So how does Poland gain? It means that it gets the money directly without incurring the transaction costs of applying for money.Updated 10/6/03.

13/4/03

DAIRY REGIME MILKS PUBLIC AND POOR, CLAIMS OXFAM

Following their attack on the CAP sugar regime, British third world NGO Oxfam has published a critique of the dairy regime. The report reflects an increasing activism by NGOs on agricultural issues in the context of the Doha Round, claimed to be a 'development round'.

Oxfam has made use of OECD PSE data to produce a neat headline figure which states that each dairy cow in the EU receives a subsidy of $2 a day when half the world's people live on less than that amount. It is argued that the EU dairy regime affects developing countries in three main ways: by depressing world market prices, by pushing developing exporters out of third markets, and by directly undermining domestic markets in developing countries.

The report also argues that the dairy regime has failed to support small-scale farmers, although such a policy has strong support among EU citizens. 'One reason that subsidies have failed to protect farm incomes is that they are directed to the dairy processing and exporting industry. The benefits are supposed to trickle down to farmers, but in practice this does not always happen, and the dairy companies capture the lion's share - assured of a fixed price for their output, guaranteed markets overseas, and what amounts to a corporate welfare cheque from EU taxpayers. The report draws attention to the shadowy role of specialist dairy traders. 'The latter are generally secretive about their operations and financial performance, making it impossible to estimate their share of the market.'

The report complains that 'Many small European dairy farmers are being forced out of business due to the CAP dairy regime's failure to maintain their income at renumerative levels.' The number of dairy farmers has fallen from nearly 1.5 million in 1990 to 642,000 in 2000. From a competitiveness perspective, however, some rationalisation and restructuring is desirable, particularly if the EU is to compete on a more liberalised international market. You can reach your own view by reading the report at Milking the CAP. 23/12/02

NO EASY WAY OUT OF DAIRY SECTOR PROBLEMS

Reform of the dairy sector remains an item on the CAP agenda will have to be tackled sooner or later. The current system constrains potentially efficient farmers through the ossifying effects of quotas and 'quota rents'. It also prevents the EU from competing as effectively as it might in an international dairy market that offers interesting opportunities for high value added products. The political problems of reform are, however, considerable. There are large numbers of marginal dairy farmers in politically sensitive areas of Europe such as Bavaria, Brittany and much of Ireland. If price levels were unsupported with no compensating subsidy, probably a quarter of dairy farmers would go out of business. That would simply be too high a political price for most member states.

A new study prepared for the Commission by the Institut National de la Recherche Agronomique in France and Wagenngen University in the Netherlands reviews a number of possible options which are graded from one (best) to five (worst) according to their impact on producers, taxpayers and consumers. Quota abolition would produce the biggest gains for consumers, but would raise the budgetary cost from €3 billion to €5 billion. However, the most politically palatable option, just continuing with the measures agreed in Agenda 2000 such as intervention price cuts offset by income subsidies would be the least acceptable in terms of market efficiency and the development of international competitiveness. A two-tier quota system that permitted off quota production for export would allow highly structured market support to continue, but is almost certainly not WTO legal.

Agra Europe argues that the report makes the fundamental error of assuming that the state has to continue to subsidise one way or another. An option not considered would be to abolish quotas, remove price support and pay off marginal producers with a farmers' bond. Agra Europe is probably a little too optimistic about how easily an unconstrained market could balance supply and demand and reach an equilibrium price. More serious are the political obstacles to such a radical option or indeed any real change. Eight of the EU-15 member states have reiterated their support for the continuation of quotas, with five countries (Austria, Belgium, France, Luxembourg and Ireland) emerging as 'fundamentalist' defenders of the status quo. It is possible, however, that the political picture may change after abolition. There is a view in the Commission that if accession states are given a bad deal on quotas, they may then favour their abolition.

The report is available at Dairy report

IT'S A DONE DEAL!

France and Germany did a deal at the Brussels summit which effectively protects France's interests in relation to the CAP and is likely to mean that any reform coming out of the MTR will be modest. A French official commented that 'It's an agreement to agree' warning 'that the devil will be in the detail.' Franz Fischler insists that the MTR is still on track. The question is whether the majority of member states will give any credence to France's claims that there was an unwritten understanding (it is not in the Council communique) to delay CAP reforms until after 2006. Germany's stance remains crucially important as without their support the pre-reform minority vote is not large enough to block any anti-reform moves.

Labour MEP Terry Wynn subsequently commented that there had been three pressures for reform. One was the Doha Round. A second was enlargement. A third was the tight budgets of member states who had got fed up with paying for the CAP, especially Germany. He commented, 'In one 30-minute meeting, two of those pressures have disappeared.'

A rather calculated display of Franco-German solidarity took place in a meeting between the French and German farm ministers in November. France's Herve Gaymard claimed that the positions of the two ministers were 'much closer than with the British.' However, the alignment may not be as close as the French think. German farm minister Renate Kunast claimed that 'the CAP is not frozen', thus rejecting the view that capping the farm budget from 2006 meant that reform was off the table.

Nevertheless, just as happened before the Berlin summit in 1999, Germany has backed down in front of French determination to defend the CAP. As suggested in an earlier story on this page, France has probably managed to postpone any significant reform until 2006. After that farm payments will only be increased by one per cent a year, presumably less than inflation (other versions have spending capped at the inflation rate). However, given the size of the farm budget, the extent of the degressivity anticipated will take some time to make an impact. Indeed, the overall farm budget will rise to about 48 billion euros a year by 2013.

There is still some ambiguity about the exact terms of the agreement and in any case its effects would depend on the inflation rate, although current talk among economists is about deflation rather that inflation. It should also be noted that the rural development segment of the CAP is not subject to the agreement. Reform member states consider that it does not prohibit dynamic modulation in terms of cutting direct aids over time by twenty per cent and diverting the money into the 'second pillar'. However, Franz Fischler believes that a political commitment to stability from the summit mean that dynamic modulation would have to be put off until 2007.

More generally, Agra Europe suggests that the deal may have removed any budgetary impetus for agricultural reform for the next eleven years. They point out that the actual CAP budget has been some way below the ceilings agreed as part of Agenda 2000. For example, next year the CAP will be €2.6 billion below the agreed ceiling. Against that, the long overdue reform of the sugar regime could increase budgetary costs. However, since the 1980s budgetary considerations, although revived by enlargement concerns, have never been as effective a pressure for reform as international trade negotiations. Agra Europe comments, 'we could have to wait for the slow attrition of long drawn-out budget wrangles to force change rather than the clear signals which would have been given by an unambiguous commitment to the July MTR package.'

Chancellor Schroder seems to have been out manoeuvred by the wily French President. Germany admitted that some elements of the MTR might no longer be possible because of financial constraints. Prime Minister Blair was left standing on the sidelines and had the embarrassment of the British budget rebate being raised by Chirac. Britain is in a somewhat awkward position as in 2001 Britain received more money than it had paid in for the first time since 1994. Its rebate, which is based on two-thirds of the previous year's deficit, rose from 3.4 billion euros in 2000 to 7.3 billion in 2001.

TO THOSE THAT HATH SHALL BE GIVEN

An often repeated 'factoid' is that 80% of the benefits of the CAP are received by just 20% of all farmers. This application of the Pareto principle* never really had any statistical basis, but has often been repeated since it was first included in a key Commission paper that led to the MacSharry reforms. The Commission has now published a statistically based analysis of the distribution of arable crop and livestock premia, the single most important category of CAP spending. As Agra Europe notes, 'the figures provide backing for the general assumption that the bulk of the subsidy money is paid to a minority of large farmers.' (*The Pareto principle, also known as the 80-20 rule states that for many phenomena 80% of consequences stem from 20% of the causes. Pareto observed that 80% of the property in Italy was owned by 20% of the population).

According to the Commission, seven per cent of beneficiaries receive fifty per cent of payments, a figure that reduces to five per cent if the special case of Greece is excluded. Across the EU-15, about seventy per cent of farmers receive less than €5000 a year and about half receive less than €2000. 96 per cent of all farmers in Portugal fall into the less than €5000 a year category. On the other hand, a small group of fewer than two thousand producers receive more than €300,000 a year (the proposed new capping level). The majority of these farmers (1,260) are in Germany, mostly in the eastern part of the country, although there are also 380 in the UK.

Between them the 1,880 farmers receiving the largest subsidies receive €1 billion a year. It is also worth nothing that (excluding Greece) approaching two-thirds of the subsidy payment goes to small and medium sized farmers receiving between €5000 and €50,000 a year. As Agra Europe notes, 'this wide spread of benefit across the middle band of beneficiaries - encompassing some 1.4 million farm holdings in the EU - ensures that [the subsidy system] has solid political support and will not be easily relinquished.'

CAP IS SOMETHING WE CAN BE PROUD OF!

This is the claim made in a letter to the Financial Times and other leading European newspapers organised by Hervé Gaymard of France (the other signatories are Austria, Ireland, Luxembourg, Portugal, Spain and Wallonia). The main claims made in the letter are:

The fact that the French took this initiative shows that they are rattled enough to think that reform is a real possibility. Italy's Giovanni Alemanno refused to sign, saying that he did not want to divide the EU into two warring factions. Somewhat bizarrely, Belgium's response was divided. It now has two farm ministers who both represent Belgium at Farm Council meetings (fortunately things are not carried so far that Brussels, the third region, has representation). Jose Happart signed for Wallonia, but Vera Dua in Flanders argued that there would be potential benefits for Flanders in an extension of the 'second pillar' of the CAP. The outcome of the German elections makes it likely that Germany will remain in the reform camp, although reports suggest that an effort will be made to find a compromise with France.

In fact, as Agra Europe has noted, 'the CAP has rarely achieved such a volume of criticism as it has over the past twelve months or so, from so many different sources.' It hasn't just been the usual suspects in liberal reform countries who have been calling for reform, but third world organisations, the often quiescent food industry, environmentalists and newspaper editors. Gaymard was particularly annoyed to hear the CAP denounced as the source of the problems faced by developing countries at the recent earth summit. The impact of the CAP on third world countries is becoming an increasing issue, as our following article shows. Moreover, the CAP is being critiqued by its own agriculture commissioner who is actually in a position to do something about it. As Ireland's farm minister Joe Walsh has commented, 'I believe Mr Fischler is determined to make his mark on EU farm policy and will not roll over.'

Robust responses to the letter came from Julian Filochowski, the director of the Catholic Agency for Overseas Development (Cafod) and Graham Wynne, the chief executive of the Royal Society for the Protection of Birds. Filochowski pointed out that the average EU cow currently receives more than $2 a day in support fron EU governments. That is more than the income of half the world's population. Research by Cafod in Jamaica showed that the dumping of EU skimmed milk powder had led to a collapse in local dairy production, while yielding few benefits to Jamican consumers. Filochowski argued that the EU had adopted a 'you liberalise, we subsidise' attitude to developing countries. The MTR review largely ignored the impact of the CAP on developing countries.

In his letter Graham Wynne questioned the claim that there had been 'a changeover to sustainable agriculture.' Farmland bird populations had crashed, agricultural groundwater abstraction exceeded recharge rates in southern Europe, and 16 per cent of Europe's land was eroded. Farmers wishing to protect the environment had to do so at their own expense, and all too often the taxpayer picked up the bill for the consequences of unsustainable farming policies.

Sugar

OXFAM SLAMS SUGAR SCAM

In a hard hitting report, British NGO Oxfam has attacked the CAP's unreformed sugar regime as 'The Great EU Sugar Scam'. In an article in its 6 September issue, Agra Europe refers to the sugar regime as 'the most protectionist, market-rigging and expensive of the common market organisations for agricultural products'. Oxfam claims that 'European consumers and taxpayers are paying to destroy livelihoods in some of the world's poorest countries.' It is true that some third world countries receive quota access to the EU market. However, they can only export raw sugar to be processed in the EU, so inhibiting the development of their own refining industries.

The EU minimum price at which sugar may be sold on the EU internal market is €632/tonne; the world price at which EU sugar is exported is currently €180. Oxfam points out, 'this is only made possible by hidden export subsidies, raised through levies on farmers and processors - levies which they can afford because of the high price they receive for their sugar.' It costs more than fifty per cent more to produce sugar from beet compared with cane (a giant tropical grass). In Europe it costs €673 to produce one tonne of white sugar compared with €286 for the most competitive developing countries (e.g., Brazil, Malawi, Zambia). But the subsidy regime means that the EU, one of the world's highest cost producers of sugar, is the world's biggest expprter of white sugar, accounting for 40 per cent of world exports last year. Sugar is one of the most heavily traded agricultural commodities with exports accounting for over one quarter of global production.

Defenders of the sugar regime claim that it is self-financing. Oxfam argues that this claim 'amounts to a misinterpretation at best, and a deliberate act of public deception at worst.' The €800m of levies collected from farmers and processors are 'ultimately paid for by the captive market of EU consumers in the form of premium prices for the sugar, and sugar products, that they buy.' Agra Europe argues that the sugar regime is probably the most expensive of all the CAP regimes with the total cost to the consumer represented by the difference between the EU regulated prices and the world price likely to be around €6.5 billion. The US is far from blameless, though. It uses high internal prices, a tariff rate of nearly 150 per cent and soft loans to prop up domestic production. The 2002 US Farm Bill has increased support to sugar farmers with the price being subsidised by around $1.1 billion.

The sugar regime was excluded from the MTR. Three major sugar exporting countries, Australia, Brazil and Thailand, have requested a WTO panel on the grounds that the EU is operating a two-tier market with excess profit gained in the rigged and protected domestic market being used to subsidise exports. Drawing a link with an earlier successful WTO case against Canadian dairy exports, Australia would focus how unsubsidised 'C sugar' exports benefit from cross-subsidies on export aid on 'A' and 'B' exports and from high internal prices. The challenge is exempt from the 'peace clause' that normally protects the CAP from action in the WTO as it may be possible to establish that the EU is breaching its Uruguay Round limits on subsidised exports.

However, the move has been opposed by the Sugar Federation of the Caribbean. They are the main beneficiaries of an agreement for African, Caribbean and Pacific countries with the EU which gives them a preferential price linked to that paid to the EU's sugar producers. They receive three times the world market price, helping them to offset their high production costs. Because they have an interest in the EU sugar rgeime, they can declare a third party interest in the WTO challenge. Subsequently, the 77-nation grouping of ACP countries said that the WTO move was 'a blatant attack by the big players on the small and vulnerable, motivated by pure mercantilist considerations.'

Labour MEP Glenys Kinnock has challenged the sugar regime in a letter to the Financial Times. She points out that in 2001 Europe exported 770,000 tonnes of white sugar to Algeria and 15,000 tonnes to Nigeria. 'Yet these would be natural markets for sugar from countries on their own continent such as Mozambique.' However, the regime has some powerful defenders. It has created a large and profitable beet growing and processing industry and Oxfam admits that the reforms it advocates 'will inevitably generate adjustment costs in Europe.' In the UK the largest sugar beet farms each receive an estimated subsidy of £60,000 a year. Since the overhead costs of growing sugar beet are covered by the high price for quota sugar beet, farmers only need to cover their marginal costs to make it worthwhile to produce extra beet beyond their quota. The sugar beet processing industry is one of the most monopolistic sectors in Europe. In each of eight countries, just one company controls the entire sugar quota. When it delayed the application of the Everything But Arms agreement to sugar, the sugar lobby demonstrated its powerful political clout. Reforming the regime would help the EU achieve its overseas development objectives, but it is unlikely to happen.

You can download the Oxfam report at Sugar

Defending the indefensible

The Secretary General of the European Sugar Beet Growers Association (CIBE) has attempted to set out a defence of the sugar regime. He claimed that regulation had brought order to the sugar market where liberalisation would have brought chaos. This begs the question of whether markets should be 'orderly' or whether they need to be dynamic and even unsettling if they are to work properly. He argued that prices in the coffee market had fluctuated wildly since 1989 when international quotas and other regulatory mechanisms had been ditched. The market had been unbalanced by a massive expansion in Brazil, fuelled by the devaluation of the Real. The 300,000 farmers (400,000 after enlargement) were mainly family farmers rather than 'fat cats'. (Actually, it is possible to be both). Developing countries should be growing food crops for their own people given the food supply problems which they faced. This page finds this to be a very patronising argument. Least developed countries need to be allowed to develop food exports where they can compete with developed countries, particularly through the addition of first stage food processing activities such as sugar refining.

Mauritius defends existing regime

Mauritius has pointed out that the existing arrangements do benefit producers like itself that are heavily reliant on access to high-priced markets in the EU. Reform could be 'catastrophic' for such countries as their cost of production is very high compared to that of Brazil. Mauritius is the world's seventh largest sugar producer and derives six per cent of its entire GDP from sugar exports. The sugar industry in the ACP states with special links with the EU is claimed to provide direct employment for 300,000 people. Some countries are even more reliant on the EU sugar regime than Mauritius. Swaziland derives sixty per cent of its GDP from sugar export revenues and Guyana around twenty per cent.Updated 16/7/03.

FISCHLER LAUNCHES BID TO TAKE CAP OUT OF STONE AGE

As predicted, Franz Fischler has launched a radical plan for reform of the CAP, declaring that 'restoring the credibility of the common agricultural policy will require a wholesale makeover.' He declared, 'It would be fundamentally wrong to use the deplorable Farm Bill as a pretext for following the American lead in returning to stone-age, trade-distorting agricultural policies. Policy of this type helps nobody - not farmers, not taxpayers, not consumers, not enlargement and not even the WTO.' Reform plans have been launched with some fanfare before and one predict with confidence that this one will be diluted by the Farm Council. As an initiative, it is bold and imaginative, although not without its problems.

The Commission's hope is that its plan would achieve a number of objectives. It would make the increasingly criticised CAP more acceptable to consumers and taxpayers, thus underpinning its continuation. Fischler emphasised, 'By makeover, I mean that the intention is not to call into question the fundamentals of the CAP - we will continue to need a strong common agricultural policy at EU level'. Renationalisation is explicity ruled out, although some room is allowed for national discretion within a common framework. The plan will have little impact on the budgetary cost of the CAP and has already been criticised on these grounds by Germany's budget commissioner. What it does seek to do is to change the way in which support is given to farmers, allowing them greater freedom to act as business persons in contact with the needs of their customers. The plan does represent a systematic attempt to reorient the objectives of farm policy to place greater emphasis on environmental, landscape, food quality and animal welfare objectives. More money would be made available to spend on rural development. With the US having lost moral authority in the Doha Round trade negotiations as a result of the recent Farm Bill, the EU hopes that it would have a strong negotiating hand to shape the outcome.

The proposals summarised

There are five main elements in the proposal:

A bigger challenge than meeting friendly cows faces Franz Fischler

Piloting the proposal through the Farm Council is going to test all the political skills of the wily Franz Fischler. At least starting out with a radical proposal helps to set the agenda and stimulate public expectations. Any compromise agreement will at least offer some prospect of meaningful change.

US FARM SUBSIDIES TO SOAR

President George W.Bush has signed the controversial US Farm Bill which will see a big rise in an election year in farm subsidies in the United States. Despite protestations to the contrary, the measure undermines the credibility of the US as an advocate of agricultural free trade in the Doha Round. Even President Bush had the grace to sound somewhat sheepish, commenting, 'It's not a perfect bill. I know that. But you know, no bill ever is.' Franz Fischler has seized the opportunity to denounce the $190 billion bill as a retrograde step which totally contradicted what the Americans have said before Doha, but the EU is hardly well placed to take the high moral ground. The EU spends at least three times as much each year as the US on farm support, although it would claim that the per capita comparison is more favourable than one just based on volume of spend.

The Commission's main complaint is that the new measures give the US farmer a permanent guarantee of support linked to production, something that the 1996 Freedom to Farm (FAIR) Act was supposed to end. The new counter-cyclical payments provide a guarantee that the extra finance provided until now by 'emergency' payments will be available every year. The Commission believes that the new legislation brings back the coupling of subsidy payments and production. In many ways, however, it is case of pot calling kettle black as the old British saying goes. As Agra Europe commented on 17 May, 'for taxpayers and consumers on both sides of the Atlantic ... there is little to choose in terms of the burden created by the irresistible urge of politicians to prop up the bank accounts of farmers with someone else's money.

The legislation raises price guarantees for maize, wheat, oats and sohgrum and also revives the Target Price System, removed under the 1996 FAIR Act which was supposed to be going to move US policy in a more market oriented direction. This so-called 'cyclical' measure is designed to provide top-up payments to farmers when commodity prices are low. It can be seen that money talks in US politics when one realises that more than two-thirds of the subsidies will go to the largest ten per cent of the farmers. The Congressional Budget Office estimates that the new bill will cost around $51.7 billion between now and 2007. The US has surrendered its claim to moral authority on farm trade issues, making the wider adoption of more market oriented solutions to agricultural problems less likely.

Farm spending had already been rising. The 1997 'Freedom to Farm' Act had been dubbed the 'Freedom to Fail' measure by farmers facing falling commodity prices. With the dollar strong, US farm exports fell by almost 12 per cent between 1996 and 2001, while imports rose by more than 30 per cent. The policy response was to boost payments to farmers from an average of $8.8 billion in the 1990-97 period to more than $24 billion on 2001. Around 40 per cent of these payments have taken the form of emergency assistance until three supplementary legislative packages enacted since October 1998.

The US claims that the measure is within its 'amber box' trade commitments of $19.1 billion a year. Should an overshoot be threatened, the agricultural secretary can use a 'circuit breaker' to reduce support levels, although that might be politically difficult in practice. Taken as a whole, the measure will reduce trade round pressures for agricultural policy reform.

GETTING RID OF DAIRY QUOTAS WON'T BE EASY

A key objective of reformers has been moving towards the abolition of the dairy quotas that were introduced in 1984. However, some recent studies show the difficulties of such an exercise. If quotas were removed, there would be a surge in production which would inevitably lead to a fall in price. Because much milk is produced for domestic liquid consumption, prices would not fall to the so-called 'world price', that for Australian dairy exports which is around a third below current EU market prices. There would probably be a price fall towards the average marginal cost of production which is estimated to be 25% lower than the current milk price. (This does not take account of the fact that UK prices have tended to be consistently lower than average EU prices, perhaps reflecting the buying power of the supermarkets). The probable consequence would be the elimination of the twenty to thirty per cent of more marginal and less efficient dairy farms that produce around fifteen per cent of output.

The difficulty is that these farms are often in remoter rural areas which are economically vulnerable. Moreover, the supply of milk would be reduced to the processing industry that can be an important employer in such areas (although there has been a tendency in Britain for new and larger processing plants to open close to the main population centres and the motorway network while plants in more peripheral locations are closed).

Reformers would argue that we should adjust prices to the level of efficient producers and deal with the income problem of the less efficient by other means, essentially as a social policy measure. Steps would be taken to maintain the income of marginal dairy producers through the transition to a market based policy. The value judgement that needs to be made is: how much are we prepared to pay to maintain uneconomic but arguably socially desirable dairy farming in Bavaria, Britanny and Devon? The answer is likely to be as much political as a careful cost benefit analysis. Franz Fischler has delphically commented, 'I don't see at the moment any qualified majority in the member states for phasing out the quota system in the dairy sector. But there is also no qualified majority for its continuation.'

A DEAL ON SHEEP AT LAST

The Farm Council has finally agreed a deal on reform of the sheep regime. The agreement is largely in line with the Commission's proposal with a single ewe premium of €21 per ewe and a €7 per ewe 'rural world' top up for farmers in poorer regions. The Commission has originally proposed a €50 million package to finance discretionary national bonus payments known not inappropriately as 'national envelopes'. Negotiations in November produced another €20 million for these payments and a further €2 million was found in December, bringing the Commission to the outer limits of the available money.

Half of the national envelopes go to two countries, the UK receiving €20.2 million and Spain €18.8m. Governments have a wide choice about the way in which they spend the money in their national envelopes. They can choose to reward farmers for particular production techniques that benefit the environment or help the rural economy by providing employment. Money can also be provided to help farmers renovate their holdings. Sheep husbandry has become more and more specialised and less a complementary activity of mixed farming, but it remains crucial to the rural economy in many areas.

What's the deal? Sheep rush to hear the news from Brussels. Picture taken at my in-laws farm in Ceredigion, Cymru. Sheep are the mainstay of the rural economy and the Welsh culture in this area.

The simplified annual flat rate payment replaces a deficiency payments system based on the gap between an annual average price and a target price set by the Farm Council. A report from the forward studies unit of the Agriculture DG in January 2001 noted that the regime had created not only the usual subsidy dependency, but also prevented the European sheepmeat industry from adjusting to fluctuations in market demand and consumer taste. The report pointed out that the old system could 'result in technically inefficient producers remaining in production ... Equally, it [prevented] entrepreneurial and efficient producers expanding.' The flat rate system also gets rid of the need for regular market price reporting from member states to the Commission, reducing transaction costs. Different methods in different countries led to discrepancies in the figures.

DOESN'T IT ALL COME DOWN TO FRANCE IN THE END?

This comment was made towards the end of a seminar held on 'Prospects for reform of the CAP in the 2002 mid-term review' at the Centre for Agricultural Strategy, University of Reading on May 23rd. The seminar was held on Chatham House terms, so this report simply summarises what was said. The general sentiment was pessimistic in the sense that it was thought that though there might be some adjustment to market regimes in 2002, there would be no radical or substantial reform.

The meeting started with a discussion of the 'green model' which it was agreed was rather vague and often consisted of a range of different intuitive responses to what is going on in farming. In its more extreme forms it would imply a return to the 19th century with no more sophisticated technology. There was a lack of precision in terms of what was wanted. Public opinion didn't push towards a particular model. It would, however, imply a higher level of special payments to enable European agriculture to compete on the world market.

It was agreed that degressivity would make a reappearance in next year's discussions. A few percentage points off the substantial proportion of aid given to the arable sector would generate a considerable amount of money. Cofinancing of at least the second pillar was another possibility. Poorer member states would not accept co-financing unless it was part of a package deal that favoured them. Degressivity was also politically sensitive and it was agreed that both these options were less politically feasible than an element of compulsory modulation, particularly if member states were given discretion about the policy instruments to be used. For domestic ministers of agriculture, it had the political advantage of enabling them to blame Brussels for the decision.

If multifunctionality was to be defended at the international level, some other way would have to be found of describing it. In one sense it could be regarded as everything and nothing. It could be seen as considering how one delivered a stream of non-market benefits from farming (which may be growing in relative importance) in the most efficient way. It was a problem of identifying outputs and ranking them. The risk was that one protected those public goods that are most measureable or fit into neo-classical theory. There was also uncertainty about the level of protection implied by multifunctionality.

In discussion attention was drawn to the difference between rural development and land based policies. The difference was between supporting decaying communities and dealing with the pressures of people moving into a rural environment. One possible implication was the need for more decentralised policies. The current centralisation of policy was costly and inefficient and hardly compatible with popular theories of multi-level governance.

There was a discussion of the bond project currently under way based at the University of Reading. For full details visit Bond Scheme. This implied an eventual transition to zero subsdies. Its objective is to facilitate adjustment without putting an impossible personal burden on particular individuals. It liberated land to be restructured. One concern expressed was that the scheme could mean significant amounts of money going out of rural areas relatively quickly. Even if recipients stayed in rural areas, they might not spend the money there.

The question that was left for participants to consider was, 'Does France still have the power of veto on major agricultural decisions?'

Farm Visit Report

All too rarely this page makes visits to farms. The direct relevance of the CAP to production decision on farms is shown by the fact that farmers always want to have my opinions on the prospects for the different commodity regimes.

In April 2000 I visited two farms in West Hereforshire near the border between England and Wales. One farmer has moved out of farming into producing ice cream from sheep's milk and has recently opened his own ice cream parlour in a nearby tourist town. He sources his milk from the other farmer who also sells to cheesemakers and has a direct mail service for frozen sheep's milk. Farmers are often urged to engage in high value added production in niche markets and this report provides an illustration of such an effort.

To read the report visit Enterprising farmers move into milking sheep.

THE WINE LAKE IS STILL WITH US

An old standby of critics of the CAP is the so-called wine lake and it is apparent from a recent analysis in Agra Europe that there is a lot of draining still to do. There is a structural surplus of supply over demand. The UK is one of the few European countries with increasing wine consumption, but 'New World' countries such as Australia and South Africa now supply more than 49% of the UK's annual imports. The EU (and particularly France) still produces too many low quality wines in quantities for which there is not a market. So-called 'New World' wines generally do not match the quality of the finest French, German or Italian wines, but a wine from say, Chile, can be highly drinkable yet available at a low price.

According to Agra Europe , two fundamental problems remain with the EU's wine policy despite the Agenda 2000 reforms: 'firstly, the support mechanisms which is still retains will ensure that the industry will still produce too much undrinkable wine, and secondly, ... the cost of the policy to the taxpayer will consequently still remain onerous.' Although the area under vines has been reduced by over 20% in the last decade or so, there is still a 20% surplus of production over consumption. The vineyard grubbing policy has got rid of some of the lowest quality production, but intervention and distillation mechanisms sustain production in sub-standard vineyards which could not compete in a normal market place. In particular, distilation offers a subsidy to a large section of the table grape industry which is not available anywhere else in the fruit sector.

What it all comes down to in Agra Europe's view is that 'The problem with the modified wine regime is that the EU is still seeking to solve its social and economic problems in some of the poorest regions of the Union through the support of the market for a commodity - low-grade table wine - for which there is no real market.' This page would argue that this is an individual example of a more general problem. The CAP purports to be an economic policy, but in many respects functions as a social policy. But if one wanted it to be a really effective social policy, it should be run as such with different objectives and new mechanisms and policy instruments.

Row over Australian wines

The EU has begun discussions on whether to allow Australia to export to the EU wine that has been stored together with oak chips. This practice is banned in the EU but supposedly gives wine the sort of flavour that normally requires long storage in wooden barrels. While no one claims that there is any health risk involved, traditional wine makers claim that it is a philosophical question. Others would say that it is simply a protectionist one. Australian wines are already outselling French wines in the UK and the US. Moreover, the EU allows imports of such wines from other countries, notably the US and Chile, under bilateral agreements.7/4/03

CAP Reform Proposals Announced

The EU announced major CAP reform proposals under the 'Agenda 2000' banner in mid-July 1997 with more detailed proposals following in March 1998. For more on Agenda 2000 click here The Case for Agenda 2000. .

Updated:To find out just how much a big farmer can receive under the CAP click here:Farm Payouts.

You've read the page. Why not read my book on the CAP? More details below.

Last updated 27/9/2004

In case you wonder what I look like now. Thanks to Soozan for the photo.



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Wyn Grant

w.p.grant@warwick.ac.uk

United Kingdom


Helpful Links for Students

DEFRA Home Page: The official page of the UK food and farming ministry.
Economic Research Service of USDA: All you ever wanted to know about US agriculture, plus good links to other sites.
Palgrave (formerly Macmillan) EU Resource Area: Key internet sites and other EU information. You can also search and order my book on the CAP and other titles from Palgrave's excellent EU series
Franz Fischler's web page: Commissioner Fischler's web page with lots of useful information on the CAP and links into DG VI
DG VI home page: The home page of the EU's directorate-general for agriculture
Farming Pages: An Irish site written by farners for farmers with lots of information
Farmers' Weekly: A good source for news stories, possible to get a daily E mail giving breaking news. Site registration required