I have had the privilege of being one of the few people to actually see the European Model of Agriculture (or EMA), reports Wyn Grant from the excellent Agra Europe conference held in Brussels on April 23rd. After a head to head debate with New Zealand's Minister of Agriculture, Dr Lockwood Smith, COPA secretary general Risto Volanen returned to his office and brought back two slides which he showed at the end of the day's proceedings. One was of an industrial style feedlot enterprise for cattle on semi-arid land with a cluster of tall concrete silos in the middle (it was somewhat vaguely described as being in Colorado). The other slide, which was stated to display the European Model of Agriculture, showed a small group of contented cows grazing on verdant grass in front of a lake beyond which could be seen clustered the farm buildings of the 'family farmer'.
Resplendent in a smart green jacket, agriculture commissioner Franz Fischler made an eloquent and forceful plea for political support for his Agenda 2000 reform proposals. Clearly one of his targets were the leading food multinationals who were strongly represented in the audience. Fischler stated that he was surprised at the absence of public comment on the reforms by the EU's food industry and traders. [But one of the surprising aspects of the conference was the extent to which those giving presentations seemed to assume that the reforms would be adopted largely as they stood - ninety per cent as the chairman put it - despite evidence of considerable political resistance]. Commissioner Fischler had as a central theme of his speech the argument that European agriculture stood at a crossroads between expansion and contraction. A failure to act would mean that Europe would become marginalised in the world market and a more restrictive bureaucratic policy would become necessary.
Optimism in the face of criticism was the theme of the official press release from the Commission. Noting that televising the proceedings of the March Agriculture Council 'did not promote understatement' from the participants, Fischler observed, 'From the media coverage of the Agriculture council in March I was concerned that people may think that I had rushed back to the office to redraft the proposals. As the Agenda 2000 approach has been the subject of a major consultation for about a year, was generally supported by the Council of Agriculture Ministers and endorsed by the European Council in Agriculture, these proposals were not produced as a "rabbit from the hat"'. According to the Commissioner harsh criticism from agriculture ministers and farming organisations was due to the opening of the negotiations as 'everybody wants to get a bigger slice of the cake now.' The Commissioner explained that he was convinced that there was 'basic approval on the need to shift from price support to direct income payments, a better integration of environmental goals into the CAP and a reorganisation of our rural development policy.'
A fuller account of this interesting speech will be posted later, but for the time being it is worth noting that Fischler displayed his political skills by failing to answer two questions directed at him from the audience. A well known representative of a leading multinational asked why the CAP should not be dismantled altogether. Fischler responded with a series of technicalities which did not answer the question, and when the person who posed the question was asked by the page why he thought he did not get an answer, he responded, 'I didn't expect one. But I'll continue to battle away.' Leading agricultural economist from Aberdeen, Ken Thomson, asked for more information about the payments to be placed in an envelope under national control. What were they thirty per cent of, he asked? Would guidelines for this spending be established before the scheme came into effect, or would past guidelines be used? Or would matters be dealt with on a case by case basis? Fischler's vague answer seemed to indicate that the Commission had not thought about these problems in any depth and had no settled view on the matter, although, perhaps realising that he was being less than convincing, he did come back to say that nothing would be resolved on an ad hoc, 'case by case' basis.
University of Gottingen agricultural economist Stefan Tangermann said that the Agenda 2000 proposals, although imperfect, represented a 'courageous step in the right direction'. He particularly praised the Commission for initiating a reform at a time when there was not a major crisis. All earlier reforms had been prompted by an acute crisis. Tangermann had three bullet points:
Speaking at the conference on fifty years of the GATT/WTO held by Warwick University's CSGR in July, Tangermann emphasised that the Agenda 2000 reforms were necessary if the EU was to meet its Uruguay Round commitments - otherwise 30% set aside would be necessary. Tangermann expressed concern about the sugar sector which he thought could pose big problems in future trade negotiations.
COPA/COGECA Secretary General Risto Volanen had three bullet points to make about the reforms:
Volanen seemed to think that the reform proposals were the result of a conspiracy between the Commission and a few academics. Volanen claimed that farmers were opposed, ministers were very critical and the industrial world was worried. Only the Commission and some consumers they consulted were in favour. (No mention was made of European taxpayers and consumers).
One of his stronger arguments was that the birth of what he called the American bio industry was focing the United States to pursue aggressive trade policies. This was presented as a paradigm shift in agriculture rather than a simple question of further productivity growth. The US was transforming the classic farming system into an industrial raw material system.
His real concerns were evident when he noted that European farmers received only half of their income from the market in 1996. Perhaps revealing the growing weakness of COPA, he complained that the Commission had not listened to farmers. The Commission claimed to be interested in competivity, but its proposals on this front were cosmetic. He made the point that there was nothing to assist farmers to become more competitive. They were squeezed between two forces - the demand for increased productivity and the concern for food safety, production methods and environmental concerns. He argued that the Commission 'plan' to renationalise the policy put at risk one of the central conditions of European integration. We were now at a mirror image of the early days of the CAP and the Manshot Plan: farmers would like a structural policy (with the family farm at its heart). He was convinced that there was common ground between farmers and the expectations of European society (but if that means a particular landscape, how much are taxpayers prepared to pay to preserve it?
Informal discussion among delegates suggested that the strong 'resistance to change' line being taken by COPA may be counter productive from the point of view of their own members as it may serve to minimise their influence on the reforms.
New Zealand's International Trade and Agriculture minister Dr Lockwood Smith put the case for liberalisation with all the zeal of the convert, pushing the recent Cairns Group document Completing the Task. He argued that there had been an absence of analysis of the impact of the CAP on the allocation of resources and hence on lost job opportunities. He cited one Newcastle University study which, depending on assumptions about elasticities in the economy, suggested that elimination of the CAP could lead to welfare gains in Europe of 1.3%. Europe could seek to protect a particular rural lifestyle if the measures taken were transparent: 'If you believe after thousands of years on this continent there is some merit of retaining your rural landscape and lifestyle as it happens to be at the end of the 20th century, that is your business.'
The exchanges at the end of the Volanen/Lockwood session were particularly interesting. Professor Stefan Tangermann, one of Europe's leading agricultural economists, questioned the political strategy of the farmers. What was the point of opposing reform that was going to happen anyway? False expectations being raised. He had explained that change was coming to farmers in talks over a number of years and they asked 'why aren't the farmers' unions preparing us better for the future of agriculture?' Volanen replied that structural policy would give farmers a chance. He reiterated his complaint that 'We have been discussing with Commissioner Fischler, but he has not been listening to us.' Volanen noted that he came from a country which had defended impossible positions for six hundred years. 'If you start running, they will follow you.' Dr Lockwood Smith insisted that the public should be prepared to pay the full cost of maintaining a particular cultural landscape. A free market was necessary, although there must be food standards [which would offer a means of preserving protection]. Volanen retorted that 'Europe began two thousand years ago.'
Aberdeen University's Ken Thomson revealed the approach of agricultural economists to the study of agricultural policy when he commented that he told his students that there were three factors affecting agriculture: technology (and also in some countries now, consumer attitudes); the state of the currency; and, last of all, policy. With enlargement some years off, the impact of it on the reform debate was somewhat limited. Noting the possibility of accession compensatory amounts at borders after enlargement, he pointed out that at one time this was seen as incompatible with the post 1992 philosophy of the single market. Apart from an internal border creating price differentiation, there could also be quantitative restrictions, contrary to EU principles. Accession would involve difficult problems of adjustment for most sectors except cereals where adjustment might be relatively easy, at least at farm level. Professor Thomson concluded that the proposals were good in part (prices) but bad in others (direct payments). The CAP should not offer eastern farmers benefits. The rural areas would have to carry the costs of adjustment which would probably be socially preferable to mass urban unemployment.
Eastern enlargement was also a central theme of the address by Eucolait's Jens Majgaard. He noted that the effects of a market economy had been dramatic over a short period with large numbers of dairy cattle slaughtered, major shifts in consumer purchasing power and with increased imports of some dairy products. 'The changes have been traumatic right through the chain from cow to consumer and these changes have not yet run their full course in some regions ... we are dealing with a very volatile situation.' Typically, milk production had fallen by between 25% and 50%. Centralised milk processing had partly broken down in favour of local supply systems and consumption had fallen dramatically as consumer subsidies had been withdrawn. However, there was considerable scope for major increases in low cost milk production and for expanding consumption which was currently held back by lack of purchasing power, poor distribution, lack of choice and, in some areas, by poor quality. Average yield per cow was less than one third of the EU level. The six applicant countries produced about 15% of the milk produced in the EU, but about one third of this production was retained on farms in contrast to 5% in the EU.
Majgaard warned: 'If current EU support prices were applied today in the six applicant countries, there is little doubt that the stimulus for additional milk output would be very serious indeed. ... Without reform, the problems of integrating the six new dairy industries ... will be on a major scale and could prove very costly to the EU agricultural budget. A reform of the present dairy support regime, combined with steps to start dismantling the milk quota system, must be regarded as pre-requisites for the integration of the six new dairy industries.'
On the reform proposals, the Eucolait view was that the reforms represented a significant step in the right direction. If the present CAP was maintained, the EU must expect to lose significant volume in world trade. The original Agenda 2000 proposals did not go far enough, but in the revised proposals 'we see a highly commendable move towards supporting the views put forward by Eucolait and other interested parties.' This is an interesting contrast with the comments made by the COPA secretary general and illustrates how much easier it is to influence the content of the reforms if one agrees with their general drift. Majgaard took a dig at the US 'who like to portray themselves as being very firmly on the side of free liberal trade.' He noted 'the current proposals for the milk order system as well as some dubious interpretations of the GATT agreements still indicate somewhat ambiguous policies on the part of this important world market player.'
Oxford University's Rosemary Fennell argued that the Commission was wedded to a single sector model of rural development, firmly founded on agriculture, which did not accord with the reality of rural life today. Pursuing a social exclusion theme, she commented, 'There are many people in rural areas right across the Union who have serious income problems, who suffer from social and economic isolation, who experience poor infrastructure standards and limited employment opportunities, for which these Agenda 2000 proposals will do nothing.' She concluded, 'These proposals are an opportunity missed.' Fennell argued 'that the framework of the CAP is extremely static at a time when there are increased concerns with issues such as animal welafre, consumer protection, genetic engineering, and an over-concentration on an unthinking and simplistic approach to the removal of trade barriers, to the detriment of environnmental considerations.
Reading University's Alan Swinbank launched a swingeing attack on the CAP in a paper on 'Will Agenda 2000 meet current and prospective WTO commitments?' at a Centre for European Policy Studies seminar in Brussels in April. He stated: 'The CAP is a grotesque policy which has long outlived its usefulness. It wastes scarce resources which could be better deployed in other activities, imposes heavy financial burdens upon consumers and taxpayers, contributes to the despoiling of the countryside, and discredits the EU in the world economy.' The MacSharry reforms of 1992 and the Agenda 2000 package represented 'timid steps in the right direction.' Swinbank admitted that, given QMV decision making procedures, the Commission had to 'tailor its proposals to pander to the prejudices of farm ministers. Thus it is easy to say that Agenda 2000 is not radical enough, but more difficult to explain how a more radical package could be made acceptable to the Council.'
Swinbank pointed out that the Peace Clause would expire at the end of the 2003/4 marketing year. After that date export subsidies would be subject to the full rigour of GATT's Article XVI and the Subsidies Code; and domestic support measures - both blue box and green box - could be subject to challenge under GATT Articles II and XXIII ... Thus, if the Peace Clause is not rolled-over, we can readily predict that from 2004 the CAP will be subject to a succession of hostile Panel reports which will progressively limit the EU's ability to grant export subsidies and provide domestic support to the farm sector, over and above the bound tariffs. This would [not] lead to radical CAP reform, but it would amount to "death by a thousand cuts"'.
Swinbank's fears about increasing agricultural trade tensions seemed justified when the US announced the revival of agricultural export subsidies in May 1998. Mounting pressure from US farmers over falling prices seem to have prompted the move. Despite the rhetoric about a move away from subsidies associated with the new Farm Bill, agricultural secretary Dan Glickman told the Senate Agriculture Committee, 'Yes, we have a new Farm Bill and a new direction for US farm policy, but it does not excuse government from the most important role we have in agriculture - ensuring a sturdy farm safety net.' Maybe, but how high will the safety net be and what will its impact be on world markets.
Analysts were to some extent reassured by the fact that subsidies for wheat flour are not being revived and the dairy subsidies are being targeted at nearby markets in Mexico and the Caribbean. Export subsidies on wheat would have been a real flashpoint. The US claims that its decision was provoked by the EU 'rolling over' from one year to another unused export refunds for olive oil, sugar, wine and beef. This is permissible under the Uruguay Round agreement, but the US considers it conflicts with the spirit of the agreement. And more trouble is being stored up for the future by a US decision to compensate traders whose exports were blocked on safety grounds. This measure is designed to tackle what the US perceives as growing barriers to trade on scientific grounds.
The pickings available from fraud which takes advantage of the complexities of the CAP have always been attractive to organised crime, but there are signs that the involvement of organised crime is on the increase. Fraud involving customs duties and agricultural levies topped 1 billion ECU in 1997 out of a total fraud bill estimated at 1.4 billion ECU. Scams have included adulterating olive oil with hazelnut oil and claiming aids illegally on the mixture, and switching butter exports to Albania back into the EU. Unless the policy is simplified and reduced in scope, opportunities for increasingly sophisticated criminals to make money out of the CAP will grow.
This CAP page is rather critical of Agenda 2000 so, in the interests of fairness, I thought I ought to put the case for. Many agricultural economists see it as an extension of the MacSharry reform process, extending the decoupling of subsidies for production and bringing greater transparency to the aids given to farmers. Farmers' organisations are concerned about the greater transparency and one of the interesting features of the latest proposals is that the total subsidy given to an individual farm will be known for the first time (whether that information will be publicly available is uncertain - probably only in an anonymous form). Agricultural economists may exaggerate the benefits of transparency as one still has the underlying problem of a diffuse (consumers/taxpayers) versus a concentrated (producers) interest.
Perhaps the strongest case for Agenda 2000 is not what it does in the short to medium term, but its contribution to paving the way for the future, allowing the CAP to be eventually converted into a farm support system which has no links with production. One might, of course, still ask why farming needs more support than any other industry. One positive feature of the proposals is the way in which Fischler has consolidated all rural support measures under the agriculture heading and away from the structural funds. This would facilitate the creation of a rural policy in the future. Moreover, for at least two commodities (cereals and beef) EU prices will be very close to world market prices with market support only kicking in the event of some catastrophic collapse of prices (and a safety net of this kind is reasonable enough). This means that, over time, direct aids can be wound down or replaced with explicit social measures or those oriented to environmental objectives. In the dairy sector, the introduction of the dairy cow premium can be seen as a way of getting a mechanism in place for the eventual phasing out of dairy quotas.
What is nevertheless worrying is the continuing emphasis on a European model of agriculture. At the meeting of OECD agriculture ministers in March, this was defined by Franz Fischler as 'a competitive agriculture able to compete on world markets; an agriculture whose methods of production are safe, respectful of the environment and able to supply products with a quality that matches the expectations of our customers; an agriculture whose richness lies in its diversity and whose mission is not only to produce but also to maintain the diversity of our countryside and an active and living rural community.'
If you start to unpack this, it means anything and nothing. It is therefore not surprising that Fischler had to admit in December 1998 that the model was still 'hazy'. Europe does not have a 'competitive agriculture' because the CAP prevents it from being as competitive as it could be by ossifying the system of production. Many environmentalists would question whether it is 'respectful of the environment', arguing that it encourages intensive forms of farming which result in water and even air pollution and are harmful to biodiversity. As for maintaining the diversity of the countryside and an active and living rural community, this could be a carte blanche for any kind of subsidy that was thought to be politically expedient.
Asked about the European Model of Agriculture when he visited Warwick in July, agricultural economist Stefan Tangermann pointed out that no one in the EU had come up with any definition of the concrete measures needed in order to allow protection of the model. It was a very vague concept which served to distract attention away from the economic realities underlying the reforms in progress.
In many ways the debate about the CAP reminds me of the debate about industrial policy twenty years ago. Subsidies to keep declining firms in production were justified on all sorts of spurious grounds and what was in fact a social policy was dressed up as an economic policy. As a consequence, industrial policies both did economic damage and also failed to meet their implicit social objectives. Perhaps the current debate will lead to a more explicit recognition of the social objectives of the CAP and hence policies which are targeted to achieve those objectives, along with environmental goals. Such a policy could, hopefully, be put in the 'green box' in international trade negotiations and would be less vulnerable to attack by the US and the Cairns Group. We shall see.
In future the Guarantee section will finance the 'accompanying measures' (such as agri-environmental schemes) from the 1992 reforms, as well as support for Less Favoured Areas and all rural development measures outside Objective 1 (which covers those areas of the Community where per capita GDP is less than 75% of the EU average). There will be the following allocations:
Last updated 21/1/99.
w.p.grant@warwick.ac.uk
Politics and International Studies
University of Warwick
Coventry CV4 7AL
United Kingdom