Adjusting the CAP

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV.COM Ltd.

Adjusting the CAP

Franz Fischler, the European Commissioner for Agriculture, Rural Development and Fisheries, addressed on 20 September 2002, an EPC breakfast briefing on “Adjusting the CAP”. A question and answer session followed. This is not an official record of the proceedings and specific remarks are not necessarily attributable.

Mid-Term Review

Mr Fischler said the Mid-Term Review (MTR) of the CAP was not really a new reform, because the Agenda 2000 objectives remain untouched. But it was a “substantial” adjustment taking account of the “lively” debate since the process had been launched at the 1999 Berlin Summit.

The update was needed to take account of enlargement to more than just six countries, as originally expected, and also of the BSE and foot-and-mouth crises, which revealed a loss of confidence in the CAP. There had also been the Göteborg summit results on sustainable development. Mr Fischler said the review was a compromise between those who felt Agenda 2000 did not go far enough and those who felt it was the most they could accept. The Commission was convinced that the CAP had to move forward, breaking a number of taboos in the process. This was better than keeping farmers happy with a series of “anodyne” measures that in the end turned out to be a “poisoned chalice.”

The Commissioner said he wanted farmers to:

  • resume their role as businessmen, producing for their customers rather than for intervention stocks;
  • be guaranteed a fair income;
  • be freed from red tape imposed by the CAP;
  • be given the financial assistance they needed to meet the high standards of production expected by the public;
  • be helped to promote their products more effectively;
  • be paid for not overproducing, but for providing what society wants;
  • make farming subsidies more justifiable, in line with the principle of “payment for services rendered”.

Consumers and taxpayers deserved a recognisable service from farming, and this required removing the incentive to overproduce and the expansion of rural development policy. In future, he said, farmers would receive direct support for the public goods demanded by society, red tape would be reduced and subsidies linked to market conditions.

Reduction in Direct Payments

Direct income payments would be removed from farmers failing to comply with environmental, food safety and animal welfare requirements. Modulation must be compulsory to ensure that agricultural subsidies are channelled more towards compensating farmers for the additional services they perform. The goal was to withhold an extra 3% of direct payments every year – money, which would be redistributed among the Member States to put into rural development. Ultimately, the Commission expects this to result in the transfer of 20% of the funding from direct payments into rural development over seven years – a “massive increase” in EU funding for rural development.

However, the changes are not solely about providing greater financial support for rural development, but also to give Member States the chance to implement new schemes to help farmers respond to market demand and meet production standards.

This required new programmes to improve product quality, promote products with geographical designations of origin and organic products. Farmers using ethologically sound animal husbandry, above minimum standards would, in future, be eligible for direct compensation for their extra costs.

Sector changes

On market organisations, the Commissioner said that after the recent US Farm Bill, the EU was braced for greater market fluctuations in cereals and would re-establish intervention as a safety net, while intervention for rye should be abolished and incentives should go to durum wheat p roduction for the processing industry.

For the beef sector, the Commission was proposing decoupling per-head payments from production, replacing them with a single income payment per farm, based on its historical level of premiums.

For the dairy sector, the Commission is looking at continuing the Agenda 2000 measures until 2015; repeating the Agenda 2000 approach after the first wave of reform; introducing a two-tier quota regime as in the sugar market; and abolishing the quota system as recommended by the Court of Auditors in its Special Report last year.

Expert opinion was almost unanimous that reform benefits would not start to come through until after 2008.

Import Tariffs

Mr Fischler warned that a progressive reduction in import tariffs for rice under the “Everything But Arms” initiative would mean a dramatic deterioration of conditions on the EU rice market: “Simply to sit and watch as the situation gets steadily worse would be to abdicate our responsibility to the EU’s rice farmers. We must therefore act now to reduce the intervention price for rice to world-market levels.”

All the changes, respecting the farm budget ceiling set until 2006, would make enlargement easier and strengthen the EU’s hand in the WTO negotiations.

The new system of production-neutral income support does not distort trade, and Mr Fischler warned that it would be “fundamentally wrong” to use the US Farm Bill as a pretext for following the American lead in returning to trade-distorting agricultural policies. “Policy of this type helps nobody – not farmers, not taxpayers, not consumers, not enlargement and not even the WTO.”

The EU approach was more sensible – reconciling agricultural policy with social expectations and rewarding additional services and justifying budget outlay. They were all messages the public understood. In this way, Europe’s farmers would no longer present themselves as a “charity case”. Instead they would be commercially minded businessmen working for a healthier environment and countryside.

He emphasised that the Berlin summit did not rule out new proposals from the Commission, which was now merely taking account of the push towards sustainability called for at the Göteborg summit. In any case, the MTR goals were in line with Agenda 2000 and the financial envelope agreed in Berlin.

Doom-merchants said the MTR proposals signify the end of market support policy, that the move towards rural development was a form of welfare, and that the EU was making concessions in the WTO while receiving nothing in return. Mr Fischler disputed these claims, reminding the audience that farmers used to be dependent not on real markets but trade-distorting artificial market-based intervention. The doom-merchants were disregarding market signals, growing public attacks on the CAP and the need to help farmers produce better quality goods.

Any move towards greening the CAP gave the EU negotiating room in Geneva to win recognition for origin labelling, animal welfare, food safety and the precautionary principle. The mid-term review, he said, was no revolution, not even a mini one. It was a blueprint for a new CAP, more in tune with the needs of today. Many farmers and farming organisations are not queuing up to welcome the proposals, but it was essential to be proactive, adjusting “the tools at our disposal” to restore to farmers the prestige they enjoyed in the past.

Discussion

Answering questions, Mr Fischler said the outcome of this weekend’s election in Germany would not affect the Commission’s approach to the mid-term review: “Whoever wins, we think our proposals are right” he said. Formal proposals will be unveiled this autumn, and every effort will be made to reach agreement next spring.

The Commissioner said there was no question of waiting until 200 6, as some suggested, before pressing ahead. That would be a “nonsense” because the question of future financing of the EU budget would be confronted in early 2004, and it was crucial to know the basis of the future CAP by then. The conclusion of the WTO round would also come in 2004, and it could not be guaranteed that there would be no more food scares in the near future. The Commissioner emphasised that CAP reform could not be delayed.

Asked if the US Farm Bill was compatible with WTO requirements, the Commissioner said the Bill was “a tricky thing.” Many US analysts believed that by using the instrument of the “counter-cyclical approach” when food prices are low, America will be able to keep the Bill within WTO norms. But Mr Fischler pointed out that US prices were very high at the moment, and, in his opinion, the Bill did not comply with WTO rules.

On the sugar regime as a measure of EU agricultural credibility, he said the Commission needed to know what was going on. The current price gap between the EU and US was negligible: the real difference was that the US was neither importing nor exporting sugar.

The Commissioner promised the EU sugar quotas would be “considerably reduced” for the coming marketing year, to the advantage of poorer countries. But he warned that the issue was fraught with the risk of fraud: a recent consignment of sugar from Croatia was checked and found to be cane sugar – something Mr Fischler said he was not aware was produced in the Balkans. “Systems have a tendency to be fraudulent, so we must monitor carefully what is going on. But we are willing to reform the sugar sector. There will be a proposal next year and we will see what happens.”

Mr Fischler said the Commission was aware of the potential benefits of harnessing non-food production on farms. But a clear judgement would have to be made about which renewable materials could be used. Fibre products were more and more important in the car industry because of pressure to recycle. And energy production had plenty of scope in the farm sector. But there were restrictions on the ability to harness bio-fuels, and in the mid-term review there would be proposals to remove existing restrictions and double the land area, which can be used for non-food production. It could even be tripled, said Mr Fischler, if such action could be justified.

On the funding of the CAP and the role of the candidate countries, Mr Fischler agreed it was a “hot potato”, albeit with an agreement in principle. What was needed now was a common position at the Brussels summit at the end of October. Only then would everyone be ready to complete the negotiations and make hard decisions at the Copenhagen summit in December: “There is no alternative to a decisions about enlargement in Copenhagen.”

He said it should be possible to complete enlargement with ten new Member States, without expanding the overall share of the budget that goes to agriculture – currently 0.43% of GDP. “It should be possible: in the next financial period, that agriculture spending will no longer be the biggest part of the budget.”

Asked about the fate of the ACP countries as the EU moves towards more liberal trade regimes in agriculture, Mr Fischler was blunt: he said it was not realistic to expect to achieve an open, liberalised trading system in the world and at the same time cling to the old trade preferences which offered privileged access to certain countries. Everyone in future would be in open competition for markets, but there were positive effects of a more liberal regime – and if those competitive benefits were not taken into account, there would be no progress in the WTO.

Finally, Mr Fischler was asked about his fisheries reform plans, and he acknowledged that, so far, they were being strongly resisted. He wanted a fisheries solution this year, and hoped for a European Parliament decision in early December to speed the reforms: “I wi ll push very hard in that direction so we will see what happens.”

Conclusion

In concluding, Stanley Crossick, EPC Director and Founding Chairman, emphasized that CAP reform was important for its own sake and the sums involved were substantial; but far more important was the need to avoid any delay in enlargement. “We live in an unstable world and it is vital that we ensure long-term economic and political security in central Europe. The cost of non-enlargement pales into insignificance compared to the costs being discussed in CAP reform”. Mr Crossick warned that delay in agreement over CAP would delay enlargement, whatever anyone said to the contrary.


Commissioner’s Speech in full

Good morning Ladies and Gentlemen,

The Mid-Term Review (MTR) of the CAP is not a new reform in the real sense of the word, because the objectives of Agenda 2000 remain untouched.

But it is a substantial adjustment that takes account of the lively debate that has taken place since the Berlin Summit over three and a half years, the decision to open the door, not to six, but to most candidate countries, the BSE and FMD crises – which revealed a loss of confidence in CAP performance -, the Göteborg Summit results on sustainable development, and the position taken in Doha in which the EU accepted to negotiate the reduction of the so-called Blue Box measures.

The Mid-Term Review of the CAP is a compromise between those who felt Agenda 2000 was not going far enough, in particular after the postponement of the dairy reform, and those who felt it was the maximum they could accept.

The Commission is convinced it is in the interest of all parties to move agricultural policy forwards – indeed to break a number of taboos – rather than keeping farmers happy with a series of anodyne measures that in the end turn out to be a poisoned chalice.

So what are our proposals intended to accomplish for European farmers?

We want farmers to resume their role as businessmen, producing for their customers rather than for the intervention stocks.  

We want to guarantee farmers a fair income. No more, no less: our farmers deserve to be duly rewarded for the quality products they supply, the environmental services they perform and their role in conserving country landscapes.

We want to free farmers from red tape imposed by the CAP. They should be able to spend their day working on their farm, not wasting it on paperwork.

We want to give farmers the financial assistance they need to meet the high standards of production expected by the public. Quality should be rewarded.

We also want to help farmers promote their products more effectively.

We want to pay farmers not for overproducing, but for providing what society wants: safe food, a living countryside and a healthy environment.

We want to make farming subsidies more justifiable, in line with the principle of “payment for services rendered”. EU farmers are responsible for the production of many public goods, from the environment and upkeep of the landscape to animal welfare. Though expected by society, these services are not rewarded by the market – hence the need for the CAP to fill the gap.

In this way we intend to give consumers and taxpayers a recognisable service in return for the tax they pay.

To achieve all of this two things above all are essential:

1. removing from direct payments the incentive to overproduce;

2. expanding rural development policy.

In future, farmers will receive direct support for the public goods demanded by society – the services the market has no way of rewarding. This implies not only cuts in red tape, but also guarantees that subsidies will not generate produc tion incentives divorced from market conditions.

At the same time, however, we also want to cut direct income payments to farmers who fail to comply with the requirement on the environment, food safety and animal welfare. For this purpose, we need an EU framework within which the specifics can be laid down by the Member States.

If we want to successfully channel agricultural subsidies more towards compensating farmers for the additional services they perform, we must also make modulation obligatory in all Member States. As discussed in Agenda 2000, the goal is to withhold an extra 3% of direct payments every year. An exemption will be granted for the first 5 000 of each direct payment, plus an additional 3 000 for every worker above two on the farm. This money will not be lost to farming, however – it will be redistributed among the Member States according to an objective scale, for them to put into rural development measures. Ultimately we expect the expansion of the second pillar to result in the transfer of 20% of the funding from direct payments into rural development over seven years. This would lead to massive increases in EU funding for rural development.

The amount of direct payments subject to modulation should be capped at 300 000 per holding. The funds freed up in this way will stay in the budget of the respective Member State, which will be free to decide whether and how to plough them back into rural development.

However, the changes are not solely about providing greater financial support for rural development. We also want to give Member States the chance to implement new schemes to help farmers respond to market demand and meet the expected production standards. This is why we are proposing new programmes to improve product quality. These will include certification schemes for products and measures to promote quality products, products with geographical designations of origin and organic products. Likewise, farmers who practice ethologically?sound animal husbandry over and above the standard required by law will in future be eligible for direct compensation for their extra costs.

Now to the market organisations:

– For cereals, particularly after the recent US Farm Bill, we have to prepare ourselves for greater market fluctuations. Intervention should therefore be re-established as a real safety net, and hence we should carry out the final 5% reduction of the intervention price with appropriate compensation that we did not agree on in Berlin. This should ensure that the EU can continue to get by in future even without export refunds for cereals.

We should also be thinking about abolishing the monthly increments. This would greatly simplify market management and help to improve market fluidity over the year.

Since external protection is no longer fully assured, the Community must negotiate a new, more efficient system in the WTO to respond to low-price exports from the Black Sea region in particular.

– In the rye sector, three quarters of production is sold into intervention. This does not make sense, and intervention for rye should therefore be abolished so as to restore market balance.

– As for durum wheat, approximately 1 million ton is used as animal feed instead of in speciality pastas. The Court of Auditors has also criticised the size of the specific supplementary payment, deeming it overcompensation. We therefore propose reducing the current specific supplementary payment in traditional areas to 250 euros per hectare and abolishing the special payments entirely in other areas, while granting a quality premium of 15 euros per tonne to producers who undertake to sell durum wheat to the processing industry.

– The dried fodder regime, criticised by the Court of Auditors in view of the way in which dried fodder is produced and the high energy consumption involved, is to be replaced by di rect payments based on historical reference periods.

– Given that the Council of Ministers and the European Parliament have been extending the ad-hoc arrangements for nuts for years, the Commission believes it best to replace the existing annual arrangements by a flat-rate payment of 100 euros per hectare.

For the beef sector, we are proposing decoupling per?head payments from production, replacing them with a single income payment per farm, based on its historical level of premiums. As regards export refunds for live animals – a matter of great public interest – we propose tightening up the conditions and controls.

For the dairy sector, we have been examining the following four options:

1. continuing the Agenda 2000 measures until 2015;

2. repeating the Agenda 2000 approach after the first wave of reform;

3. introducing a two?tier quota regime as in the sugar market, and

4. abolishing the quota system as recommended by the Court of Auditors in its Special Report last year.

Unfortunately, given the decision taken in Berlin to postpone the decisions on reform, expert opinion is almost unanimous that the benefits of the reform will not start to come through until after 2008. This begs the question, whether the reform of the dairy sector should not after all be brought forward, in particular to better take advantage of the opportunities currently available on world markets.

I would like to address one last market organisation regime, that of rice. The progressive reduction in import tariffs for rice under the “Everything But Arms” initiative will lead to a dramatic deterioration of conditions on the EU rice market. To my mind, simply to sit and watch as the situation gets steadily worse would be to abdicate our responsibility to the EU’s rice farmers. We must therefore act now to reduce the intervention price for rice to world?market levels. In line with the Agenda principles, producers will receive compensation equivalent to 88% of these cuts, including a crop?specific subsidy to reflect the role of rice production in traditional wetlands.

Finally, the Commission proposals respect the cap on the agriculture budget set by the heads of government, which will be in force until 2006.

They will also have two positive side effects:

1. they will make enlargement easier and

2. they will strengthen our hand in the WTO negotiations.

The new system of production?neutral income support does not distort trade, with all the negative impact this has on developing countries. Unlike in the Uruguay-Round, the EU would be in a position to actively shape the negotiations on the WTO agriculture chapter under the “Doha Development Round”, with a strong negotiating hand and enjoying a level of credibility forfeited by the USA as soon as it introduced its Farm Bill.

It would be fundamentally wrong to use the Farm Bill as a pretext for following the American lead in returning to trade?distorting agricultural policies. Policy of this type helps nobody – not farmers, not taxpayers, not consumers, not enlargement and not even the WTO.

I am firmly convinced that our approach is without doubt the more sensible – reconciling agricultural policy with social expectations and clearly establishing the rewards for additional services, thereby justifying budget outlay – these are all messages the public will understand. This approach will mean farmers no longer have to present themselves as a charity case – instead, as commercially?minded businessmen working for a healthier environment and countryside, they can request their due from the European taxpayer with heads held high.

The widespread criticism that the Commission has exceeded the terms of what was agreed in Berlin misreads the implications of that compromise between moderate and radical reformers.

In any event, the Berlin decisions did not, and could not rule out any new proposals from the Commission, but did set out the minimum that was expected from it. Nor could they take account of the further push towards sustainability that the Heads of State and Government made in Göteborg.

All MTR proposals, including decoupling and modulation, are in line with the goals set in Agenda 2000 and the financial envelope agreed in Berlin.

Without them, criticism, not against the European Model of Agriculture – which the MTR upholds – but against the CAP as it is, may become unsustainable. Without MTR adjustments, the outcome of the WTO negotiations about the Blue Box may force us to substantially cut agricultural expenditure without compensation to our farmers.

Do not listen to the doom-sayers, who incidentally were far more numerous when we tabled Agenda 2000, they turned out to have it wrong, as many of them are ready to admit today.

The doom-sayers believe the MTR proposal signifies the end of market support policy. How can one claim that the market organisations will collapse if the ratio of expenditure between the first and the second pillar of the CAP is reduced from 9:1 to 8:2?

The doom-sayers complain that the transfer of support from markets to rural development is increasingly coming to resemble a form of welfare, and is making farmers more and more remote from the market.

Have they forgotten that European farmers in the past were dependent, not on real markets, but rather on trade distorting artificial market-based intervention? Do they object to the farmer’s right to freedom to farm? Do they wish to disregard market signals? Do they oppose using some of the money used for intervention in order to help farmers produce better quality goods meeting the standards requested by the market and get better prices for them?

The doom-sayers say we want to scrap the Blue Box in the WTO negotiations. This is incorrect. Have they failed to notice that, while we will continue to use the Blue Box, in Doha we had to declare our willingness to reduce the amount of Blue Box measures that we rely on? Are they unaware that, without movement from blue to green box, the presumable result of the Doha Development Round will force us to substantially reduce agricultural support tout court?

The doom-sayers complain that we are offering concessions within the WTO without concessions in return. Do they really believe we would make such concessions against nothing? Do they ignore that any move towards greening the CAP gives us negotiating room in Geneva in order to gain acceptance from our trade partners for our demands such as recognition for origin labelling, animal welfare, food safety and the precautionary principle? How do they otherwise count to reach our objectives in the Round? Or, how would we be able to compete if we adopt standards higher than the rest of the world?

The doom-sayers say: stick to the status quo, the farmers cannot understand further CAP adjustments so early after Berlin, even if they are in their own long term interest.

And if you tell them, changes are urgent: they will help preserving farm incomes, they will help meet CAP objectives, they will help integrate the acceding countries, they will help adapt the CAP to society’s requirements, the doom-sayers will retort : farmers are not ready for it, and see only problems, no opportunities with the MTR. They conclude, why be pro-active? Why try to explain? Why take the trouble? Why not postpone everything to 2006? Do they really think that postponing the MTR, which leads to a more radical change in agricultural support a couple of years down the line, will be acceptable to their successors? Are they really indifferent to increasing public criticism against the CAP, one of the few truly common policies of our Union?

Overall the mid-term review does not amount to a revolution, not even a mini one, but is a blueprint for a new CAP, more in tune with the needs of today – a CAP that will be stronger and more acceptable to the people of Europe, on the lines of Agenda 2000.  

I am fully aware that many farmers and farming organisations are not exactly queuing up to welcome these proposals. But I still believe it is important to be proactive, as open as possible and aware of the different interests of society. This is the best way to adjust the tools at our disposal so as to give back to farmers and to farming the prestige they enjoyed in the past for their contribution to society.

For more analyses see The European Policy Centre’s

website 

Subscribe to our newsletters

Subscribe

Want to know what's going on in the EU Capitals daily? Subscribe now to our new 9am newsletter.