In June 2003 the EU agreed on a major overhaul of its agriculture policy designed to cope with changing circumstances: the arrival of ten new Member States in 2004, the need to make Europe's farmers more competitive on world markets and the imminent World Trade Organisation talks in Cancún. As a result of this reform, most farm subsidies will in future not be linked to production volumes and EU farmers will increasingly grow what the market wants. The European Parliament, while acknowledging that change was needed, fought to soften the impact of liberalisation on small farms and managed to win more funds for rural development.
Not so long ago, the words "common agricultural policy" or "CAP" conjured up a vision of butter mountains and wine lakes, all created by heavily subsidised farm output that was blind to market needs. This problem has now been largely overcome but periodic overhauls of the CAP have continued. The last update, in 1999, was intended to run up to 2006. But in July 2002 the Commission announced that further measures were needed to enable the EU's finances to cope with enlargement and make European farm products more competitive on the world market. The draft legislation for this latest CAP reform was published in early 2003.
The Commission's proposals to gradually liberalise agricultural production provoked varying reactions from EU national governments, mainly divided between those reluctant to have the CAP altered ahead of the scheduled date of 2006 (France, Spain, Luxembourg, Austria, Portugal and Ireland) and those who supported the proposals for budgetary reasons (UK, Germany, Denmark, Sweden and the Netherlands). It is worth noting that while farming used to account for around two-thirds of the total Community budget the proportion has steadily declined. In 2003, 46.38% of the budget was earmarked for agriculture (42.68 billion euros for the CAP and 4.7 billion for rural development), while for 2004 the figure is 42.7% (42.77 billion for the CAP and 6.5 billion for rural development).
The European Parliament responded to the Commission's proposals in a package of reports adopted in June 2003, which mainly sought to soften the social and economic impact of greater liberalisation on Europe's farmers. Although Parliament has only a consultative role in agriculture policy, with the final say lying with the EU governments, Parliament's reports had a significant impact on the final shape of the reform, which will enter into force in stages in 2004 and 2005.
Keeping people on the land
The cornerstone of the Commission's reform plan was the "total decoupling" of financial aid to farmers, i.e. severing the link between farm subsidies and production levels while expanding the system of direct aid (payments not linked to production) to compensate farmers for their income losses. In addition, although production subsidies had fallen in recent years, the Commission was keen to reduce them much further.
Parliament, however, urged a "partial" rather than a wholesale separation of subsidies from production. One reason was the "multifunctional role" of agriculture. Over the years MEPs have argued that farming has benefits over and above food production. Farmers are seen as custodians of the countryside and farming jobs as crucial to preventing the drift to the cities. Support for agriculture is thus regarded by MEPs as a fair and useful way of keeping people on the land, particularly on hill farms and in outlying regions. Hence one of Parliament's responses to the Commission's reform proposals was to call for a "partial decoupling" system with a "multifunctional payment scheme" from January 2004, consisting of a direct income aid for arable farmers and some cattle farmers. Financial aid to all the other sectors was to remain linked to production.
On 26 June 2003, when EU farm ministers finalised these reforms, they took on board a number of Parliament's suggestions. For example, although in future the vast majority of subsidies will be paid to farmers in the form of a fixed grant (known as "single farm payments") rather than being tied to production levels, Member States may in certain circumstances, in order to stem the drift from the land, choose to keep a limited link between subsidy and production.
Parliament supported the Commission's view that the CAP could be made more multifunctional by diverting a large part of agricultural funding from market support to rural development, especially social and environmental needs. This is reflected in the Council's final legislation, which makes more money available to farmers to grow quality produce or for environmental or animal welfare programmes, by cutting direct aid to bigger farms. The "single farm payments" are also tied to compliance with environmental, food safety and animal welfare standards.
Battle over total level of CAP budget
One of the biggest battles, however, was whether or not to cut all agricultural subsidies in view of the tight budgetary ceiling for the EU-25 up to 2013. Parliament strongly opposed the Commission's plan to reduce all payments gradually, starting with a 1% cut in 2006 and moving stage-by-stage to a 19% reduction in 2012. Under the Commission's plan, farmers were to receive supplementary payments to help offset the impact of these cuts. Instead Parliament proposed some reduction in direct payments but only to farmers who receive more than 7500 euros per year. In the end, farm ministers rejected this system and decided to introduce a "financial discipline mechanism" which will not cut subsidies immediately but will be activated in future if necessary, to ensure that the farm budget fixed up to 2013 is not overshot.
Individual farm products
Alongside the general CAP reform, the Commission presented several individual plans to update the rules governing aid for the main agricultural sectors. The changes were designed to reduce intervention prices so as to give the EU room for manoeuvre at the WTO negotiations at Cancún in October 2003 and to make European products more competitive in the world market by eliminating some rigid interventionist policies in sectors such as rice, dairy products, arable crops and beef. The proposed solution was to decouple aid fully in most sectors. MEPs however stressed that farmers would suffer massive losses, with some sectors becoming unprofitable and eventually disappearing. Some kind of intervention should therefore be kept for all products. The Council's final decisions reflected Parliament's suggestions in a number of areas, particularly cereals and beef.
In the case of cereals, the Commission proposed reducing the intervention price and decoupling all aid, but the Council accepted Parliament's view that the intervention price should stay the same and that only some aid (75%) should be decoupled. For beef farmers, the Commission sought to have aid totally decoupled, thereby eliminating the various existing beef and veal premiums. However, the Council broadly backed Parliament's call for aid to be only partially decoupled, leaving it to individual states to choose which premiums to decouple.
In other sectors the final result was a compromise between Parliament's and the Commission's views. For milk and dairy products for example, the Council agreed with the Commission's proposals that butter and skimmed-milk powder prices should be cut and also that the dairy quota should be prolonged to 2014/15. However, the farm ministers aligned themselves with Parliament's call for the decoupling of aid to be postponed until 2007/08.
Parliament's Agriculture Committee adopted its position on the reform of other, Mediterranean, sectors (olive oil, cotton and tobacco) in February 2004, the Commission having published its proposals in November 2003. The final Council decision on these sectors is expected by spring this year.