Tuesday, 24 June 2008

Franco-German united front against CAP reform

News @ European Commission. Mariann Fischer-Boel, Commissioner for Agriculture and Rural Development, has recently unveiled the Commission’s proposals for the so-called CAP Health Check. The Commission’s proposal does very little to boost farm competitiveness, to phase out all the price support measures and to cut bureaucracy. The situation is likely to get even worse through the negotiations as several Member States such as France and Germany believe that the Commission’s proposals are too ambitious since they both want to keep the coupled payment system and market instruments. It is very likely the UK will have few or none of its demands met through the negotiation process.

CAP has been through recent reforms but it continues to be one of the most expensive EU common policies, it imposes substantial costs on developing countries as well as on EU consumers and taxpayers. Tony Blair not only gave up part of the UK rebate but there appears to be no serious CAP reform on the way. The Government has stressed, on its longer term vision for the CAP, published in 2005, that “the CAP has been estimated to be equivalent to a value added tax on food of around 15 per cent” and that “removing market price support would bring a one-off reduction in inflation of 0.9 per cent.” The European Commission has proposed to increase decoupling, strengthen rules on cross compliance, reduce market intervention mechanisms and increasing modulation. However, the Commission’s proposal to reform CAP is far from satisfactory.

The Commission has proposed further decoupling, meaning reducing the link between how much farmers produce and how much financial support they receive from the CAP with the exceptions of suckler cows, goat and sheep premia where Member States would be allowed to maintain the coupled support. Whereas the UK favour direct aid to be completely decoupled from production, several EU Member States such as France, Portugal, Germany and Romania, are not convinced by the Commission’s proposals on decoupling as they believe it will not promote production.

The Commission has pointed out that in order to strengthen the EU efforts in the field of climate change, renewable energy, water management and biodiversity, additional funding is needed. The Commission believes that “the best way of meeting them is through Rural Development policy.” Therefore, it has proposed to increase the transfer of direct payments to the Rural Development budget by 8 per cent. Modulation provides a mean to ensure the transfer of subsidy funds from Pillar 1 of the CAP (guarantee expenditure and single farm payments) to Pillar 2 (rural development and agri-environmental schemes). Some Member States are concerned that the rural development support will come at expense of market supports and subsidies.

Presently, all direct aid payments of more than €5,000 are reduced by 5 per cent and the money is transferred into the Rural Development budget. The Commission wants to make further cuts for bigger farms. It has proposed that any amount of direct payments to be granted to a farmer that exceeds EUR 5,000 shall be reduced for each year until 2012 by the following way “2009: 7%, 2010: 9%, 2011: 11%, 2012: 13%.” However, several Member States such as Germany are concerned that reducing subsidies to big farmers might lead to splits into smaller farms in order to qualify for subsidies. The Commission has also proposed to replace the present intervention systems under which farmers are able to sell stock into EU reserves if they cannot get a decent price for their produce on the market into a “genuine safety net.” It has proposed to abolish the existing intervention mechanisms for durum wheat, rice and pig meat. Intervention will be set at zero for feed grains and tendering will be introduced for bread wheat, butter and skimmed milk powder. The UK has been demanding the end of all market instruments whereas France does not want to give up market interventions. The Commission has also proposed to abolish existing rules on keeping 10 per cent of farmers’ arable land untouched.

Unsurprisingly, the Commission’s proposed reform has not pleased France and Germany which united forces to defend the present CAP. France and Germany have been arguing that CAP is needed to keep food price stability in the EU as well as to protect farmers through the import tariff system. On the other hand, the UK has been demanding serious CAP reform. France and Germany are completely against the idea of cutting farm subsidies. Mr. Darling has called for a “phasing out all elements of the CAP that are designed to keep EU prices above world market levels (such measures cost EU consumers 43 billion euros in 2006), an end to direct payments for EU farmers (which cost EU taxpayers 34 billion euros in 2006).”

Mr Seehofer, Germany’s Agriculture Minister, has said “we have to make sure that we can provide this continent with food sustainability. This cannot be done by taking away subsidies from European farmers.” Yet, Alistair Darling believes that is “unacceptable that, at a time of significant food price inflation, the EU continues to apply very high import tariffs to many agricultural commodities.” According to Michel Barnier, French agriculture minister, “The solution to the crisis is not, first of all, through free trade (…).” Mariann Fischer Boel has dismissed the French claims, saying “I am not interested in a protectionistic approach to the agricultural production in Europe (…).” Nevertheless, she has also dismissed the UK position, while saying “The market has a very important role to play, but left to itself, it will not care for our landscapes or respond to other public demands.” Moreover, she said, “This is not the time to scrap the CAP, as some have proposed.”

The EU Agriculture Minister will further discuss the Commission’s CAP health check at the Agriculture Council in June which will face opposition from several Member States. On the one hand, France and Germany defend farm subsidies while on the other hand, the UK wants to scrap them. France will be wearing the EU helmet in July and ironically the CAP reform will be debated during its presidency. France being the biggest beneficiary of CAP does not want to see a reduction on farm subsidies. The Commission’s proposals are expected to be adopted by the Council by the end of the year and come into force in 2009.

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