News and Analysis • Volume 12 • Number 3 • May 2008
EU Debate Launched on CAP Reform
On 20 May, the European Commission issued a proposal for a modest set of reforms to the Common Agricultural Policy, but many member states oppose any significant changes.
While the current CAP is set to run until 2013, the ‘health check’ tabled by the commission would convert almost all product-specific subsidies still maintained by member states to ‘decoupled’ payments that are independent of production ahead of that deadline.
Agriculture Commissioner Mariann Fischer Boel said the move would “allow farmers to follow market signals to the greatest possible extent.” The CAP sets the parameters for the EU’s Doha Round domestic subsidy concessions, and decoupled support will be exempt of reductions.
The new proposal would also boost European food production through the elimination of a requirement that arable crop farmers can receive subsidies only if they leave 10 percent of their land fallow. The condition was originally designed to tackle the EU’s chronic overproduction.
In addition, the commission suggests that all member states be allowed to allot payments based on acreage rather a ‘historical’ reference period.
The most controversial of the suggestions concerns shifting money from direct aid to rural development. Currently, five percent of the direct aid given to farmers who receive more than ¤5,000 is transferred into the rural development budget. The commission proposes to increase this rate to 13 percent by 2012. Additional cuts would be made for bigger farms (an extra 3 percent for farms receiving more than ¤100,000 a year, 6 percent for those receiving more than ¤200,000 and 9 percent for those receiving more than ¤300,000). Member states could use the additional funding thus obtained to reinforce climate change, renewable energy, water management and biodiversity programmes, the commission suggested.
This is where many governments part company with the commission. Germany, for instance, has argued that the proposed shift would affect its farming sector disproportionately due the number of large farms in the East of the country. Many of these currently receive direct payments in excess of ¤300,000. In all, Germany stands to lose ¤420 million under the proposal, junior agriculture minister Gerd Mueller said. Even the UK, which usually favours a more market-oriented CAP policy, opposes the plan to transfer support to rural development schemes because many British recipients of EU farm payments are large landholders.
Food Crisis Sparks Different Responses
EU governments are also engaged in a more fundamental debate on the kind of farm policy needed in a time of high food prices. Only a few, led by the UK, have bought WTO Director- General Pascal Lamy’s argument that the impact of soaring prices could be softened through “substantially lowering barriers to trade in agricultural products and diminishing levels of trade-distorting subsidies, particularly in developed countries that have hampered food production and investment in agriculture in many developing countries.”
Not so, counters France’s agriculture minister Michel Barnier, who has categorically stated that the solution to the food crisis “is not, first of all, through free trade.” Instead, both Mr Barnier and this German counterpart Horst Seehofer maintain that high prices in fact underline the need to keep the CAP intact in order to guarantee the EU’s food security. “We have to make sure that we can provide this continent with food sustainably,” Mr Seehofer said. “This cannot be done by taking away subsidies from European farmers.” Forty percent of the EU’s total budget is currently spent on farm support. The budget allocation for 2009 is ¤42.9 billion (US$66.4 billion). France will be the greatest beneficiary of this largesse.
While optimists believe that the ‘health check’ reforms will be agreed by November, although most likely in a much watered-down form, the fight over the next major CAP reform in 2013 promises to be as be bitter as those that preceded it, high food prices notwithstanding.