European Affairs

Spring 2001

 

In the News
EU Will Change Farm Policy, But Not Abruptly
Philippe Lemaître
Brussels Correspondent, European Affairs

 

First came the terrifying crisis of "mad cow" disease, which has afflicted the European Union for more than five years. Now the battle to stamp out foot and mouth disease has led to the burning of animal carcasses on pyres reminiscent of those that consumed Medieval martyrs.

The result has been a rebellion by some Europeans against the so-called "industrial agriculture" that has progressively come to dominate the farms and fields of the Old Continent, with the help of millions of dollars of public subsidies.

It has long been obvious that mass production on the farm is concerned more with economic returns and profits than with food quality or the environment. Now "industrial agriculture" has reached the height of unacceptability with the revelation that it may also be dangerous to the health of consumers.

The villain behind farm policies that put production above all other concerns, it is often said, is the European Union's Common Agricultural Policy (CAP). Calls are increasingly heard for a radical reform of the policy, without waiting for the deadline set in the European Agenda 2000 agreement reached by EU leaders at their Berlin summit meeting in March 1999 - a deadline that is still five years away.

Most Germans refused to entertain the idea that mad cow disease could appear in their country, even though many experts considered it inevitable. When tests revealed the presence of the disease, the public reaction was almost psychotic. Chancellor Gerhard Schroeder aligned himself with the campaign for reform by taking the highly symbolic step of appointing a member of the Green Party from Berlin, Renate Kuenast, as Minister of both agriculture and consumer protection.

Some people thought the issue so "hot" that it would be discussed in depth at the EU summit meeting in Stockholm in March. They looked forward to a battle of the Titans between Mr. Schroeder and President Jacques Chirac of France, in his favorite role as the farmers' champion.

In the event, the subject was barely mentioned, except for brief statements by Mr. Chirac and French Prime Minister Lionel Jospin to the effect that if the CAP were indeed to evolve, the steps should not be rushed. For the immediate future, they said, it would be best for the EU to show solidarity with farmers struggling to cope with the dire consequences of the two diseases.

In France, Parliamentary and Presidential elections are due to take place in 2002. In Stockholm, even though they differed over

CAP reform, the French and German leaders were concerned above all to restore their relations after quarreling badly at the previous EU summit in Nice in December.

They wanted to avoid any subject that might undermine these efforts, an approach that was also evident in their treatment of another sensitive issue, the liberalization of EU markets for gas and electricity. Those who wanted to use the food crisis to accelerate CAP reform were disappointed. But that may be for another time.

The CAP, which has already undergone significant reforms in 1992 and 1999, will continue to shift in the direction of lasting change. Public opinion will continue to exert pressure for reform, as will the twin set of forthcoming international negotiations on agriculture, in the World Trade Organization in Geneva and in the context of the EU's enlargement to include the countries of Central and Eastern Europe.

It remains to be seen how quickly reform will be achieved, and whether recent events will accelerate it. No one, in fact, denies the need for change. In France, the Socialist-led government has been claiming paternity of the reform movement since 1997. Opinions differ, however, on the speed and the method.

The EU "financial perspectives" that were adopted in Berlin in 1999 cover the period from 2000 to 2006. It is unlikely, however, that EU governments will wait until 2006 to start debating the ways and means of reform, the CAP's desired objectives and the share of the EU budget that it should be allocated. The current share of nearly 50 percent of total spending is judged excessive by a majority of EU members.

The scope and timing of reform is still unclear, however, because of several unknown factors. The most likely outcome seems to be that member governments will generally stick to the Berlin timetable, but that they will take rapid action in some areas where it is necessary and make some gestures to public opinion.

Priority for early action will go to the beef sector, which has been devastated by mad cow disease. EU beef consumption is down by about 25 percent, and exports have been hit by embargoes imposed by such countries as Russia. The result has been a sharp imbalance between supply and demand that is unlikely to disappear.

The EU must accordingly take measures both to clear an over-saturated market and to achieve lasting cuts in production. Franz Fischler, the European Agriculture Commissioner, has made proposals that go beyond the two 6.3 percent reductions in intervention prices that are already due to be made under Agenda 2000 in July 2001 and July 2002. As well as withdrawing surplus animals from the market, these measures aim to discourage production by reducing direct income subsidies to farmers, and to make it less intensive.

The Commission's proposals have not been well received by the member states, which seem to be forgetting their earlier zeal for reform. Unless they want to deal with a costly stocking process, however, governments will have to find a compromise that is close to what is being proposed. Over the medium term, such a compromise should lead to a drop in production, more competitive prices and a slowdown in the kind of intensive production methods employed in the Netherlands, Flanders and Brittany.

The Berlin agreement provides for a mid-term review in 2003, to check whether the decisions taken in 1999 are producing the expected results, and to correct or supplement them if necessary. The question is whether the 15 member governments will go further and bring forward the next stage of reform, which would normally be discussed along with the next "financial perspectives" in 2006. Several member states are pressing to do so. The answer, however, will doubtless greatly depend on the budgetary situation.

The Berlin agreement put a ceiling on farm spending of e44.5 billion in 2001, and for the moment no one is thinking of breaking through this barrier. Nevertheless, the cost of the beef crisis has just about used up any available margin, and there is a strong chance that the ceiling will be reached in 2001. That is even more likely in 2002. As a result, the Commission will be obliged to reduce the cost of managing the policy, for example by reducing export subsidies beyond commitments made in the WTO.

It is possible that beef consumption will resume. The drop in consumption last autumn probably went further than the crisis actually justified. But if this were not to happen, the cost of intervention buying and stocking would be too much to cover through economies in management. In that case, political pressure would intensify to cut farm subsidies more sharply, and in particular to reduce direct aid to large-scale farming and dairy production.

The way to do it would be to make aid degressive, with payments diminishing above certain production levels, or to have it co-financed partly by the EU and partly from national budgets. In that way we would get back to the same issues that divided France and Germany before Berlin. It remains to be seen whether the two countries would resume their confrontation.

The Commission has already indicated that it will be looking for consensus solutions. One possibility would be to reduce direct aids to producers, but to offset that loss of income by increasing payments designed to encourage rural development and the protection of the environment. Given the political and economic context, it seems pretty unlikely that CAP reform will be abruptly accelerated.