European tour to sell CAP mid-term review proposals

In July Commissioner Fischler undertook a whistle stop tour of seven EU countries in ten days in order to explain the CAP mid-term review proposals. Opening the tour in Holland Mr Fischler maintained that the EU's agricultural policy was 'doomed to fail' if farmers simply limited themselves to the production of commodities. He maintained that the question is 'not if, but how we support our farmers. The mid-term review is the answer to filling the gaps between our objectives and our achievements'. On the question of subsidies he maintained that the Commission wants to create a system where farmers 'make management decisions on the basis of the demands of the market and expectations of society, rather than the value of the subsidy'. This, he maintained, was the logic behind de-coupling payments from production. He highlighted how the proposed reforms were based on three elements: adaptation in some market sectors; separating direct payments from production; and shifting more money to rural development Speaking in France Mr Fischler chose to highlight the Commission's concern to 'safeguard the direct payments to farmers better and to make them more acceptable both at home and in the WTO'. Specifically the Commission is proposing that in future farmers will get their direct income-payment without having to produce cereals or beef. They must however produce the public goods demanded by society, such as preservation of the countryside and the environment in a satisfactory way. He argued that 'this de-coupling means not only an enormous simplification of administration, but also that the aid does not create any incentive for production which may bypass the market and ruin the agricultural policy's reputation'. In both France and Italy the Commissioner emphasised that small farms would be excluded completely from 'dynamic modulation', which would see a progressive reduction in direct payments and the introduction of a cap on spending per farm. He stressed that the Commission's proposals were aimed at letting French cereal farmers take advantage of the positive developments on the world market. He pointed out that 'with the existing system this is possible only to a limited extent. Firstly the EU's import duty system is inadequate, which has hit French producers particularly hard because of massive cheap imports from the Black Sea region. Secondly there are considerable uncertainties on account of big price fluctuations and exchange rate movements between the euro and the dollar, which could affect our farmers export opportunities substantially'. Against this background a further 5% reduction in the intervention price for cereals is designed to make it easier for products to be sold on world markets, while farm incomes would be protected by increased direct aid payments. Speaking in the UK, Commissioner Fischler defended the proposal to 'cap' EU aid per farm at € 300,000, arguing that this was justified on the grounds that large farms are able to benefit from economies of scale. He pointed out that under the current system 'direct payments have not necessarily arrived where they are most needed, given that 80% of the payments went to 20% of farms'. In the UK, he also stressed that abolishing the CAP was simply not on the EU's agenda. He maintained that the new system would not distort trade, with all the negative impact this had on developing countries. This aspect would, he argued, strengthen the EU's negotiating position in the Doha Development Round. This point was also taken up in his presentation in Denmark, where he noted how important it is to have a competitive farm sector, given Denmark's € 5 billion surplus in the agricultural and processed-food product sector. He emphasised that CAP reform would free Danish farmers from tedious paper work and allow them to return to being businessmen producing for their customers and exporting quality products, rather than producing for intervention. Speaking in Finland Mr Fischler rejected claims that the Commission wanted to cut the farm budget, asserting 'we want to maintain the level of support for the farming sector', with the mid-term review being aimed at 'spending the money in a more sensible and efficient manner'. He stressed that 'our intention is to keep farmers in business, to give them a payment decoupled from production to stabilise their incomes', and that 'more money will be available to support farmers who have to work under difficult climatic conditions, as is the case in the many less favoured areas of Finland'. He stressed how in the Finnish context a reinforced rural-development policy would mean more support in less-favoured areas and for agri-environmental schemes which are currently underfunded in Finland. Finally he pointed out that not a single Finnish farmer would be affected by the € 300,000 'cap' on subsidies per farm. In Italy Mr Fischler reiterated that the Commission wanted to 'continue to guarantee Italian farmers a fair income 'and that the Commission proposals 'do not change this one iota'. He emphasised that the current proposals do not change the financial commitments made up to 2006, but were primarily aimed at ending production purely for intervention. A reformed CAP would help Italian farmers to meet higher production standards attracting higher prices. Speaking in Germany he highlighted the importance of meeting consumer expectations through de-coupling direct payments from production and making them conditional on compliance with environmental, food-safety and animal-welfare standards. He pointed out how farmers' efforts to protect the environment and ensure high quality, safe food were not generally rewarded via the market and that the costs of providing these public goods should be rewarded directly via the CAP budget. With regard to 'capping' individual farm subsidies he maintained that there could be no economic justification for large farms receiving over € 1 million a year in subsidies. He sought to calm fear in the former East German territories over the impact of 'capping' on large labour-intensive units, by pointing out that such units would receive an allowance of € 3,000 per employee, which would provide additional financial benefits to such farms. A common theme in all countries was the public demand for healthier, safer and higher quality food produced on a sustainable basis. In this context the twin aims of CAP reform were the de-coupling of production from direct aid-payments and the linking of direct aid-payments to compliance with environmental, food safety, animal welfare and occupational safety. Speaking in Austria on September 2nd in an on-going effort to sell the mid-term review proposals, Commissioner Fischler argued that the reforms were in the basic interests of Austrian farmers. Two-thirds of them would be unaffected by the 'dynamic modulation' proposals, while overall they would actually receive more money under the reformed CAP as a consequence of increased expenditures on rural development. He warned farmers against rejecting the proposals, as this might alienate consumers and taxpayers, and reiterated that the Commission was not setting out to reduce the agricultural budget but simply to spend it more rationally. He pointed out that the proposals would make more transparent payments to farmers for the provision of 'public goods', such as environmental protection. This he maintained would give farmers greater income stability.Comment: Commissioner Fischler's assertion that the new system will not distort trade is open to dispute. While de-coupling will reduce the incentive for production for intervention stocks, it is still likely to provide an incentive to produce until international market prices fall below the marginal cost of producing, processing and marketing an additional unit of the product internationally. With de-coupled direct aid payments shifting the supply curve of farmers so that at any given price level they are willing to produce a higher volume of product than would be the case in the absence of such direct aid payments, this factor may serve to undermine world market prices of a range of agricultural products. In southern Africa there are already reports of French traders selling wheat at prices 20% below the current world market price. Mr Fischler's emphasis on how financial commitments up to 2006 will not be affected by the mid-term review proposals suggests that the main aim of the current proposals is to 'fly a kite' to ascertain the nature and intensity of member states' resistance to the proposed changes. This will then enable the Commission to develop acceptable proposals which continue to move the process of CAP reform in the direction of across the board payments to farmers which are de-coupled from production decisions and hence more WTO compatible. The current furore in various EU member states over the Commission's mid-term review proposals needs to be seen against this background, with its influence likely to be more on the timing and precise modalities of reform proposals rather than on the overall direction of change.In July Commissioner Fischler undertook a whistle stop tour of..