CAP mid-term review proposals are launched

Proposals for the mid-term review of the Common Agricultural Policy were set out in a Communication issued by the European Commission on July 10th 2002. They can be divided into two categories: those extending the current process of reform initiated since 1992; those for completing the shift from product support to producer support. The extension of the 1992 reform process calls for: a final 5% cut in the cereals intervention price (involving a reduction from Euro 101.31 to Euro 95.35 from 2004/5, with compensation in line with the Agenda 2000 formula), and a modification of the EU's import regime for cereals and rice (see accompanying article); a modification of special payments for durum wheat to encourage quality production for manufacturing purposes; a reduction of the rice intervention price by 50% to bring it into line with world market prices (to Euro 150 per tonne by 2004/5), with compensation being paid equivalent to 88% of the reduction in line with the Agenda 2000 cereals sector reforms; in the beef sector a major simplification of the direct aid payments to encourage safer and more quality focused production methods; an extension of reforms in the dairy sector. It is believed that in the cereals sector these final modifications will bring prices into line with world market prices and allow exports (except for rye) without any need for export refunds. In the beef sector it is believed that by decoupling the headage payment and replacing it with a single income payment per farm based on historical entitlement, less intensive forms of beef production will be encouraged. The overall aim of these reforms is to 'enhance the competitiveness of EU agriculture by setting intervention as a real safety-net measure, allowing EU producers to respond to market signals while protecting them from extreme price fluctuations'. The longer term objective involves finalising the shift from product support to producer support through 'the introduction of a decoupled system of payments per farm, based on historical references and conditional upon cross compliance to environmental, animal-welfare and food-quality criteria.' This will take account of the Agenda 2000 reforms and will cover as many sectors as possible. Under this scheme EU farmers will have complete flexibility to determine what they produce in response to market signals. In the first stage the scheme will cover all products currently subject to reform, with the dairy sector being added when the Agenda 2000 decisions have been implemented. Other sectors still scheduled for reform, such as the sugar, olive oil and certain fruit and vegetable regimes will be incorporated into this wholly decoupled farm payment scheme later on. According to the Commission proposals 'although the new scheme will not cover all sectors at this stage, farmers revceiving the new decoupled farm payments will have flexibility to farm all products on their land including those which are still under coupled support, except if these productions have been exceptionally and explicitly excluded.' A system of farm audits to ensure cross compliance with the various standards established will be supported through payments of Euro 5000 per annum made available for this purpose. A system of compulsory long term environmental set-aside will also be introduced. A system of 'dynamic modulation' is also being proposed through which 'all direct aid payments will be reduced progressively in arithmetic steps of 3% per year to reach 20%, the maximum agreed in Agenda 2000'. However, this is to be applied selectively on the basis of farm size in order to rebalance the current flow of resources between larger and smaller EU farms. By the end of these changes the 'maximum sum paid to a farm will be Euro 300,000'. Direct aid beyond this amount will be transferred to the rural development pillar of the CAP, which is to be considerably strengthened. Both the scope and level of funding for rural development is to be expanded. New chapters will be added to the rural development regulation dealing with food quality-assurance and certification schemes and support to producer groups for the promotion of products produced under quality-assurance and certification schemes (including geographically designated and organic products). These new elements will allow for the payment of 'temporary and degressive [progressively declining] aid to farmers to help them implement demanding standards based on Community legislation in the fields of environment, food safety, animal welfare and occupational safety standards' and are intended to promote good farming practices. Payments will start at Euro 200 per ha in year one and be phased down over five years. This reflects EU concerns over the difficulties of 'simultaneously enhancing the competitiveness of EU agriculture and rural areas while responding to the higher costs resulting from requirements of promoting higher environmental, food safety, food quality and animal welfare standards'. Comment: The final cereals-sector price reduction will complete EU efforts to enhance the competitiveness of cereal and cereal-based value-added food products, by bringing EU prices into line with world market prices. This, along with the modification of direct aid payments for durum wheat will do away with the need for export refunds and will fuel the continued expansion of simple EU cereal-based value-added food-product exports, which has been underway since 1996. The 50% reduction in the rice intervention price will greatly reduce the value of the trade preferences extended under the Cotonou Rice Declaration and the EBA initiative. The proposed reforms will also seek to insulate EU farmers from the cost-increasing effects of higher EU standards. ACP suppliers will however have to carry these extra costs on the sale price of their products and this will squeeze profit margins at a time of declining EU prices. The introduction of wholly decoupled farmer support will make the EU's farm support programmes more WTO compatible, whilst protecting EU farmers from extreme price fluctuations. As the European Commission has pointed out with reference to the US Farm Bill, this is likely to shift the burden of price fluctuations onto third-country producers, who enjoy no such safety net protection. ACP governments will need to look carefully at the implications this will have for the positions they adopt in both the on-going WTO agriculture negotiations and the forthcoming economic partnership agreement negotiations with the EU.Proposals for the mid-term review of the Common Agricultural Policy were set..