Impact on expenditure

Addressing the UK National Farmers' Union in February 2002, Commissioner Fischler reviewed the changing pattern of CAP assistance. He pointed out how, before reform, 'the primary goal of the CAP was to enhance production and make Europe self sufficient' and how this policy had resulted in 'overproduction and exploding costs' which had made reform essential. He pointed out how, before reform, the EU spent 91% of its agricultural budget on market support but that, in 2002, this had dropped to 28% of the budget. Instead direct aid payments that compensate farmers for price reductions now account for 63% of CAP expenditure. He pointed out how, as a consequence of this shift, 'European products have become more competitive, both domestically and internationally'. He pointed out how price support for wheat had been reduced 40% since 1992 and that, as a consequence, 'European wheat can be exported without refunds on the world market'. He highlighted that an additional 25 million tons of cereals were now being used on the domestic market. Commissioner Fischler said that the reform process had protected farm incomes and helped 'European farmers to respond to market signals'. The Agenda 2000 reforms involving price reductions were managed in such a way that, across the EU, average farm incomes were not affected. Indeed, in 2001, farm incomes rose on average by 2.7%. With reference to the WTO, Commissioner Fischler asserted that 'every society must have the right to choose its own agricultural policy as long as it limits trade distorting effects'. Comment: While Commissioner Fischler maintains that EU farmers are now responding to market signals these signals are fundamentally distorted by the provision of large volumes of direct aid. This means that at any given price level EU farmers are willing to produce more wheat than would be the case if direct aid payments were not being made available. This peculiar meaning given to the concept of 'market signals', needs to be borne in mind in the debate on the impact of CAP reform. It is clear that the EU places a limit on the WTO constraints which it is willing to accept in the agricultural sector.Addressing the UK National Farmers' Union in February 2002, Commissioner..