Agenda 2000 and EU agricultural reform: an Australian perspective

Date: 02/10/1997

WITH the implementation of the 1992 reforms of the Common Agricultural Policy (CAP) and the Uruguay Round agreement on agriculture, the European Union has moved some way towards developing a more realistic and market-oriented agricultural policy.

While these reforms have mitigated the impact of the CAP on world markets for agricultural commodities, they still fall well short of what is needed to underpin a strong, sustainable and genuinely competitive EU agricultural sector into the next century.

As Agriculture Commissioner Franz Fischler has said, the process of CAP reform must continue if European agriculture is to meet the challenges ahead: its future lies in quality, sustainability and international competitiveness, not the “quasi planned economy” of the pre-reform CAP.

Although the Uruguay Round was an important first step towards establishing effective international disciplines on agricultural trade, the potential trade-distorting impact of the EU's agricultural policies remains a major concern for efficient agricultural exporters like Australia.

I therefore welcome the commitment to continuing CAP reform embodied in the European Commission's Agenda 2000 proposals on agriculture, which I had the pleasure of discussing with Commissioner Fischler during my visit to Brussels last month.

I agree with the Commissioner's assessment that the future for EU agriculture lies in a more entrepreneurial approach to the farm sector. As Australia's minister for trade, and a farmer myself, I can vouch for the effectiveness of such an approach in building a world-competitive farm sector without costly export subsidies and incentives to overproduction. This would also free the European farm sector from the red tape which, to quote Commissioner Fischler, “has left farmers scouring the pages of the Official Journal of the European Communities instead of responding to market signals, and made small fortunes for consultancy firms offering subsidy-optimising software”.

Family farms cannot make the most of their potential while struggling with the complex bureaucratic processes for delivering support under the CAP: the richest rewards are reaped by the large-scale agri-businesses.

In Agenda 2000, the Commission acknowledges that the 1992 reforms have run their course and that more needs to be done if the EU is to avoid a recurrence of surplus production, given that there is less scope now to dump its surpluses on world markets. It has therefore proposed further reducing the gap between international and domestic prices in cereals and beef and, to a lesser extent, in dairy products.

This represents a further step away from production management towards a more market-driven farm sector. The proposal to increase direct payments to compensate for the fall in price support retains the link, however, between direct payments and production capacity (being paid on a per hectare or per head basis), albeit on historical regional yields and base planting areas.

Given the potential of production-linked support mechanisms to generate surpluses, it is a great pity the Commission could not see its way to proposing an income support mechanism which was fully de-linked from production.

The proposed CAP reforms head in the right direction, but they do not go nearly far enough. They cover only cereals, beef and dairy, overlooking other important sectors which also receive extensive domestic support or protection, notably sugar, rice, sheep meat and poultry.

The reforms proposed for dairy, in particular, are disappointingly cautious and lacking in ambition. The Agenda 2000 proposals will not be implemented until the year 2000 and they fail to deal with existing market-access restrictions. Even if the reforms are implemented in full, they will not satisfy the expectations of the international community in the next round of World Trade Organisation (WTO) talks on agriculture.

I was disappointed to see the Commission set its sights so low at this stage, rather than recommending a more comprehensive and market-oriented approach to reform of the CAP which could be implemented progressively in a measured way, allowing farmers time to adjust. The Commission has opted to postpone more fundamental reforms which would help prepare European farmers, especially family farmers, for increased competition from the central and eastern European countries, and for living eventually with a global market-driven agriculture.

In short, I believe the EU has missed an opportunity to move the CAP more definitively in the direction of market forces over the next decade. Levels of market support remain prohibitively high in some sectors and reforms are restricted to a narrow group of commodities.

Nor will the Agenda 2000 proposals prepare EU member states for the reforms which will be central to the next round of WTO negotiations on agricultural trade, due to begin in 1999. The proposals are only a further step towards real reform. They do not separate support from production. Direct income payments, including those to meet environmental and rural development objectives, need to be fully decoupled from production or the CAP will continue to distort world agricultural markets.

Australia will be seeking substantial reforms in the next WTO agriculture negotiations. We are not concerned only with the CAP, but with all policies that distort world agricultural trade. We will be seeking the elimination of export subsidies, a full decoupling of domestic support measures, and expanded market access for agricultural and food products. As chair of the Cairns Group, I can confirm that other agricultural exporting countries are thinking along similar lines.

Multilateral agricultural trade reform cannot be driven solely by the domestic requirements of any one country or region. All the major trading countries need to contribute to the process. The EU, like other WTO members, will have to be ready to negotiate on agriculture in 1999. Reform of multilateral agricultural trade is not solely the concern of Australian rural producers: it is in the interests of all efficient EU farmers, food producers and consumers. Only substantial, comprehensive reform of the CAP will enable European farmers to compete internationally without the benefit of subsidies and to take full advantage of the new global market opportunities which will be opened up through the WTO negotiations.

The high cost of agricultural protectionism is now widely acknowledged, and there is a growing realisation that agricultural markets will need to work with, rather than against, market forces. Significant, fuller liberalisation is therefore needed. The expansion of world markets will influence both Australian and EU farm policy as we enter a new century. The challenges are substantial, but the potential benefits of further agricultural trade liberalisation for both Australian and EU exporters are high.

As I said in Brussels last month, there is a magnificent window of opportunity now for further reform on the difficult question of agricultural subsidies world-wide, as well as in relation to the Agenda 2000 proposals. It will not be without pain or controversy, but with world grain stocks at an all-time low, there will never be a better opportunity for comprehensive, forward-looking reform.

I would urge the EU not to wait for the year 2000, but to implement the Agenda 2000 reforms now as a first step, followed by more fundamental reform in all sectors in time for the next round of agriculture negotiations in the WTO. It would be disastrous - for European farmers, taxpayers and consumers, for the EU's ability to compete on world markets, and for other agricultural exporters like Australia - if the EU failed to grasp this opportunity.

It is in the interests of all farmers world-wide to have accurate market signals, to make their own production decisions on the basis of market trends, and to be conscious of the environmental, soil sustainability and chemical residue considerations which will determine the acceptability of their products at home and abroad.

The Hon. Tim Fischer is Australian Deputy Prime Minister and Minister for Trade.