Deadline concentrates minds on CAP reform

Date: 28/01/1999

Fifteen farm ministers are in search of an agreement on changes to the EU's agricultural policy. But with only a few weeks left before their self-imposed target date for a deal, they remain deeply divided over key aspects of the reform plan. Myles Neligan reports

WITH less than two months to go before the deadline set by EU leaders for reforming the Common Agricultural Policy, negotiations between the European Commission and national governments are at last moving into top gear.

Last week's monthly meeting of farm ministers brought none of the desired breakthroughs. Yet the discussion showed, for the first time since negotiations began 18 months ago, that governments are prepared to make a serious effort to reach an agreement.

The most significant step forward came when all 15 ministers pledged to devote their next full meeting on 22 February to cobbling together the bare bones of an accord for EU leaders to flesh out at their 24-25 March summit in Brussels.

German Farm Minister Karl Heinz Funke, the man with the unenviable task of chairing the ministerial negotiations, is determined to push through a deal of some kind by the deadline, if only to make his fledgling government's six-month presidency of EU business a success.

But Funke's counterparts remain so bitterly divided that there is every reason to doubt that the deadline will be met. Heretical voices, including that of French Farm Minister Jean Glavany, are already murmuring that more time may be needed.

Ministers have, of course, numerous differences of opinion with regard to the detail of the Commission's reform proposals. Settling these alone would, under normal circumstances, take weeks. But more ominously, major political differences over the direction, extent and implications of the reform project have now crystallised, and these may fatally delay the negotiations.

The most serious fault lines stem largely from a concerted push by Germany and other large net contributors to the Union budget to bring about a significant reduction in the amount of money they pour into EU coffers every year. Bonn, in particular, is touting two possible strategies for achieving this, both of which would have a profound effect on the reform of the CAP.

Under the first of these options, national governments would themselves have to pay 25% of the direct subsidies which their farmers would receive in compensation for reductions in EU guaranteed farm prices.

The consequent reduction in total CAP expenditure would lead to parallel cuts in member states' contributions to the Union budget. For large industrialised countries such as Germany, these cuts would outweigh the extra expense of supporting the farm sector, although the reverse is true of more agriculturally dependent countries such as France, Ireland and Greece.

The Commission, which has given this proposal its qualified blessing, has calculated that if it were put into practice, Germany would achieve net gains of €678.2 million a year by 2006. At the other end of the spectrum, France would be worse off by an estimated €648 million a year.

Those who would lose out under this scheme are crying foul, but supporters retort that the large member states are determined to cut their budget contributions and that it is perfectly justifiable for them to do so by refusing to continue supporting inefficient farms holdings in countries which are, in any case, net recipients of Union funds.

The second option for redistributing the EU's financial burden is more modest, but scarcely less controversial.

First proposed by the Dutch, although it has since also been claimed by Paris and Bonn, this would involve allowing the Union budget to grow only in line with inflation, rather than economic growth.

This option, now known as the 'budget freeze', would force governments to agree to trim EU spending in a number of policy areas. With regard to agricultural expenditure, Bonn, with enthusiastic French support, has proposed that the best way to do this would be to exclude the dairy sector from the CAP reform process altogether.

Since one of the objectives of the overhaul is to save money, this may seem paradoxical. But as the complete package of farm reforms would in fact cost an extra €6 billion per year in compensation payments to farmers, the notion is not as absurd as it seems. The Commission has estimated that leaving the dairy sector out of the reforms would lead to savings of approximately €2 billion. Italy, Sweden, Denmark and the UK are firmly resisting this option, either because their farmers detest the dairy regime in its present form or because they are strongly in favour of a radical overhaul of the CAP.

As they command enough votes between them to block a dairy-free reform, supporters of the scheme will have a tough time pushing it through.

However, some EU governments which are generally neutral on the question of dairy reform support the notion of exempting milk and milk products from the overhaul in the hope that this would give more room for budgetary manoeuvres in the parallel battles over Fischler's proposals for fine-tuning the infinitely more expensive cereal and beef sectors.

The Commission is proposing reductions in support prices for beef and cereals of 30% and 20% respectively. While a clear majority of governments agree with Fischler's view that support prices for grains and beef must be slashed in order to open up fresh export opportunities, nine countries, including Germany, want these cuts to be fully compensated by direct payments to farmers.

The institution, which is proposing just 80% compensation for beef farmers and 50% for arable farmers, will probably negotiate some form of compromise. But governments' hardline stance on the issue shows that the reform of the beef and grains sectors is unlikely to come cheap. At any event, it is clear that there will be no savings here.

At last week's ministerial meeting, there were early signals that those in favour of excluding the dairy sector are fighting a losing battle. Germany indicated that it might be prepared to accept a compromise proposal on dairy reform under which the milk quota system would be extended until 2006, while guaranteed prices would be cut by 15% over four years.

As this option also envisages a full review of the regime at the end of 2003, the four strongly pro-reform countries may also come on board, on the understanding that their calls for a more far-reaching overhaul will be taken more seriously in four years' time.

If Germany does indeed abandon its support for a dairy-free CAP reform, the alternative option of shifting the financial burden back on to national governments (or 'co-financing') would acquire a certain air of inevitability.

There is no mistaking the iron resolve of the four main budget contributors (Germany, Austria, Sweden and the Netherlands) to negotiate significant reductions in their annual cash hand-outs to their neighbours.

German Chancellor Gerhard Schröder has said that he is aiming for a cut in Germany's contribution of no less than 20%, and although this is probably a bargaining position rather than a serious objective, he will not leave the negotiating table without forcing some form of budget reduction.

But he will face staunch resistance from the six countries which would lose out, led by France. Glavany said last week that his opposition to co-financing was as intractable as that of Germany to maintaining its current level of budget contributions.

With a dairy-free CAP reform looking unlikely, and ministers shying away from the almighty battle which would ensue if the net contributors attempted to force through co-financing, the search is now on for a third formula which would satisfy the EU paymasters and which the net recipients of Union money would not find too hard to swallow.

The two most likely solutions are a diluted version of co-financing, or an undertaking to cut the cost of reform by rapidly phasing out compensation payments to farmers.

UK Farm Minister Nick Brown is currently pushing the latter option, with qualified support from Glavany, whose strategy of fending off co-financing by supporting a dairy-free reform is looking shaky now that Germany's enthusiasm for the latter appears to be waning.

The negotiations will be delicate and are likely to be heavily influenced by interventions from Union finance ministers. But whatever the outcome, it is already clear that efforts to thrash out a solution in just nine weeks are sure to mean a nail-biting climax to the talks.

Major feature.