Wanted: a farming revolution
B R U S S E L S
When Europes farm ministers meet next week, many of them will rubbish the reforms proposed by Franz Fischler, the agriculture commissioner, to the Unions common agricultural policy. But he has the right idea
FOR years, agriculture has been one of Europes running sores. Its crazy mixture of food surpluses, production quotas, high costs and disgruntled farmers was seized on by Eurosceptics, while embarrassing Europhiles. Yet recently the fuss has died down. The food mountains have mostly disappeared. The budget has been contained (indeed, it has often been underspent). Even the farmers have been quiescent. Problem solved?
Not quite. Indeed, without major reforms to the CAP, the old ills could return in more virulent guise. That is because, with a few changes in the 1992 reforms carried out by Ray MacSharry, an earlier EU farm commissioner, the basic shape of the CAP is the same as it was in the 1960s. Farmers are offered guaranteed prices for their products, set far above world levels, while the Unions internal market is protected from imports by tariffs. That has prodded farmers into producing as much as they could. When the mountains of excess wheat or beef have grown too high, the stuff has been bought by public intervention stores and then sold abroad with the help of export subsidies or simply destroyed.
Although world prices for many products, notably cereals, have been rising, this CAP structure will soon once again produce the inevitable surpluses. The commission in Brussels says that intervention stocks of cereals, currently at 5m tonnes, could rise to a record 58m tonnes in ten years. The beef mountain is expected to double, to 1.5m tonnes. Alpine ranges of dairy products and sugar, lakes of olive oil and wine, could all reappear. And when they do they will be far harder to deal with. World trade commitments will prevent the use of fresh subsidies to export them. At a time of fiscal austerity, the budgetary cost of keeping the stuff in stores will be unacceptable. Moreover, looming ahead is the prospect of the EUs enlargement to take in new countries, many with far bigger farming industries than those of the existing members. Enlargement, as things stand, could swell demands on the CAPs budget by a quarter.
The recipe of Mr Fischler, a punchy Austrian, for dealing with all this is to build on the ideas that Mr MacSharry put forward in 1992 and gradually shift farm subsidies from price support to direct income payments unrelated to production. For the first time, the MacSharry reforms cut the CAPs guaranteed prices for cereals; instead, the EU offered compensatory payments to farmers. The reforms also brought in the compulsory set-aside policy, paying farmers not to use all their land to produce crops or raise livestock. This followed the introduction of milk quotas in 1984, which have similarly limited dairy production.
The MacSharry reforms have worked quite well. Food mountains have shrunk. Farm incomes rose by 4.5% a year after the reforms, faster than before; in most countries they are now above the national average. Cereal farmers have been doubly fortunate. Because world cereal prices rose, they did not suffer from the CAPs price cuts, and yet they still received compensatory payments. The commission reckons this overpayment has landed farmers with an extra 8.5 billion ecu ($9.1 billion).
Now Mr Fischler wants farm ministers to cut cereal support prices by another 20%; beef prices by 30%; and the average dairy price by 10%. In each case, direct compensatory payments would be made, although the commission is trying to claw back past overpayments by not giving compensation in full for price cuts. For cereals and beef, the result should bring EU prices closer to rising world prices, so production restraints such as set-asides could be dispensed with. But Mr Fischler wants to extend milk quotas, due to expire in 2000, up to 2006, though he would like to drop them thereafter.
Just about every farmers lobby across the EU has been howling about the reforms. Nor have farm ministers been much jollierwith Germanys minister, Jochen Borchert, leading the grumpy fray. Mr Fischler seems untroubled. By the time he translates his ideas into legislative proposals, early next year, he hopes to have secured more support. Germany, he knows, holds the key. He hopes to catch a moment after Germanys general election next September but before campaigning begins for the European Parliament elections in June 1999 to get his plans adopted.
Optimistic. Farm ministers have repeatedly shown that they will reform only when faced with an immediate crisis. Even by 1999, food surpluses will still be modest. The next round of trade talks, which will chip away further at the CAPs protectionist carapace, will only just have begun. EU enlargement will still be some years off, and the applicants will anyway face long transition periods before they get the full benefit (and cost) of the CAP. So why not, the Germans ask, just tinker a bit, reducing set-asides and quotas, but otherwise leaving things (especially prices) as they are?
Quite apart from the difficulty of setting aside nearly 30% of all arable land (up from the current 5%), which such inaction might well require, the Germans may find surprisingly few allies in their do-nothing camp. France, the biggest farm producer, is chafing at limits on production and exports. Its farm population has fallen by half since the 1970s, to only 1.5m. Many French farmers would accept lower prices if that set them free to produce more. Italy, a persistent breacher of milk quotas, is desperate to get rid of them. Spain is keener to ensure that Mediterranean peasants, rather than big wheat and dairy farmers up north, are CAP-protected.
How could the Germans be bought off? The answer, though Mr Fischler is careful not to say it too loudly, may lie in his compensatory payments. In particular, two concepts may come into play: modulation and differentiation. The first is code for steering subsidies towards smaller farmers, for instance, by limiting the amount of help any one farmer can get in a year. The second would allow some countries to pay higher compensatory amounts to their farmers than others.
Both seem eminently sensible. For too long, the CAP has given 80% of its subsidies to the richest 20% of farmers. And Mr Fischler is keen to add environmental criteria to direct payments; he also wants to boost rural development, not just farming. Both these considerations point to favouring smaller farmers, of which Germany happens to have lots, mostly part-timers. As for differentiation, Mr Fischler observes pointedly that 1,000 ecu go a lot further in Portugal than in Germany. He rejects full national financing of income supplements, but is happy to see them jointly paid for by Brussels and national governments.
After next weeks meeting, Mr Fischler plans to embark on a tour of Union countries to sell his reforms. He thinks the CAP, despite leeching away the entrepreneurship of farming, has worked, but that successive reforms have been watered down or come too late. It is, sadly, no certainty that his own proposals will fare better.
© Copyright 1997 The Economist Newspaper Limited. All Rights Reserved