CAP mid-term review (not updated)

On 26 June 2003, EU farm ministers reached a final agreement on a mid-term reform of the Common Agricultural Policy (CAP). Leading European farmers‘, business, consumer and environmental organisations have expressed deep disappointment with the compromise on the reform of the EU’s farm policy.

A 2002 mid-term review of the EU's Common Agricultural Policy (CAP) was foreseen in the Agenda 2000 decision at the Berlin Summit of 1999. The EU's planned eastward expansion, WTO objections to the current CAP, several food crises and the sustainable development strategy defined during the Gothenburg Summit raised the necessity to undertake a major review of the EU's farm policy.

The Commission presented its original ideas for the mid-term review of the Common Agriculture Policy in a Communication in July 2002. The main elements of the proposed review were: to decouple direct payment to farmers from production; to make direct payments conditional on compliance with environmental, food safety, animal welfare and occupational safety standards; to increase the support for rural development by modulating direct payments for all except small farmers; to introduce a new farm audit system and new rural development measures to improve production quality, food safety and animal welfare.

As a result of the Brussels Summit decision in October 2002 to freeze the current CAP budget until 2006, the Commission had to adjust its original ideas.

On 22 January 2003, Agriculture Commissioner Franz Fischler presented his legislative proposals for the CAP reform. His main proposals were:

  • decoupling of direct aid and production: from 2004, farmers will receive a single payment instead of the separate payments they now receive. This will be based on historical entitlements (reference period 2000-2002) and should remove incentives to overproduce;
  • cross-compliance: in order to receive direct payments, farmers will have to meet certain conditions concerning environmental, food safety, animal health and welfare standards;
  • modulation: money will be shifted from the first "pillar" of the CAP (direct aids and market support) to the "second pillar" of rural development, as an instrument to "green" the common agriculture policy;
  • cuts in intervention prices for several sectors.

The key changes compared to the July 2002 proposals are:

  • modulation will only start from 2006 and the money shifted to rural development will only amount to 1 per cent per annum over 6 years, instead of the 3 per cent per annum foreseen in the first proposals;
  • the maximum of 300,000 euro direct payments to mega-farms would be abolished;
  • the envisaged system of a compulsory "farm audit" has been modified into a "farm advisory system";
  • the reform of the dairy sector will start earlier, in 2004 (and not 2005) but will be spread over 5 instead of 3 years.

The EU farm ministers agreed on a compromise concerning a radical mid-term reform of the Common Agricultural Policy on 26 June 2003. Due to pressure from France, supported by Germany, the Commission had to water down its original proposals to fully abolish the direct link between subsidies to farmers and the levels of their productions ("decoupling").

Main elements of the compromise:

  • a single farm payment system which will no longer be linked to the volume of production; Member States can maintain a limited link between subsidy and production only under well defined conditions;
  • these subsidies will be linked to the respect of environmental, food safety and animal welfare standards;
  • a strengthened rural development policy with more EU money;
  • the single farm payment system will enter into force in 2005, but Member States can delay this to 2007;
  • reduction in direct payments ("modulation") for bigger farms to finance the new rural development policy;
  • several other modifications of the market policies of the CAP in the areas of milk, cereals, rice, durum wheat, nuts, starch potatoes and dried fodder.

EU Farm Commissioner Franz Fischler said: "This decision marks the beginning of a new era. Our farm policy will fundamentally change. Today, Europe has given itself a new and effective farm policy. The bulk of our direct payments will no longer be linked to production. To our farmers, it offers a policy which will stabilise their incomes and enable them to produce what the consumers want. Our consumers and taxpayers will get more transparency and better value for money. This reform also sends a strong message to the world. Our new policy is trade friendly. We are saying goodbye to the old subsidy system which significantly distorts international trade and harms developing countries. Today's decision will give Europe a strong hand in the negotiations on the Doha Development Agenda."

French Minister for Agriculture Herve Gaymard expressed his satisfaction at heading off the initial Commission proposals to completely cut the link between farm subsidies and production levels. He said: "Taking account of the diversity of the interests at stake, taking account of the harshness of the Commission's initial proposals... I think very honestly that this compromise can legitimately give us satisfaction."

British Minister for Agriculture Margaret Beckett said that the agreement "delivers what we wanted: real change." "It shows what we can achieve in Europe, working constructively with colleagues," said Ms Beckett. She told reporters that the compromise would set benchmarks for the September WTO talks in Cancun, Mexico. "This is a challenge to others who have to come to those talks. It's a challenge to them now to move, because the EU has moved substantially."

Head of the World Trade Organization, Supachai Panitchpakdi, welcomed the EU's decision to reform the CAP. He expressed his expectation that the EU's agreement would revive stalled WTO talks on agriculture.

US Trade Representative Robert Zoellick and Secretary of Agriculture Ann Veneman gave a cautious welcome to the EU's compromise. "We hope that the compromises that altered the original Commission proposal do not limit the EU's ability to contribute to global reform in agriculture," they underlined in a joint statement. They urged Brussels to submit its negotiating proposals for the three core areas of WTO agriculture negotiations: reducing domestic support, eliminating export subsidies and cutting tariffs.

The Organization for Economic Cooperation and Development (OECD) stated that the reforms could reduce European food prices in the long term but would not offer relief to farmers in Africa and Latin America who cannot compete with Europe's subsidized exports. Luis Portugal, an agriculture expert at the OECD, said: "This is a step in the right direction, but it's a very small step."

COPA-COGECA, the largest farmers' association in the EU, lamented the compromise deal. "This is the most dramatic reform we have ever had and it undermines the CAP and the future of agriculture. The competitiveness of European agriculture is in danger," the Presidents of COPA and COGECA, Peter Gaemelke and Marcus H. Borgstrý said in a joint statement. They said that the reform would create "uncertainty and distortions of competition between farmers, between sectors and within sectors, between regions and Member States." COPA-COGECA warned that the reform could increase production costs above market value and force farmers to stop production. It urged the EU to "make it clear in the WTO negotiations in Cancun in September later this year that this is a final offer."

The European Farmers Coordination (CPE) called the deal a "scandal" and a "swindle", arguing that the decoupling would accelerate the disappearance of family farmers. "The small and middle farms will not resist the price falls and decoupling will have perverse effects of agricultural abandonment in the disadvantaged areas, where there will be no economical interest anymore to produce for farm prices below the production costs. Then Decoupling is clearly an anti-rural development measure," said CPE in a statement.

Head of the French farmers union FNSEA, Jean-Michel Lemetayer, accused the EU of "abandoning assurance of farmers' incomes."

German farm union DBV leader Gerd Sonnleitner stated that the new compromise will mean income losses of between 1.2 billion and 2 billion euros for German farmers. According to Mr Sonnleitner, it will also fail to stop the production of surpluses and it will discourage further investments.

British charity group Oxfam criticised the deal. Oxfam argued that farmers in the developing countries would still have to compete against heavily subsidised European exports to their home markets. Sam Barratt, a researcher at Oxfam, stated: "Farmers will continue to produce more than we need and will continue to dump it on the developing world."

The European Environmental Bureau (EEB) expressed disappointment over the weakening of the Commission's original proposals for CAP reform, deploring the lost opportunity for structural change towards sustainable agriculture. "The first proposal in July 2002 gave us hope that a real move was taking place towards sustainable agriculture. The legislative proposal in January this year was already disappointing, having lost the teeth of the first proposal. Now, the result of the negotiations of the council is even more disappointing. What is left are bits and pieces of a reform package, making it more complicated and hardly effective", said John Hontelez, Secretary General of the EEB.

International environmental organisation WWF called the reform deal "half-hearted" and accused the EU of "lack of commitment for an environmentally sustainable European agricultural policy." While recognising that some gains for the environment have been secured, WWF laments that progress is "painfully slow".

BEUC, the leading European consumer organisation, said the the farm ministers' decision on CAP reform was "a bad outcome for consumers and the EU as a whole." According to BEUC, "European consumers will continue to have to pay to dump food surplus on the world market; agricultural policy will continue to be dominated by the interests of a few, rather than serve the interests of the community as a whole; rural development will not be granted the support it needs; global negotiation will be much more difficult with the EU trying to defend the indefensible."  

Consumers International, which represents 250 consumers organisations in 115 counties worldwide, expressed its "deep disappointment at the so-called reform" of the CAP . Consumers International Director General Julian Edwards said: "This deal is another magician's trick, a real sleight of hand, by EU agricultural negotiators. It has nothing of substance to offer consumers in the developing world, in the European Union or the accession countries. Without a greater commitment to EU reform, there are no incentives for other countries, including the USA, to tackle tariff barriers and subsidies at the WTO Ministerial. This deal is anti-development, anti-trade and anti-consumer."

Food Policy International (FPI) called the deal "but a pale shadow of the rigorous blueprint for change, first launched by EU Agriculture Commissioners Franz Fischler in mid 2002." FPI Editorial Director Brian Gardner argues that the deal will prevent the development of a free internal agricultural market because farmers will still be heavily influenced in their production decisions by subsidy decisions rather than by market forces. FPI warns that the implications of the deal are serious for both the EU itself and international trade. "Production of commodities currently in surplus such as beef, butter and wheat will continue unabated. Because much of the domestic support apparatus is now to be retained, the EU will have to maintain high import tariffs and export subsidies," according to Mr Gardner. He adds that this will prevent the EU from making concessions on the main focus of the WTO negotiation: import tariffs and export subsidies.

BirdLife International, an international nature conservation organisation, said that the outlook for Europe's biodiversity "still looks grim" under the agreed CAP reform.

CAOBISCO, the Association of the Chocolate, Biscuit and Confectionery Industries of the EU, stated that the CAP reform deal "showed little progress on the commitment to create competition within European agriculture." David Zimmer, director general of CAOBISCO, said: "The spirit of reform is gone. For too long we have supported European agriculture at the expense of European manufacturing, European consumers and fair access to our markets by farmers from the poorest countries of the world. Partial reform removes jobs from the European Union and will mean we are all paying more for our foods."

The Confederation of the food and drink industries of the EU (CIAA) hailed the agreement as a "major breakthrough for the agri-food sector". CIAA is convinced that the deal will improve the EU's position in WTO negotiations. "The agreement reached yesterday is in line with the long term objective of the EU food and drink industry to promote a competitive, efficient and more sustainable agriculture in Europe", said Jean Martin, President of CIAA.

According to the Organisation for Economic Co-operation and Development (OECD), food prices in the EU are 44 per cent higher because of the CAP than they would be under normal market rules. Agricultural measures consume 45 billion euro or half of the EU budget annually.

The EU is due to adopt its position for WTO negotatiations on liberalisation of agricultural trade. The talks start in September 2003 in Cancun, Mexico.  

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