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					SPICe Briefing                                                                                   02/83
                                                                                          31 July 2002

                              CAP MID-TERM REVIEW

   On the 10th July 2002 the European Commission presented its proposals for a
   Mid-Term Review of the Common Agricultural Policy (CAP). The need for a review
   before the policy would be revisited in 2006 was agreed at the last major reform of
   the CAP in Berlin in 1999. The Commission’s proposals have been judged to be
   ambitious by most commentators, and some Member States, notably France,
   have condemned them for being too radical. The most important proposal is to
   remove the link between production and subsidy by giving farmers a lump sum
   annual payment based on historical entitlements.

   This briefing looks at:
   • the background to the proposals, (with the important concurrent events of EU
       enlargement, WTO negotiations and a significant shift in US farm policy
       marked by the Farm Act 2002)
   • the Commission’s proposals
   • some initial reactions to the proposals from Member States

   The briefing also has a glossary of some key terminology.

                 providing research and information services to the Scottish Parliament


Background ...........................................................................................................3
  EU enlargement...................................................................................................3
  WTO negotiations ................................................................................................4
  The US Farm Act.................................................................................................5

The Commission’s proposals ..............................................................................5
  Cross-compliance ................................................................................................7
  Commodity Support.............................................................................................8
  Modulation ...........................................................................................................8
  New rural development measures.......................................................................9

Reaction to the commission’s proposals ........................................................ 10
  Germany........................................................................................................... 11
  UK..................................................................................................................... 11
    Scotland ........................................................................................................ 11
  France............................................................................................................... 12

Glossary .............................................................................................................. 13

Appendix ............................................................................................................. 14

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Research paper 01/12 Agriculture: a general overview describes the recent
evolution of the CAP and its influence over Scottish agriculture.

Since its introduction in 1962, the CAP has undergone repeated reforms. Over the
next decade, spending under the CAP is expected to be further reviewed in the
light of EU enlargement and World Trade Organisation (WTO) negotiations. These
developments are expected to result in lower levels of European aid for
agriculture. The shift of support from pillar 1 to pillar 2 of the CAP is expected to

The last major reform of the CAP was concluded as part of the Agenda 2000
programme in 1999. The Agenda 2000 settlement is described in a previous
SPICe Research Note, but essentially the main elements of the deal were to cut
price support payments for beef, cereals and milk, and to compensate farmers for
the resulting price falls with direct payments. The cuts for milk were delayed until
2006. Rural development measures were brought under one Regulation1, and
Member States were given the possibility to introduce cross-compliance criteria,
and also to modulate some of the direct.

The next major reform will take place post enlargement in 2006, but the
Commission was asked by the European Council and Agriculture Council to
review the situation in the arable, beef and dairy sectors in 2002/03 as part of the
Agenda 2000 agreement. The Commissioner for Agriculture and Rural
Development, Franz Fischler, explained why the process was beginning in 2002:

     Le Figaro: The text you released today is called a Mid-Term Review. Surely, given
     that the decisions taken at the Berlin Summit in 1999 apply up to 2006 that should
     begin in 2003. Why the haste?

     Franz Fischler: Its not that we’re being hasty: the decisions taken at Berlin gave
     different dates for the review, sector by sector. It wouldn’t make sense for the
     Commission to conduct the review in a fragmented fashion, nor would that suit the
     Member States or other interested parties. We therefore took the date which had
     been fixed for the cereals sector of 2002 for beginning our review. It’s that simple.

An important driver for the reform of the CAP is the need to cut spending prior to
enlargement. The CAP budget would have to increase significantly if all the
existing aids were offered to farmers in the candidate countries. The “agriculture
chapter” of negotiations with the candidates is currently taking place. The
Commission has proposed a gradual introduction of the direct CAP payments for
farmers in the candidate countries. This will start at 25% in 2004, 30% in 2005,

  Council Regulation (EC) No 1257/1999 of 17 May 1999 on support for rural development from the European
    Agricultural Guidance and Guarantee Fund (EAGGF) and amending and repealing certain Regulations
  Le Figaro 10th July 2002 “Franz Fischler s’explique” own translation

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and 35% in 2006, rising to 100% by 20133. The extension of 25% of direct
payments to the candidate countries in 2004 has been estimated at costing €1.2
billion4. However, several Member States, including Germany and the UK are
opposed to giving direct payments to candidate countries at all. Frankfurter
Allgemeine Zeitung reported the views of the German Chancellor, Gerhard

     German Chancellor Gerhard Schröder has categorically ruled out extending the current
     level of European Union agricultural subsidies to farmers in the countries now in the
     process of becoming EU members. Mr. Schröder pointed out that Britain, the
     Netherlands and Sweden shared his position. Mr. Schröder said "the fact is that in the
     Agenda 2000 agreed in Berlin by all 15 Member States, no direct subsidies were
     earmarked for candidate countries." He said the extension of existing agricultural policy to
     include 25 member states would cost the EU as a whole € 8 billion a year, with "Germany
     alone having to bear" a quarter of the total cost.

     But Mr. Schröder's views were disputed in Brussels, where officials said no decision had
     been made in Berlin in 1999 to deny new members direct aid. A spokesman for the EU's
     commissioner for agriculture, Franz Fischler, said it was "wrong to assume that
     enlargement cannot be financed. The financial admissions in the proposals for
     negotiations only extend to 2006. For the years until 2013 new members will in any case
     only receive fractions of the direct subsidies allocated to old members."

It was agreed at the European Council in Seville6 that this question would have to
be settled in the autumn, after the German elections.

The last WTO negotiations on agriculture, the “Uruguay Round” concluded in
1994. Member countries had until 2000 to implement the agreement. Participants
agreed to initiate negotiations for continuing the reform process one year before
the end of the implementation period, i.e. by the end of 1999. These talks have
now been incorporated into the broader negotiating agenda set at the 2001
Ministerial Conference in Doha, Qatar. Part of the agreement has to be concluded
by March 2003, with a view to reaching a final settlement by 1st January 2005. The
negotiations will cover domestic support for agriculture, and the permissibility of
granting support from the various “boxes” (see glossary), market access rules; the
use of import tariffs and export subsidies, and non-trade concerns like support for
rural development and animal welfare7.

Due to the relatively high levels of support for European farmers, and the
protection of the EU market with tariffs, the EU has historically taken quite a
defensive stance in the WTO agriculture negotiations. Part of the thinking behind

  see Fischler's gives CEEC farm ministers "10 good reasons" for Commission proposal
 more information is available in European Commission – SEC (2002) Final Enlargement and Agriculture: Successfully
     integrating the new Member States into the CAP
  Agra Europe – 1st March 2002 EP/3 EU to stand by enlargement plans
  FAZ English Version – 16th June 2002 EU denies Chancellor's claim that enlargement cannot be financed
  on the 21st and 22nd June 2002
  further details on the negotiations are available here:

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the Commission’s proposals for the Mid-Term Review of the CAP is to allow the
EU negotiators to have something to take to the table to allow the EU to be
proactive in pressing for some of the things it wants to get out of the negotiations,
like recognition of animal welfare standards, food safety criteria, and country of
origin labelling.

On 15th May 2002, US President George Bush signed a new Farm Bill into US
law. The Farm Security and Rural Investment Act of 2002 sets out various
agricultural programmes under 10 titles, notably the commodity (farm subsidy)
programmes, conservation and trade. The Act is estimated to increase US
spending on agriculture by 70% over the current position, to an estimated $190
billion (€188 billion) over the next ten years. Crucially, the Bill represents a
turnaround in US farm policy, with a return to a system of offering farmers
compensatory payments for low prices. This is expected to result in
overproduction in the US, and falls in world prices for farm commodities, which
would affect farmers in the EU. The EU Commission expects that the US will
exceed its limits for spending on price-linked farm payments agreed at the WTO.
The EU Commissioner for Agriculture Franz Fischler has spoken out against the

     “By introducing a new range of price-linked payments (the "counter-cyclical" subsidy
     programme for crops and dairy products), US policy is flying in the face of a consensus in
     the developed world that farm support programmes should move away from production-
     distorting measures. This consensus is reflected in the commitments we all entered into
     at Doha. It is clearly undermined by the US farm bill, which so significantly increases
     trade-distorting support. Let me remind your non-specialist readers just what a counter-
     cyclical payment does: when prices fall, a subsidy cheque makes up the difference. The
     market is neutralised. Providing a safety net to farmers is one thing; bucking international
     commodity markets is a different game.”

The Commissioner went on to say that the US was in danger of breaking their
WTO ceiling of $19.5 billion p.a. for farm support, when five years ago it estimated
support would be down to $1.2 billion by 2000.

On 10th July, the Commission published a Communication on the Mid-Term
Review9. This document sets out the broad intentions of the Commission, and will
be followed up with legislative proposals in the autumn. The plan is for these to be
adopted by the Council in the spring of 2003.

Commissioner Fischler explained what he hoped the Mid-Term Review would
accomplish in a speech to the European Parliament:

  "Hitting agriculture worldwide makes US farm bill a flunk bill" Letter to the Financial Times from Commissioner
    Franz Fischler, May 27, 2002
  COM (2002) 394 Mid-term review of the Common Agricultural Policy

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      “We want farmers to resume their role as businessmen, producing for their customers rather
      than for the intervention stocks.

      We want to guarantee farmers a fair income. No more, no less: our farmers deserve to be
      duly rewarded for the quality products they supply, the environmental services they perform
      and their role in conserving country landscapes.

      We want to free farmers from the red tape imposed by the CAP. They should be able to
      spend their day working their farm, not wasting it on paperwork.

      We want to give farmers the financial assistance they need to meet the high standards of
      production expected by the public. Quality should be rewarded.

      We also want to help farmers promote their products more effectively.

      We want to pay farmers not for overproducing, but for providing what society wants: safe
      food, a living countryside and a healthy environment.

      We want to make farming subsidies more justifiable, in line with the principle of "payment for
      services rendered". EU farmers are responsible for the production of many public goods,
      from the environment and upkeep of the landscape to animal welfare. Though expected by
      society, these services are not rewarded by the market - hence the need for the CAP to fill
      the gap.”

The main elements of the Commission’s proposal are the following:

•      Decoupling of direct payments

•      Compulsory environmental standards for receiving subsidies

•      Compulsory farm audits

•      Further cuts in intervention prices for cereals

•      Compulsory non-rotational set-aside

•      Options for reforming the dairy sector

•      Mandatory modulation of direct support payments

•      Capping of the maximum a farm can receive

•      New options for rural development support

Some of the Commission’s most important proposals, on decoupling and
modulation, were prefigured in a report by the European Parliament Agriculture

     Speech by Commissioner Fischler: Towards sustainable farming - Presentation of the cap mid-term review European
      Parliament - Agriculture Committee Brussels, 10 July 2002

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Committee. In its report11, the Committee regretted that Member States had not
used the modulation powers introduced by Agenda 2000, and suggested that
modulation be made compulsory. The Committee also suggested that in the
future, farm payments should be decoupled, and tied to common EU wide

The Commission proposes to fully decouple most of the main schemes of the
CAP with a whole farm support payment. Farmers will be given a single payment
instead of the separate payments they now receive for cattle, sheep, cereals and
most other crops. Payments will be based on historical entitlements. These could
be broken down to cover part of a farm in the event of a partial lease or sale.
When direct payments are introduced for dairy cattle in 2005-06 they will be
included in the single payment. The idea is that farmers will be freer to base their
decisions on market demands, and will no longer have to farm in a certain way
just so they can claim a subsidy. The Commission proposal does not set a
timescale for these changes taking place. This move would also seem to put
direct payments to farmers onto a permanent footing. One view is that the
payments are temporary compensatory payments given to help farmers adjust to
lower commodity prices because of cuts in price support.

This change would also have the effect of moving the subsidy from the “blue box”
into the “green box” under the WTO categorisation of agricultural subsidies, which
would make them safe from being reduced in the ongoing round of WTO
agriculture talks (“Green box” subsidies are allowed without limits). At the moment,
the blue box is a permanent provision of the agreement. Some countries want it
scrapped because the payments are only partly decoupled from production.12

These whole-farm payments will be backed up by a compulsory set of cross
compliance requirements. These will cover environmental, food safety, and animal
health and welfare standards. Member States will have some freedom to define
the requirements, but there will also be a basic framework of minimum criteria.

Research has shown that the environmental value of set-aside land increases the
longer it is left uncultivated. The Commission is therefore proposing to do away
with the current system of rotational set-aside, and replace it with permanent set-
aside as a condition of receiving the whole-farm support (for farms with an arable
component). The amount set-aside will remain at 10%.

     Fiori, Francesco (Rapporteur) – May 2002, Committee on Agriculture and Rural Development Report on the mid-
      term review of the reform of the common organisations of the market (COMs) in the context of Agenda 2000 Recitals
      N, AF, AG and AN
     Further details on the boxes, and on the current negotiations on agriculture are available from the WTO’s website

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The Commission also proposes to introduce a compulsory system of farm auditing
for all farms receiving more than €5,000 per year. Funds will be made available to
cover the costs. There is little detail in the proposal about what will be included in
the audits, but they would primarily seem to be about making sure farmers are
meeting the new cross-compliance requirements.

On the price support side of things, the Commission proposes to implement the
further 5% cut in cereal intervention prices envisaged by Agenda 2000. There will
be a small increase in the area payment to compensate farmers for this. The
Commission view is that the price support system for cereals will now act as a
safety net in the event of dramatic falls in price, rather than a genuine mechanism
for manipulating the internal market. The Commission also proposes to end
intervention for rye, and cut the intervention price for rice: neither of these are
important for Scotland. No changes are envisaged for beef or milk beyond what
has already been agreed at Agenda 2000.

The Commission has presented four options for reforming the dairy sector:

•      Maintaining the status quo agreed at Agenda 2000 until 2015
•      Further increasing quotas, and cutting intervention prices
•      Reducing quota for the internal market, with unlimited quota for milk for export
•      Abolishing the quota regime from 2008, and cutting intervention prices

Currently modulation of farm payments is optional, and Member States can
choose how much they want to modulate up to a maximum of 20%. They can
apply simple modulation across the board, or can link modulation to the number of
workers employed on an agricultural holding. Modulated money is kept within the
Member State, and if it is spent under the Rural Development Regulation, there
are match-funding requirements. At the moment the UK is the only Member State
which is modulating payments13, the rate rising from 2.5% in 2001/2 to 4.5% in

The Commission proposes to make modulation of farm payments mandatory. The
rate of modulation will increase by 3% per year up to the maximum of 20%. The
modulated funds will be collected centrally by the Commission, and then
reallocated to the Member States through a key based on agricultural area,
agricultural employment and “a prosperity criterion, to target rural needs”15.

The Commission also proposes that farms receiving €5,000 or less which employ
2 or more people would be exempt from modulation. The amount exempt from
     following the suspension of the French scheme in May 2002
      SE2177/2000 4th August 2000 Finnie announces modulation boost for farm investment see also Nick Brown
       announces a new direction for agriculture - Ministerial Statement in the House of Commons, 7th December 1999

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modulation would be increased by €3,000 for each additional full-time worker on
the farm. The Commission estimate that this would cover around three-quarters of
the farms in Europe, but would account for less than a fifth of total direct

The Commission proposes to introduce a maximum (after the application of the
exemption and modulation) of €300,000 of direct payments which can be made to
any farm. Aids removed by this “cap” will be available within the Member State for
rural development. The cap will affect six Member States. The most affected will
be Germany, because of the large size of former collective farms in East
Germany, followed by the UK. The US Farm Bill also introduced a cap on the
amount individual farmers can receive of $360,000 (€358,000).

Scotland has the largest average farm size in the EU and so would be affected by
the Commission’s modulation proposals. Only 9% of farmers in Scotland receive
less than €5000 per year, compared to an EU average of 61%. The cap of
€300,000 would affect around 30 farmers in Scotland16.

One of the criticisms of modulation, particularly from France, where the
modulation scheme was abandoned because modulated funds were not being
spent, is that the options open for spending the modulated money are too limited.
The Commission is proposing to tackle this by introducing new chapters to the
Rural Development Regulation, to broaden the range of eligible measures. These
would cover:

•      Food quality – encouraging participation in quality assurance schemes and
       supporting producer groups e.g. for products of recognised geographic origin

•      Meeting Standards - helping farmers to implement Community standards for
       environment, animal welfare, food safety and health and safety

•      Animal welfare – a new addition to the agri-environment chapter to allow for
       payments to farmers who go beyond legal requirements.

The Commission is also proposing to change the rate of co-financing for
measures under the RDR, with the contribution from Community funds moving
from 75% to 85% in Objective 1 areas, and from 50 to 60% in other areas. Shifting
funds from price support (with no co-financing requirement) to rural development
would otherwise mean a global increase in agricultural support.

     COM (2002) 394 opp.cit p.23
     figures from a Scottish Executive press briefing, figures exclude part-time farmers

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Most reactions to the proposals have been fairly general, taking positions either
for or against. This section highlights some of the key views.

The Financial Times gave an indication of the challenge facing Comm. Fischler in
getting his reforms through:

      For all the apparent benefits of his concept, Mr. Fischler knows it faces a rough ride. As
      recently as last year, the pro-reform camp among European governments was gaining the
      upper hand. Now, the situation looks very different. Jaques Chirac has returned to power in
      France unencumbered by a socialist prime minister who was more sympathetic to change.
      Meanwhile, other states as diverse as Ireland and Portugal have made unenthusiastic
      noises about the Fischler plans. Even supposedly staunch advocates of reform, such as
      the British, seem unlikely to countenance the idea of limiting payments to individual farmers
      as this could damage UK farmers. Mr Fischler faces a tricky battle today to win his
      Commission colleagues’ support for his plans. But these difficulties will pale into
      insignificance when agriculture ministers get their first crack at the proposals next Monday
      in Brussels.

Le Monde summarised the positions of the agriculture ministers following the first
discussion of the Commission’s proposals in Council:

      “Our delegation can assure you of our wish to cooperate in a debate that will be difficult”.
      That same phrase concluded the speeches of France, Spain, and Italy, the Member
      States which were strongly critical [of the Commission’s proposals]. Austria, Luxembourg,
      Greece, Ireland, Portugal and Belgium also joined the camp of the opponents. Finland
      was hesitant, while Germany, the UK, Denmark, Sweden and the Netherlands supported
      Mr. Fischler, “daring and visionary” according to the Dutch minister, Laurens-Jan

Agra Europe published a summary table of the Ministers’ positions on the main
elements of the proposals (included in the appendix) and also commented on their
attitude towards the proposals in general:

      Every member state showed willingness to negotiate. Even France and Spain declined to
      rule out decoupling and modulation explicitly, although belief that reform should be
      reserved for 2006 could rule out anything but technical sectoral changes this time round.
      Northern states (Germany, UK, Netherlands and Sweden) have 29 votes between them,
      which is enough to sink an agreement that does not meet their collective satisfaction. But
      counter-argument that there is no need for reform right now, is more popular and
      probably more convincing.

The table (see Appendix) shows that there was strong opposition in the Council to
the main parts of the Commissions proposals, with opposition even from pro-
reformers like the UK and Germany to the proposals on modulation.

   Financial Times 10th July 2002 p.6 Fischler faces battle to convince colleagues of farms plan
   Le Monde – 17th July 2002 Le réforme de la PAC sous le feu des ministres de l’Union
   Agra Europe - 19th July 2002 Mixed reactions from EU farm ministers

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One of the main changes of view has been in the German position. There,
Christian Democrat (Conservative) politicians have traditionally been anti-reform,
because of the support of German farmers for keeping the status quo. The current
Agriculture Minister, Renate Künast, of the Green Party is much more in favour of
reform. Germany is keen to cut its contribution to the CAP budget20, and Renate
Künast welcomed the main features of the Commission’s proposals, but was
concerned about the €300,000 cap on farm payments. Germany would be the
Member State most affected by this, because of the size of the former collective
farms in the old East Germany. However, the German position may change
following the elections this autumn. The Conservative leader, Edmund Stoiber has
said, with a view to improving Franco-German relations, that reform should wait
until 2006. 21

The UK, which has long pushed for reform of the CAP, has welcomed the
Commission’s proposals, but wants them to go even further. Margaret Beckett,
Secretary of State for the Environment, Food and Rural affairs said of the

     They are on the right lines, and I welcome the proposal to shift the emphasis of support
     from production-linked aid to measures that promote wider rural development. However,
     the proposals do not go far enough. In particular, they do nothing to control the
     burgeoning growth in the budget because they simply recycle money in the agriculture
     budget. We need year on year savings in the cost of the CAP.

The Scottish Minister for the Environment and Rural Development, Ross Finnie
welcomed the idea of linking support to quality production, saying that Scottish
farmers were already well placed in this regard, but said that some of the
proposals would need “careful watching”, particularly those on decoupling and

The National Farmers Union of Scotland expressed particular concern about the
proposals for modulation:

     Whilst we accept the need for the CAP to change, we have consistently and vigorously
     opposed modulation. It taxes direct support to farmers in order to pay for environmental
     and rural development schemes which most farmers are unable to gain access to. This
     latest proposal would appear to change the requirement for Member States to match
     fund the money raised from modulation, further weakening the whole concept. The
     modulated cash will go into a central EU pot and be re-distributed to members states

   See fig 1 in appendix which gives all net contributors/beneficiaries from CAP budget
   Le Monde 17th July 2002 p.2 Edmund Stoiber veut revitaliser les relations franco-allemandes
   DEFRA 10th July 2002 Euro farming reform plans along right lines - Beckett
   SE089/2002 - 10th July 2002 Common Agricultural Policy review

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      from there so there is a real danger that we could see Scottish farmers being taxed and
      farmers in other countries potentially getting the benefit.

By contrast, France has maintained its anti-reform stance. Speaking at the
Council of Ministers on Monday 15th July, the French Agriculture Minister, Hervé
Gaymard said:

      “Today we are beginning the first stage of a reflection on the future of the CAP, in which
      France intends to participate in a spirit of openness as long as the timetable agreed at
      Berlin is respected. But the Commission, with this communication, has proposed a
      profound reform of the CAP which it intends to enact now. In making this choice, it has
      gone far beyond the mandate defined by the Heads of State and of Government at
      Berlin, which did not intend for the Mid-term Review any more than a certain number of
      technical changes, where necessary, based on experience to date. I cannot subscribe to
      this approach : you cannot define in a matter of weeks the future of the CAP, any more
      than you can change it every three years.”

This view is shared by COPA, the committee of EU agriculture unions:

      When the Council adopted the Agenda 2000 decisions in Berlin, it only invited the
      Commission to put forward mid-term proposals if the budgetary or market situation
      required such action. This is clearly not the case: agriculture has been well under budget
      since 2000 and the Commission’s own market assessment is extremely favourable.

      The Commission proposals would jeopardise the whole enlargement process. After years
      of negotiations on the basis of the existing acquis communautaire, the Commission is
      now hurriedly proposing radical changes to the CAP that would create a completely
      different situation in agriculture in the enlarged Europe. This means that either the
      Commission is willing to risk delaying the whole enlargement process, or that it expects
      the candidate countries and their farmers to accept a new fait accompli without any real

      In WTO the Commission’s negotiation tactics are now beyond belief. The reform of the
      CAP under Agenda 2000 has already led to the EU making far more concessions to its
      trading partners than called for by its present WTO commitments. The Commission is
      now proposing that the EU make yet further concessions to its trading partners on a
      unilateral basis just as the negotiations are reaching a critical stage.

Mr Gaymard also made some interesting points about the Commission’s
proposals for decoupling:

     “On the subject of decommissioning, I think its much too early to make a firm judgement.
     Too many questions remain unanswered.
     •    What will be the consequence of removing the obligation to produce in those sectors
     where profitability depends on direct support, in particular beef? What will happen if we
     remove set-aside, quotas and all the other instruments controlling production?
     •    How practical is it, to go about decoupling in this way, which will give an artificial value
     to each hectare of ground?

   News release 110 – 10th July 2002 NFUS concern at CAP reform proposals
   translated from Hervé Gaymard’s speech at the Council of Agriculture Ministers on the 15th July 2002.
   COPA –COGECA 10th July 2002 The Berlin summit decisions on Agenda 2000 must be respected

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      •    What are the risks of abandoning less productive areas, in the mountains for example?
      •    More fundamentally, what will the public think of us giving subsidies without the
      obligation to produce anything?

      The main criticism you can make of the Commission, is precisely that they have left these
      important questions in the shade. It has shown in its approach exactly the opposite of what
      would be demanded by common sense. It has, in effect, proposed to us a system which we
      sense, and which it does not contest, will have enormous consequences, as much for the
      future administration as for distribution of production and so, for the future of farmers and the
      land. Besides, it has not accompanied what anyone what call a revolution, with any study of
      the social or economic impact. The best approach would have been to adopt the same
      approach as for milk. It should have presented several options, showing for each the
      advantages and disadvantages, and a full evaluation of their impact.”

Research Briefings are compiled for the benefit of Members of Parliament and their personal staff.
Authors are available to discuss the contents of these papers with Members and their staff but
cannot advise members of the general public.

Boxes: In WTO terminology, agricultural subsidies are categorised into the
following three ‘boxes’:

•      the green box - for subsidies that do not distort trade and that are therefore
       permitted e.g. Rural Development Regulation measures
•      the blue box - covers subsidies that are partially decoupled from production
       e.g. area or headage payments
•      the amber box - for subsidies considered to distort production and trade and
       that are therefore committed to being reduced e.g. price support

Cross-compliance: making receipt of support payments conditional on fulfilling
certain criteria

Decoupling: removing the link between production and support, e.g. by paying on
an area rather than a headage or tonnage basis

Degressivity: reduction in the value of subsidies over time

Intervention buying or price support: helping to prop-up prices of agricultural
products by buying a commodity, such as wheat, or butter, when the market price
falls below a certain level, storing it, and then selling it when the price rises back

     Mr Gaymard’s speech opp cit

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Modulation: removing some of the payments given direct to the farmer, and
transferring them into rural development support, such as agri-environment

“Pillars” of the CAP: the CAP is commonly seen as having 2 pillars. Pillar 1
includes price support payments, and subsidies paid direct to farmers, which
accounts for around 90% of CAP spending. Pillar 2 is rural development spending,
which currently accounts for around 10% of CAP spending.

Quotas: specify the amount of a particular thing a farmer is entitled to produce,
e.g. milk. For sheep and cattle, farmers only receive subsidies for animals for
which they have quota.

Set-aside: is land used for growing cereals and other crops (not grass) which has
been taken out of production


Fig 1 Net contributors to / beneficiaries from the CAP budget 2000 (€m)

     -5000       -4000        -3000       -2000        -1000            0        1000         2000         3000

Source Le Monde 17 July

Table 1 Summary of positions on main proposals taken in Council of Ministers on
15th July 200228 (next page)

     Source Agra-Europe 19th July 2002, adaptation of the table to show only views on decoupling, modulation and
      general points. The hard copy version also summarises Ministers views on cross compliance, cereals, and other

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Member       France (10)           Germany (10)      UK (10)              Italy (10)           Spain (8)        Belgium (5)      Greece (5)          Netherlands
state                                                                                                                                                (5)
Decoupling   No. “Too early to     Yes. Minister     Yes. “Bold and       No. Full             No. Historical   No. Full         No. Decoupling      Yes.
             comment” but          claimed it was    imaginative.”        decoupling “a        reference        decoupling not   a threat to rural   “Courageous
             erring on the         her idea in the                        step on the          period would     acceptable,      employment.         and visionary,”
             negative. Has         first place!                           road to the total    “create          partial
             already said “no                                             breakdown of         tensions         decoupling
             change to form or                                            the CAP.”            between          preferred.
             level of payments.”                                          Partial              farmers with
                                                                          decoupling           different
                                                                          more palatable.      historical
Modulation   No. See above.        No.               No.                  No. No money         No. 20% cut      No. Raise        No. First pillar    Yes. To be
             Second pillar         Degressivity      Degressivity         to be diverted       “excessively     money for RD     of CAP serves       limited,
             reinforcement         instead. And no   instead. And no      from 1st pillar.     large.”          through export   social function,    however, by
             acceptable by other   ceiling on        ceiling on           Modulation                            subsidy          should not be       overall budget
             means.                payments.         payments. But        must not apply                        savings          diminished in       savings.
                                                     in favour of shift   to wine, olive oil                    instead.         favour of rural
                                                     to RD.                                                                      development.
General    Played down           CAP reformist      Near identical   In the anti-       Reform “neither    “No financial    Traditionalist   Seeking budget
comments   image of France as    par excellence,    position to      reform camp;       pressing nor       reasons” for     defender of      savings to pay
           stick-in-the-mud      but unwilling to   Germany (see     unwilling to see   essential.” But    reform, re       status quo and   for
           reactionary. “Ready   penalise large     left).           Agenda 2000        Strident anti-     Berlin           Mediterranean    enlargement,
           to enter              Eastern            Compromise       altered before     reform rhetoric,   agreement, but   product          and could
           negotiations,” but    German farms.      based on         expiry in 2006.    but never          pressures        subsidies.       support
           hard to see what      Position           Commission       Calling for        actually ruling    nonetheless to                    Fischler going
           he is ready to        against            plans could be   “further study”    out either         do something                      further. Mixed
           negotiate over.       modulation         agreeable.       on impact of       decoupling or      now.                              messages on
           Less aggressive       likely just        Stance on milk   US Farm Bill.      modulation.                                          farming for
           than his              negotiating        quotas                              Could be                                             market: farmers
           predecessor.          tactics.           unrealistic                         swayed?                                              should be
                                                                                                                                             but not all can
             Portugal (5)          Austria (4)        Sweden (4)          Denmark (3)       Finland (3)          Ireland (3)       Luxembourg        Comments
Decoupling   No. Not enough        No. “Very          Yes. In             Yes. Needs        No. In its           No. Will reduce   No. Would         55 votes
             redistribution.       critical.”         principle           further study     proposed form        economic          reduce farmers'   against and 32
                                   “Breaks the                                              does not rectify     activity,         incomes.          in favour.
                                   essential link”                                          inequities of        damaging rural
                                   with production.                                         current system.      economy.
Dynamic      No. See above.        No.                No. “Uncertain      Yes. Would        Yes.                 No. Reductions    No. Direct        Massive 76
Modulation   `Differentiated       Unworkable as      effect” Transfer    pay for           `Cohesion'           in aids to        support cannot    votes against
             application' might    proposed, but      to RD based on      measures like     effect               smaller           be reduced        and only 11 in
             work. (excluding      preferable to      real need,          quality           particularly         holdings not      without “proper   favour. D and
             Mediterranean         degressivity       rather than         standards and     welcome.             tolerable.        compensation”     UK backing
             products)             which “sends       scale of cuts.      animal welfare.   Raise €5 000                           to farmers.       degressivity
                                   the wrong                              Degressivity      threshold to                                             instead, but
                                   signal.”                               also sought.      exempt more                                              could perhaps
                                                                                            smaller-scale                                            accept
                                                                                            farms.                                                   modulation.
General      While not in favour   Anti-reform        Hawkish pro-        Environmentall    New member           Ambiguous         Minnow in anti-
comments     of the proposals in   state prepared     reformer,           y-conscious       state still trying   anti-reformer     reform camp.
             their current form,   to back rural      surprisingly        Nordic pro-       to get a bigger      playing cards     Could accept
             seemed open to        development        lukewarm on         reformer.         slice of CAP         close to chest.   cap on direct
             the big ideas. A      changes where      Fischler's `Big     Danish position   pie. Small,          Against major     aids to
             surprise possible     these benefit      Ideas.' Likely to   not yet           disadvantaged        change before     individual
             reform ally in the    the                come round to       elaborated in     farm sector so       2006. Could       farms,
             Mediterranean         environment,       a compromise,       full.             far the recipient    support new       simplified
             group?                but not            few absolute                          of little subsidy.   objectives of     payment
                                   wholesale          objections, if                                             rural             scheme to
                                   decoupling or      any.                                                       development       farmers.
                                   modulation.                                                                   aid.

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