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Agriculture and The World Trade Organisation

 | 
Gurdarshan Singh Bhalla
, 
Jean-Luc Racine
, 
Frédéric Landy

II. Market and regulation: the national scenarios

4. The Common Agricultural Policy Reform Within Agenda 2000. A French Identity in the Framework of a Supranational Policy

Jacques Loyat

Texte intégral

Introduction

1Agriculture has traditionally been one of the main sectors of State concern. The Common Agricultural Policy (CAP) is indeed one of the few common policies in Europe, which mobilises the major part of the European Community (EC) budget. The supranationality of the CAP is based on legislative framework, which is underlined by the following principles: a single market for all agricultural products in the European Union (EU), a Community preference and financial solidarity. These principles mean that products can be traded freely between Member States, custom duties exist only for food imported into the EU, the price advantages given to EU produce over third countries are the same all over the EU and that all Member States are jointly responsible for financing the CAP. The legal framework sets out the means necessary to operate the policy: a budget at the Community level, a series of rules organising agricultural markets and a set of measures aimed at stimulating structural adaptation of farms and rural development.

2The rules of the various agricultural products are part of Common Market Organisations (CMO). CMOs exist for most EU farm products. The CMO for cereals was defined in 1962 and it served as a model for other CMOs. The main tools adopted for managing the CAP include intervention measures for regulating the domestic market, export refunds and import levies for regulating external trade and income support, such as direct payments and compensatory allowances.

  • 1 For a more detailed analysis refer to: Jacques Loyat, The CAP, a Model of Supranational Policy in E (...)

3The CAP has been built thanks to long and difficult negotiations. It is in constant evolution, being placed in an institutional environment which is itself in evolution. The CAP has proved its success, leading to more political cohesion and growth within agriculture. New problems have emerged with EC enlargement and economic crisis. Adjustments have been necessary to face trade war and budget expenditure. They needed both national compromises and supranational cohesion1.

4This paper deals with the CAP reform within Agenda 2000. Our purpose is to understand how national identity can be expressed under a supranational policy, and in return, what is its effect. The historical French identity has been effective in the past. In the first part, we will define the two major steps for the CAP: the first adjustments in the seventies and the 1992 reform. We will then analyse the present context (part 2), the Commission proposal for CAP reform under Agenda 2000 (part 3), the national responses and the conclusions of the 1999 Berlin European Council (part 4).

The CAP and French identity in the past: two major steps

The original CAP and the modernisation of agricultural holdings

5The objectives for the CAP were included in the treaty of Rome: to give farmers a comparable average standard of living, to increase agricultural productivity, to stabilise markets, to guarantee food security and to provide food to consumers at reasonable prices. These objectives could not be reached without a profound transformation of the structures and modernisation of agriculture. The French lois d’orientation agricole (“agricultural guidance laws”) in 1960 and 1962 defined a series of measures to promote viable family farms, including land control, aids for investments on farms through modernisation plans, aids for young farmers and payments to outgoers.

6Soon after, the Community met with new difficulties in the agricultural sector, among others, unsatisfactory state of production and marketing structures, market imbalances, increases of budgetary outlays. In December 1968, the Commission produced a “Memorandum on the Reform of Agriculture”, generally known as the Mansholt Plan. The importance of this document was due to the emphasis given to new problems such as oversupply and the need for basic adjustments. The memorandum stressed the necessity of policies where prices would again play their role of guiding production and where structural adjustments would aim at creating modem production units through selective investment aids. The Mansholt Plan was partly based on the same principles as the French 1960-62 lois d’orientation agricole: early retirement schemes or retraining to help people to leave agriculture. Another measure, inspired by the US policy, was to reduce agricultural resources (set aside). The outcome of the memorandum, in 1972, included the introduction of some structural measures into the CAP, to promote the modernisation of agricultural holdings, to help farmers to gain professional qualifications and to create incentives for young farmers to stay in agriculture.

The 1992 reform: a EU-US confrontation for main crops

7The CAP created in the sixties was based on a mechanism of regulation through public intervention. Producers were able to have security for all of their production at a guaranteed price, with the following consequences: the stabilisation of prices reduced the risks for producers and eliminated rivalry between producers; the internal consumption price was based on the support price; in so far as supply was sold off through intervention, the limit of productivity growth depended on the marginal cost rather than the final demand. This policy resulted in an increase of production, stocks and subsidised exports. The growth of budgetary outlays benefited the bigger and more productive farms.

8Various changes were introduced in the seventies and the eighties to deal with the growing volumes of surplus produce (co-responsibility levy, milk quotas, control of the volume of production through stabilisers, creation of the agricultural expenditure guideline). In 1992, the Council of Ministers adopted the most radical reform of the CAP since its creation, which mainly concerned the cereal sector.

9Surpluses in the cereal sector had two main causes. The first cause was a stagnation of the internal demand of cereals for feed due to protein feed and substitutes (mainly manioc and com gluten feed) which were freely imported. The cereal sector did not benefit from the growth of the livestock sector in the EU. The second cause was the expansion of the areas under cereals and the growth of yields due to high internal prices. The EC became a net exporter of cereals thanks to export subsidies. It became the principal rival of the United States on world markets. The United States reacted to the decrease in market shares with export programmes. The commercial war resulted in an increase in budget expenditure on agriculture. The 1992 reform can be analysed as a way to solve the EC-US trade conflict and to reach an agreement in the Uruguay Round.

10As first producer and exporter of cereals in the EU, this issue mainly concerned France. In the negotiation of the reform, two policies were rejected. The first referred to a policy more market-oriented, with the elimination of public intervention on internal as well as external markets. This policy was supported in countries such as the Netherlands by groups which had more interest in lower prices, especially for feed. On the contrary, the CAP could have generalised the quota system for main crops. This policy was supported by groups in Germany, which had no major interests in exports and were interested in income support through high prices. The 1992 reform for cereals was a compromise. It combined price cuts, land set aside and compensation in the form of direct income support. This policy was very similar to that of the US for cereals. It gave the opportunity to be more competitive on the world market, without eliminating all protection and support. It was the interest of the major producers of cereals in France, with strong comparative advantages due to high levels of land productivity.

The present context: internal and external pressures

The impact of the 1992 reform and the prospects for European agriculture

11A spectacular effect of the 1992 CAP reform was the transfer of support from consumers (prices) to the budget. The direct payments become an increasing part of support and the cereal sector increased its part in the EU budget. France, as well as Spain, largely benefit from the reform thanks to main crops. The support this reform provided was distributed somewhat unequally and was concentrated on regions and producers who were not the most disadvantaged. This was the result of direct payments which were created to compensate price decrease rather than to correct disparities between farms and regions.

  • 2 For the prospects for agricultural markets, the assumption is that the 1992 CAP reform and the GATT (...)

12From the market side, Agenda 2000 highlights that the majority of analyses which attempt to gauge the prospects for world markets agree in predicting strong growth in demand and prices offering a good rate of return. For the Commission, the current level of prices in the EU is still too high for it to be able to take advantage of this expansion of world markets. If this is not corrected, surpluses will appear again and stocks will start to build up and create intolerable budget costs. The risk for the EU is to lose its position on both the world and internal market, not only in agricultural commodities but also in processed products2.

Cereals

TABLE 1. TOTAL CEREALS BALANCE SHEET, EU 15 COUNTRIES (MILLION TONNES)

1996

2005

Production

202,1

212,5

Consumption

172,8

180,6

Imports

4,8

5,0

Exports

28,3

26,4

Ending stocks

28,1

72,3

Assumption: set aside of 17.5% in 2005/06
Source: Prospects for agricultural markets, DG VI, October 1998

13The internal demand for agricultural products is likely to stay flat over the coming period, whilst current forecasts point to big rises in production due to yield increase.

Meat

TABLE 2. MEAT BALANCE SHEET - EU 15 COUNTRIES (BOVINE, PORK, POULTRY) (1000 Τ CARCASS WEIGHT EQUIVALENT)

Beef and veal

Pork

Poultry

1996

2005

1996

2005

1996

2005

Production

8068

7556

16319

17901

8239

9917

Consumption

6924

7198

15462

16947

7628

9354

Imports

358

400

45

90

283

328

Exports

961

752

844

1042

884

886

Ending stocks

434

1464

p.c. cons (kg)

18,6

18,9

41,4

44,4

20,5

24,5

Source: Prospects for agricultural markets, DG VI, October 1998

14Without any reform in the meat sector, forecasts show a strong substitution of consumption from beef towards pork and chicken. Market imbalances will increase in the beef sector.

Milk products

TABLE 3. MILK PRODUCTS BALANCE SHEET - EU 15 COUNTRIES (MILLION TONNES MILK EQUIVALENT)

1996

2005

Production

121,4

118,6

Deliveries

113,8

111,4

Nb cows (1000)

22107

18555

Yield (kg/cow)

5421

6317

Source: Prospects for agricultural markets, DG VI, October 1998

15The market balance is due to the quota system. The problems arise from the GATT constraints which impede exports for some products (cheese) without restitution.

16In conclusion, if the EU wants to maintain or reinforce its position on the external markets, the data tend to show that new reforms are necessary to be more competitive. A double question therefore arises: is the objective of the EU to be competitive on the world market worthwhile for all agricultural products? Is there a unique model of agricultural policy for all sectors? These questions will be considered later.

Environment and rural development

  • 3 Communication from the Commission, Direction towards sustainable agriculture. COM (1999) 22 final, (...)

17Technological developments, and commercial considerations to maximise returns and minimise costs, have given rise to an intensification of agriculture in the last 40 years. The CAP contributed to the intensification and an increasing use of fertilisers and pesticides, through high levels of price support. This resulted in the pollution of water and soils and landscape changes3.

18The relationship between agriculture and environment is captured by the term “sustainable agriculture”. It refers to sustainable development which calls for a management of natural resources in a way to preserve the overall balance and value of the natural capital stock. Conservation of water, soil and genetic resources leads to improvements in the integration of the environment into common market regimes. Whilst there is a great diversity in environmental values and land uses from Mediterranean to sub-Artie regions, the CAP presents a uniform model all over Europe. The 1992 reform of the CAP included specific instruments to encourage less intensive production and agro-environment and afforestation programmes, with a specific environmental focus.

19If agriculture still remains the first user of rural areas (44% agricultural land, 33% wooded land) today, agriculture is no longer dominant in the rural economy. At EU level, it accounts for only 2% of total GDP and its share of employment is 5.3%. The total number of farmers in the EU is under 8 million, compared to just over 14 million in the European Community of six countries in 1960. These figures confirm that the future of rural areas no longer depends on agriculture alone. The risk is that rural heritage may decline in parallel with the decline within agriculture. It could affect numerous economically marginal regions. The continuation of farming in rural areas still remains essential. It exerts a dominant influence on the rural environment Farmers play an important role in the management of the countryside (landscape, biodiversity). The challenge is to reward farmers for the services they provide, and for society it requires a willingness to pay for environmental services that are essential to maintaining the amenity value of the countryside.

The EU’s enlargement to Central and Eastern European countries (CEECs)

20After the fall of the Berlin Wall in 1989, the CEECs have engaged in a profound transformation of their economies. The EU in co-ordination with Western nations, set up the Phare Programme. PHARE included emergency aid and also instruments to support modernisation and restructuring. The EU signed association agreements with the candidate countries. The Copenhagen European Council of 1993 set out the criteria for membership and, by 1997, ten CEECs had applied for membership. The candidate countries need to adopt EU legislation known as acquis communautaire (“community legal assets”, i.e. the whole legislation already enacted by the EU which represents the legal base of the European market), in order to take part fully in the internal market. In the field of agriculture this means, for example, harmonising legislation in the areas of veterinary and phytosanitary health, and the free movement of animals and agricultural products.

21Enlargement poses a real challenge to the EU. The candidate countries will bring no less than 100 million new consumers with an average purchasing power of one third of that of the current EU Member States. At the same time, the total land area devoted to farming would be expanded by half and the agricultural labour force doubled. The enlarged EU will therefore become one of the first agricultural producers in the world, with an increased internal market and a new capacity to face the expansion of world markets.

22The CAP is part of the acquis communautaire. The difficulty in implementing the CAP in the CEECs relies upon the disparity of prices, incomes and structures of farms if compared with that of the EU. Applying the actual CAP to these countries would considerably increase the budget costs. A reform of the CAP appears to be necessary.

TABLE 4. IMPORTANCE OF AGRICULTURE IN CEECs (1994)

Countries

Ag ares

Farms

Rate of agriculture (%)

Volume of production (1000 t)

(1000 ha)

(Nb en 1000)

in employment

in GDP

Mik

Bov meat

Pork

Poultry

Cereals

Oilseeds

Poland

18,6

3661

25,6

6,3

11920

450

1609

335

21764

756

Hungary

6,1

392

10,1

6,4

2000

80

800

341

11569

756

Czech Rep.

4,3

271

5,6

3,3

3197

184

465

124

7210

512

Slovakia

2,4

178

8,4

5,8

820

73

172

60

3700

155

Slovenia

0,9

90

10,7

4,9

562

35

48

46

564

5

Romania

14,7

3537

35,2

20,2

3000

266

739

268

18184

761

Bulgaria

6,2

694

21,2

10,0

1135

97

214

74

8919

604

Lithuania

3,5

399

22,4

11,0

1660

120

83

25

2412

8

Latvia

2,5

229

18,4

10,6

937

68

54

11

901

1

Estonia

1,4

89

8,2

10,4

772

28

37

7

509

2

Total CEECs

60,6

9540

26,7

7,8

26003

1491

4021

1291

73732

3560

UE-15

138,1

8190

5,7

2,5

120002

7857

16021

7376

171297

12497

Source: European Commission

External pressure: the US Fair Act and the Millennium Round

  • 4 OECD, AGR/CA/MIN (98) 2: Agricultural policy: the need for further reform.

23The meeting of the Committee for agriculture at ministerial level of OECD countries in March 19984 concluded that there is a need for further reform in agriculture. The executive summary noted that changing domestic and international environment is creating opportunities but also pressures and constraints on the agro-food sectors. The recommendations are as follows:

  • Agricultural policy should seek to increase, by way of a progressive and concerted reduction of agricultural support, the market orientation of the agro-food sector. Where there is compensation for reduced support, it should help facilitate adjustment rather than simply compensate for lost revenue and should be targeted and transparent.

  • Rather than through price guarantees or other measures linked to production or factors of production, where farm income support is considered necessary, it should be provided through a progressive move to direct payments that are, as far as possible, decoupled from production.

  • Where environmental measures are needed in conjunction with agricultural policy reform, they should be well targeted at specific environmental outcomes that reflect the multifunctionality of the sectors, they should be transparent and should include, as appropriate, both incentives for environmental benefits and penalties for environmental damage.

  • Transition and developing countries would benefit from a more open system of world trade and investment, promoting agricultural practices that reconcile productivity improvements with sustainable management of natural resources.

  • When governments seek to reduce tariff and non-tariff trade barriers within the various regional and other trade agreements, they should at the same time pursue a commitment to multilateral trade liberalisation. Agro-food should be included in such agreements.

24The CAP is directly concerned by these recommendations. The main pressure will come inside OECD countries in the multilateral trade negotiations of the Millennium Round, especially the US. The 1996 Farm Bill (the Fair Act, Federal Agricultural Improvement and Reform Act) can be understood as a powerful instrument to impose more decreases in the support of agriculture. It is an important change in the history of the American agricultural policy. Its justification comes from an increasing administrative ascendancy, a high budget cost and the will to develop production for exports on increasing international markets. The most significative measures of the Fair Act are the removal of compulsory set aside, the decoupling of direct payments and a decrease of budget outlay. The farmers receive a quota of budget allowances based on historical references independent of crops, volumes of products and prices. The effect is to reduce the role of the State in the market regulations, while maintaining farmers support.

25In the US, decoupling is realised through production flexibility contracts signed by the farmers for the period covered by the Fair Act (1996-2002). The previous deficiency payments are replaced by lump sum payments with an upper limit per farm. The total payments amounts to between 5 and 6,4 billion $ per year. In 1998, the US Government adopted a new programme of subsidies in order to support farmers’income ($6 billion). An important mechanism which has direct effects on markets has been maintained, the “non-recourse commodity loan”. A producer receives a loan and pays it back on the base of the market price if it is under the loan rate (the loan rate is maintained at the 1995 level, $94.8 per ton for wheat and $74.4 for com). The difference is an indirect subsidy (the loan repayment).

26The consequence of the removal of set-aside, decoupled payments and intervention is an increase of US production (mainly soya and corn). The non-recourse commodity loans tend to reduce world prices as internal US prices for cereals and oilseeds are leading on world markets.

27Another important topic in the multilateral trade negotiation to begin at the end of 1999 will be the area of food safety. As traditional barriers to trade are reduced, regulatory measures are taking on increasing importance in the agro-food sector. One of the challenges will concern the Sanitary and Phytosanitary (SPS) and Technical Barriers to Trade (TBT) Agreements. The US will put strong pressure to impede that harmonisation of regulations governing trade in food products restricts trade. Agricultural biotechnology shall be a specific area where the emphasis in trade negotiations should be on vigorously preventing non-market barriers of trade. The failure of the conference held in Cartagena in February 1999 is largely due to the US. The delegates of the 170 countries have not yet reached an agreement on regulation for international trade of GMOs (genetically modified organisms). The Convention on biodiversity signed in 1992 was the frameworck for the discussion of a protocol on prevention of biotechnological risks. There is a need to prevent the traffic of GMOs from having negative environmental effects. The US which is the main country engaged in GMOs production and export, followed by Canada, Argentina, Chile, Australia and Uruguay, forming the “Miami Group”, have imposed that the international trade of these products remains free. The conflict will be carried towards the WTO. The US refuses to endorse the precaution principle and to impose on exporters the identification of GMOs, which are two main requirements for the EU.

Agenda 2000 and the future for European agriculture5

The European model of agriculture

28In its Agenda 2000 communication of 16 July 1997 the European Commission set out proposals for a reform of the CAP and structural funds, the process of enlargement to CEECs and pre-accession instruments and the financial framework for the period 2000-2006. The legislative proposals were adopted by the Commission in March 1998, to be submitted to the Council and the European Parliament.

29For the Commission, the proposals have the aim of giving concrete form to a European model for agriculture in the years ahead. The main lines of this model shall be:

  • a competitive agriculture sector which can gradually face up to the world market without being over-subsidised, since this is becoming less and less acceptable internationally

  • production methods which are sound and environmentally friendly, able to supply quality products

  • diverse forms of agriculture, rich in tradition, which are not just output oriented but seek to maintain the visual amenity of the countryside as well as active rural communities, generating and maintaining employment

  • a simpler, more understandable agricultural policy which establishes a clear dividing line between the decisions that have to be taken jointly and those which should stay in the hands of the Member States

  • an agricultural policy which makes clear that the expenditure it involves is justified by the services which society at large expects farmers to provide.

30The Commission insists upon the fact that “seeking to be competitive should not be confused with blindly following the dictates of a market that is far from perfect”. For centuries, Europe’s agriculture has performed many functions in the economy and the environment and has played many roles in society and in caring for land. The Luxembourg European Council concluded in December 1997 that multifunctional agriculture must develop throughout Europe, including those regions facing particular difficulties. The Commission asserts that there is a need to maintain farming throughout Europe and to safeguard farmers’incomes.

The need for reforming the CAP

31For the Commission, the challenges facing the CAP are first and foremost internal in nature:

  • the level of prices in the Union is still too high for it to be able to take advantage of the expansion of world markets given the international commitments it has made

  • the CAP has had a number of negative effects (distribution of support, disparities between regions, environmental impact), which have been partially corrected by the 1992 reform

  • agriculture in the fifteen countries of the Union is highly diverse in its natural resources, its farming methods, its competitiveness and income levels, and also in its traditions

  • a more decentralised model has therefore to be developed which gives the Member States the means of settling a number of issues for themselves by taking better account of the characteristics of a given sector or a given set of local conditions

  • but such a development in this direction needs to be carefully controlled so as to avoid any risk of distorting competition or renationalising CAP.

32External factors are added to justify a CAP reform: the expansion of the Union and the international trade negotiations. The justification of a reform, before the opening of the WTO negotiations, is for the EU to have a policy which satisfies its own interests and takes a realistic view of developments in the international context. Furthermore, the reform to be adopted is supposed to outline the limits of what the Union is able to agree to in the forthcoming international negotiations. This was precisely the option which was adopted in 1992, with a certain success. Let there be recurrence of this for the Millennium Round!

The proposals

33The main proposals for new agricultural regulations cover:

    • 6 “Arable crops” are cereals, pulses and oilseeds.

    revised Council regulations for the common market organisations for arable crops6, beef and milk

  • an horizontal regulation to introduce some common provisions on cross compliance with environmental conditions, modulation of payments linked to the labour force and an element of degressivity in large payments

  • a new regulation covering rural development measures financed by the European Agricultural Guidance and Guarantee Fund (EAGGF), both from the Guidance section (in “objective 1” areas, i.e. less developed regions) and from the Guarantee section (elsewhere).

34Regarding arable crops, the role of intervention will no longer be to guarantee price stability at a high level, but rather to act as a safety net for farm incomes. The intervention price for cereals will be reduced by 20% in one single step. Direct payments will partially compensate this price decrease. Direct payments for oilseeds and non-textile linseed will be set at the same level, thereby eliminating the basic conditions for production area which were imposed by the Blair House agreement. While compulsory set-aside will be retained, its compulsory rate will be set at zero. In brief, this reform is running on from the 1992 reform: more decoupling payments, alignment of internal prices with world prices and the possibility to export without refunds.

35The major innovations come from the beef and milk sectors. For beef, the marcket support level will be reduced by 30% in three equal steps, starting on 1st July 2000. From 1st July 2002, the present intervention system will be replaced by a private storage regime. To ensure a fair standard of living for the farmers concerned, direct payments will be increased for male bovine animal and suckler cows. In the dairy regime, it is proposed to reduce intervention prices for butter and skimmed milk powder by 15% in four steps, with the aim to improve competitiveness on the internal and external markets. It is proposed to maintain milk quotas until 2006. In view of the price reduction, a 2% increase in the total reference quantity is proposed. Anew direct payment for dairy cows will be introduced. The logic of the proposition is to align the policies in these sectors with that of arable crops: removal of quotas and intervention, reduction of internal prices and decoupled direct payments to support farm incomes.

36Rural development measures concern in particular support for structural adjustment of the farming sector (investment in agricultural holdings, establishment of young farmers, training, early retirement), support for farming in less favoured areas, remuneration for agro-environmental activities, support for investments in processing and marketing facilities, for forestry and for measures promoting the adaptation of rural areas. The new rural development regulation lays the foundation for a comprehensive and consistent rural development policy whose task will be to supplement market management by ensuring that agricultural expenditure is devoted more than in the past to spatial development and nature conservancy. Rural development is supposed to become the second pillar of the CAP. Rural development measures, outside regions covered by Objective 1 programmes, will be transferred from EAGGF Guidance Section to Guarantee Section.

37The Commission proposes to deal with certain issues concerning all Common Market Organisations providing direct payments in a horizontal Regulation which will contain the following rules:

  • Cross compliance: With respect to more systematic integration of the environment into the CAP, Member States should apply appropriate environmental measures concerning the particular market support schemes. They will also be enabled to decide upon appropriate and proportional penalties for environmental infringements and be authorised to reduce or to cancel direct payments:

  • Modulation: Agricultural income, including direct payments, has important employment impacts in rural areas. Member States will therefore be authorised to modulate direct payment per farm within certain limits and which is relative to employment on farms

  • Funds made available from aid reducing, either under cross compliance or modulation, will remain available for the respective Member State as an additional Community support for agro-environmental measures

  • Ceilings: to avoid excessive transfers of public funds to individual farmers, the Commission proposes to introduce a degressive overall ceiling to direct payments.

Pre-accession regulation: special accession programme for agriculture and rural development (SAPARD)

38As part of the accession process, “Accession Partnerships” have been established between the Commission and each of the candidate countries. Each partnership mobilises all forms of EU assistance within a single framework for each country. This framework covers in detail the priorities for adopting the acquis communutaire as well as the financial resources available for that purpose, in particular the PHARE Programme. To complement its Accession Partnership, each candidate country has prepared a National Programme for the Adoption of the Acquis (NPAA). This document sets out the legislative, administrative and operational adjustments that need to be completed prior to the accession.

39The framework for Community pre-accession aid is provided by a horizontal co-ordination regulation. The instruments for pre-accession aid proposed in Agenda 2000 comprise:

  • an agricultural pre-accession instrument (SAPARD)

  • an instrument for Structural Policies pre-Accession (ISPA), targeted at two areas (investment requirements needed to conform with Community legislation on environment; improvements to transport connections)

  • the existing PHARE programme with two priorities: to help the administrations to acquire the capacity to implement the acquis and to help the candidate countries to bring their industries and major infrastructure up to Community standards.

40The allocation proposal for all three pre-accession instruments from the year 2000 is 3000 million Euros per year (at 1997 prices): for SAPARD 500 Euros, for ISPA 1000 Euros, for PHARE 1500 Euros.

41In many of the Central and Eastern European applicant countries, agriculture still represents a major source of employment. The institutional process of privatisation and transformation in the agricultural sector still has to be completed. Community pre-accession aid for agriculture and rural development (SAPARD) will be decided in view of the particular need for adaptation to the acquis communautaire. Concentrating on the priority needs for agriculture and rural development, pre-accession measures concern the support for improving the efficiency of farms, processing and distribution, promotion of quality products, veterinary and phytosanitary controls, improving land quality, its reparcelling and registration, water resource management, vocational training, diversification of economic activities in rural areas, agro-environmental and forestry measures, improvement of rural infrastructure and rural villages, including the maintenance of rural heritage as well as technical assistance. Community support will be implemented in the form of multi-annual programmes.

National interests and supranational compromises

Financial perspective and EU discrepancies

42The proposals for the Financial perspective 2000-2006 constituted the main obstacle for an agreement in the Agenda 2000 negotiation. The financial perspective was initially presented on an EU 15 basis, and was supposed to leave sufficient margin to finance enlargement. In its initial communication, the Commission proposed to keep the ceiling of own resources at the level of 1.27% of the GNP between 2000-2006. But more than the total level of payments, the repartition of these payments was in question among Member States.

43According to the European Council of Fontainebleau in 1984, every Member State which has a budget charge which is not related with its relative prosperity is able to benefit from corrections. The contribution of the UK to the EU budget has been reduced. Germany, Austria, Sweden and the Netherlands have a strong positive contribution to the EU (they pay more than they receive). In particular the net contribution of Germany is above 11 billion Euros.

TABLE 5. THE AGRICULTURE EUROPEAN BUDGET 1997 (IN MILLION EUROS)

1997

Contribution

Agric.aids

Structural &

Net contrib.

Nb farmers

received

cohesion funds

(mio euros)

(%)

(mio euros)

(%)

(mio euros)

(%)

(mio euros)

(X1000)

Germany

21217

28.2

5778

14.2

3636

14.0

-10943

1046

France

13185

17.5

9149

22.5

2460

9.4

-781

1072

Un Kingdom

8928

11.9

4399

10.8

1928

7.4

-1798

511

Italy

8667

11.5

5090

12.5

2985

11.1

-61

1332

Spain

5367

7.1

4605

11.3

6376

24.5

5936

1065

Netherlands

4837

6.4

1757

4.3

421

1.6

-2276

247

Belgium

2971

3.9

983

2.4

357

1.4

1079

104

Sweden

2326

3.2

747

1.8

230

0.9

-1129

130

Austria

2110

2.8

861

2.1

364

1.4

-723

269

Denmark

1505

2.0

1235

3.0

169

0.7

68

102

Greece

1178

1.6

2730

6.7

2643

10.2

4371

784

Portugal

1077

1.4

656

1.6

2941

11.3

2721

541

Finland

1061

1.4

570

1.4

379

1.5

56

161

Ireland

687

0.9

2034

5.0

1211

4.7

2676

146

Luxembourg

170

0.2

23

0.1

20

0.1

725

4

Source: European Commission

44The Commission has presented three options to correct the budget disequilibria between Member States:

  • a modification of the national contributions

  • a reduction of the CAP contribution thanks to a partial financing of direct payments (75%) completed by a co-financing by each Member State

  • introduction of a generalised mechanism of correction when the net contribution is too high.

45The second option would introduce a partial renationalisation of CAP, which would implicate one of the main principles of the CAP, the financial solidarity. The justification of this renationalisation is that direct payments should be considered as direct income support and not specific sectoral measures. They could be compared to structural funds which require national contributions. The co-financing of the CAP would increase the national budgets. The national contribution is all the more important since the return from the EU budget through direct payments is high. This is in particular the case for France which was strongly opposed to the co-financing. Germany, on the contrary, handed in favour of this measure. A Franco-German compromise appeared necessary again to reach a global agreement on Agenda 2000 and the CAP reform.

46The negotiation turned to a stabilisation of EU spending for both CAP and structural measures. The Council of Economy and Finance proposed to stabilise agricultural spending at their 1999 level, 40.5 billion euros (at 1999 prices). France proposed a degression of direct payments, taking into account the productivity growth and the restructuring of farms. The effect would have been a reduction of the global EU budget, part of the savings being employed for rural development. The degression which was proposed (3% per year) not being enough to reduce the German contribution, the Commission proposed to stabilise the structural funds (a ceiling of 200 billion euros over the period 2000-2006, instead of the initial proposal of 240 billion). Southern countries, (Spain, Greece and Portugal), feared that the Franco-German compromise was made at their expense. On principle, they refused a stabilisation of EU budget.

47The final agreement taken by the Berlin European Council rejects all substantial modifications of budget rules, in particular the co-financing and the degression of payments or a generalised mechanism of correction of net contributions. Some minor modifications of the national contributions are introduced to slightly reduce the contribution of Germany, Austria, Sweden and the Netherlands. For the period 2000-2006, the objective is to restrain the Union’s expenditure. “The Union’s expenditure must respect both the imperative of budgetary discipline and efficient expenditure, and the need to ensure that the Union has sufficient resources at its disposal to ensure the orderly development of its policies for the benefit of its citizens and to cope effectively with the process of enlargement” (Presidency Conclusions).

48The agricultural guideline will remain unchanged. It will be reviewed, “on the basis of a report to be submitted to the Council by the Commission, before the first enlargement of the Union takes place in order to make any adjustment deemed necessary”. The European Council considers that the reform can be implemented within a financial framework of an average level of 40.5 billion euros plus 14 billion euros over the period for rural development as well as veterinary and plant health measures. The budget for structural funds is 213 billion euros plus 18 billion euros for cohesion funds over the period.

49The novelty of the financial perspective is due to its presentation. It is established for a duration of seven years covering the period 2000-2006. It is drawn up on the basis of the working assumptions of the accession of new Member States starting from 2002. Two tables are presented: financial perspective for EU-15 (table A) and financial framework for EU-21 (table B).

TABLE 6. FINANCIAL PERSPECTIVES ACCORDING TO THE BERLIN EUROPEAN COUNCIL MEETING OF MARCH 1999, IN MILLION EUROS

EUR mio - 1999 prices

2000

2001

2002

2003

2004

2005

2006

Table A

FINANCIAL PERSPECTIVE EU-15

1. Agriculture

40920

42800

43900

43770

42760

41930

41660

CAP expenditure (excl rural dev.)

36620

38480

39570

39430

38410

37570

37290

Rural dev. and accomp. measures

4300

4320

4330

4340

4350

4360

4370

2. Structural operations

32045

31455

30865

30285

29595

29595

29170

Structural funds

29430

28840

28250

27670

27080

27080

26660

Cohesion funds

2615

2615

2615

2615

2515

2515

2510

7. Pre-Accession Aid

3120

3120

3120

3120

3120

3120

3120

Agriculture (SAPARD)

520

520

520

520

520

520

520

Total appropriations

for commitments

91995

93385

93843

91805

91465

90795

90260

Available for accession

4140

6710

8890

11440

14210

Agriculture

1600

2030

2450

2930

3400

Table B

FINANCIAL PERSPECTIVE EU-21

1. Agriculture

40920

42800

43900

43770

42760

41930

41660

CAP expenditure (excl rural dev.)

36620

38480

39570

39430

38410

37570

37290

Rural dev. and accomp. measures

4300

4320

4330

4340

4350

4360

4370

2. Structural operations

23045

31455

30865

30285

29595

29595

29170

Structural fund

29430

28840

28250

27670

27080

27080

26660

Cohesion funds

2615

2615

2615

2615

2515

2515

2510

7. Pre-Accession Aid

3120

3120

3120

3120

3120

3120

3120

Agriculture (SAPARD)

520

520

520

520

520

520

520

8. Enlargement

8450

9030

11610

14200

16780

Agriculture

1600

2030

2450

2930

3400

Total (commitments)

91995

93385

104255

102035

103075

104995

107040

A new loi d’orientation agricole in France calls for modulation and conditionality of payments

50France is concerned by different objectives: the defence of its potentiality of production and export; the protection of its environment and landscapes; the preservation of agricultural activities and employment in rural areas; the satisfaction of consumers in the field of quality and good sanitary products. The diversity of products, types of farming and natural resources creates a richness which needs to be protected in the same way as biodiversity and products obtained by specific regional methods of production. Traditionally the French Government has given greater importance to productivity, production and exports in some sectors of economic importance (main crops). This has created some negative effects as indicated above. French policy was largely supported by CAP measures. In front of new constraints and requirements, under social and budget pressures the Government has decided to re-orientate its agricultural policy within the framework of a renewed CAP.

51The French Government has proposed a new loi d’orientation agricole (“agricultural guidance law”), which is currently in discussion in the French Parliament. Its objective is, among others, to introduce more equity and more conditionality in the distribution of direct payments. It creates a new instrument, the contrat territorial d’exploitation (“farm territory contract”, CTE). The objective is, through contracts between farmers and the authorities, to take into account the objectives of production of goods and services in a way to protect the environment, to rationalise the management of land and to create or maintain employment. The contract will put a conditionality for public payments linking the farms and their territory. With the CTE, the French Government follows an old tradition of intervention which embraces both markets and structures.

  • 7 In France, in 1997 the spending to the agricultural productive activity add up to 73 billion Francs (...)

52The success of this policy relies upon the capacity of the government to impose a budget transfer. The biggest and most productive farms in main crops, which benefit largely from the 1992 reform, will have to accept a reduction of the direct payments or a conditionality, for instance in terms of pollution reduction. To be successful, the transfer must be substantial and come from the EU budget which represents the major part of the payments to the farms7. Through this loi d’orientation agricole, there is a clear will to shift the debate at the CAP level. We therefore have greater understanding of the insistence of France to refuse the co-financing proposed by the Commission and supported by Germany, and to defend the modulation and conditionality of direct payments. The outcome of the negotiation of the CAP reform within Agenda 2000 appears therefore to be a condition of the success for the CTE and the French policy.

The negotiation for a revision of the Common market organisations and the final agreement

53Since the Commission proposals in March 1998, the political objective to reach an agreement in 1999 had been drawn. The Agricultural Council named a special working group formed with high civil servants in order to define technical agreements in the different CMOs. Ministers of Agriculture reached an agreement taken at a qualified majority on 11 March 1999. The European Council proposed the final agreement in Berlin (24 and 25 March 1999).

Arable crops

54The negotiation:

  • Large agreement among Member States for a reduction of price intervention

  • Disagreements on the level of reduction and the level of compensation

  • Important opposition to align oilseed on cereal regime (oilseeds are not competitive compared with cereals).

55What is at stake for the biggest farms, largely represented in France, is to limit the decline of the direct payments and to become more competitive on world market through innovation (GMOs, genetically modified organisms) and scale economies (dimension of farms, yields, better return for inputs).

56The outcome:

  • Reduction of intervention prices by 15% (Commission proposal: 30%) in two steps in the marketing years 2000/2001 and 2001/2002

  • 50% of this reduction is compensated with direct payments

  • Grass for ensilage enters into “main crops” where there is no corn (Northern countries)

  • The base rate of compulsory set aside is fixed at 10% (Commission proposal: 0%) for the period 2000-2006.

Bovine meat

57The negotiation:

58- Agreement for a reduction of intervention prices, but disagreements on the amount.

59The biggest reduction of prices is wished by Member States with more industrialised production (Germany, Italy, the Netherlands); on the contrary, this reduction would create more difficulties for more extensive productions as in France or Ireland.

60The outcome:

  • Reduction of intervention prices by 20% (Commission proposal: 30%) in 3 steps (2000/2001-2002/2003), with a system of safety net

  • 85% of the price reduction is compensated with premiums

  • More premiums for extensive production (suckler cows).

Dairy products

61The negotiation:

62- Member States are in their majority in favour of the quota system; nevertheless, the most intensive regions (the UK, Denmark) would benefit directly from a removal of the quotas, being the more productive in the EU.

63The outcome:

  • Maintaining of the milk quota until 2006

  • Reduction of intervention prices by 15% from 2005/2006 onwards (Commission proposal: 2003/2004)

  • New premiums based upon quota levels (instead of premiums per milk cow proposed by the Commission).

Horizontal regulation

  • Cross compliance and modulation of payments: it is the strict responsibility of each Member State (subsidiarity principle), without the possibility for the Commission to intervene

  • No ceiling for direct payments: this is a concession given to big farms in compensation of land set aside and price reduction.

64In conclusion, the agreement goes towards more market-oriented policies in the agricultural sector, in the spirit of the Commission proposal (a more competitive agriculture, more subsidiarity for cross compliance and national priorities). Nevertheless, it does not really break with the previous CAP, regarding distribution of payments and the need to transfer more payments into rural development and environment. In particular this reform does not bring the financing that was really needed for the French CTEs (contrats territoriaux d’exploitation).

65This reform underlines the major difficulties the EU faces to reach an agreement for a supranational policy under dominant national interests.

Notes

1 For a more detailed analysis refer to: Jacques Loyat, The CAP, a Model of Supranational Policy in Europe, in National identity and Regional Cooperation, Experiences of European Integration and South Asian Perceptions, H.S. Chopra, R.Frank, J. Schröder, B. Dorin and G.W. Kueck, eds, Manohar, New Delhi, 1999.

2 For the prospects for agricultural markets, the assumption is that the 1992 CAP reform and the GATT constraints are applied.

3 Communication from the Commission, Direction towards sustainable agriculture. COM (1999) 22 final, 27.01.1999.

4 OECD, AGR/CA/MIN (98) 2: Agricultural policy: the need for further reform.

5 The elements of this chapter are taken from documents of the Commission: Agenda 2000: the legislative proposals, 1998-03-18; Explanatory memorandum, The future for European Agriculture, 1998-03-18.

6 “Arable crops” are cereals, pulses and oilseeds.

7 In France, in 1997 the spending to the agricultural productive activity add up to 73 billion Francs, 60 being financed by the EAGGF (Guarantee Section).

Auteur

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