THE COMMISSION'S PROPOSALS

3.  The main points of the Commission's proposals are summarised in Appendix 2[2]. In broad terms, they built on the 1992 CAP reforms[3] by further cutting market support prices in the beef, arable and dairy sectors and compensating farmers for the lower prices. The Commission also proposed to rethink and give greater weight to environmental and rural development policy. The document containing the proposals reminded Member States why reform was necessary, noting that without change European prices would remain above world levels; surpluses would develop for beef, cereals, sugar, wine, olive oil, skimmed milk powder and other dairy products; enlargement of the EU would be made more difficult; the CAP would become increasingly out of line with society's concerns about, for example, the natural environment; exports would be severely restricted by existing commitments under the Uruguay Round and future trade negotiations would place the CAP under great pressure[4].

4.  Especially in the light of the Commission's own analysis of the situation the proposals seemed timid and inadequate: no more than a half-step in the right direction. In our report on the rural development and environmental aspects of Agenda 2000 we concluded:

"We are disappointed that the Agenda 2000 Communication does not go anywhere near far enough to prepare the Community's agriculture for competition in world markets without continued protection. It offers no clear, timetabled strategy for the removal of price support, quotas or compensation payments related to production."[5]

The Commission had not followed its own argument through to a logical conclusion, perhaps because it feared that more radical proposals would not command sufficient support in the Council of Ministers.

THE AGREEMENT

5.  After a long period of negotiations the Agriculture Council finally reached an agreement on 11 March this year. This package was based on the Commission's proposals, but represented a considerably less radical reform, with concessions made in all commodity sectors. The Prime Minister's spokesman thought that it was "not satisfactory"[6], with the implication that there could be some tightening up at the Berlin European Council on 24-25 March. Unfortunately, in the event Berlin saw not tightening but further loosening. The reasons for this are unclear. Lord Donoughue indicated that it was at least in part because the Agriculture Council deal was agreed by a qualified majority whereas the Berlin European Council required unanimity, which made it harder to secure agreement for reform (Q 1). There are two other possible reasons why the CAP package might have been watered down. The first is that the European Council wished to cut the cost of the CAP for the period 2000-2006: the Finance Ministers had set a target of ?307.1 billion but the Agriculture Ministers' deal would have cost ?314 billion. By reducing and delaying cuts to the price regimes so that the amount spent on direct compensation payments was lower, the Heads of Government managed to cut the bill to ?308.2 billion (table 2 in Appendix 2 gives a breakdown of the estimated cost both of the proposals and of the Berlin agreement). If this was a significant motivation then the European Council should be condemned for its shortsightedness, as without substantial reform there can be no prospect of reducing the cost of the CAP in the longer term. Alternatively, it may be that the desire for unity in the face of the Kosovo crisis led to a greater willingness to compromise on agricultural reform. The detail of the Berlin deal is complex and some points still remain to be ironed out (QQ 29, 31), but the Government have provided a summary of the deal which we have used to provide the information in Appendix 2[7]. In the arable regime the EU Agriculture Ministers proposed a 20% price cut and a compulsory set-aside rate of 0%, but the Heads of Government reduced the price cut to 15% and raised the set-aside rate to 10%. In the dairy regime, the proposed cut in the intervention price for skimmed milk and butter of 15% was put back to 2005, but quota increases for certain countries will still begin in 2003. A 20% cut in the beef price was agreed. The cuts are balanced by compensatory payments paid directly to farmers.

6.  There will be a new consolidated Rural Development Regulation, under which Member States are required to draw up 7-year Rural Development Plans at the most appropriate regional level. These plans must contain agri-environmental schemes, but everything else permitted under the deal - such as aids for young farmers, early retirement schemes, support for processing and marketing - is optional. There is also an option to continue to make payments to farmers in Less Favoured Areas, which the Government have indicated they will take up (Q 17), but which will have to be made on an area and not a headage basis as at present. In relation to the environment there is also a requirement for Member States to make the payments they give to farmers in some way dependent on the satisfaction of environmental criteria. The money available for all such schemes is of course limited by the failure to reduce spending on the commodity regimes.

3   Known as the MacSharry reforms, after the then Commissioner for Agriculture. Back

4   European Commission, Agenda 2000 - Volume I (July 1997), pp 25-26. Back

5   CAP Reform in Agenda 2000 (18th Report, Session 1997-98), paras 64. Back

6   The Times, 12 March 1999. Back

7   MAFF, CAP Reform Agreement - An Information Document (no date). Back