CHAPTER 1: Funding Agricultural and
Rural Policy—the EU budget
1. Negotiations
are underway to set the next seven year budget of the European
Union[1]. The Council of
Ministers and the European Parliament are currently negotiating
on the basis of recommendations from the European Commission,
known as the "Financial Perspective", which will determine
the expenditure of the European Community for the period 2007-2013[2].
2. The Common Agricultural Policy (CAP) is funded
by taxpayers from the EU Member States as part of each government's
contribution to the EU budget. Almost half the EU budget is spent
on the CAP while 5.2% of the EU work force is employed in agriculture[3].
3. Supporters of the CAP say it has succeeded
in making the EU almost self sufficient in major food products,
and in providing security to farmers. Others argue that the CAP
has raised food prices, cost taxpayers dearly in maintaining subsidies,
distorted world trade and harmed the environment. However, fierce
competition has resulted in the retail price of food to consumers
remaining relatively low. At the same time, prices obtained by
farmers and other primary producers have been subjected to considerable
downward pressure.
4. Major reform of the CAP was carried out in
2003 in an attempt to address these concerns. During the next
budgetary period the full impact of these changes will become
clear. However CAP funds will face unprecedented pressures during
2007-2013. For the first time agricultural funds will have to
be made available for a 25 Member State EU[4].
Preparations must also be made to accommodate the planned accession
of Bulgaria and Romania in 2007, and the possible accession of
Turkey and of other applicants.
5. To add further to the complexity, the six
net contributor Member States are insisting on a smaller budget
than the Commission has proposed. If they were to achieve this,
it would be unlikely that CAP funds, by far the largest single
item in the EU budget, would escape unscathed.
6. The backdrop to the Financial Perspective
negotiations is therefore one of change, uncertainty and much
political wrangling. Against this background we decided to consider
the pressures which the Commission's proposed budget for CAP expenditure
on direct payments, market support and rural development will
face during the period 2007-2013; and whether the CAP as structured
will be able to meet and deliver on those demands.
7. We started our inquiry with the following
questions in mind:
- What funds will be available from
the EU budget to finance agricultural and rural policy in the
period 2007-2013?
- What will be the potential strains on those funds?
- In what ways could the methods of funding be
altered better to aid the development of European agricultural
and rural policy?
This report:
- considers the context of the current
budget negotiations;
- examines the Commission's proposed
expenditure ceilings;
- scrutinises the demands upon agricultural and
rural spending;
- analyses the need for and potential scope for
future agricultural reform; and;
- comments on the future of European agricultural
and rural policy beyond 2013.
We make this report to the House for debate.
1 Negotiations are based upon the budgetary proposals
published by the European Commission in February 2004: Building
our common Future - Policy challenges and Budgetary means of the
Enlarged Union 2007-2013 (COM (2004) 101). The budget must
be agreed unanimously by the 25 heads of government of the EU. Back
2
A report by our Committee has examined the implications of the
overall budget: European Union Select Committee, 6th report, (2004-05)
Future Financing of the European Union, (HL 62). Back
3
Agriculture in the European Union - Statistical and economic
information 2004, European Commission website. Back
4
Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania,
Malta, Poland, Slovenia and the Slovak Republic joined on 1 May
2004. Back
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