117.  The main hurdle the 2007-2013 Financial Perspective faces will be matching a decreasing level of Pillar 1 funding with the unprecedented needs and demands of today's EU-25. We therefore raise the important question, what will be the policies for European and British agriculture after 2013? Given the accession of the ten new Member States to the EU, and its likely further expansion, is CAP expenditure in its current form politically acceptable when agriculture's contribution to the EU's GDP continues to decline?

118.  It is essential that fully considered agriculture policies are in place well before the end of the next Financial Perspective. This report therefore makes a number of recommendations aimed at reforming the CAP during the 2007-2013 budgetary period and beyond. However we recognise that careful thought must be given to the timing of such further reform. It will be important to assess the success of the 2003 reforms before implementing any further changes to the Common Agricultural Policy.

119.  A review of the CAP is already planned to take place during 2008. By this time, Bulgaria and Romania may have acceded and it will also be clearer as to whether any further accession would be likely to take place during the 2014-2020 budgetary period. Reforms of the sugar, wine and fruit and vegetable regimes are also likely to have occurred[46]. It will probably be too soon at this stage however to assess fully the effect of decoupling and the single farm payment. Use of the financial discipline mechanism may have begun in 2007-2008 but will still be a relatively untested measure.

120.  It is unlikely therefore that further changes would be made to the CAP before the end of the budgetary period 2007-2013. The majority of Member States would not wish to face further substantive change following the 2003 reforms and following a possible WTO agreement. The Slovenian Secretary of State told us that "at this stage the EU has to keep the system as it is" (Q 704). However it will be particularly important for the EU to consider what changes the CAP will face after this next Financial Perspective and prepare accordingly for it.

121.  We recommend therefore that the 2008 review focus on the future of the CAP after 2013. It is essential that during the 2008 review the Commission prepares further reforms for the CAP so that it is best suited to deal with the challenges it will face during the Financial Perspective of 2014-2020.

Continued expansion of the Union

122.  The size, geography and membership of the EU are changing dramatically, and the CAP must change with it. The Union has experienced unprecedented recent change with the accession of ten new Member States, predominately Central and Eastern European countries, in May 2004. Two further CEEC countries, Bulgaria and Romania, are due to accede in 2007. It is conceivable that Turkey could join the Union during the budgetary period 2014-2020, as well as other possible applicants.

123.  The likely future enlargement of the Union will be the most significant pressure on the CAP post-2013 and the strongest driver of change. Further enlargement would require a significant increase in CAP expenditure compared to the 2007-2013 budget. If it is assumed that Turkey would join under a similar arrangement as that proposed for Bulgaria and Romania (with phasing in of direct payments over a three year period) it is estimated that Turkey will require €5.8-6 billion per year in CAP costs by 2017[47]. If coupled with possible accession of other countries, the total agricultural budget could rise by as much as 19% on 2013 expenditure levels.

124.  It is our view that the agricultural needs faced by Turkey will be even more disparate from those of the EU-15 Member States than Romania is likely to face upon accession. The Slovenian Secretary of State told us that, although he thought it too early to implement renationalisation of Pillar 1 or 2 now, it might become "an important question if and when, for instance, Turkey joins the EU" (Q 704). If Turkey does accede to the EU during the next budgetary period, it will provide a clear impetus to have completed reform of the CAP by the end of the 2007-2013 budget period.

125.  Such reform must ensure the future CAP is fully able to meet the needs and demands of the very different rural and agricultural conditions of its many Member States. A successful Doha agreement would pave the way for the end of all market support, intervention and export subsidies. The single farm payment should be phased out and a separate environmental fund established to recognise and reimburse farmers for the non-production benefits their activity brings to society. Meanwhile, the restructuring and modernising needs of new Member States' agricultural sectors should be provided for out of a single rural development fund completely separate from any other agricultural objectives. Richer Member States should fund a higher proportion of their own rural development programmes.

126.  Tough policy decisions will face future CAP policy-makers considering an EU of 27, 29 or even more Member States. The disparity between the agricultural needs of the EU-15 and those of new Member States is only likely to grow wider. That reason alone justifies the need for further substantial CAP reform. This must be fully considered in the 2008 review and completed in the period 2014-2020.

47   Turkey and the European Union: Just another enlargement? Exploring the implications of Turkish accession. Kirsty Hughes, Friends of Europe working paper, June 2004 Back