House of Commons - Agriculture

Select Committee on Agriculture Second Report

III. AGENDA 2000

The objectives of Agenda 2000

17. The Agenda 2000 proposals represent a development and extension of the 1992 CAP reform package, the so-called MacSharry reforms. This is the case both in terms of individual agricultural commodities, where the strategy of cutting market support prices while providing direct compensation payments to farmers is continued, and in wider agri-environmental and rural policy, where the Commission proposes a series of reforms intended to re-organise existing rural policy instruments into a more coherent framework for an integrated European rural policy.

18. Although the philosophical resemblance between Agenda 2000 and the 1992 reforms is clear, it was not until the appearance of the Agricultural Strategy Paper[2], presented by the Commission to the Madrid European Council in December 1995, that the Commission explicitly acknowledged that the 1992 reforms were insufficient in themselves as the basis for the CAP in the future. The Agricultural Strategy Paper surveyed the consequences of applying the CAP in its existing form to acceding CEECs, and also examined the likelihood of market imbalances developing in an unreformed CAP, before reaching the conclusion that the correct strategy to be followed was an evolutionary one, building upon the 1992 reforms and moving to a more integrated rural policy. In advocating an evolutionary approach the Commission specifically rejected retention of the status quo, and also rejected radical reform of the CAP, involving reductions in support prices to world market levels and decoupling and reducing compensatory payments to farmers[3].

19. In Part One of Agenda 2000, the Commission succinctly explains what should have been the basis of its proposals for reform of the CAP:

Common Agricultural Policy

20. In response to the various internal and external pressures on the CAP, the Commission has re-stated the objectives of the policy as set out in Article 39 of the Treaty of Rome, taking into account the social cohesion and environmental objectives spelt out in successive amendments of the Treaty by the Single European Act and the Treaty of Maastricht. In brief, as set out in Agenda 2000, these objectives are:

(ii) ensuring food safety and food quality;

(iii) ensuring a fair standard of living for the agricultural community and contributing to the stability of farm incomes;

(iv) integrating environmental goals into the CAP;

(v) creating complementary or alternative income and employment opportunities for farmers and their families; and

(vi) contributing to economic cohesion within the EU[5].

21. Few, if any, of the witnesses in our inquiry took issue with the overall objectives of the CAP as set out by the Commission in Agenda 2000. However, many were sceptical as to whether the substantive reform proposals contained in the document could achieve those objectives. MAFF told us that, in general terms, the Government welcomed the Commission's communication: where the Government had criticisms, these were usually because the Commission's ideas did not go sufficiently far in the direction of reform[6]. The National Farmers' Union of England and Wales (NFU) supported the strategic choice underlying Agenda 2000[7]. The Countryside Commission argued that Agenda 2000, while encouraging in its objectives and its statements of principle, offered little in terms of immediate gains, describing the proposals as "over cautious and minimal in their approach"[8]. The overall theme in the evidence submitted was that the Commission had failed to follow through the logic of its assessments of the effects of the 1992 reforms and of the current and future pressures on the CAP. It had failed to set out sufficient changes in European agricultural and rural policy, responsive both to the market and to wider public concerns about the environment, food safety and animal welfare.

22. The Government's support for the European Commission, qualified as it is by its belief that reform needs to be more far-reaching, is based upon its own vision of the changes which need to be made to the CAP. Before the publication of Agenda 2000, on 1 July 1997, Rt Hon Dr John Cunningham MP, the Minister of Agriculture, Fisheries and Food, wrote to the Agriculture Commissioner, Franz Fischler, setting out the Government's approach to CAP reform. In his letter, he stated that "the policy of manipulating agricultural markets to maintain high internal prices cannot survive for much longer", and called for the development of "a new, durable and cost-effective policy for the Union's rural areas, funded from part of the reductions in production support ... as the role of market intervention and production-linked support diminishes". According to the Minister, such a policy "would bring visible gains in the form of environmental benefits and a thriving and sustainable rural economy"[9]. On 7 October 1997 Dr Cunningham set out 6 reasons for CAP reform:

(ii) to meet existing World Trade Organisation obligations and to prepare a strong position for the EU in future talks

(iii) to facilitate successful enlargement of the EU

(iv) to give consumers more choice and lower prices

(v) to save money for taxpayers

(vi) to shift resources to environmental schemes and rural economies.[10]

These criteria form the core of the Government's approach.

23. We welcome the fact that the Government is in the vanguard of those pushing for substantial reform of the CAP. We agree that such changes are necessary. Despite the pessimism which we have encountered from some about the ability of British agriculture to compete in freer world markets, we are confident that British farmers will be as well placed to adapt to such conditions as any of their counterparts in the rest of the EU. However, we urge the Government, in its zeal for reform, not to lose sight of the vital importance of maintaining the economic prosperity of UK farming communities and the wider rural economy and of ensuring that such communities have confidence in the reform process. Radical reform of European agricultural policy will be highly beneficial if it is thought through and implemented coherently on an EU-wide basis. However, if UK farmers were to perceive that they were to bear the brunt of agricultural reform which must take place across the whole of Europe, they would quite reasonably not support a reform strategy.

24. The broad consensus on the need for substantial reform of the CAP which exists in the UK, which includes all the main political parties, is by no means shared throughout the European Union, and a number of member states, notably Germany, have reacted negatively, particularly to the support price cuts advanced in Agenda 2000. In the informal discussions which we held on 3 December 1997 with Commission officials, it was clear that the initial round of consultation on the Agenda 2000 proposals had revealed sharp differences between member states, particularly on the proposed reforms to the cereals and beef regimes. Yet Agenda 2000 establishes a basis on which the protracted negotiations on the reform of the CAP likely to take place during 1998 and 1999 can proceed within the Agriculture Council, and with no member state explicitly rejecting Agenda 2000 as the basis for discussion, the Commission's first tactical objective has been achieved.

25. Even the most vocal supporters of the CAP would probably agree that the policy has not explicitly addressed issues related to food production which increasingly concern the public in the UK and throughout the EU, such as food safety and quality. Quality standards for produce are a feature of the CAP's common market organisations, although there is no sense in which the CAP consciously addresses nutritional and dietary matters, for example. The Consumers in Europe Group attributed this to the fact that the CAP "has continued to remain primarily an agricultural rather than a food policy", and recommended the more active involvement of Councils of Ministers other than the Agriculture Council in influencing the direction of the CAP[11].

26. While "food safety and quality" constitute one of the objectives for reform of the CAP advanced by the Commission in Agenda 2000, they do not feature either in the document's proposals or in the Government's own stated objectives for that reform. Miss Kate Timms, Head of MAFF's Agriculture, Crops and Commodities Directorate, gave a clear exposition of the logic behind the Government's position:

Miss Timms argued that it was correct for the Commission to deal with animal welfare and food safety issues through policy instruments separate from the CAP.[13] Indeed, examination of the proposals for reform of the CAP in Agenda 2000 reveals none with any direct implication for food safety. This is not necessarily a weakness in the proposals, provided that food safety is effectively ensured by other means, but we consider that it is disingenuous of the Commission to claim that their proposals address such issues of public concern when they do no such thing.

The international context of Agenda 2000

27. Apart from the internal political and economic pressures which have shaped the Commission's strategy for CAP reform, two other main challenges face the CAP in the period up to 2006. These are, first, the next round of World Trade Organisation negotiations, due to open in 1999, and the associated expiry in 2003 of the so-called "peace clause" under the Uruguay Round Agreement on Agriculture, and, secondly, the expected accession of certain central and eastern European countries to the EU in the early part of the next decade. In both cases, a degree of crystal ball-gazing is inevitable, in terms of the timing and form of developments, but certain general assumptions can be made.

GATT and the WTO

28. Although Agenda 2000 claims that its CAP reform proposals will enhance the EU's negotiating position in the next WTO Round[14], the Government argued in evidence to us that the Commission's proposals addressed the pressures arising from the EU's current GATT commitments (with the exception of limits on subsidised exports in the dairy sector), but failed to "prepare fully for the next round of agricultural liberalisation negotiations in the WTO".[15] They assumed that, in those negotiations, the EU would come under strong pressure to agree to improved access for imports, further reductions in the levels of subsidised exports, and full decoupling of agricultural support from production.[16] Under the 1994 GATT Agreement, certain production-linked subsidies are protected from cuts under the so-called "blue box" arrangements, provided they are part of "production-limiting programmes".[17] The continued existence of the "blue box", which was always intended to be a transitional measure, its likely to be thrown into question in the next WTO Round, given that the USA no longer has an interest in maintaining such provisions. The Australian Government confirmed to us that they would be seeking the removal of "blue box" arrangements in the forthcoming negotiations. Describing the proposals for reform in Agenda 2000 as an inadequate starting point for genuine future reform, the Australian Government said that:

29. Also missing from Agenda 2000 is any indication of the policy to be adopted by the EU towards reform of the import protection measures, principally tariffs, which play such a significant role in maintaining the EU's high level of internal prices in agricultural commodities and food products. The reduction of tariff barriers is bound to be one of the main elements of the forthcoming WTO negotiations, and we assume, from the support price cuts envisaged for cereals and beef in particular, that the Commission will logically bring forward proposals on tariffs in the near future. The implications of the cereals reforms, of course, extend beyond the cereals sector itself, and will necessitate re-examination of the import protection measures for pigs and poultry, in particular. Even though the Commission may prefer to leave detailed consideration of import protection policy to the WTO negotiations themselves, to avoid revealing the EU's hand to its trading partners, we consider that a general indication of the implications of the Agenda 2000 proposals for the EU's agricultural border protection mechanisms should be produced by the Commission to inform the debate on CAP reform.

30. Agenda 2000 is short on analysis of the compatibility of the CAP reform proposals with the latter stages of the current GATT Agreement and the trade liberalisation measures foreshadowed in that Agreement [19]. There was a great deal of uncertainty on this subject in the evidence submitted to us. It could be argued that, despite the stated positions of the Cairns Group countries and the USA, it will actually not prove to be in their interest to press for reductions in support for agriculture within the EU which will free EU food exports from constraints on subsidised exports, thereby allowing the EU to compete more vigorously in expanding world food markets. These countries might prefer the EU to constrain its capacity to export, and thus its ability to compete internationally. It could also be argued that if the next WTO Round takes as long as the Uruguay Round to reach a settlement, it will not have a direct impact on the CAP until 2006 or later, allowing fundamental reform of the CAP to be postponed until then. However, it would be misguided for the EU to plan on the basis of such arguments, or for the CAP to cling to its introspective, protectionist habits until it is forced to change. The volume and value of the EU's subsidised exports, already constrained under the existing GATT Agreement, is likely to come under particularly close scrutiny in the next WTO Round. Unless reform of the CAP deals with this issue, the EU could be faced with the re-emergence of substantial domestic surpluses and intervention stocks. We would much prefer to see the EU entering the next WTO Round sharing the moral high ground with the USA and the Cairns Group countries, and we have serious doubts as to whether the CAP reform proposals will allow the EU to do more than establish a base-camp in the moral foothills.

EU enlargement

31. Ostensibly one of the main purposes of the CAP reforms put forward in Agenda 2000 is to ensure that the policy is in suitable shape to cope with the accession of CEECs to the EU. For agriculture, one of the main difficulties is likely to arise from the differentials in prices of agricultural produce between the EU and the candidate countries. Agenda 2000 claims that, if the proposed CAP price cuts in cereals and beef are carried out, the price gaps for these commodities "may have largely disappeared" by early in the next century, although price gaps "in the order of 20 to 30% or higher" could be expected to exist in the medium term for sugar, dairy products and certain fruit and vegetables.[20] Agenda 2000 envisages a three-stage process to smooth the disruptive effect on agriculture, east and west, from accession. This process comprises pre-accession aid, principally for the restructuring and modernizing of processing industry and marketing structures in applicant countries, amounting to 500 million ecu a year from 2000. This would be followed by expenditure on market organisation and rural development accompanying measures during transition periods for new member states, rising in total from 1.7 billion ecu in 2002 to 3.9 billion ecu in 2006.[21] The third stage would be full accession for each country at the end of its transition period. The Commission sees no need for direct payments to eastern European producers during their respective transition periods, but leaves open the question of whether they would be eligible for such payments thereafter. Likewise the Commission does not express a view on whether other features of the existing CAP, such as milk quotas, could feasibly be applied in new eastern Europe member states.

32. Agenda 2000 is either an attempt to finesse the political and financial implications of EU enlargement, and in particular the crucial point of whether direct payments will be extended to eastern producers at the end of their transition periods, or an irresponsible failure to confront the questions posed for the CAP by enlargement. By discounting the possibility of applying the CAP in full to eastern countries from the time of their accession, which on Commission estimates would have cost an extra 11 billion ecu a year by 2005,[22] the Commission has substantially reduced the short-term budgetary cost of accession.[23] On the other hand, the consequence will be a two-tier system of support within the EU during transition. This is in fundamental conflict with the principles of the Single Market and would necessitate the implementation of border controls and other measures along the EU's internal east-west agricultural fault-line.[24]

33. Our view is that the Commission's proposals in Agenda 2000 will lead to serious problems as the process of accession of central and eastern European countries to the EU takes place. The prospect of the establishment of a two-tier CAP for the foreseeable future is fraught with political and moral problems. Equally, the prospect of superimposing the bureaucratic and inefficient paraphernalia of the CAP on eastern European countries, together with significantly higher food prices for their less prosperous peoples, is completely unacceptable. More than any other factor affecting CAP reform, the possibility of eastern European producers receiving direct compensatory payments, which would "compensate" them for nothing, exposes the absurdity of failing to make clear that such payments cannot continue indefinitely to producers in the existing 15 member states.