The MacSharry reforms
52. Until the end of the 1980s, efforts to reform the CAP had
been stimulated by budgetary pressures. Little attempt was made
to address the fundamental problems of the price support system
and the structure of the European agricultural industry. In the
1990s more far-reaching reform was sought. In 1991, the then Agriculture
Commissioner Ray MacSharry instigated a major reform process with
the publication of a 'reflections' paper entitled The Development
and Future of the CAP. In that reflections paper Commissioner
MacSharry outlined very succinctly a number of "deficiencies"
in the CAP:
- "the prices and guarantees provided through intervention
and production aids stimulate output at a rate increasingly beyond
the market's absorption capacity" (between 1973 and 1988,
EEC agricultural production increased by two per cent per annum
whilst internal consumption grew by 0.5 per cent per annum). This
contributed to a costly build up of stocks;
- linking support to production "stimulates production
growth and this encourages intensification of production techniques";
- income support which depended on price guarantees "concentrates
the greater part of support on the largest and most intensive
farmers";
- "the per capita purchasing power of those engaged in
agriculture has improved very little over the period 1975-89",
at a time when the active agricultural population fell by 35 per
cent;
- the guarantee section of the CAP budget rose from 4.5 billion
ECU in 1975 to 11.3 billion ECU in 1980, and to 31.5 billion ECU
in 1991 (11.5 billion ECU at constant 1975 prices).[76]
The Development and Future of the CAP sought to set European
agriculture in a wider economic context, looking at the effectiveness
of reforms already undertaken and the situation in various commodity
markets. It concluded that:
"It appears in these conditions that the Community's
agricultural policy cannot avoid a succession of increasingly
serious crises unless its mechanisms are fundamentally reviewed
so as to adapt them to a situation different from that of the
sixties.
"The Commission considers there that the time has come to
stimulate a reflection on the objectives of the Community's Agricultural
Policy and on the principles that should guide the future development
of the CAP".[77]
Unmentioned in the Commission's analysis, but providing the backdrop
to the review, were the negotiations between 1986 and 1994 in
the Uruguay Round of the General Agreement on Tariff and Trade
(GATT). For the first time in the history of the GATT these talks
included negotiations on reducing trade-distorting support for
agriculture.[78] We discuss
the influence of GATT and the World Trade Organisation below.
53. After presenting its analysis, the Commission set out a number
of objectives and then guidelines, rather than detailed proposals,
for reform. The Commission allowed a period of time for Member
States to reflect and comment on these guidelines before publishing,
later in 1991, a Commission communication to the Council and
European Parliament on the development and future of the Common
Agricultural Policy.[79]
The proposals it contained were far-reaching, including price
cuts in the cereals, dairy and beef sectors, changes to the support
systems for oilseed rape and the introduction of set-aside. It
was proposed that the amount of compensation individual farmers
could receive for set-aside and price cuts should be limited:
in other words that compensation payments should be 'modulated',[80]
a policy which the Commission acknowledged was controversial.[81]
54. In addition to seeking to tackle production-related problems,
the European Commission also proposed a series of accompanying
proposals that it described as "three key measures complementary
to the changes proposed in the market organisations and which
offer special opportunities for rural development". The proposed
measures were:
- "A system of aids to encourage farmers to use production
methods with low risks of pollution and damage to the environment".
This included constraining production, promoting environmentally
friendly farming and ensuring the environmental upkeep of abandoned
agricultural land;
- The afforestation of agricultural land; and
- Structural improvement through early retirement.[82]
55. The final agreement reached over the MacSharry proposals was
less far-reaching than the original proposals - for example, the
modulation of compensation payments was not agreed. Nevertheless
it can be said that "a fundamental change in the role of
prices in the CAP came in 1992. ... support prices were cut by
nearly a third [for cereals] and replaced by direct payments to
farmers. ... Thus prices began to be constrained in 1992 and their
role in support curtailed, but only after rising self-sufficiency,
stocks and expenditure had done enormous damage to the policy".[83]
Nevertheless overall spending on the CAP continued to rise and
declined only as a proportion of Community spending.
56. The impact of high prices fixed by the CAP for European Union
farmers is particularly damaging to countries that are net importers
of food, principally Germany and the United Kingdom. They bear
a cost equivalent to the difference between the lower price they
would have had to pay to acquire food from the world market and
the price they actually have to pay within the European Union.
This comprises increased payments to their own farmers which in
the main remain in the domestic economy, payments to farmers in
other European countries whose countries retain the whole benefit,
and taxes on imports from third countries which become part of
the revenue of the Community budget. Thus as a net food importer
the United Kingdom benefits less from the CAP than its neighbours.
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