Select Committee on Environment, Food and Rural Affairs Ninth Report


107. The Department for Environment, Food and Rural Affairs told us that the Government wants to "reduce the overall burden of the CAP on consumers and taxpayers, ... to see environmental and animal welfare concerns reflected more effectively, and wants agricultural policy to deliver a better deal for farmers by encouraging and them to be more responsive to their customers' requirements and environmental goals".[191] In terms of policy objectives the Department is pressing for:

  • a "significant change to the CAP's 'first pillar' policies, in favour of 'degressivity'";

  • "a parallel 'decoupling of livestock headage payments and other production linked aids in order to reduce the incentive to overproduce and damage the environment"; and

  • "a shift towards the 'second pillar' of the CAP, ... expanding resources available for targeted support for rural development and agri-environment schemes".[192]

108. Some of our witnesses, particularly those who were representatives of the farming unions, were not satisfied that the Department's objectives for reform were entirely clear. The Country Land and Business Association said it was clear that Department for Environment, Food and Rural Affairs wanted to switch support to payments for environmental services, but the 'magnitude' of support that would be available in the future was not uncertain. The National Farmers' Union argued that the reason why the objectives were not clear was that "successive governments have always said that they want a radical reform of the CAP knowing perfectly well that it was more or less unachievable". It added that the Government had also not made clear "to what extent they are willing or want" to use the national discretion which is now available under the CAP.[193]

109. The Secretary of State and Lord Whitty confirmed to us that the Government wants to reduce subsidies and to decouple them from production;[194] to move "as much as we can from Pillar I to Pillar II",[195] while wanting "some degressivity built into the total quantum";[196] and to have fewer restrictions on the use of Pillar II money "to do more on rural development and the wider rural economy and, within that, on environmental issues as well".[197] They said that the Government supported the 'broad and shallow scheme' outlined by the Policy Commission on the Future of Farming and Food.[198] The Government should be more specific about what it means by 'fundamental change of the CAP', and should indicate how willing it is to use current flexibilities under national discretion.

110. We believe that the Government should underpin its objectives with a commitment to ensure that its actions do not undermine British farmers within the European market place and policy environment in which they operate; and also that entrepreneurial farmers are not penalised by bureaucracy and regulation not faced by other businesses.

Prospects for change

111. Thus the prospects for change in the CAP are very closely linked to enlargement and to the World Trade Organisation negotiations. The CAP Mid-Term Review, which has already begun with the announcement of Commissioner Fischler's proposals, will conclude in 2003. At the same time the World Trade Organisation negotiations get underway; and accession of the first new member states to the European Union is expected in 2004.[199] Developments in each process will shape and influence the others. The fact that these processes coincide and interact in this way, even though their timetables do not exactly correspond, suggests an imperative to achieve the fundamental reform of the CAP which has been the proclaimed intention of British governments for so long.

112. However, there are also reasons to think that change may be delayed. The National Farmers' Union agreed that the launch of the World Trade Organisation Round in Doha, enlargement, the general move towards lower price support and growing pressure for broader rural development continue to put pressure on the CAP. However, given the timetable for the processes that would take these issues forward, the National Farmers' Union did not expect reform to take place until 2005 or 2006 at the earliest.[200] The Institute of Agricultural Management also expected that reforms in the medium-term would be "relatively small".[201] Furthermore, the Deputy-Director General of Agriculture told us that enlargement "is an event which allows those who want to argue for reform to argue for reform and those who want to argue for conservatism to have the means of enforcing conservatism".[202]

113. The Farm Security and Rural Investment Act 2002 replaces the Federal Agricultural Improvement and Reform (FAIR) Act of 1996. The Act will increase crop support through fixed decoupled payments and enhanced loan deficiency payments. It also introduces a new system of counter-cyclical payments which are triggered when overall income for different crops (market price, plus fixed decoupled payments, plus loan deficiency payments) falls below a certain target level. This final measure effectively guarantees the emergency payments that were made under the FAIR Act would be available every year,[203] a point which has led the United States Administration to argue that the practical effect of the new measure is much less than the apparent impact, given the amounts paid every year from 1996 to farmers under the emergency provisions. Estimates put the cost, over ten years, of the new Act at $190 billion, very close to the annual AMS limit for the United States of $19.1 billion.[204] The European Commission reported that total spending under the Farm Security and Rural Investment Act would be 70 per cent to 80 per cent higher than the amount foreseen at the end of the FAIR Act.

114. The Act does not bring levels of agricultural support in the USA to European Union levels, but it still sends out the wrong signals. The Commission has said that "the United States, in choosing to aid farmers in a highly production-distorting way, has lost any claims to be a credible force for farm policy reform in World Trade Organisation agriculture negotiations".[205] This loss of credibility is exacerbated if the United States' proposal addresses only export subsidies which they no longer use,[206] and not all forms of export support. We acknowledge Mrs Beckett's comment that the United States Administration "has made it very clear to us and ... publicly ... that this is not the Farm Bill that it would have chosen".[207]

115. We condemn the passage of the United States Farm Security and Rural Investment Act as making the liberalisation of farm trade more difficult. It represents a clear policy of providing production subsidies, moving in precisely the opposite direction to the way we would want the world to go and the way the European Union is proposing in the Mid-Term Review proposals. The Act will give comfort to those within the European Union who oppose serious CAP reforms and will dismay developing countries who have a vital stake in world trade liberalisation in agricultural production. We urge the Government to continue its representations to the United States setting out concerns about the Farm Act in the most unequivocal terms. Equally we urge the Commission to continue to argue that developments in the United States give the European Union an opportunity to set the agenda for liberalisation for the first time in an international forum rather than being dragged into accepting the need for change as happened in the Uruguay Round.

116. We also note the tensions that exist between the European Union and the United States over a range of other agricultural issues. These include American concerns about European legislation and policies relating to genetically modified crops,[208] and European worries about the use of hormones in beef.[209] Such issues have already been, and will continue to be raised in the World Trade Organisation.[210]

117. Although doubts have been raised about the credibility of the United States as a leader of liberalisation in world trade as a result of the Farm Security and Rural Investment Act, the American Administration has recently proposed steps aimed at dramatically reducing farm tariffs and subsidies. On 25 July 2002 Trade Representative Robert Zoellink announced proposals to cut tariffs to a maximum of 25 per cent, and to define subsidies as either 'trade-distorting' or not, and to cap trade-distorting support at 5 per cent of the value of agricultural production.[211] European subsidies would be cut to a greater extent than those of the United States, since they are already much higher: American support would be cut by around half, to $10 billion, whilst European subsidies would be reduced to $12 billion.[212] We cautiously welcome more recent proposals by the United States Government which appear to recognise the damage done by the Farm Act and to position the United States again as on the side of reform. These proposals warrant close inspection, however, to ensure that they will lead to the level playing field sought by all sides in the World Trade Organisation negotiations, since crude comparisons of levels of support do not necessarily give a clear idea of the degree and quality of state backing for farming.

118. Past experience of seeking CAP reform in the European Union is hardly a source of optimism. Member states have generally conceded that reform is required only when there has been pressure on the Community budget. The European Commission confirmed to us that "the budget is fairly well behaved at the moment and we had quite an under-spend last year".[213] The Deputy-Director General of Agriculture told us that in relation to the reform what "we will see is something which is considerably less radical than those who want it to be radical",[214] although he agreed that "it will not be possible to maintain things as they are".[215] Our witness from the German Government, Mr Erhard Schwinne, also acknowledged that European agricultural policy had to change, "to be much more market-oriented".[216] He thought decisions would be taken "perhaps in 2003" to allow such objectives to be pursued from 2005 or 2006 onwards.[217]

119. It is worth noting which countries do well out of the CAP, and which do not. Figures published by the Economist reveal that the greatest net contributors to the CAP budget are Germany, the United Kingdom and the Netherlands. Greatest net beneficiaries are Spain, France, Greece and Ireland.[218] It can be no surprise that the strongest advocates of change are to be found on the first list, and supporters of the status quo on the second.

Table 8: CAP spending and net contributions to the CAP budget, 2000

CAP spending (euro bn)
(figures are approximate)
Net contribution to CAP budget (euro bn)
United Kingdom
- 2.32
+ 4.37
- 2.53
+ 0.02
+ 2.34
- 1.19
- 1.19
+ 1.07
- 0.54
- 0.04
+ 0.62
+ 0.42
- 0.23
- 0.08
+ 0.06

The negotiating position of the United Kingdom is adversely affected by the impact any changes in the CAP would have on the rebate negotiated in 1984 to compensate for our high net contribution to the budget of the European Union.[219] Any reduction in our net contribution to the CAP budget might bring the continuation of the rebate, at least at its current level, into question. The rebate was worth approximately 3.6 billion Euros in 2002.[220]

120. The European Union should reaffirm its commitment to maintain the Doha timetable for liberalisation of world trade in agricultural products. The Mid-Term Review offers the opportunity to make progress towards two essential European Union objectives: to agree terms for enlargement by the end of the year, and to place Europe in 'pole position' in the World Trade Organisation negotiations and therefore better able to shape the agenda. We deal with the proposals brought forward by the Commission for the Mid-Term Review in Chapter 6.

121. Although there is currently much emphasis on the Mid-Term Review, particularly in the context of the Doha Round, it is important to make one point clear. Agenda 2000 fixes the CAP budget only until 2006. Thereafter another round of negotiation within the European Union will be needed to set the new CAP budget. In 2006 there will be another - perhaps greater - opportunity for substantial reform of the CAP. That prospect makes it all the more important that the Government make clear to farmers what direction it envisages those reforms taking. Farmers themselves should be aware that the Mid-Term Review process will not be the end of reform of the CAP.

191   Memorandum submitted by the Department for Environment, Food and Rural Affairs, Ev 307. Back

192   Memorandum submitted by the Department for Environment, Food and Rural Affairs, Ev 307. Back

193   Evidence taken on 8 May 2002, Ev 293, Q.975. Back

194   Evidence taken on 15 May 2002, Ev 310, Q.1041. Back

195   Evidence taken on 15 may 2002, Ev 312, Q.1052. Back

196   Evidence taken on 15 May 2002, Ev 316, Q.1084. Back

197   Evidence taken on 15 May 2002, Ev 312, QQ.1055-1056. Back

198   Evidence taken on 15 May 2002, Ev 312, Q.1056. Back

199   The European Council in Göteborg in June 2001 declared that the objective is that those countries, which are ready, should participate as European Union Members in the next European Parliament elections, in June 2004. See, Enlargement - frequently asked questions, at:  Back

200   Memorandum submitted by the National Farmers' Union, Ev 282-Ev 283, paras 6-9. Back

201   Memorandum submitted by the Institute of Agricultural Management, Ev 16. Back

202   Evidence taken on 23 January 2002, Ev 3, Q.3. Back

203   European Commission, The US Farm Bill - Questions & AnswersBack

204   Agra Europe, USDA farm chief defends Farm Bill, 21 June 2002, pp. EP/8-EP/9. Back

205   European Commission, The US Farm Bill, Back

206   Evidence taken on 23 January 2002, Ev 7, Q.23. Back

207   Evidence taken on 15 May 2002, Ev 309, Q.1038. Back

208   See Directive 2001/18/EC on the deliberate release into the environment of genetically modified material, which can be seen at­lex/pri/en/oj/dat/2001/l_106/l_10620010417en00010038.pdf, and COM (2001) 182 Final concerning traceability and labelling of genetically modified organisms and traceability of food and feed products produced from genetically modified organisms, at­lex/en/com/pdf/2001/en_501PC0182.pdf; see also our Fifth Report, Genetically Modified Organisms, HC (2001-02) 767, para.40. Back

209   For a United States perspective on the use of growth hormones in beef, and its conflict with the European Union, see the USDA Foreign Agriculture Service website at Back

210   See, for example, International Environment Reporter, Vol.25 No.21 (9 October 2002), p.939. Back

211   See Summary of US Proposal for Trade Reform, US Department of Agriculture Foreign Agricultural Service, 25 July 2002; see Back

212   Taken from Back

213   Evidence taken on 23 January 2002, Ev 15, Q.72. Back

214   Evidence taken on 23 January 2002, Ev 3, Q.4. Back

215   Evidence taken on 23 January 2002, Ev 3, Q.4. Back

216   Evidence taken on 17 April 2002, Ev 223, Q.802. Back

217   Evidence taken on 17 April 2002, Ev 228, Q.828. Back

218   Will these modest proposals provoke mayhem down on the farm?, The Economist, 13 July 2002, pp.35 and 36. Back

219   See Back

220   According to the European Commission Representation in the United Kingdom; its comments, in a briefing note, can be viewed at Back

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