In what has been described as an historic deal, EU farm ministers have finally agreed on how the EU’s Common Agriculture Policy is to be reformed. Despite being broadly welcomed by Europe’s food industries, some criticism of the deal still exists. Alan Osborn gauges the reaction.

Europe’s food industries have broadly welcomed the historic agreement reached on Thursday to reform the EU’s €43bn Common Agricultural Policy (CAP), with a general consensus that the deal will lead to cheaper prices and greater competitiveness for European food at home and in non-EU world markets.

The deal finally struck in Luxembourg is a far cry from the ambitious reform package set out last year by Franz Fischler, the EU farm commissioner, but this was to be expected given the fierce resistance to change voiced by the French government. What is significant is that the sacred link between farm production and farm support has been broken for the first time, ending in large part the system that has spurred over-production, surplus accumulation and hugely costly farm subsidies.

France has won some concessions: member states will be able to maintain up to about 30% of overall direct subsidies to farmers in the form of production-linked aid. Furthermore, implementation has been delayed until 2005 (until 2007 for some countries). Although France had held out for considerably more, it did not veto the deal in the end, as had been widely feared.

Improving competitiveness

The confederation of the food and drink industries of the EU (CIAA), whose members use about 70% of all EU agricultural output, believes the CAP deal is “a positive way forward.” Thierry Dieu, CIAA communications manager, said the agreement “confirms the major principles we have supported.” It was not possible to analyse the effects on industry within hours of the agreement “but we have always sought an agreement on CAP reform and this will definitely bring farmers closer to the market,” he said.

Dieu conceded that there were concerns in some sectors of the EU food and drink industry that feared that the total elimination of the link between support and production “might have consequences for their supply.” These were the meat sector and to some extent the dairy sector, he said. The CIAA has already expressed worries that abandoning the link would affect the supply of raw materials, particularly for SMEs (small and medium enterprises) for whom the quality and quantity of local supply was essential.

But in general the CIAA supported the progressive opening of the CAP to market forces “as it will improve the competitiveness of agri-food products both within the EU and on third country markets” and this would in turn strengthen the EU’s hand at the WTO negotiations.

An historic deal

From Luxembourg the president of Britain’s National Farmers Union, Sir Ben Gill, welcomed what he called an “historic” deal by ministers to break the link between support payments and production. He said this “decoupling” would enable farmers to focus more clearly on the needs of the market. But because so many options had been given to member states “we could end up with a patchwork of different policies operating across Europe which could lead to market distortions,” Gill said. “The compromises give other countries options to maintain the link, at least in part, with production.” In England the NFU would ask the government for full decoupling, “but if other member states don’t do this, it could potentially distort the market” and “the reformers will be the losers,” he said.

The deal enabled member states completely to decouple support payments in the arable, beef and sheep sectors and to start the process in milk. Gill said he was “encouraged by the fact that other European farmers have become aware of the benefits of full decoupling which their ministers have failed to appreciate.”

Further reforms needed?

NFU economist Carmen Suarez said the general idea behind the reforms was to bring farmers closer to the market than they had been in the past. Some organisations of producers and processors had argued that by giving support to farmers independent of the level of production, “you may end up with lower production levels and therefore higher prices.” The NFU did not believe this. “We believe that farmers will still need to produce in order to order to achieve a minimum level of income,” Suarez said.

“Concerning the food sector it is still too early to say what is going to be the effect on prices but it can be argued from an economic point of view that the farmers do not set the level of food prices – it is on the retail side where the power in the supply chain lies,” Suarez said. “In general we are happy with the proposals and the general principle of decoupling, but many options have been given to member states and you can end up with lots of different policies operating in different countries and that can lead to market distortion,” she added.

A more generally sceptical view was taken by Brian Gardner, editor of Food Policy International and special adviser to the House of Lords agriculture committee, who described the deal as a “con”. “They’ve partially decoupled subsidies but left them in the areas where it matters – for instance beef and dairy production where there are substantial surpluses. In the case of the dairy sector they’ve gone backwards and put subsidies on where there were none before,” he said. The only real progress was to decouple about three quarters of the subsidies for cereals. Gardner predicted reforms would again be needed in about five years’ time “when the full enormity of what they haven’t done will show.”