Reform of the common agricultural policy (CAP)

Since its inception, the common agricultural policy has had to adapt a great deal in order to meet the challenges with which it has been faced over the years: in the early days it concentrated on attaining the goals set out in Article 39 of the Treaty, securing a fair standard of living for the agricultural community and ensuring security of supply at affordable prices, and then it had to control quantitative imbalances. Finally it embarked on a new approach based on a combination of lowering institutional prices and making compensatory payments. The aim of the new CAP reform is to deepen and widen the 1992 reform by replacing price support measures with direct aid payments and accompanying this process by a consistent rural policy.

The new challenges

New internal and external challenges have now arisen:

• strong growth is predicted on the world agricultural market with prices offering a good rate of return. The current level of CAP prices is too high for the EU to meet international undertakings and to be able to take advantage of the expansion of world markets, with the risk that surpluses will appear again and create intolerable budget costs, and market share may be lost within the Community and on the world level;
• agricultural support is distributed somewhat unequally between regions and producers, resulting in poor countryside planning: a decline in agriculture in some regions and overly intensive farming practices in others, generating pollution, animal diseases and poorer food safety;
• making the CAP more acceptable to the average citizen, to the consumer, is a key task;
• the strength of the agricultural sector in the Union rests on its diversity: its natural resources, its farming methods, its competitiveness and income levels, and also its traditions. With successive enlargements, the management of the CAP has become far too complex and bureaucratic, and sometimes even almost impossible to understand. A new, more decentralised model has, therefore, to be developed which grants the Member States greater freedom without any risk of distorting competition or renationalising the CAP but with shared, clear ground rules and rigorous controls;
• the Union has to prepare its agricultural sector for international negotiations and define the limits of what it finds acceptable;
• enlargement makes market management and simplification measures even more necessary as the economies in the applicant countries are still heavily dependent on agriculture.

The responses

The agreement reached at the European Council in Berlin responds to the key Agenda 2000 proposals, giving concrete shape to a European model for agriculture in the years ahead.

The Berlin European Council reaffirmed that the content of the reform will secure a multifunctional, sustainable and competitive agriculture throughout Europe, including in regions facing particular difficulties. It will also be able to maintain the landscape and the countryside, make a key contribution to the vitality of rural communities and respond to consumer concerns and demands regarding food quality and safety, environmental protection and maintaining animal welfare standards.

The Commission's proposals adopted by the European Council were based on the 1992 reforms which successfully reduced surpluses and controlled expenditure without compromising an average 4.5 % rise in income. This general trend has been confirmed by the European Council in the following guidelines.

• Continued competitiveness should be ensured by sufficiently large price cuts that will guarantee growth of home-market outlets and increased participation by Community agriculture in the world market. These price reductions are offset by an increase in direct aid payments in order to safeguard the income level.
• There is to be a new division of functions between the Commission and the Member States, whether concerning compensation in the form of direct payments or rural development measures incorporated into an overall programming framework.
• This new decentralisation is logically accompanied by a major effort at simplifying the rules, such as the new rural development Regulation, which does away with a large number of regulations, or the market-management regulations, in particular the one on arable crops. Legislation is now clearer, more transparent and easier to access, with red tape for farmers cut to the strict minimum.
• Rural development becomes the second pillar of the CAP. For the first time, the foundations have been laid for a comprehensive and consistent rural development policy whose task will be to supplement market management by ensuring that agricultural expenditure is devoted more than in the past to spatial development and nature conservancy, the establishment of young farmers, etc. The Member States will be able to vary, i.e. downwards, the direct aids awarded to holdings in line with criteria to be defined by each Member State relating to the amount of labour employed on a farm. Money released in this way is to be allocated by the Member State to agri-environmental schemes.

Beef and veal

The effects of the 1996 crisis on beef and veal consumption should ease. If there is no change in market policy, production should soon creep back up to its maximum potential after 2001, while consumption is set to decline in the long term. Over-production cannot be solved by slaughtering young calves, nor by imposing quotas limiting the number of animals or production levels.

The new Regulation cuts effective market support. It should be possible to stabilise market prices with the aid of protective measures at the Community's external frontiers and measures relating to exports, and by introducing a private storage scheme similar to that for pigmeat.

Farmers will undoubtedly suffer losses of income which they should be able to offset by adapting production methods and investments. In return, they will be granted direct income payments by head of cattle, which will be increased gradually.

A number of simplifications have been made in the beef and veal sector, such as the abolition of the marketing system and the processing premium for veal calves. The intervention scheme will apply only in severe crises. Finally, the new Regulation repeals a number of other Regulations.

Milk and milk products

The Regulation establishes a new common market organisation for dairy products. It remains based on intervention and public storage of butter and skimmed-milk powder as well as certain aid schemes and marketing measures. Intervention prices for butter and skimmed milk powder are to be cut from the marketing year 2005/06 to improve competitiveness on both internal and external markets. As for internal market aid measures, a number of Regulations have been repealed, resulting in a major simplification of the legislation in this sector.

The new system is to extend the quota scheme until 2007/08, in order to gradually reduce internal and external consumer prices. The total reference quantity has been increased and the additional quantity will be allocated to Greece, Italy, Spain, Ireland and Northern Ireland.

Tobacco, olive oil and wine

In December 1996 the Commission presented a report on the tobacco regime to the Council and the Parliament, giving a positive assessment of the 1992 reform and proposing extending it along the same guidelines. In February 1997, the Commission presented a report on the olive oil regime, in which it suggested replacing price support with direct aid payments and a radical simplification of these payments. The new regime takes account of the proposals in both of these reports.

For wine, a reform proposal had been pending at Council level since 1994. Developments in the sector have largely been influenced by the Uruguay Round agreement. The new Regulation follows the guidelines laid down in the 1995 "agricultural strategy document". The new Regulation replaces 23 Council Regulations previously in force, thus clarifying the system immensely and facilitating more direct access to the legislation.

The ban on planting vines has been maintained and will be operated flexibly to allow development of wine production where there is growing demand. The grubbing measures have also been maintained, although targeted more specifically at regions with serious and persistent structural surpluses. Intervention will be eliminated, while a "crisis distillation" mechanism will be introduced to deal with exceptional cases of market disturbance.

Lastly, the Regulation officially recognises the potential role of producer groups and inter-branch organisations, and it provides for major adjustments to the designation and presentation of wine sector products to ensure that consumers are better informed.

Arable crops

The intervention price for arable crops has been cut. The Regulation provides for an increase in direct payments for cereals and silage maize in two steps, from EUR 54 to EUR 63 per tonne. Payments for oilseeds and non-textile linseed are to be progressively reduced in three stages to the same level as cereals. Protein crops will receive a direct payment of EUR 72.5 per tonne, thus ensuring their profitability in relation to other arable crops. The special scheme for durum wheat is to be continued.

Compulsory set-aside has been retained, and voluntary set-aside is still allowed: it has, however, been made more effective and should have a more positive impact on the environment. The level of compensation for set-aside, both compulsory and voluntary, will be the same as for cereals.

Although the essential elements of the existing regime (in particular the base areas, the regionalisation scheme, the link to historic yields and the set-aside provisions) have been retained, major simplifications have been achieved.

Rural policy

The accompanying measures previously financed by the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF) have been complemented by aid for less-favoured areas and areas whose development is lagging behind. All these measures have been applied horizontally and implemented in a decentralised manner. For rural areas eligible under Objective 1 of the Structural Funds the current system will be maintained. In rural areas eligible under the new Objective 2 (former Objectives 5(a) and 5(b)), measures are financed under the EAGGF Guarantee Section. Objective 2 is financed through the intermediary of the European Regional Development Fund (ERDF), the European Social Fund (ESF) and the Financial Instrument for Fisheries Guidance (FIFG). Any measures in favour of rural areas that are not eligible under the Structural Funds are part-financed under the EAGGF Guarantee Section.

To improve integration of environmental objectives in the common market organisations, the new reform enables Member States to make direct aid payments conditional on compliance with environmental provisions.

More specifically, the measures aim to:

• strengthen the agricultural and forestry sectors by trying to promote quality agricultural products. The reform includes measures concerning the establishment of young farmers and conditions for taking early retirement;
• improve the competitiveness of rural areas with the aim above all of improving the quality of life of rural communities and creating new sources of income for farmers and their families;
• preserve the environment and European rural heritage via agri-environmental measures such as organic farming. To help the further 'greening' of the CAP, the traditional compensatory allowances in support of farming in less-favoured areas will be extended to areas where farming is restricted by the existence of specific environmental constraints.

Member States must, however, ensure that farmers are able to demonstrate that they do not exercise activities solely for the purpose of obtaining the benefit of support payments.

The financial framework

The new financial framework must cover the development of the CAP and the effects of enlargement in a coherent fashion and within reasonable budget limits, for a sufficient length of time. At the same time, it must finance key needs and ensure sound management of public funds. A simplified and comprehensive agricultural policy can now make it clear that the expenditure it involves is justified by the services which society at large expects farmers to provide.

The Berlin European Council considered that this reform could be implemented within a financial framework of an average level of EUR 40.5 billion plus EUR 14 billion over the period for rural development as well as veterinary and plant health measures. The reform aims at stabilising agricultural expenditure over the period while staying more in keeping with actual levels of spending.

In the light of these decisions, the European Council considered that the amounts to be entered in heading 1 of the financial perspective should be those indicated below. The Inter-institutional Agreement will ensure that all parties abide by this agreement.

The agricultural guideline will also remain unchanged. It will be re-examined on the basis of a report which the Commission will present to the Council before the next enlargement of the European Union in order to make any adjustment considered necessary. The amount set aside in the financial perspective for the agricultural pre-accession instrument (EUR 250 million - 1999 prices) falls within the ceiling established by the guideline.

The European Council acknowledged the scale of the efforts being made to curb the budget and exercise rigour in implementing the common agricultural policy decided within the framework of Agenda 2000, the reduction in support prices being largely compensated by expenditure on the rural development budget and other accompanying measures (direct income aids, early retirement, aid to young farmers, etc.).

Preparations must be made for the accession of the applicant countries in accordance with the conclusions of the Luxembourg European Council in compliance with the horizontal pre-accession framework provided by a general coordination Regulation. The applicant countries are facing major difficulties in adapting to a rather complex Community acquis and completing the institutional process of privatisation and transformation of agricultural structures.

Concentrating on priority needs for agriculture, which remains a major source of employment, pre-accession measures concern in particular support for improving the efficiency of holdings and producer groups, processing and distribution, promotion of quality products, veterinary and phytosanitary control, land re-parcelling, water resource management, vocational training, environment, and the maintenance of rural heritage, etc.

Responding to the challenge of enlargement means giving a fresh boost to the development and integration of the European economy as a whole.

The efforts made, notably in terms of reducing support prices, represent an essential contribution by the European Community to stabilise the world's agricultural markets. The European Council considers that the decisions adopted regarding the reform of the CAP within the framework of Agenda 2000 will constitute key elements in defining the Commission's negotiating mandate for the future multilateral trade negotiations at the WTO.

See also

For more information on Agenda 2000 and the reform of the common agricultural policy:

Agenda 2000 on EUROPA