30 March 1999
Farm leaders slam diluted CAP reform

By Philip Clarke, Europe editor

FARMERS leaders have attacked the watered-down reforms to the Common Agriculture Policy (CAP) as short sighted and potentially damaging.

Their reaction follows last weeks decision by European Union (EU) heads of government to dilute the CAP reforms already agreed by their farm ministers.

In an effort to contain farm spending at current levels, Europes leaders delayed changes to the dairy sector until 2005 and limited price cuts for cereals to 15%.

“This is considerably worse than the original agreement,” said Ben Gill, president of the National Farmers Union (NFU).

“I can see it lasting perhaps two or three years before further reforms will be needed.”

Mr Gill said the agreement meant that UK farmers risked losing their share of expanding world markets as a result of the deal.

US glee

“The US must be rubbing its hands with glee,” he said.

Jim Walker, leader of the National Farmers Union of Scotland, described the deal as a “fudge” which failed to give producers a clear vision of the road ahead.

The diluted reforms will have the combined effect of lowering the compensation bill, while making the deal appear less painful for farmers.

But the fear is that the final package will fail to rid the EU of export subsidies in both the dairy and the cereal sectors.

As such, the European Commission could have to open up its intervention stores or tighten its grip on output as surpluses emerge in the next few years.

Meanwhile, problems in the dairy sector are exacerbated by certain member states, which will receive 1.2% more quota from next year.

Although support prices wont fall for another five years, the Republic of Ireland will receive quota to produce an additional 150 million litres of milk.

UK dairy pressure

Much of that extra output is likely to come to the UK as cheese or butter, putting further pressure on milk prices.

The European Dairy Association in Brussels believes returns could drop by more than 10% throughout Europe in the next few years due to supply pressure.

Cereal margins are also expected to suffer as a result of the changes in the reforms.

At current exchange rates, the level of area aid would fall by £12/ha to £247/ha in 2002 and oilseeds are also expected to sink to this level.

But it is the decision to put the basic rate of set-aside at 10% for the next seven years that is more worrying.

With set-aside payments being moved onto the same rate as cereal area aid, there will be a considerable loss of income.

The 10% rate will, of course, be subject to annual review by the council and commission in the light of market conditions.

But with the EU close to its GATT limits on the amount of coarse grains it can export with subsidies, analysts now believe set-aside is more likely to go up than down.