Change slow in Euro-maze

31 October 1997

Change slow in Euro-maze

ANYBODY who has ever had anything to do with the dairy industry will know that milk is a versatile but perishable product: Decisions as to its use need to be firm, decisive and quick.

Those same people will also be aware that EU dairy policy displays a wholly different set of characteristics, lacking flexibility and enjoying a disproportionately long shelf-life. Decisions are often "back of an envelope", fudged, cosmetic and slow.

This discrepancy has long been a source of frustration. Some comfort, then, that change has been on the agenda since 1995.

The nature and pace of change, however, may not be clear to the casual Brussels observer. This is how he might interpret developments:

"The EU needs to adjust its dairy sector policies to cater for the new world trade agreement and to allow east European dairy industries to be integrated into the EU market" – commissioner Franz Fischler, Sept 1995.

Agriculture commissioner Fischler makes a gallant attempt to launch the debate. Speaking on his home soil in Vienna, he promises change, to be effective as early as the 1996/97 campaign.

"Reform presents incalculable and politically uncontrollable risks for agriculture" – Jochen Borchert, German farm minister, Dec 1995.

Apparently the German vision is different. Contrary to popular belief, it is the Germans, not the French, who are the guardians of a more-or-less unchanged CAP.

"A milk quota system could be implemented similar to that which applies for sugar production" – commissioner Fischler, Feb 1996.

A month to go before the 1996/97 campaign and still no sign of those proposals. However, it is good to see some ideas being generated. Perhaps the Franco-Danish "road-show" promoting the virtues of a two-tier quota system is having some effect.

"The European Commission is poised to introduce compensatory payments in the dairy sector, in the form of annual premium payments per cow, as part of next years dairy reform proposals" – Agra Europe, June 1996.

Now whats going on? The reform timetable seems to be slipping. But the ideas are coming thick and fast. The debate is hotting up.

"……………." July 1996-June 1997.

Silence. There are whispers of area payments and a processing levy to raise money to compensate for price cuts. But open debate on the dairy regime is sparse. EU enlargement and future world trade negotiations have slipped down the agenda. Instead, the EU is concentrating on its own internal situation. We await with baited breath the arrival of the Agenda 2000 reform package.

"Increasing problems may appear for skimmed milk powder and some other dairy products" – Agenda 2000, July 1997.

At last! Recognition of the potential problems. No doubt this is a reference to difficulties in exporting cheese and skimmed milk powder as a result of GATT constraints, to large stocks of butter with no obvious export outlet, and to the addition to surpluses which EU enlargement will bring.

"The commission discards a double-price, double-quota system" – Agenda 2000, July 1997.

That would seem to be the end of two-tier quotas. With one "radical" solution out of the way, what far-reaching reforms will the commission finally favour?

"The commission discards radical solutions" – Agenda 2000, July 1997.

So what is going on?

To be fair to those quoted above, they are all in some way victims of institutional inertia.

Commission civil servants, asked to come up with ideas, frequently see innovation stifled by the system. Indeed, commissioner Fischlers own attempt to prepare the way for change was admirable, until he was somehow "got at" by other commissioners and member states.

So why the confusion? Answer: The momentum for reform has been lost as people realise EU enlargement is going to be more protracted than anticipated, and in the hope that further world trade liberalisation may be minimal and delayed.

But these are only two of the driving forces for dairy reform.

Relatively high prices and quotas in an expanding world market, chronic restrictions in subsidised exports, budgetary constraints, environmental concerns and changing patterns of consumer behaviour will all require action in the near future.

Over the past two years, a number of options for the future of the EU dairy regime have emerged:

&#8226 Maintaining the status quo.

&#8226 Dismantling the regime.

lTwo-tier quotas.

&#8226 Deepening the 1992 reforms.

In the event, the commission has plumped for the last of these – extending the quota system to 2006 and reducing support prices by 10% the same year, balanced by compensation.

But does this go far enough? Consider this: Formal reform proposals emerge in early 1998. They are hailed as a "deepening of the 1992 reforms", but are really a "status quo with knobs on".

Throughout 1998/99, agriculture ministers seek to dilute the proposals, particularly the price cuts. There is much wrangling over the eligibility for compensation.

With the life of the current quota system ebbing away in early 2000, a decision to extend it is scribbled on the back of an envelope in the small hours of a "marathon" farm council.

Dairy exporters continue to suffer from the creeping sickness which is eating into their returns. Importers view falling tariffs with glee and begin to undermine the EU market. Intervention stocks climb and prices fall.

Commission staff struggle manfully to manage the markets, but to no avail.

Creative solutions are invented, but the new agriculture commissioner finds himself in Geneva far more often than he would like, attempting to defend their legality.

Around 2002/2003, a deteriorating internal market coincides with an urgent need to take decisions in the light of impending EU enlargement and world trade liberalisation. At that time, many wish that they (or, more likely, their predecessors) had been more active in trying to initiate change in the late 1990s.

It will be realised sooner or later, as dairy industry players are already doing, that radical and creative solutions will be necessary if the EU dairy industry is to survive in the long term.

But how to reconcile reasonable farm incomes, the ability to export, the threat of imports, EU enlargement and consumer preferences in a single policy?

Answers on the back of an envelope, please.

&#8226 Trevor Smith is a consultant with Business Environment Europe, a Brussels-based strategy consultancy.

There are confusing signals from Brussels over the

future of the EUs dairy regime.

Trevor Smith tries to unravel the mystery

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