Franco-German farm deal may have to be re-opened

EU Budget Commissioner Dalia Grybauskaite has said that 'a large group of countries' were looking to re-open the Franco-German farm deal that freezes spending until 2013 at current levels in order to take account of the accession of Romania and Bulgaria in 2007. 'A gentle reopening could be to include in the ceiling Romania and Bulgaria, which weren't included in the 2002 Brussels deal', she said. France is, however, opposing the move.

Skids are under CAP

The threat to the existence of the CAP as we know it is very real, according to Lars Hoelgard, deputy Director-General at DG Agriculture. Any eventual settlement of the current budget dispute under 1.14% of GNI, the current Commission draft figure, would hit agricultural spending and even this figure would lead to cuts. Heolgaard commented, 'Something has to give - Pillar 1, although supposedly set in stone, is under threat.'

Even if the draft on the table was accepted, which is not very likely, farm spending would fall from about 45% of the EU budget now to around 35% on 2013. This reflects the fact that, according to Agra Europe 'Of all the EU's policies, the CAP is fast becoming the least fashionable under Commission president Barroso.'

Dairy farming faces particular problems. If a deal on global trade liberalisation is reached at the WTO talks in Hong King in December, the EU may not be able to sustain the required reductions in tariffs, particularly if the dollar remains weak.

Insurance

One possible response is the debate on farm insurance systems which is attracting increasing attention. It would be an alternative way of safeguarding farmers against income fluctuations. A draft Commission document has been circulating exploring some kind of stabilisation fund. Rural development funds could be used to help farmers to pay insurance premiums up to a maximum of 50% (although this seems to imply using Pillar 2 money to achieve Pillar 1 objectives). Mutual stabilisation funds through producer groups, supplemented by some EU money, are another possibility.

Sugar mountain is back

The EU has had to accept sales of sugar into intervention for the first time in nearly twenty years. Sugar is understood to have been offered in both France and Belgium and the intervention authorities are obliged to accept any product that meets basic quality criteria. The last time this happened was in 1986.

Normally EU sugar surpluses are dumped on the world market with the assistance of what is in effect an export subsidy system. But traders are unhappy about the current EU export refund rate for sugar which they think is not enough to let them sell their surpluses at a profitable price. In particular the weakness of the $ against the € has caused problems in world markets. Hence, the intervention sales are as much a political ploy as anything else.

As far as the Commission was concerned, 'It shows once again the urgent need to reform the system.'

Thinking the unthinkable

Support for co-financing farm subsidies in the future is growing. Under such an arrangement member states would bear a proportion of the subsidies to their own farmers. The context is the demand by the EU's six leading paymasters that the budget from 2006 to 2013 should be capped at one per cent of gross national income. Any such deal would unstitch the 2002 agreement on farm spending and would also represent a further renationalisation of the CAP.

The plan has received unexpected support from Italy's prime minister Silvio Berlusconoi. This may just be a ploy to split the countries that want to restrain the budget.

However, there is also support in the European Parliament. MEPs argue that if member states are not to pay a share of the subsidies, farmers in the 25 member states will lose out when Romania and Bulgaria join the EU in 2007. Dutch Liberal Democrat Jan Mulder has advocated co-financing since 1999. 'It would put the agricultural budget in line with other parts. We have co-financing in rural development, in structural funds, in foreign policy: we should also have it in agricultural policy.' But he insists that topping up by member states should be made compulsory, not optional, so that farmers get parity of treatment.

The new member states are likely to reject the suggestion giving that their payments are being phased in up to 2013. Mulder argues that the poorer states could get a higher percentage from Brussels, but that proposal would be unlikely to attract support from the richer states. However, a budgetary crunch does look likely after 2006 and some change is going to be necessary.