Monday, June 13, 2005

CAP at heart of budget and rebate battle

The CAP is at the heart of the battle over the European budget ('financial perspectives') for 2007-13 and the British rebate. Britain is insisting that its rebate is not negotiable if there are no further changes in the CAP, arguing that the overall structure of the budget is out of line with the needs of Europe in the 21st century.

However, President Chirac and Chancellor Schroeder are adamant that their 2002 deal on CAP pillar 1 subsidies, which would largely protect them until 2013, is not on the table. With France taking not far short of a quarter of CAP subsidies, President Chirac has insisted, 'We cannot accept a reduction of direct aid to French farmers.'

Current presidency country Luxembourg has suggested that spending levels should be set at 1.06 per cent of gross national income, well below the Commission's proposal of 1.24 per cent for commitments but almost halfway between their 1.14 per cent figure for payments and the 1 per cent figure favoured by the UK, Germany and France. What looks vulnerable to any spending cut is not Pillar 1, but the Pillar 2 sums designed to encourage a more vigorous and diverse rural economy. Under the Luxembourg proposals, the sum for rural development would be cut from €88.7bn to €73-75bn over seven years.

While the UK has said that the principle of its rebate is non-negotiable, it has not said the same about capping its level or changing the formula. However, that would almost certainly require some quid pro quo on the CAP. Although Britain is not as totally isolated on CAP reform as it is on the rebate, its support is largely limited to the 'usual suspects', the reform countries of Northern Europe (Denmark, the Netherlands, Sweden) plus Austria.

Expect some fireworks ahead and a largely unchanged CAP.


Ulrich Schmutz said...

Blair is right in stopping tax money going into Pillar 1.
However, his argument is wrong - it does not really matter how large the sector is the money goes to (agriculture being fairly unimportant). It is “how” the money is spent. Pillar 2 can be well-spent money where the society and the environment benefit. Pillar 1 is the opposite. It rather harms the environment with production being too intensive and it also damages developing countries. If the Pillar 1 policy would be put on a referendum it would rightly been swept away completely and that’s exactly what would benefit taxpayers and entrepreneurial farmers as well. So why not stop it now?

Wyn Grant said...

It's a good question to pose. But the farming sector has always been good at defending its short run interests, although those in agriculture with greater strategic vision have been arguing for some time for a completely new approach.