CAP still takes nearly half of the budget

Defenders of the CAP in its present form are always asking why another reform is needed. Last year agriculture and rural development allocations accounted for 47.5% (€43.6 billion) of the EU budget, admittedly down from 54.1% (€44.4 billion) in 2003.
France was once more the largest recipient of agricultural largesse, followed by Spain, Germany and Italy. New member state Poland appeared in fifteenth position.

Could a better use be found or at least some of this €43.6 billion? I and many others think so.

Some progress in Doha Round

Some progress was made in Doha Round talks between the 'group of five' (EU, US, Brazil, India and Australia) in Paris at the end of the last week. The secrecy surrounding the talks suggests that concrete proposals were being discussed, particularly on the vexed question of market access.

The US and the EU have now accepted the five tier proposal put forward by the G-20 and the EU has indicated that it will keep its list of sensitive products demanding special treatment to a minimum. It is understood that the EU and the US have put concrete tariff reduction proposals on the table, but much needs to be done before the Hong Kong ministerial in December.

At the farm council last week, a number of member states, Spain being the most vociferous, accused the Commission of 'selling out' to the US after a visit by Mariann Fischer Boel to Washington. However, the doughty farm commissioner was having none of it, retorting that 'We are not a gift shop.'

My current forecast of likely Doha Round outcomes in agriculture is:

• There will be an agreement, but not at Hong Kong (there isn’t enough time to sort out all the complexities)
• Export subsidies and their equivalents will be phased out by 2017
• There will be sharper reductions for high tariffs and a 100% AVE limit with very limited exceptions (essentially rice tariffs in Korea and Japan). There will be exemptions from the formula adopted for ‘sensitive’ products
• Permitted domestic support levels will be reduced but not in a way that will seriously trouble the EU and the US
• Cairns Group countries will be allowed to keep their single desk exporters, subject to undertakings on transparency
• ‘As one gets closer to the final deals that need to be fashioned, the GI issue will no doubt play a significant role in the balance of advantage that countries will seek from the Round.’ (Tim Josling)
• Provision for future negotiations will include a review of which subsidies should qualify for Green Box treatment

Anyone who wants my full paper on the Doha Round should E mail me at w.p.grant@warwick.ac.uk

EU wine lake is forming again

Despite the provision of substantial funds for restructuring and the distillation of wine into industrial alcohol, the EU wine lake is forming again. As is the case with many commodity sectors in the CAP, the underlying problem is a structural one.

On the one hand, consumption levels are down, particularly in 'traditional' wine drinking countries such as France, Italy and Spain where the total quantity of wine consumed has fallen by over 50 per cent since 1980. Wine is not necessarily a popular drink with young people in these countries, with beer, alcopops and spirits becoming more popular. In Italy, there are reports that British style binge drinking is catching on.

On the demand side, there is fierce competition from so-called 'New World' wines, e.g., from California, Chile, Australia and New Zealand. These wines are particularly popular in the British market where the emphasis is on low to medium priced 'drinkable' wines. I know that the Australians keep their best wines for domestic consumption. Chilean wines have been doing particularly well in recent years.

As a consequence, EU wine stocks are rising. In Spain wine stocks are now larger than annual production. Total expenditure in the sector in 2004 was €1.227 billion and is estimated at €1.329 billion for 2005. €450m goes into a far from successful vineyard restructing programme, €387m into wine distillation, €232m for alcohol storage and €67 million for wine storage.

A big problem has been the ineffective management of vineyard grubbing and replanting schemes by national governments. The Commission has ordered France to pay back €14.5m of funds received to restructure and modernise vineyards after the money was allegedly misspent.

The Commission has stated that 'It is possible that due to the great variations in production which are typical of the sector and modifications in domestic and world demand, it may be necessary to resort to special intervention measures on the market, as prudently allowed for by the Council.'

Translated this means 'We have no accurate idea of what is going on here so we may have to bail the sector out again and the Council knew this would be good politics because some powerful member states are involved.'

Bird flu? No worries?

With avian influenza reaching Russia, the media has been talking up the inevitability of its reaching the EU. This has been linked with the suggestion that the virus will transmute into a form that will allow it to spread from human to human, creating a pandemic on the scale of the devastating influenz outbreak at the end of the First World War (which killed my grandmother while she was still a relatively young woman).

However, the European Commission has attempted to calm any incipient panic, arguing that the risk of bird 'flu reaching Europe via migratory birds is negligible. On the question of transmission to humans, a spokesman commebted, 'We are very far from a risk to humans from migrating birds.'

Veterinary experts concluded at a meeting in Brussels that the immediate risk of the disease spreading to the EU was probably 'remote' or 'low' depending on the area. There was no call to impose a general veto on keeping poulrtry outdoors, a measure imposed by the Dutch last week which would pose problems for free range egg producers.

However, the EU has suggested that member states step up surveillance of wild birds and their migratory movements as well as keeping a close eye on domestic birds.

CAP gets even more complex with SFP

The complexity of the CAP has always been one of its distinctive features and, many commentators have argued, has been used in effect as a political entry barrier to exclude outside critics and permit decision-making 'fudges' that protect the interests of farmers.

The way in which the new Single Farm Payment (SFP) system is being implemented has increased this complexity with no two member states applying the SFP in the same way. In particular, the various options for 'partial coupling' have been widely used, especially in the beef sector where there were fears of a big drop in production.

Only five member states have opted for the Commission's original vision of full decoupling: Germany, Ireland, Italy, Luxembourg and the UK. Most of the EU-15 member states have also opted for a historical basis for payments which tends to protect the interests of existing farmers. Only England (not Wales and Scotland) and Finland and Germany intend to make a transition to regional payments.

Five countries have chosen to use the national envelopes option (Finland, Italy, Scotland, Spain and Sweden). These are not stuffed with used euros but are used to make special aid payments to support environmental or product quality objectives.

Only the UK has chosen to supplement the recycling of money into the rural development budget with a modulation top up.

Subsidies favour rich regions

New research shows that even after the recent CAP reforms, rich regions in Germany, the UK, France and the Netherlands will take a greater slice of the €90bn farming subsidies than poorer regions in south-eastern and eastern Europe. The two-year study, one of the most comprehensive ever undertaken of the CAP by researchers at Newcastle and Aberdeen universities, is reported in a book on 'CAP and the Regions' edited by M Shucksmith, K Thomson and D Roberts.

About 80 per cent of the subsidies go towards supporting grain, beef and dairy products, the staple products of often large scale northern European farmers while less goes to products such as olive oil and wine which are predominantly grown in southern Europe. This in stark contrast to the objectives of EU 'cohesion' policy which seeks to reduce regional inequalities.

The authors see the principal problem as the emphasis placed on market support and direct subsidies in pillar 1 of the CAP compared with pillar 2 (rural development). Funds should be redistributed from pillar 1 to pillar 2.

However, pillar 2 did not escape criticism. Agri-environment schemes were less effective in the less prosperous regions of Europe and richer EU states tended to prioritise agri-environmental objectives more than poorer regions.

Austria was singled out as a country where agri-environment and Less Favoured Area payments had been put to good use and the money used intelligently to benefit those who needed it most. In contrast, Scotland had made a poor use of funds by adding national funding to LFA payments so that there were no losers, an approach often found in agricultural policy.

Big EU tariff barriers a big problem in trade talks

With WTO Doha Round talks on agriculture stalled, and fears growing about the Hong Kong ministerial in December, it is increasingly becoming clear how big a problem is posed by the EU's high tariff barriers.

Market access is turning out to be the key problem in the farm trade talks and the US is blaming the EU and the protectionist G-10 group (led by Japan and Switzerland) for failing to make any concessions on the tariff reduction formula. The G-20 has a proposal on the table for a maximum 100% tariff for developed countries.

In fact more that seven per cent of the fixed rate farm tariffs used by the EU are set at an equivalent level of 100% or more. The most protected product in he whole CAP is revealed to be fresh or chilled 'skirt' of beef, used for meat processing, which has an ad valorem equivalent of some 407%.

Almost a quarter of the fixed rate tariffs (38 out of 158) used to protect the European dairy sector are set at an equivalent level of 100% or more. Buttermilk has an ad valorem equivalent of some 264%, while butter has AVEs of between 82% and 135%.

Grain intervention soars

Buying grain into intervention may be intended to be a safety net under the new look CAP, but it is a safety net that has been much needed this summer. This in spite of the fact that much of Europe has been afflicted by a drought that is estimated to hit crop yields by seven per cent. In Spain and Portugal, where the drought is at its worst, the Commission has approved emergency aid to farmers.

As last year, the surplus production is mainly in central and eastern Europe. By the end of June, the EU had almost 12 million tonnes in intervention with another four and a half million tons under offer. Although it was possible to export some of the stockpiled grain, storage space is at a premium.

The total bill for cereals intervention this year could be almost €500m, almost eight times the original budget. Money has to be clawed back from other underspent parts of the CAP budget.

Incidentally, this page has just returned from a trip through five central and east European states, two already EU members, two candidates and one (Serbia-Montenegro) still in ill favour. Impressionistically, I thought that Bulgarian agriculture and infrastructure looked in far better shape than in Romania where the horse (or the mule) is still very much in use as a means of transport.

Sugar reform opponents shrink to five

Outright opponents of the European Commission's sugar reform plans have now shrunk to five countries, not enough to block the proposal. The five outright opponents are all marginal sugar producers: Finland, Greece, Ireland, Portugal and Spain. Ten countries including the UK, France and Germany are broadly happy with the proposals.

In between is a range of countries such as Austria and Cyprus who said that the thrust of the proposals was right, though the price cuts went too far, while the compensation was inadequate. Others, such as Poland and Italy, are more reluctant in their support.

If Italy and Poland joined the no camp, a blocking minority would exist. However, a source close to the Commission commented, 'they may be bought off with bounties.' Side payments to win support are certainly a well established CAP tradition.

No change to CAP for years - Beckett

British farm minister Margaret Beckett has said that the UK was not expecting an overhaul of agricultural subsidies to come into force before 2014. This is somewhat at odds with what Tony Blair has been saying, but came after Mrs Beckett faced a rough ride in the European Parliament. She was heckled and after she failed to elaborate British plans to reform the CAP, some MEPs walked out in protest.

Farm commissioner Mariann Fischer Boel recently questioned whether Britain's reason for putting the CAP reform issue back on the bargaining table was 'just a gimmick or game plating.' Certainly the UK has failed to explain what kind of farm reform it envisaged, suggesting that little forethought was given to the call for further reform.

The UK is sensitive to accusations that its stance over the budget is damaging to new member states because delay would restrict their access to EU funds. UK officials argue that, with or without the budget rebate, the UK is paying more for the ten newcomers than France.

Asked why they did not oppose the 2002 Franco-German agreement on farm spending at the time, they claim that doing so would have prompted President Chirac to block EU enlargement.

Not all new member states are concerned about the size of the farm budget. With its sizeable agricultural sector, Poland clearly is. But countries like Estonia would be quite happy to see the CAP share of EU spending reduced.

Some observers assume that the debate on the financial perspectives will now be frozen until Austria takes over the presidency in January 2006.

Hill farming crisis raises broader issues

The UK charity, the National Trust, has warned that the country's hill farmers are on the brink of a national crisis. The charity has stated: 'Hill farming is on the brink of a rapid and unmanaged collapse without help through the major changes it faces. The separation of support payments from agricultural production has exposed the stark reality that livestock farming in the hills simply is not profitable.'

The National Trust bases its conclusions of a survey of sixty of its tenanted farms which suggests that the majority of upland farms are facing severe falls in income. Recently the Trust let out a farmhouse to a non-farming tenant much to the anger of neighbouring farmers in the Lake District.

Some farms will see their support payments halved over the next five years which could force large numbers of farms to go out of business. The UK govermment's stated intention is to scrap the Hill Farm Allowance, which is funded out of the national budget, in 2006. The National Trust, however, would like to see its funding increased from £27m to £50m.

This crisis does raise broader issues. Recently, farm commissioner Mariann Fischer Boel argued that the level of support for agriculture was exaggerated as it constituted less than 0.5% of European GDP. However, that overlooks the fact that farming is a business activity. Should any commercial activity receive a general subsidy?

Where a subsidy is justified is for the non-marketable benefits that farming produces such as an attractive landscape and countering rural depopulation. If hill farming ceased, the landscapes that attract visitors to areas such as the Lake District would disappear. Drystone walls would crumble and the grazed landscape would revert to bracken and scrub, making it less accessible to walkers. Yet, as we know, the majority of CAP subsidies go to large-scale arable farmers.

Marginal farmers do deserve assistance, although it has to be packaged in a way that delivers environmental benefits and assists rural development.

Fight against sugar reform gathers pace

Opposition to the EU's proposed sugar reform is gathering strength with a blocking coalition of member states emerging. The nine main objectors are Poland, Italy, Spain, Ireland, Greece, Portugal, Finland, Latvia and Lithuania. Between them they have 132 votes which would be more than enough to block the plan as only 90 are required under qualified majority boting. Moreover, there are another five states who are waverers: Austria, Cyprus, the Czech Republic, Hungary and Slovenia.

The opposition states argue that the 39% cut in the intervention price over two years was excessive in its size and its timescale while the proposal to offer 60% compensation to farmers within the Single Farm Payment system was seen as insufficient, as was the compensation on offer for permanently ending production.

The drastic nature of the cuts was driven by the WTO dispute settlement mechanism decision that declared that much of the regime constituted in effect an export subsidy, plus the arrival of tariff free sugar from least developed countries under the Everything But Arms agreement in 2009. Practical politics dictates that some concessions on the plan will have to be made but not to the extent that it is unable to ready the EU for these changes.

Poland, which is a leading opposition state, was partially mollified by the removal of cross-border exchanges in quota, although that is exactly what should happen in an internal market. They were also given a relatively generous offer of a 300 000t increase in the isoglucose quota, an issue that they pressed hard on in the accession negotiations.

It is likely that the 60 per cent compensation level will eventually be raised, although that would mean cuts elsewhere in the farm budget. It might also just be possible to phase the price cut in over a longer period even though that would mean difficulties in meeting the WTO deadline.

How could CAP budget be cut?

Tony Blair has recently suggested for the first time that scrapping the CAP is a British objective. Philippe Douste-Blazy, France's foreign minister, has said that France is happy to discuss the modernisation of Europe but not at the cost of the CAP 'one of our most successful common policies' (which it certainly has been for France).

The Commission would certainly not countenance the dismantling of the CAP and the renationalisation of farm policy. But there is real pressure to cut the CAP share of the EU budget and not at the expense of rural development policy. How could this be done? One possibility would be to introduce degressivity so that the CAP budget would be reduced year on year. One could also cap payments over a certain level. But this would hit large scale farmers and has been opposed in the past by Britain and Germany. Another possibility would be co-financing so that Pillar 1 expenditure would be partly met out of national budgets. However, such a big step towards renationalisation would be opposed by the Commission and also by national farm organisations who fear that national governments might not pay out their share in full.

As NFU policy director Martin Howarth has commented, 'Any way you look, the issue is in which way is the CAP budget to be cut.'

No change in subsidy level since mid 1990s

There has been little change in the level of producer support to farmers in developed countries since the mid 1990s, according to the OECD. It is below the level of 37 per cent of farm receipts recorded in the mid 1980s, but the current level of 30 per cent had already been reached in the mid 1990s. Farmers across the OECD countries received €226 billion in subsidies in 2004, a massive amount which could surely be better used.

The OECD notes the shift towards new policy measures that are not directly linked with production. Nevertheless, 'While this shift may well continue over the coming years, production-linked measures still dominate producer support in most countries, encouraging output, distorting trade, and contributing to lower world prices of agricultural commodities.' The OECD also notes, 'Despite the move away from production-linked support, there is only a very modest move to policies targeted to clearly defined objectives and beneficiaries.'

At 34 per cent the level of support in the EU was above the OECD average of 30 per cent. This is an improvement on the 41 per cent level recorded in 1986-8.

Rice (75 per cent), sugar (58 per cent) and milk (38 per cent) remain the most highly supported commodities across the OECD. The largest decreases in both absolute and relative terms have occurred in grains apart from rice, sheepmeat and eggs and milk (where support was measured at 61 per cent in 1986-88).

The OECD emphasises the need for further reform. 'Government intervention continues to be significant, creating important spill-over effects on production, trade and the environment. Although some progress has been made since 1986-88, the current level, composition and spread in support levels across commodities in OECD countries still create distortions that demand further attention from policy makers.' The OECD notes that over 60 per cent of support to producers continues to be provided through policies generating higher producer prices.

OECD governments are increasingly focusing on environmental performance, rural development, animal welfare and food safety and quality issues, what is known in the EU as 'multifunctionality'. However, 'very little support is being channelled to these areas compared to the level linked to production.' Much remains to be done.

Sugar reform proposals

The European Commission's proposals on sugar reform announced on 22nd June are no surprise to those who have been following this debate. What is most interesting, given the recent background of debates on the cost of the CAP, is any detailed discussion of the cost implications.

It is admitted that direct aid compensation for farmers will cosr €1,543bn a year and that the restructuring fund is stated to be be €4.225bn over three years. The Commission claims that these costs will be mainly offset by a substantial reduction in export fund expenditure and abolition of the refining aid. Even given that factory closure aids and a top up aid for farmers who no longer have a factory to sell their beet to will be paid for by a levy on quota holders, it seems likely that earlier cost estimates of €1.5bn in the second year of the programme will still broadly apply.

As expected, there will be no trading of quota across national boundaries as the existence of an internal market would imply, although limited 'reallocations' (not trading) will be permitted by national governments. An opportunity to use a market mechanism to achieve an efficient readjustment is thereby lost, but the political cost would probably be too high given that marginal production is going to be eliminated anyway - meaning that production will largely be concentrated in Northern Europe with Poland the only major East European producer.

The main elements of the proposal are:
* A 39 per cent cut in the EU support price over two years from 2006-7
* Compensation for farmers for 60% of the cut price through the Single Farm Payment
* Replacement of intervention buying by a safety net system using private storage
* Payments to encourage factory closures

Farm commissioner Mariann Fischer Boel has said that she is aware of the bitterness of the battle ahead. She is likely to be opposed by an unholy coalition of NGOs like Oxfam worried about the impact on LDCs and member states who stand to lose their sugar industries. They will be backed up by the large scale industrial farmers who grow sugar beet and the oligopolistic sugar companies who refine it.

It would seem that the reform proposals cannot succeed but something has to be done by the start of the 2006-7 marketing year to meet the demands of the WTO's Appellate Body. In a fully liberalised market, the EU would probably not be growing sugar beet at all.

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.

Fischer Boel's fears for CAP

Commissioner Mariann Fischer Boel fears that the CAP might start to unravel. The cause of her worries is the current debate over the EU's spending plans for 2007-13. This is going to be more difficult to resolve in the atmosphere of political crisis following the French and Dutch referendums.

Budget Commissioner Dalia Grybauskaité has blamed the CAP for impeding the EU's goal of becoming more competitive. Fischer Boel argues that the CAP share of the budget could be reduced from 45% to 33% by 2018. Cuts of a further 9% could be achieved if Romania and Bulgaria are brought within the limit on farm spending agreed in 2002. Fischer Boel regrets that a proposal by Franz Fischler to place a limit of €300,000 on the amount a single landowner may draw down was rejected by the UK and Germany, but it would be difficult to take on the EU's largest member states.

Fischer Boel has articulated a new vision for the European model of agriculture 'based on a new and younger agriculture focusing on speciality and quality products, linking up with agricultural and commercial schools, using the internet to penetrate the market for direct delivery and welcoming the urban dweller in their thriving rural environment for rest and adventure.' But all this depends on rural development funds and they are the most vulnerable part of the EU farm budget.

Meanwhile traditional conceptions of the CAP die hard. Writing in European Voice Irish MEP Seán Ó Neachtain argues that 'small farm holdings are still an integral part of our culture and our way of life ... I most certainly don't want to see our family farms, the very backbone of our societies, being replaced with industrial holdings that would be more like factories than farms.'

The question is, do such sentimental versions of rurality really help the rural economy in the 21st century? The European Union is a highly urbanised society and farm policy needs to recognise that fact, allowing the rural economy to develop new services that meet the needs of a modern urban population.

Down on the farm

This page has been out and about in the past week visiting farmers and growers in various parts of the country. It's always good to touch base with what is happening in the real world of agriculture and to hear of the ingenuity and initiative which is being used to respond to some of the challenges the industry is facing. A few reflections ....

Technology

Advances in farm technology continue. At one location that was visited tractors are driven entirely by global positioning systems to produce more accurate rows, human intervention only occurring at the end of a row. I saw solar driven moisture probes which are then read automatically to produced detailed graphs of moisture levels in the soil to help plan irrigation. And I visited a vast glasshouse producing herbs in which most processes were automated and labour was most evident in the packing section.

Management

Bringing all these complex processes together under considerable cost pressures and a need to pay greater attention to environmental considerations requires highly sophisticated management. Good technical managers are increasingly hard to find. And the weather can still spring nasty surprises. At one farm visited a salad crop had been devastated by a hailstorm.

Labour

Many planting and harvesting operations still require substantial amounts of labour and one important source for many growers is the Concordia scheme which bring in students from Eastern European universities. This scheme, I was told, is to be extended to China. Employers are very pleased with the quality and effort of the labour force and estimate they would require substantially more British employees to achieve the same level of output.

Retail pressure

This is increasing rather than diminishing. One enterprise had received visits from three different customers during one day that week. I saw lettuce in different shades of red being grown in adjacent plots to meet the specifications of different supermarkets. We also heard many stories of prices being forced down with the difficulties of some supermarkets make them even more price sensitive while requiring high quality standards.

Behind the supermarket is the ultimate customer who requires plentiful supplies of cheap food, good flavour, uniform appearance and grown with as few pesticides as possible. Not easy to achieve.

Big row likely over new sugar reform proposals

The European Commission has come forward with new proposals for reform of the sugar sector which propose further cuts in support for the highly subsidised sector. Despite Commission denials, the proposals are intended to address the recent WTO decision which ruled so-called 'C' sugar exports illegal.

In fact DG Agri officials were secretly pleased when the WTO ruled against the EU sugar regime earlier this year, forcing the anti-reform camp to face up to reality. But the new proposals are likely to provoke a major row, with opposition from countries who would lose their sugar industries such as Finland and Ireland on the one hand and development NGOs on the other.

Under the new proposals the support price for white sugar would be cut by 39 per cent compared with 33 per cent in the original plans. The minimum beet price would be cut by 42 per cent compared with 37 per cent.

Planned automatic cuts in sugar production quotas have been shelved with the Commission favouring a voluntary quota buy up scheme which offer producers a financial incentive (a bribe in plain language) to get out of the sector. In the first year of reform (2006/7), producers will be paid €730/t for any quota surrendered, falling to €370/t over four years.

This quota buy up scheme is to be funded in part by a sugar buyers' levy which will be imposed at a rate of €125/t in year one, falling to €90/t the following year. These plans will upset sugar buyers who will lose most of the benefit of the lower market prices. Despite this subvention, the scheme is going to cost taxpayers with a budget of €896m set aside in year one of the reform programme, rising to €1.5bn in year two. A lot of this money will go to 60 per cent compensation compensation for farmers to offset the minimum price of beet which will be incorporated into the Single Farm Payment.

Controversial plans to allow sugar quotas to be traded across member states have been dropped. One might think that in a single market it would be logical to trade quota across national boundaries, but this idea has never been accepted in the dairy sector. Such an approach would, however, allow a more market based adjustment to change, maximising the chances of an optimal rationalisation of the sector.

Oxfam has criticised the draft plan as 'a harsh, blunt reform package that will hurt the most vulnerable ... some of the poorest countries in the world will be robbed of the sweeeter future that sugar production could give them.'

The reform plan will be the first test of Mariann Fischer Boel's mettle as farm commissioner. She is insisting that she has to go further than Franz Fischler in order to avoid a planned revision of the new regime around 2008. She commented, 'The easiest thing would be to sit on my hands and let the industry die by itself, and that would be a painful death.'

Poor countries want changes in sugar reform

The LDC Sugar Group which represents the 19 least developed countries with interests in sugar has called for changes in the EU's proposed sugar reforms. They argue that gains under the 'everything but arms' initiative will be outweighed by the planned 37 per cent price cut. They want a twenty per cent cut phased in over ten rather than three years. The LDC Group has tried to appeal to EU agricultural opinion by arguing that under their proposal sugar beet growers would survive in all but two EU countries (Finland and Italy) rather than disappearing in all but nine. However, their plan does not look feasible after the recent WTO appeal panel decision.

The problems faced by LDC sugar exporters are illustrated by the example of Mozambique, a country that is third from bottom on last year's UN human development index. Three out of four people live on less than $2 a day. It has a HIV/AIDS infection rate of 15% and has serious problems with malaria, cholera and tuberculosis. There is virtually no infrastructure with only one decent road running up the edge of the country.

The land is fertile and could develop quickly with more agricultural production and trade. Sugar offers one path out of poverty. The current sugar trade with the EU represents 16% of the country's exports and 34% of its export revenue. The real danger with sugar reform is that the beneficiaries will be emerging countries like Brazil rather than much poorer countries.