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The Common Agricultural Policy


ORIGINS

The Treaty of Rome provided for the establishment of a common agricultural policy (CAP) which would have as its objectives

  • to increase agricultural productivity by promoting technical progress and by ensuring the rational development of agricultural production and the optimum utilisation of the factors of production, in particular labour;
  • thus to ensure a fair standard of living for the agricultural community, in particular by increasing the individual earnings of persons engaged in agriculture;
  • to stabilise markets;
  • to assure the availability of supplies;
  • to ensure that supplies reach consumers at reasonable prices.

The CAP has been based on the three principles of

  • a single market
  • Community preference
  • common financing

CAP financing comes from the European Agricultural Guidance and Guarantee Fund, (EAGGF or FEOGA) which is an integral part of the EU Budget. The Guidance Section of the EAGGF provides part-financing for measures of structural improvement and the Guarantee Section provides 100% financing for market supports and direct payments as well as part-financing for certain rural development measures e.g. agri-environment improvements.

CAP REFORM

When established, the CAP relied, in the main, on prices above world market prices to secure stable supplies of food at a time of insufficiency. Over subsequent years, this approach, together with technological breakthroughs, gave rise to surpluses in many products. The cost of these surpluses, the external trading environment, concerns about food safety and animal welfare and a growing awareness of environmental issues led to successive reforms. In the 1980s the reforms were targeted at specific sectors. Subsequent reforms were more broadly based.

Under the MacSharry reform in 1992, there was a significant shift from market support to direct payments to farmers and some environmental measures were introduced.

In November 1997 the Agriculture Council of Ministers defined the European model of agriculture as having a multi-functional role including maintaining the countryside, conserving nature, contributing to the vitality of rural life, responding to consumer concerns and demands regarding food quality and safety, protecting the environment and safeguarding animal welfare. This model was endorsed by the European Council in December 1997.

The second reform - Agenda 2000 Agreement, which was finalised by the European Council in March 1999 - was based on the European model of agriculture and marked a further significant shift from market supports to direct payments. It also intensified the emphasis on food safety and the environment. Additionally, the budget for agriculture was fixed for the years 2000 to 2006. In 2002, the European Council decided on the limits to be applied to agricultural expenditure for the EU of fifteen plus the ten Acceding Countries in the period 2007 to 2013.

In 2002, the Mid Term Review of Agenda 2000 commenced. It concluded in June 2003 with a fundamental reform which provided for the decoupling of direct payments from production in the case of livestock production, milk production and arable crops, with partial decoupling options for Member States which did not wish to decouple fully. Direct payments (coupled or decoupled) were made conditional on compliance by farmers with a range of food safety, environmental and animal welfare measures.

FOOD SAFETY

The new emphasis on food safety is reflected in the establishment of a Commissioner for Health and Consumer Protection and the publication in January 2000 of the Commission's White Paper on Food Safety. As proposed in the White Paper, a European Food Safety Authority has been established and a comprehensive programme of legislative reform is being pursued, covering all elements of food safety including veterinary and plant health rules, food and feed hygiene and animal welfare.

RURAL DEVELOPMENT

The Agenda 2000 reform established rural development as the second pillar of the CAP, the objective being to improve the economic and social situation of all rural areas. All structural measures are now combined into a single programming framework. The rural development programmes include investment in farm holdings, setting up young farmers, training, early retirement, compensatory payments in less favoured areas and areas of environmental sensitivity, other agri-environment measures, afforestation, support for meeting demanding standards (environment, public, animal and plant health, animal welfare and occupational safety) and measures to promote food quality.

THE FUTURE

The CAP will continue to play an important part in the economic and social life of the EU but it now faces further challenges including:

a) the integration of the agriculture sectors of the ten new Member States which will accede to the Union on 1 May 2004;

b) the negotiations on agriculture in the current WTO round;

c) the implementation of the Mid Term Review and the transition to a more market orientated agriculture which in itself represents a significant challenge to Member States;

d) proposals for further reform in the olive oil, cotton, tobacco, sugar, fruit and vegetables and hops sectors

Department of Agriculture and Food
November, 2003

MID-TERM REVIEW OF THE COMMON AGRICULTURAL POLICY STATEMENT TO SEANAD EIREANN BY MINISTER FOR AGRICULTURE AND FOOD, MR JOE WALSH TD, ON WEDNESDAY, 2 JULY 2003

I am delighted to have this opportunity to present to the House the outcome of the negotiations on the Mid-term Review of the Common Agricultural Policy which were concluded in the Council of Ministers in Luxembourg last week.

The Commission's proposals for the Mid-term Review of Agenda 2000 were the subject of negotiation for almost a year. Outline proposals were presented by the Commission in July 2002 and the more detailed proposals were published in January 2003. The proposals comprised the most radical reform of the CAP since its foundation and have been the subject of detailed analysis and intense public debate both here and throughout Europe. The Council of Ministers has debated the proposals at each of its meetings this year. During the course of the negotiations, I and my officials had close consultations with all of the farming, food processing and other representative bodies, mainly through Consultative Groups which I set up for this purpose. The issues and concerns have been identified and have been well known for some time. The fact that the negotiations in the Council continued for a full year is indicative of the complexity of the proposals but also of the difficulties facing Ministers in reaching a decision.

My position on the Commission's proposals was well known. My objectives in the negotiations were to safeguard the benefits to Irish agriculture and to rural communities achieved under the Agenda 2000 Agreement and to ensure the best possible level of support and protection of our production base into the future.

The agreement which was reached last week in the Council was the culmination of a long negotiating process and was an acknowledgement by all Ministers that it was time to end the uncertainty about the future policy framework and to conclude the process.

I am convinced that an objective and fair-minded examination of the outcome of the negotiations will establish that I have been successful in achieving my objectives and in defending the interests of Irish agriculture.

The final outcome contained substantial modifications to the Commission's proposals and represented a balanced agreement and a successful outcome to the negotiations from Ireland's point of view. The agreement will reshape the Common Agricultural Policy and secure its future by making it more relevant to modern society and to consumer demands. This is the only way forward. We have the opportunity now to exploit the new situation to our advantage.

I am sure that the details of the agreement are well known at this stage but I will outline them briefly for the House.

Decoupling of Direct Payments from Production

The decoupling of direct payments from production is a fundamental change to the CAP and, not surprisingly, the Commission's proposal for full decoupling was the most contentious issue throughout the negotiations. In the end, the Council agreed to amend the proposal for full decoupling and to give Member States a number of options which will allow them to implement decoupling in a manner best suited to their requirements. Full decoupling across the board remains as an option if Member States wish to pursue that possibility.

Besides full decoupling, last week's agreement provides for other options in relation to cereals, beef and sheepmeat which allow for various forms of partial decoupling. Some of the options include:

  • up to 100% coupling of the suckler cow premium, up to 100% coupling of the slaughter premium, and up to 75% coupling of the Special Beef Premium, and
  • the sheep premium and the supplementary ewe premium may now be either fully or 50% decoupled.

Furthermore, amounts up to 10% of a Member State's direct payments may be allowed for the purpose of encouraging specific types of farming which are important for the environment and to improve quality and marketing. Among the major advantages of the new arrangements is that we now have a menu of options which will reduce the paper-work associated with direct payments and which will allow farmers to respond to market demands without the need to engage in production in order to qualify for direct payments.

From the point of view of the forthcoming WTO

negotiations, the new arrangements will enable the EU to take the initiative in the current negotiations and to negotiate from a position of strength. Decoupling and partial decoupling will enable a substantial proportion of direct payments - depending on the choices to be made by Member States - to qualify as domestic support which has ?no or at most minimal trade-distorting effects or effects on production? - the so-called Green Box. This has the advantage of protecting them from challenge in the negotiations. I have made it absolutely clear that the outcome of the Mid-term Review represents the 'bottom line' insofar as the WTO negotiations are concerned and that I will not agree to a new WTO round which requires further reform of the CAP.

The outcome of the negotiations on decoupling has, therefore, been most satisfactory from Ireland's point of view.

I will be consulting with the social partners with a view to introducing the model best suited to Irish requirements, from the point of view of maximising efficiency, competitiveness and protecting the rural economy. I will also be inviting submissions from wider interest groups and the public generally before reaching a conclusion.

I intend to keep the arrangements under close review particularly in the light of the facility under the agreement which provides for a review by the Commission of the operation of the new arrangements after two years with a view to dealing with its possible impact on structural reform and markets.

Saving of ?420m achieved as Degression and Modulation proposals changed

I am particularly satisfied with the outcome which I secured in relation to degression and modulation. The Commission's proposals represented a very serious threat to the level of direct payments in Ireland which are of such crucial importance to farm incomes. I opposed strenuously the proposed reduction of up to 13% in direct payments to meet future financing needs - the degression proposal. The removal of this automatic system of annual reductions in direct payments was a major achievement. The compromise which was agreed requires the Council to review from 2007 onwards the financial situation annually and, if budget deficits arise, to take necessary action. This is, I believe, a much more reasonable and acceptable approach.

In addition, the proposed rate of modulation had been reduced from 6% to 5% when fully operational and the retention of the ?5,000 franchise or exemption will ensure that almost half of Irish farmers will not have modulation applied to them. My objective in ensuring that modulated funds are retained in Ireland for rural development measures has also largely been achieved. Modulation will commence in 2005 at a rate of 3%, rise to 4% in 2006 and continue thereafter at 5%. Ireland will retain 85% of modulated funds. The resultant net reduction of ?6m per annum represents only 0.5% of the ?1.3 billion in direct payments which are currently paid annually to Irish farmers.

The outcome was a major improvement on the original proposal, where the combined effect of modulation and degression would have resulted in ?464m being siphoned off direct payments over the period 2006-2012. I must say that those who criticise last week's decision have been very quiet on these elements of the outcome.

Milk

Much has been made, however, of the decision in relation to the milk sector. The reality is that last week's decision provides for a cut of approximately 4% beyond the level already agreed in Agenda 2000, in contrast to the original proposals for an additional 10% reduction. In addition, while the original proposal provided for compensation for the intervention price reductions at the same level as applied in the Agenda 2000 agreement, that is at the rate of 56%, I managed to secure compensation of approximately 80% for the additional intervention price reduction of 4% which was agreed.

The potential losses to the dairy sector from the net effect of the 4% intervention price reduction and the increase in the dairy cow premium amount to less than ?14m a year or 1% of the farm-gate value of milk output. Obviously, the intervention price reduction will have effect only if product is sold into intervention. If product is sold where it should be sold, that is, on the market place, then there may not be any loss at all - in fact, depending on market prices, there could be substantial gains.

The agreement demonstrates again, emphatically, that the dairy industry must realise that sales to intervention is not the way to build a viable industry capable of remunerating its farmer suppliers adequately for its raw material. The industry must adjust to that reality. A few statistics illustrate where we are and what we have to do. In the last four years, Ireland has accounted for between 27% and 35% of EU butter intervention in-take compared with our 8% share of production. The figures for skimmed milk powder are similar. Our reliance on bulk, commodity products is way out of line with, for example, Denmark and the Netherlands. Whole and skimmed milk power contribute 50% of Irish total production of dairy products compared with 23% in Denmark and 15% in the Netherlands.

Notwithstanding the objective of reducing dependence on commodity products and on intervention purchases, I insisted that a reasonable period of time should be provided for the dairy industry to re-orientate itself to a lower level of intervention availability. The original Commission proposal was for a ceiling of 30,000 tonnes per annum on intervention intake of butter and this would have been disruptive in the short-term. I secured agreement, against enormous opposition and indeed without support from any ministerial colleague in the Council, to have the intervention limits for butter improved significantly. The final agreement increases the ceiling to 70,000 tonnes initially, reducing over five years to 30,000 tonnes.

The new dairy cow premium will not be decoupled until the reform in the sector is completed thereby favouring active producers.

Overall, I am convinced that the agreement is most satisfactory given, in particular, that the milk quota regime has been extended to 2014/15. A very small price of approximately 1 cent per gallon was paid in terms of intervention price reductions for that major objective which will play a major role in supporting the milk price until 2014/15.

Cereals

The original proposal for a reduction of 5% in the intervention price was unnecessary in view of trends in world market prices. I argued that the intervention price for cereals should remain unchanged. This was agreed and the Council also decided on a partial retention of the monthly increments. I also managed to secure the dropping of the original proposal for 10-year obligatory non-rotational set-aside, which would not have been suitable in the Irish situation. The new arrangements on set-aside are more workable in Ireland and allow for further set-aside obligations as market needs arise.

Measures for Young Farmers

I had been concerned about the overall impact of the Commission's proposals on young farmers and was anxious to secure the best possible terms and conditions for them. The strengthening of support available to young farmers by way of a special new incentive under the proposed rural development measures is another very positive outcome. The maximum support for young farmers undertaking investments within five years of setting up has been increased from 55% to 60% in less favoured areas and from 45% to 50% in other areas.

I also negotiated changes for young farmers which include:

  • the more equitable calculation of single payment entitlements for those who entered farming during the reference period;
  • flexibility to create a national reserve using up to 3% of established entitlements with the possibility of ring-fencing a certain percentage of entitlements for young farmers who commenced farming activity after 31 December 2002; and
  • the possibility of allowing young farmers who inherit farms to also inherit any entitlements established by the retiring farmer.
Other changes secured during Negotiations

Other changes secured during the negotiations are:

  • the Farm Advisory System or Farm Audit will now be voluntary for all farmers;
  • the national reserve may be used for certain early retirement cases;
  • special payment entitlements for certain dairy and other farmers can be traded in the same way as single payment entitlements.
Conclusion

My objective was to preserve the benefits of the Agenda 2000 Agreement for Ireland and I firmly believe that that objective has been realised. The agreement also has huge potential benefits in terms of reducing substantially the administrative and bureaucratic burden for farmers and the Department alike while allowing farmers freedom to farm and to respond to market demands. The new policy framework will ensure, therefore, a more market-orientated and sustainable agriculture and food industry which will be to the benefit of farmers and consumers. The package as agreed has a balance within it which repositions the CAP in the modern world. In the longer term, I believe that it will be seen as safeguarding its future. We are highly dependent on a strong and viable CAP and we are not serving our own interests if we bury our heads in the sand and ignore the external threats and challenges.

The options for decoupling direct payments will, as I have said, allow such payments to be made secure from challenge in the WTO. As a consequence, the contribution of direct payments to farm incomes and therefore to the rural economy will be safeguarded in a manner not heretofore achieved.

I do not believe that the level of criticism of the agreement, which is concentrated on one element only, is in any way justified. In an effort to substantiate their case against the milk element of the agreement, certain spokespersons have resorted to misrepresentation. They have added the intervention price reductions agreed as part of Agenda 2000 to the 4% price reduction now agreed. Even if it were legitimate to add these two price reductions together, these spokespersons would still be misrepresenting the facts since they have failed to add in on the positive side the benefits of the 2.8% or 32 million gallon increase in Ireland's quota which was part of Agenda 2000. That quota increase valued at the price being paid currently for restructured milk quota is ?45 million per annum, but this benefit has, of course, been ignored by those who are intent on distortion to suit their misguided purposes. I say ?misguided? because it is far from clear who benefits from distortion of the facts. Certainly, the confidence of Irish farmers, and particularly of young people contemplating a career in farming, can be severely dented by such distortions. It is disheartening that those who should show leadership in agriculture seem intent on spreading despondency and despair.

Following last week's agreement, I believe that we can look ahead with confidence and plan for the future in a stable policy environment. Those who continue to preach doom and gloom undermine confidence and do no service to our farmers and particularly those young people contemplating entering farming. There is a future for them and my priority now is to manage the transition from the old to the new regime so as to ensure a smooth transfer and enable Irish agriculture to exploit the new opportunities to the full.

MID-TERM REVIEW OF CAP


CALL FOR SUBMISSIONS ON IMPLEMENTATION OF DECOUPLING OF DIRECT PAYMENTS

The EU Council of Ministers reached agreement on 26 June 2003 on the Commission's Mid-Term Review proposals, including arrangements for decoupling direct payments. These arrangements consist of full decoupling and a range of options for partial decoupling.

The documentation and the draft regulation to which it relates, may be obtained from the Department's website www.agriculture.gov.ie or the E.U. Commission's website http://europa.eu.int/comm/agriculture/mtr/index_en.htm. or on application to the Department (see address below).

The Minister for Agriculture and Food has decided to institute a consultation process to have available to him the widest possible range of views before he takes a decision on which form of decoupling should be implemented in Ireland. Interested persons or organisations are accordingly invited to set out their views on the matter in a written submission.

Written submissions should be addressed to:
Ms. Corina Roe
EU/Trade Division,
Department of Agriculture and Food,
Kildare Street,
Dublin 2

(E-mail address: corina.roe@agriculture.gov.ie) to be received by Monday, 1 September '03 at the latest.

Freedom of Information Considerations

It should be noted that any material submitted to the Department in this connection may be subject to disclosure under the Freedom of Information Acts 1997 and 2003. If you wish to have any of the records concerned protected under the confidentiality or other exemption provisions of the Acts you should mark those records accordingly and such exemptions will be considered in the event of an FOI request relating to those records.