October 9, 2008

Crunch Time for CAP Review – but Will Anything Change?

By Dan Buglass Rural

THE Common Agricultural Policy, which comes at a cost in the region of 40 billion (GBP 36bn) to European taxpayers, was last subject to a major review in 2004, with the new regime taking effect on 1 January 2005.

That process was dubbed by the then agricultural commissioner, Franz Fischler, as a "mid-term" review, but it

was the most radical shake-up in the 40-year history of the CAP. Fischler managed to convince member states that the best interests of both taxpayers and consumers would be served by breaking the links between the amount of subsidy paid and level of production. Technically this was known as "decoupling".

In 2005 a raft of support measures covering most commodities were replaced by the single farm payment (SFP), which, in the case of Scotland, was based on the level of support received by a given farm businesses in the reference years of 2000-02. In round terms the SFP is worth in the region of GBP 400 million each year to the Scottish industry, but it is subject to "modulation" - the top-slicing of support at a progressively rising rate, with these funds directed towards environmental measures.

From the outset, Fischler's successor, Mariann Fischer Boel, who is the wife of a Danish farmer, made it clear that the new regime would be subject to a "health check" to assess how it was operating and to consider if there were requirements for any modest changes.

That process has been under way for several months, and the crunch will come this month when the Council of Ministers attempts to finalise the proposals.

Michael Mann, a spokesperson for Fischer Boel, speaking in Brussels this week, said: "There has been a lot of posturing over the summer months, but the process is now approaching the most critical stage."

Milk policies have always tended to be a hot topic and remain so. The European Commission has previously made it clear that it wants to end quotas, the mechanism that controls the amount of milk that each member state can produce without being subject to penalty.

When quotas were first introduced, Europe was awash with milk, with huge quantities of milk powder and butter languishing in stores before being sold off at knock-down prices to countries such as Russia. However, there is now no surplus of dairy products and the commission plans that quotas should be phased out by 2015 at the latest.

The UK has little argument with that policy, given that milk production is at its lowest level for almost 40 years. However, Austria and Finland want to retain quotas, while Italy is anxious to have a 10 per cent increase in its allocation and Germany seeks the establishment of a milk fund to support its producers in the hills and uplands.

The question of food security is a topic that has been exercising the minds of both farmers and some politicians, but the Brussels view, according to Mann, is that there are no food shortages in the EU.

Beef producers take issue with that. The fact is that the EU has gone from having a surplus of beef to the point where forecasters are claiming that imports of about 400,000 tonnes a year will be necessary in the not-too- distant future.

The UK's June census showed a decline of more than 2 per cent in the total cattle herd with a fall of 3 per cent in the number of cattle that will eventually be processed for beef. That comes on top of a similar trend over the past five years.

Scotland's beef breeding herd, at 485,000 cows, is at its lowest for very many years. The ex-farm price of prime beef cattle is now about 70p per kilo higher than it was 12 months ago, but if the SFP is taken out of the equation, then there is little profit.

The probability is that cow numbers will continue to decline because farmers know that they will still receive their SFP almost regardless of production levels.

France is the only major EU member state that retained coupled support for its beef sector - and only in France has production tended to increase. The French will be extremely reluctant to change their current regime.

The general view is that agreement on the "health check" will be reached later this year and that there will be little change in the current arrangements for Scottish farmers.

However, Italy is certain to be disappointed when Brussels declines to give that country's tobacco growers a direct payment on each hectare of the crop!

Originally published by Dan Buglass Rural Affairs Editor.

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