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Last Updated: Thursday, 26 June, 2003, 13:09 GMT 14:09 UK
Q&A EU farm reform
EU agriculture ministers have agreed an overhaul of the money paid to farmers.

The deal has been described as a "historic agreement" that will replace the 45-year-old Common Agriculture Policy (CAP) and shape Europe's agricultural sector for the next 10 years.

But what has changed and why does it matter?

What is the Common Agricultural Policy and why did it need changing?

Under the Common Agricultural Policy, Europe's farmers receive subsidies of 43bn euros (31bn; $51bn) a year, about half the entire budget of the EU.

The EU's farm support programme was set up in the 1950s. By rewarding farmers for their output, it quickly made Western Europe self-sufficient in food.

But these payments skewed the balance of supply and demand, and massive surpluses of cereals and dairy products developed in the 1980s.

These food surpluses had to be sold on world markets where prices are much lower than in the EU.

Consequently, the EU began to subsidise exporters to sell farm products abroad.

Why does that need to change?

Agriculture reform has been a modest worry for European policymakers for decades.

When 10 mainly poor, mainly rural countries join the EU next year, claims on that budget would become unsustainable, unless some new formula for distributing cash is agreed on.

The subsidies are also an embarrassment as the prospect of a new global trade agreement looms in September.

Europe's trading partners have repeatedly insisted that the CAP be reformed, pointing out that its web of subsidies puts non-EU producers at a disadvantage.

Less tangibly, too, Brussels needs to be able to prove that it can force through complex and painful reform.

So what will change and how does the new system work?

Europe's farmers will still be subsidised.

But they will receive a one-off payment instead of having the subsidies linked to the quantity of food produced.

However, the initial plans completely to sever the links between output and subsidies were abandoned in order to get an agreement from all countries.

The new agreement contains a get-out clause that means the old system can continue if there is a risk of farmers abandoning the land.

Indeed the French farm ministry - which opposed the reforms - says the principles of the Common Agricultural Policy are still in place.

And unions have criticised the deal as a botched compromise with a little give and take for everyone.

EU agriculture ministers have been arguing over the deal for three weeks, and failed twice to reach any sort of agreement at all.

So will that mean European food prices rise?

As is the way of the EU, nothing will happen in the short term.

The changes will start to be introduced in 2005 and there will be a gradual phasing in over two years.

According to some calculations, the CAP costs consumers more than twice as much - in terms of higher food prices - as it costs the EU budget.

Food may get cheaper, but it is likely that the financial benefits will be passed on to the farmer, rather than the consumer.

The fear that some farmers will be forced out of business has been a key issue raised during the talks.

But the need to provide consumers with cheap food has not.

In the UK, the Consumers' Association slammed the decision as offering little or nothing to consumers.

"This is a tragic missed opportunity, and once again it is consumers who will pay the price," said the CA's Director, Sheila McKechnie, adding that Europeans pay amongst the highest food prices in the world.

Experts in the UK said it was still too early to estimate the long-term impact on food prices while the finer details of the complex reforms are being absorbed.

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