Turning the CAP tanker

Reform is vital if the Union can support farm-heavy countries like Poland

The Common Agricultural Policy (CAP) binds Europe's farmers together - but what is it and why is there pressure for it to be changed?

The CAP was a system designed to regulate food prices across Europe - to guarantee farmers prices for their food.

But technological developments have meant that more food can be produced on less land, and so the EU has ended up spending its £30bn yearly budget paying farmers to produce more food than is needed.

Many politicians and farmers want it changed because they say it is overly complex and inefficient in the way it regulates the European farming market .

But there are some British farmers lobbying for it to stay the same, thinking they will be worse off under a new system.

Turning the tanker

A German Euro-MP once explained that the CAP is like a huge tanker going very fast in one direction. In order to bring about change and turn it around, you have to take it through a large curve.

Reforms first published on March 18 under the banner Agenda 2000 aim to cut a third off the CAP's £30 billion-a-year budget.

But these changes will cost the taxpayer an extra £3.5bn.

How does the policy work?

It works in two ways:

• The European Union intervenes when prices for agricultural produce drop below a certain level and buys up surplus EU stock until the price has gone up above the intervention level.

• The EU has an external customs tariff which requires levies to be imposed on agricultural products from non-EC countries, raising their prices.

What's wrong with helping farmers grow more food?

In short, it's expensive, wasteful, environmentally unfriendly and unfair to consumers.

Immediately after World War II food shortages led governments to encourage farmers to produce food. But this policy has in the past led to the accumulation of wasteful grain, butter mountains and wine lakes.

Surplus produce is routinely destroyed or dumped very cheaply on markets outside the EU, distorting local prices and putting local farmers out of business.

The current reforms aim to shift resources away from compensating farmers when prices for their products fall below a certain level to direct subsidies for specific forms of production.

How will reforms benefit consumers?

Cutting subsidies and taxes will help make farmers compete in world markets and reduce the cost of food and drink.

Fischler: architect of Agenda 2000

"Farmers must become competitive, they must become entrepreneurs for the future," said Franz Fischler, the Agriculture Commissioner and architect of the reform plans known as Agenda 2000.

Consumers still pay far too much for their food. The average family of four in the Union is still paying out almost £20 each week in agriculture tax and higher food prices, according to figures published by the Organisation for Economic Co-operation and Development.

As people on low incomes spend a large part of their earnings on food, they are affected most.

The cost to the taxpayer is also high. Money is wasted on the export, storage and destruction of surplus produce. Around half the EU budget is spent on the CAP even though less than 6% of the workforce is employed in agriculture.

On a political level, CAP reform is essential if the EU is to absorb the poorer, agriculturally dependent countries such as Poland and Hungary as it plans to early in the next century.

In the next round of world farm talks at the turn of the century the World Trade Organisation will probably demand reform of CAP.

What about the environment?

CAP has led to farming practices which are environmentally unsound and disrupts international trade to the detriment of many developing countries.

Direct payments to encourage environmentally beneficial agriculture have been introduced in recent years. But spending on agri-environment and forestry measures is still very small - a mere 1.4% of total CAP spending.

Agenda 200 proposes subsidies in Less Favoured Areas will be transformed to encourage environmentally friendly farming. Early retirement and rural development incentives would be paid for through environmental schemes.

On the other hand, if subsidies are cut, there is a danger that farmers will destroy vast tracts of countryside to build huge farms to be able to compete with those in the States, South America and Eastern Europe.

What do farmers think of all this?

Continental Europe's farmers have long resisted CAP reforms which could put many out of business. Bavarian dairy farmers, Spanish olive growers and Greek tobacco producers are protesting at proposed cuts in intervention prices.

But the proposals are less radical than some had feared and some farmers - including many in the UK - welcome a more open market. Almost all farmers, however, fear the reforms will eventually lead to the death of the whole policy.

Based on information from BBC Research

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Agenda 2000 proposes a payments ceiling to each individual farmer.

Cereals

• 20% will be cut from the intervention price by 2000.
• The land EU farmers would need to set-aside will be reduced from 5% to zero.

Beef

• 30% would be cut from the beef intervention price between 2000 and 2002.
• Suckler cow and beef special premium subsidies (direct aid) would increase.

Milk

• 15% would be cut from support prices by 2005, but quotas would increase by 2%.

Environment

• Subsidies in Less Favoured Areas will be transformed to encourage environmentally friendly farming. Early retirement and rural development incentives would be paid for through environmental schemes.

The state

• EU countries would be able to introduce their own incentives within an EU-wide framework of rules.

Areas still to be reformed

• The olive, tobacco and wine sectors are not addressed in Agenda 2000. Reform proposals are in various stages of preparation.