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Last Updated: Wednesday, 15 June 2005, 14:42 GMT 15:42 UK
Q&A: EU Common Agricultural Policy

A fierce debate is expected in Brussels at a European Union summit considering the organisation's budget for the period 2007-2013.

Britain and France are the protagonists of the latest dispute - the UK says payments into the Common Agricultural Policy (CAP) which benefit France most ought to be reviewed, as France wants the sizeable UK rebate to be phased out.

BBC News explains the main elements of the CAP.

What is the Common Agricultural Policy?

The EU's farm support programme was set up against the backdrop of food shortages and rationing after World War II, to stabilise European food markets.

Originally, it was aimed at ensuring food was available at all times and reliable prices - and ensuring farmers had adequate incomes, regardless of climatic disruption.

By subsidising output, the policy 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 was the system changed?

EU policy makers have been aware of the CAP's side effects for a long time.

Since 1992, Brussels has sought a gradual shift from price support - which distort both world and EU markets - to direct subsidies to farmers.

The move was resisted by many - particularly in France. But the drive for reform gathered pace with the prospect of 10 mainly poor, mainly rural countries joining the EU - and the unsustainable claim they would make on the budget.

Leaders of what was then a 15-member union agreed on a new formula in June 2003 to distribute the cash.

Another consideration was EU embarrassment in the face of Europe's trading partners which had repeatedly insisted that the CAP be reformed, pointing out that its web of subsidies puts non-EU producers at a disadvantage.

Oxfam took the lead arguing the system significantly impacted on the world's poor farmers who were unable to compete with EU-subsidised produce.

What changes were made?

The reasoning behind the change was explained by the European Commission.

"Citizens in present-day affluent Europe need no longer be troubled by anxieties about safe and secure food supplies," the commission said.

"Their concerns are much more focused on food production methods and whether sufficient attention is being paid to market requirements, the environment, food safety, food quality and animal welfare."

In sum, Europe's farmers are still being subsidised - but in a different way.

From the beginning of 2005, they receive a one-off payment instead of having the subsidies linked to the quantity of food produced.

The subsidies are fixed by each country and go to farmers who are encouraged to pay more attention to the environment, food safety and animal welfare than the quantity of the product. For instance, EU money can now be used to restore wildlife habitats.

However, initial plans to sever fully and finally the links between output and subsidies had to be abandoned in order to get an agreement from France.

And the deal provides for the new system to be introduced as late as 2007 if certain member countries so wish - as well as a get-out clause that means the old system can continue if there is a risk of farmers abandoning the land.

Q: How much does CAP cost to the EU budget?

Under the policy, Europe's farmers receive subsidies of about 50bn euros (33bn; $60bn) a year, just under half the entire budget of the EU.

The Commission says this is less than half the welfare spending in Germany - otherwise each citizen of Europe pays two euros (1.3) a week - "hardly a high price to pay for a healthy supply of food and a living countryside".

The claims on the budget increased with the EU enlargement to 25 members in May 2004, adding four million farmers to the existing farming population of seven million.

Q: Does all the money go to small farmers?

The European Commission insists it does.

But each government if free to choose who it pays - admittedly upon meeting certain criteria.

However, many observers say wealthy landowners and the agro-business benefit most.

According to the Foreign Policy Centre (FPC), a leading UK think tank, cites UK government statistics for 2004 showing the biggest payment had gone to sugar refiner Tate and Lyle (127m; 190m euros; $230m).

An FPC expert who used to advise the UK agriculture minister said "for too long people had been misled to believe that farm subsidies are about protecting small and family farms".

Q: What is the Franco-British row about?

European leaders are due to consider the budget for the period 2007-2013 at their Brussels summit.

CAP contributions have been frozen in real terms until 2013.

UK Prime Minister Tony Blair says farm subsidies should be cut.

France's President Jacques Chirac vehemently opposes this and says the UK's rebate of 5bn euros (3.5bn) a year ought to be phased out.

But a deal would call for a compromise and France and the UK appear in no mood to give ground.

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