The link between farm incomes and production needs to be broken, the EU believes. Patrick Smyth, European Correspondent, reports
By PATRICK SMYTH
RAY MacSharry's shadow looms large again over the Common Agricultural Policy. The CAP reform package being prepared by his successor, the Agriculture. Commissioner, Mr Franz Fischler, could be described as "MacSharry with a dash of subsidiarity".
Once again in the face of major external challenges, EU enlargement and the prospect of another WTO round, the Union must take the axe to the root of its hugely expensive farm support system with another step towards decoupling farm incomes from production.
The proposals which are expected to be agreed by the European Commission will cut beef intervention prices by 30 per cent cereal institutional prices by 20 per cent, and milk by 10 per cent, to bring prices down to or close to world market levels. In return farmers will receive compensation for their losses in the form of direct income support like the headage payments made to beef producers.
The purpose is straightforward on two fronts. The cost of extending the current price support system to central and eastern Europe would be prohibitive and lead to gross distortions in the markets, which would almost certainly delay their modernisation.
And the EU can also only hope to dispose of its huge expected surpluses on the world markets if it reduces its price subsidy regime. The current WTO trade round provides for a steady reduction in subsidised exports. The next round is certain to be tougher.
The only hope is to continue the MacSharry process.
The effect of the MacSharry reforms were much feared at the time as being likely to bring a fall in farm incomes but have not in fact led to such. While incomes from farming in 1992 totalled Pounds 1,185 million, in 1995 farm incomes went over Pounds 2 billion for the first time and in 1996 hit Pounds 2.92 billion. Extrapolating the effect of the current measures on incomes is, however, likely to prove difficult.
What is most clear is the extent to which the Irish farmer depends on direct income payments - the cheque in the post - up from Pounds 405 million in 1992 to Pounds 911 million last year. That process will continue.
However, Mr Fischler also goes further than Mr MacSharry in proposing to give national governments more control over the way in which compensation payments are allocated. This should allow governments to meet the criticism from the past that CAP payments have helped larger farmers who were less in need of support while the smaller ones struggled on the edge of viability.
While the Government might publicly welcome greater discretion in the spending, the proposals may yet create substantial headaches for it concerning issues like whether to limit the scale of individual compensation by putting a ceiling on headage payments.
It is likely such clashes of interest will be reflected in different responses to the proposals from the ICMSA and the IFA. The former has been pressing for ceilings on individual compensation.
Mr Fischler has made clear his opposition to proposals to "renationalise" CAP, essentially for Brussels to wash its hands of farm subsidies while allowing member-states to bring in their own income subsidies.
He argues that such a policy would fly in the face of Union solidarity with its poorer members, but the IFA was warning yesterday that there are ominous references in the proposal to national top-up payments which they say would be easier for richer countries to afford.
The Commission's proposals are designed to keep overall increases in the CAP budget rising at their current level, slower than overall increases in the EU budget. In 1997 CAP spending will amount to some Pounds 32 billion, or 46 per cent of overall EU spending.
The following are the detailed proposals in the Fischler package:
Cereals - A 20 per cent cut in institutional prices in the year 2000 with compensatory aid payments up from 54 ecu (Pounds 40) per tonne to 66 ecu (Pounds 50). A single rate will apply to cereals, oilseeds and protein crops, although a 6.5 ecu supplement for protein crops is being discussed.
The base rate for setaside will be reduced from 17.5 per cent to zero, although the Commission will not rule out its reintroduction in future years as a market management tool.
The Commissioner is hoping to introduce a means of capping the benefits to larger farmers either through a ceiling on direct aid per holding, as Mr MacSharry proposed in 1991, or through giving national governments discretion by handing them a sum proportional to their current aid and expecting them to distribute it.
Beef - A 30 per cent cut in intervention prices over three years (2000- 2002) with import and export management measures adapted accordingly and greater scope for private intervention. In return the various premiums will be increased: suckler cow, from: 145 to 215 ecu a head (Pounds 161); beef special premium, young bulls: (one payment), 125 to 368 ecu (Pounds 276), steers (two payments), 109 to 232 ecu (Pounds 174).
There are no proposals so far on stocking densities or headage limits but the Commissioner is also considering the payment of national envelopes, based on current receipts, to allow greater local discretion on the allocation of compensation.
Dairy - The quota regime to remain in place until 2005, with a 10 per cent cut in prices over two years and the introduction of a dairy cow premium on a par with the suckler premium though with a headage limit.
Structural - Existing structural programmes and funds, such as environment, afforestation and early retirement schemes, will be supplemented within the CAP by the use of structural funds from Objective 5a, rural development. Co-funding requirements will be based on either less- favoured areas status (75 per cent EU-funded) or non-LFA (50 per cent EU).
The reorganisation of structural funding to rural areas has been long advocated by Mr Fischler, who sees it as a means of getting a greater coherence and integration of rural policies.