Half of Irish farmers `not to face CAP cuts'

Nearly half of Irish farmers are likely to be exempted from a key element of EU farm budget cuts being negotiated in the Agenda 2000 talks, the European Commission has estimated.

But the Commission has also put the cost of providing full compensation to Europe's beef and dairy sectors for the swingeing price cuts proposed in the CAP reform package at a huge £800 million extra a year to each of the sectors from 2004 on. It is proposing to compensate farmers for only 80 per cent of the cuts in guaranteed prices.

The Commission's estimates of the effects of various alternatives to its Agenda 2000 package, which have been seen by The Irish Times, were prepared for the group of high-level officials working on details of the Agenda 2000 talks.

With the emphasis in the talks now very firmly on savings, the scale of the figures will make grim reading to the Irish farm lobby. Ireland currently receives some £1.5 billion a year in farm payments and diplomatic efforts have concentrated on persuading its EU partners to provide full compensation for farm guarantee price cuts.

The Commission has insisted it does not think real market prices will fall to guarantee levels because of the buoyancy in the world markets. It is seeking guarantee price cuts of 30 per cent in beef, 20 per cent in milk and 15 per cent in cereals.

The Commission puts the cost of full compensation for price cuts to cereals farmers at £2.4 billion a year on the EU's planned annual farm spending of £40.5 billion (in 1999 prices). The total cost over the seven years of Agenda 2000 of full price compensation would be £23 billion.

But demands by net contributors like Germany for real reductions in their payments to the EU make extra compensation most unlikely and have driven the search for yet further cuts in the proposed budget.

While German proposals for "co-financing" of the direct aids budget - seen by farmers as partial re-nationalisation of the CAP budget - now appear doomed, it is only because the French have come up with an alternative means of saving money, known in the jargon of the talks as "degressivity". It is regarded as a real runner and is now the focus of discussions for a farm package compromise.

This involves cutting the direct aid compensation payments in successive years by the equivalent of average farm productivity increases - in theory then, farm incomes should remain constant. The French also propose putting a quarter of the savings into the Union's rural development budget, aimed at providing assistance to rural community budgets.

The Commission's estimates of the effect of this proposal are based on progressive cuts of 3 per cent a year, seen by observers as justifiable in terms of cereals productivity, but not in beef or milk, the two markets of most concern to Ireland. The figures are based on the exclusion of small farmers getting less than £3,900 in annual direct aid payments, and it assumes the cuts will take effect from 2002 in cereals, 2004 in beef and 2005 in milk.

On this basis half of Ireland's 150,000 farm holdings would be excluded from the "degressivity" cuts. The Commission says this would save the overall budget £3.2 billion over six years, while putting an additional £1 billion into rural development.

The £3,900 cut-off would also exclude 94 per cent of Portuguese farms, 82 per cent of Italian, 65 per cent of Spanish, or about five million farmers in the EU. Two thirds of EU direct aid payments would, however, be subject to claw-back. Farm ministers return to Brussels on February 22nd for a marathon heave to reach agreement.