IMGXYZ647IMGZYXThe 2003 reforms to the Common Agricultural Policy (CAP) represented an important series of changes. First, the single payment scheme was created, which decoupled subsidies from production targets and instead based payments on past receipts and current land area. A cross-compliance requirement was also instituted so that payments were contingent on respect for other European values on protection of the environment and food safety and quality. As a result of this reform, farmers have changed their mindsets and now increasingly look to the market rather than Brussels in making decisions. Critics of the CAP can no longer claim that productivity regardless of price is the rule.
The EU is trying to widen the scope of the CAP reforms to cover additional products and markets. Commissioner Fischer Boel cited sugar as a commodity that exemplifies the EU’s commitment to reform. The EU has gone from being the number two exporter of sugar in the world to a net importer in just a few years. Ireland, for example, has now gotten out of sugar beet production. The fate of sugar demonstrates that an uncompetitive industry has no place in the future agriculture policy of the EU.
The EU plans to continue reforms with a “health check” midterm review in 2008. The health check will likely try to extend reforms to 100% of products and ensure the 2003 reforms can be adjusted where they are not currently working. A proposal on fruits and vegetables reform was presented in January of this year and another on wine is expected by the end of the year. Greater emphasis will be placed on rural development (pillar two of the CAP), not just agriculture.
Commissioner Fischer Boel reviewed what the EU has offered so far in the Doha Round, including a 70% cut to domestic supports and a complete phase out of export subsidies by 2013. This concession on export subsidies is more ambitious than what is on the table from any other player, and was largely responsible for preventing the collapse of the Hong Kong Ministerial at the end of 2005. The EU would like to see further movement from its trading partners on state-trading enterprises and on food aid, which it claims countries like the US use to dump surplus production.
Looking ahead, the EU is ready to reduce tariffs by an average of 50% (from current averages of 23% to 12%). On sensitive products, the EU is looking for an outcome in the middle range of figures proposed and has signaled flexibility on this point. Commissioner Fischer Boel hopes that other countries are beginning to better understand the EU’s offer on such products.
Critics who label the EU’s offer on tariff reductions weak are lacking proper perspective, as the cuts are two or three times greater than what was discussed in the Uruguay Round. It took more than 50 years to get tariffs down to current levels, so progress takes time. We should not throw the baby out with the bathwater; at the same time, real disciplines that cut beyond “water” will be necessary.
A dose of realism is necessary in talking about cuts to agricultural supports. Cuts in farm tariffs must be weighed against the loss of protection that could damage valued domestic production. Further reforms to the CAP are unlikely, because farmers need a level of predictability to make long-term investments. The EU cannot ask farmers to stand strong in support of reform one day and then undercut them the next day. Certain assumptions underlying the current process of CAP reform are not negotiable.
Commissioner Fischer Boel challenged the World Bank’s conclusion that tariff cuts will produce the most gains in the Doha Round. She believes, based on OECD work, that removal of export subsidies will also have a significant impact since there will be a double benefit of decreased EU exports and rising global commodity prices. More broadly, she thinks all pillars – market access, domestic subsidies, and export subsidies – must be addressed at once. The EU is prepared to compromise on market access if it sees balanced progress in each of the three pillars.
Even though the US and EU might not speak exactly the same language on agriculture, it is important to note that they are still talking. What is needed now are leadership and realism.
Discussion Session
Jim Berger of Washington Trade Daily asked for more information about how the Commissioner sees the administration’s Farm Bill proposal. The Commissioner said her staff is still analyzing the proposal. She sees several positive ideas, but wants more emphasis on disciplines. She expressed some concern over US biofuels policy. The EU is also developing its biofuels capacity but does not view ethanol as a “zero risk gold mine.” She believes that second generation biofuels (produced from waste or straw) and not current first generation fuels (produced from corn) will be the future.
Moderator Sherman Katz of the Carnegie Endowment asked the speaker to comment on the Farm Bill with respect to its shift to an income assurance model of domestic supports. The Commissioner pointed out that European subsidies are now delinked from production. The nature of farming in Europe, which has 14 million farmers, is different than in the United States, which has only 2 million. In Europe, most farms are owned and operated by the same person. Therefore most domestic support payments in Europe usually go to the person actually running the farm rather than an absentee owner.
Jamie Strawbridge of Inside U.S. Trade asked how the Commissioner will deal with French opposition to the Doha Round. She responded that, though France is not always happy, she has the majority of member states behind her. Ultimately, the Council of Ministers for External Affairs, an intergovernmental body, will have the final say.
Jon Huenemann of Miller and Chevalier asked for more information about planned reforms to the dairy sector. The speaker said the present quota system will expire in 2015 and there are no plans to extend the quotas. This is one area where the Commissioner could delay an announcement but wants to give farmers advanced warning so they can adjust by 2015. There may be increases to the quota in the 2009-2015 period.
Charlotte Hebebrand of the International Food & Agricultural Trade Policy Council asked about European imports of biofuels. Where are EU imports going to come from and what about the issue of sustainability? The Commissioner said import targets of 10% will become mandatory by 2020 (current targets are voluntary). Since there is not enough European land available to produce sufficient amounts of fuel and feed, imports will be necessary. Current land set asides need to be reevaluated.
Barbara Bramble of the National Wildlife Federation asked about the environmental impact of land clearing in terms of increased greenhouse emissions, i.e. land may be cleared to produce biofuel stocks for export to the EU in countries that are not prepared to handle the environmental consequences. Indonesia, for example, is now the third largest emitter of greenhouse gases because of deforestation. The Commissioner reiterated that the EU would have to manage the environmental impact and maintain a proper balance.
Joe O’Mara of O’Mara & Associates asked if there would be pressure to reverse CAP reforms in the event of a Doha collapse. The Minister replied that the outcome of Doha will affect the state of the world in 2013 and could impact how decisions are made at that time.
