The drive in Europe to cut subsidies on farm products

Press, 7 December 1988, Page 22

The drive in Europe to cut subsidies on farm products

Barry Cawthorn,

First Secretary (agriculture,

food) at the British High Commission, defends the attempt to reform the E.C.’s farm policy

OVER THE LAST few months much has been written about access into Europe for New Zealand butter and sheepmeat. Understandably so; this is a matter of great importance to New Zealand producers.

But this concentration of media reporting has tended to push into the sidelines the major developments that have been taking place in reform of the Common Agricultural Policy (C.A.P.) of the European Community. Knowing of the great interest shown by most New Zealand farmers about developments in European farming policy, the time might be ripe, as the current access negotiations draw to a close, to give some information on recent changes in policy and the effects they are having. The British Government has long believed that reform of the C.A.P. is very much in the interests of farmers as well as taxpayers. While recognising that in the light of its original aims the C.A.P. was a great success, it has acknowledged for some time that, in its original form, the policy is out of date. It is out of touch with reality. A policy which continues producing food in excess of domestic need and at a very high cost, and which markets cannot afford to buy, is economic madness. The British Government has stressed repeatedly that the more that farmers can produce for the true market place, rather than the intervention store, the more soundly based and satisfying will be their businesses and the less uncertainty they will face for the future.

C.A.P. reforms started in earnest in 1984 with the introduction

of milk quotas. The European Commission estimates that, together with further changes to the milk regime such as were introduced under the British presidency in December 1986, the reforms will effectively have saved 25 billion ECU (European currency units more than SNZ4S billion) between 1984 and 1989. Average effective European Community support prices have been reduced every year since 1984 — in real terms — that is to say even taking account of green currency changes. And food prices have not taken off, as forecast by some pessimistic experts. British food prices have risen more slowly than the retail price index for over ten years; last year the retail price index rose by 1 per cent more than food prices. In February the European Council introduced, for the first time, a legally binding ceiling on C.A.P. market expenditure. This will effectively limit its growth to less than 2 per cent a year in real terms over the next four years compared with 10 per cent over the last four. On current estimates, C.A.P. market spending will reduce as a proportion of European Community expenditure from 68 per cent in 1987 (full year) to about 55 per cent in 1992.

The ceiling is not only legally binding, it is also backed up by a number of practical measures to strengthen financial control. For example, there is an “early

warning system” to monitor expenditure on each commodity sector month by month and ensure that preventative action is taken if an overshoot is threatened.

One example of these new financial controls is the introduction of a limit on cereals exports of 1.6 million tonnes, imposed this summer in order to stay within the 1988 budget (despite high demand for cereals worldwide after the drought in North America). Stabilisers, which provide a framework for automatic cuts in support levels over the next three years if production levels are exceeded, will also help to control production and expenditure and generally operate by limiting full levels of support to quantities of production more in line with the needs of the market. They are now in place in nearly all the C.A.P. sectors, and should cut costs and enable producers to receive better signals about the needs of the market.

Complementary measures to stabilisers include the set-aside scheme which will help reduce overproduction of arable crops by taking land out of production. Also being introduced are a range of other schemes designed in various ways to help farmers in process of adapting to a more market-orientated C.A.P. to encourage them to diversify out of surplus production and to further other (e.g. environmental) objectives. These include environ-

mentally sensitive areas (which have attracted high participation rates and have recently been extended to new areas of the country), the farm woodlands scheme and the farm diversification scheme. Under Britain's Agriculture Act 1986 Ministers are committed to give due weight to environmental considerations in formulating agricultural policy. The 1988 price-fixing settlement carried forward the process of reform. The over-all package respects the expenditure ceiling for 1988 and 1989 set under the new budgetary arrangements, and downward pressure on support levels conttinues. In real terms, taking into account green currency changes and inflation, the package represented a cut in effective support price of about 2.8 per cent. In Britain the package will have a negligible effect on food prices, about one-fifth of 1 per cent, next year. It has to be acknowledged that all these measures were introduced under the pressure of rapidly expanding cost of agriculture to the taxpayers at the expense of investment in other areas of community development for which funds were badly needed. The financial results are already quite remarkable.

In the next three years savings as a result of these reforms will amount to some SNZ3I2O million compared with what would have happened without them, SNZ3I2O

million that can better be used in other ways. But the effects of introducing the measures on surplus production are also now apparent.

The European Community grain mountain has fallen more than 20 per cent from about 14 million to 11 million tonnes in a year.

Community stocks of surplus wheat have fallen by 66 per cent from almost 12 million tonnes to about 4 million tonnes since the end of 1985. Over the same period, British stocks have fallen by about 80 per cent from 3.6 million tonnes to 822,000 tonnes.

Over the last year stocks of surplus butter in the Community have fallen by thwo-thirds from over 1 million to under 400,000 tonnes and in Britain by the same proportion from 213,000 tonnes to 70,000 tonnes. There was more than a million tonnes of surplus skimmed milk powder in store in the Community in 1986 and 60,000 tonnes in Britain. Now there is virtually none. Stocks of surplus food in Britain have fallen so that the value of food in store is less than half of what it was at the end of 1985.

The Community is well on target to reduce its expenditure on agriculture to 55 per cent of total budget by 1992.

The reduction in subsidy expenditure should be recognised as an earnest of our willingness, nay determination, to see progress in the fight against subsidised overproduction, and the build up of unmarketable surplus products which can so distort trading in the world market place. This can only be to the benefit of agricultural trading nations such as New Zealand.