INTRODUCTION

In defining its position on the future of the Common Agricultural Policy, the European Commission has carefully assessed the impact of the 1992 reform process (which is broadly favourable) and the current set of challenges and opportunities facing EU agriculture. The Commission confirms the policy choice retained in the Agricultural Strategy Paper of December 1995 presented to the Madrid European Council. It proposes deepening and extending the 1992 reform through further shifts from price support to direct payments, and developing a coherent rural policy to accompany this process.

OBJECTIVES OF THE CAP

The Commission sets out a number of objectives for the CAP :

• increased competitiveness internally and externally in order to ensure that EU producers take full advantage of positive world market developments;
• food safety and food quality which are both, a fundamental obligation towards consumers;
• ensuring a fair standard of living for the agricultural community and contributing to the stability of farm incomes;
• the integration of environmental goals into the CAP;
• the creation of alternative job and income opportunities for farmers and their families;
• simplification of EU legislation.

NEW REFORMS

CROP SECTOR : CEREALS, OILSEEDS AND PROTEIN CROPS

Without policy change, it is likely that cereals intervention stocks could reach some 58 mio t by the year 2005, while the trade deficit in oilseeds would remain very substantial.

In these circumstances the Commission favours a more offensive approach which would have the advantage of simultaneously avoiding the routine use of export subsidies, reinforcing the competitiveness of cereals on the internal market, overcoming the Uruguay Round constraints for cereals and oilseeds, and last but not least, achieving a significant degree of simplification.

The Commission therefore proposes the following measures :

• the cereals intervention price to be fixed in one step (in the year 2000) at a safety net level of 95.35 ECU/t (its present level is 119.19 ECU/t)
• a non crop specific area payment to be established at 66 ECU/t (multiplied by the regional cereals reference yields of the 1992 reform)
• set-aside : the reference rate for compulsory set-aside to be fixed at 0%; voluntary set-aside to be allowed; extraordinary set-aside to be abolished; set-aside areas to get the non crop specific payment;
• silage cereals (mainly silage maize) to be excluded from the regime;
• special cases : for protein crops, a supplementary aid to be established at a level of 6.5 ECU/t in order to preserve their competitiveness with cereals; for durum wheat the present supplements to be maintained.

BEEF REGIME

Supply control measures to address the effects of the BSE crisis, together with a cyclical downswing of beef production until 2000, should lead to a substantial drop in stocks. Without policy change and after expiration of the present short term supply control measures to address the effects of the BSE crisis, it is likely that intervention stocks would increase and could reach some 1,5 Mio t. by 2005. In addressing the issue of future beef surpluses, the Commission again favours a pro-active approach, rather than supply management or short term emergency measures. Such a strategy could achieve a substantial reduction in export refunds to traditional destinations, help develop new export outlets without subsidies, and rebalance internal meat consumption to the benefit of beef.

The Commission therefore proposes to gradually establish effective market support at a level of 1 950 ECU/t (from its present level of 2 780 ECU/t) over the period 2000-2002.

While internal market prices can be expected to remain higher than the new support price levels, nevertheless, farmers will experience some loss of income. The Commission proposes therefore to gradually increase direct income payments, to be paid, as at present, on a per head of cattle basis.

When the new system is fully in place, they would reach the following level (the current level of payment is mentioned in brackets):

• suckler cow : (yearly payment) 215 ECU (145 ECU)
• male bovine : bull (one payment) 368 ECU (135 ECU)

steer (two payments) 232 ECU (109 ECU)

• dairy cow : (yearly payment) 70 ECU (no premium)

The different mechanisms governing headage payments and favouring extensification will be adapted in order to take account of the termination of the silage maize regime.

DAIRY REGIME

Following an in-depth examination of market developments in the sector, the Commission has opted for a cautious approach at this time, and discards radical solutions, such as drastic price cuts and rapid abolition of the quota system.

Nevertheless, farmers should not be given the impression that the present system, with its intrinsic rigidities, can last forever. There are a number of factors of uncertainty, in particular the results of the next WTO Round.

The Commission proposes therefore to :

- extend the quota regime up to 2006;

- improve flexibility and simplify the present CMO;

- gradually decrease support prices, by an average of 10% in total over the period;

- introduce a new yearly payment for dairy cows, at a level of 145 ECU.

Together with the new payment introduced for dairy cows in the beef context, the total dairy cow premium would be 215 ECU, equal to the suckler cow premium.

MEDITERRANEAN PRODUCTS

Commission reports on the tobacco and the olive oil sectors are currently under consideration, within the EU institutions. As soon as the necessary debates have taken place, the Commission will table detailed legislative proposals for both sectors.

In relation to fruit and vegetables the Commission intends to carefully monitor the implementation of the reform agreed by Council, in July 1996.

On wine the Commission's intention is to review the reform proposal, which has been pending since 1994, and present a new proposal once the market situation for 1997 has been fully analysed.

DIFFERENTIATION AND CEILINGS FOR DIRECT PAYMENTS

The Commission intends to propose the introduction of an individual ceiling covering all direct income payments granted under the Common Market Organisations. In addition, Member States would be allowed to introduce differentiation criteria in accordance with commonly agreed rules.

RURAL POLICY

In the years ahead, agriculture will have to adapt to further changes in market developments, market policy and trade rules. Local economies in rural areas will, of course, also be affected by these changes, at a time when many such areas are confronting acute economic development problems. Moreover, rural areas are increasingly required to fulfil important environmental and recreational functions.

With regard to this latter point, a prominent role will be given to agri-environmental instruments to support a sustainable development of rural areas and respond to society's increasing demand for environmental services.

Targeted agri-environmental measures should be reinforced and encouraged through increased budgetary means and, where necessary, higher co-financing rates. Most relevant are services which call for an extra effort by farmers, such as organic farming, maintenance of semi-natural habitats, alpine cattle keeping, etc.

Another possibility which deserves further consideration, is to take into account the considerable overlap between Less Favoured Areas (LFAs) and areas of high nature value, and to gradually transform the related support scheme into a basic instrument to maintain and promote low-input farming systems.

Finally, with respect to better integrating the environment into the Common Market Organisations, the Commission will make a proposal enabling Member States to make direct payments conditional on the respect of environmental provisions.

As far as the other aspects of sustainable rural development are concerned, the Commission suggests that these developments should be encouraged and supported by a reorganisation of the existing rural policy instruments:

• The existing CAP accompanying measures financed by the EAGGF, Guarantee Section (agri-environment scheme, afforestation, early retirement) will be supplemented by the Less Favoured Areas scheme. All these measures will be applied horizontally and implemented in a decentralised way.
• The current approach of integrated development programmes will be maintained in those rural areas, located in regions which are presently eligible under Objective 1 of the Structural funds.
• In rural areas eligible under the new objective 2 of the structural funds rural development measures will be financed as accompanying measures by the EAGGF Guarantee Section. These measures will be implemented together with the ERDF and the EST within the same programme at the level of the objective 2 region.
• In all rural areas outside Objective 1, rural policies designed to accompany and complement market policies will be co-financed by the EAGGF Guarantee Section. Rural policy, in this context, will embrace all types of measures supporting structural adjustment and rural development, as presently co-financed by the EAGGF Guidance Section. These will be applied horizontally and implemented in a decentralised way, at the initiative of the Member States.

In this way it should be possible to ensure that the reform of the CAP, in addition to continuing market and income support, is accompanied throughout the Union by a broad range of rural development measures, without neglecting therefore the objectives of economic and social cohesion.