February 13th 1999

EU favours three per cent cut in farm aid

By Paul Meade

Constantly reducing direct aids or degressive payments are now tipped to replace previous Commission proposals to put a ceiling on the level of direct aid payable to a single holding (Modulation option).

The massive level of annual savings being the main attraction and no member state rejected the idea at this week's high level group.

The Commission paper circulated to the high level grouping of EU agricultural civil servants details the annual savings arising from a 3% annual cut on all direct payments.

This cuts would apply to all direct aids introduced in the 1992 reform, a similar cut in the new beef aids from 2004 and new dairy aid from 2005. The cut would exclude forestry, retirement and reps payments as these are co-funded already. It also proposes that 25% of these savings are channelled into boosting EU investment in rural development.

The paper also details the savings where small producers receiving less than 5,000 euro (£4,000) per year are excluded from the cuts. This reflects the fact that EU politicans would not accept cutting farm aids to small producers and by excluding this category the overall package is more saleable politically.

The final shape of the degressive payment option may see variations in the precise cut, the level channelled into Rural development and farm exemption level.

Both Germany and Britain are extremely happy with the degressive option replacing the modulation option as this hits the large farms in both countries and generates only 400m euro in savings. France is equally happy with degressive as it means that co-financing will also be dropped from the proposals options. France stood to lose substantially under this measure

The degressive payment option is predicted to generate savings of the order of a net 3 billion euro by 2006 in the case where all direct aids are cut even to small producers. In this scenario, direct farm aids would fall by 4 billion euro with one billion being returned via rural development.

When small farmers receiving less than 5,000 euro are excluded from the cuts, the savings are reduced to a net 2.1 billion euro by 2006.

What is emerging in Brussels this week is that the budget concerns are driving the level and type of agricultural reform. The inclusion of a degressive annual reduction in the level of farm payments offers future flexibility to EU finance ministers to control farm spending.

It also provides a mechanism to wind down farm payments making them less attractive to the new member states to the East and make EU agricultural reforms more compatible with WTO issues. The EU's degressive payments option reflects to a large degree the US FAIR act under which farm payments are being consistently phased out.

The attraction of channelling 25% of the savings into Rural Development which is already co-funded, offers member states an avenue to draw down more EU funds by investing in this area.

In an attempt to sell the package politically, the Commission produced a table which shows that about 50% of Irish farmers and 70% of all EU farmers would not be affected by such a proposal. Many are sceptical of these figures saying that they include many farmers not currently receiving aid, like pig and poultry and many dairy farmers. The Irish Department is currently checking its farmer payment level to see if their exclusion rate matches the EU estimates

Interestingly, the cuts would hit ewe premium payments even though sheepmeat is already one of the major losers under the reforms.

The level of the farm budget was discussed this week at the EU's ECOFIN and general affairs councils. While some EU finance ministers wanted to put a specific limit on the annual farm spending, most were happy to provide farm ministers will flexibility in annual spending provided the seven budget allocation was maintained.