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Thursday, June 26, 2003

Europe's Agricultural Reform

One year after starting the talks there is an agreement of sorts. Despite the fanfare that this is the biggest reform for 40 years, there do seem to have been a lot of compomises. So whether it turns out to be as radical as is being suggested truly remains to be seen. Decoupling can be as much a formula to save subsidies as it is a piece of radical surgery. The true test will come in Mexico in September

After almost a year of tense negotiations, the European Union on Thursday agreed a radical overhaul of its €43bn farm subsidy regime. The breakthrough is likely to lead to the most dramatic transformation of farm aid in Europe since the foundation of the common agricultural policy 40 years ago.

The final agreement represents a heavily diluted version of the original reform package, though Franz Fischler, EU farm commissioner, managed to rescue the central plank of his proposals - a plan to break the link between subsidies and production, also known as "decoupling".

Decoupling should in theory allow farmers to tailor output to demand, reduce incentives for overproduction and thus minimise the need to dump EU farm surpluses onto the world market. Decoupled farm subsidies are also deemed non-trade distorting under World Trade Organisation rules, which means they are not subject to the cuts widely expected to result from the current Doha world trade round.

However, bowing to incessant pressure from France and other countries, the final agreement will allow member states to keep a share of farm payments linked to production. Early European Commission calculations put the figure at about 30 per cent of overall direct subsidies to farmers.

But the biggest setback for Mr Fischler's reform proposals came as France and its allies blocked a plan to cut the prices at which the EU guarantees to buy cereals. Mr Fischler had hoped to bring EU prices closer into line with those on the world market, another thorn in the eye of Europe's trading partners.
Source: Financial Times

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