EU Agrees Radical Farming Reforms

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.

Mr Fischler, who has been the architect of the reform plans, said: "This decision marks the beginning of a new era. Our farm policy will fundamentally change. We are saying goodbye to the old system which significantly distorts international trade and harms developing countries."

The agreement came early on Thursday morning after a 16-hour debate among EU farm ministers in Luxembourg. Earlier this month, the ministers had already been forced to break off negotiations twice, as they came to realise that their differences were still too large to allow for a compromise.

Looking at the package as a whole, Mr Fischler insisted it would give the EU a strong hand at the crucial WTO ministerial meeting in Cancún, Mexico, in September. Farm trade is widely seen as the biggest stumbling block in the current trade round, and the EU was under strong pressure to show its willingness to reform the CAP ahead of the Cancún meeting.

"Today's decision will give Europe a strong hand in the negotiations on the Doha Development Agenda. The EU has done its homework; now it's up to others to move to make the WTO trade talks a success," Mr Fischler said.