The shopping basket, the soil and the public purse

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Cheaper food? Europe's support system for farmers was designed with the aftermath of the Second World War and the threat of mass starvation in the cities still fresh in the minds of the EEC's founding fathers.

Today, shoppers take for granted that supermarket shelves will be laden down all year round with fresh meat, bread, milk, fruit and vegetables. That is itself a testament to the success of the Common Agricultural Policy (CAP) in guaranteeing steady supplies regardless of the weather.

But stocking the shops and securing the incomes of nine million farmers has been done on the back of artificially high consumer prices over the past 35 years. Basing their claims on Organization for Economic Co-operation and Development studies of world food prices, consumer groups claim the policy adds pounds 20.00 a week to the shopping basket for a family of four.

Centrally-controlled from Brussels, which manages the huge pounds 30bn annual farm budget, the CAP's cornerstone is a legal guarantee for farmers that their produce will be bought at a minimum price.

Imports from the outside world, for example lamb or butter produced in New Zealand where production costs are several times lower, are subject to high import tariffs.

Scrapping open-ended intervention and phasing out price supports should bring EU food prices much closer to prevailing world levels.

That, in theory, means savings for consumers - not just on beef which is to undergo the steepest cut, 30 per cent, but also on chicken, pork and dairy products.

In practice, however, the price farmers receive accounts for only part of the price charged by retailers. Transport, processing and packaging must be factored in. Retail prices did not fall after the last round of CAP reform in 1992, and industry analysts are sceptical about cheaper food resulting from the next one.

The CAP reform proposals would also make farmer subsidies partly conditional on more environmentally-friendly farming methods, with much more money to be spent in future on promoting organic farms.

Poorer farmers?

Europe's nine million farmers, cosseted by Brussels from the free market forces of supply and demand for many years, are at last being told to do what every other industry has had to do: compete.

But the powerful farm lobby is already gearing up for a long resistance campaign. Expect to see noisy and often violent French and Italian farmers taking to the streets.

Many of the farmers will have the support of their governments. They succeeded in watering down the severest price cuts in the 1992 negotiations and securing open-ended compensation.

Franz Fischler, the Austrian commissioner who has framed the latest plan, will adopt a strategy which could prove effective: divide and conquer. He will try to convince the smallholders and family farmers that he is Robin Hood, robbing the rich cattle ranchers and barley barons who are still creaming off 80 per cent of the subsidies, to pay them, the salt of the earth.

He is proposing to turn indirect price support available for everyone into direct subsidy, payable only where needed.

Most crucially, Mr Fischler wants to impose individual ceilings on direct- aid payments. This was successfully resisted in 1992, leaving many bigger farmers even better off after the reform than before. Some British farmers, the East Anglian grain barons for example, can earn up to pounds 1m a year from payments introduced in 1992 to compensate grain price cuts and set-aside.

Yet it is these big producers which will be best placed to take advantage of free world trade in food and farm products, inevitable after new rules are negotiated in 1999.

Who foots the bill?

British taxpayers could end up paying even more if CAP reforms are implemented.

The plans are designed to prevent a budgetary crisis when the EU expands into agriculture-dependent Eastern Europe, increasing the pounds 30bn annual budget. The extra spending will be needed to pay for switching support from price guarantees towards direct cash aid.

Brussels officials, however, insist that big savings will arise through the scaling down of the system whereby the EU agrees to buy up unwanted food and place it in cold storage to drive up prices. "Intervention", as the system is called will only be allowed as a safety net.

Savings are unlikely to cover the cost fully, so the farm budget will rise for a number of years. One estimate is that farming's share of the total EU budget will go up to 50 per cent from a present level of 45 per cent.