As revealed by The Independent last week, proposals unveiled by European Commission President Jacques Santer yesterday outline the first stage of a bid to phase out guaranteed market prices, the cornerstone of the annual pounds 30bn Common Agricultural Policy budget since its inception in 1962. Prices for the three key commodities - cereals, beef and dairy products - could be slashed by up to one third between 2000 and 2002, accompanied by a huge shift towards direct aid for farmers on low incomes.
Defending the proposals, Franz Fischler, the EU farm commissioner, warned there was no other option. "The alternative to reform, if we carry on with the present system, would mean new cereal and meat mountains, bigger than the ones we we had to cope with in the past. The demand for food is not going to go up significantly in the next few years," he said.
Eating up around 45 per cent of the EU's central budget, agriculture is an obvious target for pre-enlargement reform. This will not necessarily reduce the amount the CAP costs taxpayers, but to avert an explosion in spending down the road given that a quarter of the workforce in Eastern Europe is employed on the land. Brussels also fears the political and economic upheaval which would flow from forcing eastern Europeans, whose purchasing power is one third of people in the EU, to pay the artificially high prices charged in the Union.
Direct cash aid will, the Commission estimates, cause spending to rise by almost pounds 6bn annually, while savings on price and export subsidies will amount to pounds 2.8bn, a net increase of pounds 3.2bn in the annual farm budget.
But consumers should see some benefit. Cutting the price guaranteed to farmers by 30 per cent for beef, 20 per cent for cereals and 10 per cent for milk, is aimed at allowing EU farmers to compete on world markets without the aid of export subsidies. Beef in Australia is produced for around 38p per pound, in Europe farmers receive closer to 90p per pound.
The drive towards world prices should therefore in theory lead to cheaper food in the shops from 2000, easing the burden for EU taxpayers on one front at least. "It is clear that the prices for consumers will come down. Beef in particular must become as competitive as white meat in the supermarkets" said Mr Fischler.
Industry analysts stress, however, that the play of market forces could work against consumers as it did in the past three years, when a world drought drove the grain price up despite 1992 cuts in the guaranteed prices for cereals. Furthermore the farmgate price is just one element of the retail price - transport, packaging and the profits of middlemen have to be factored in.
The reaction of the powerful EU farm lobby which immediately labelled the latest proposals "catastrophic" heralds a rough round of negotiations which could see the worst of the price cuts softened.