More Support Changes On The Way?

The industry is still struggling with the fallout from previous reforms of the CAP, but attention is now switching to what might come next.

As part of the 2003 Fischler Reforms, it was written into the legislation that a review of the system should take place in 2007-08.

The EU Commission is being careful not to call this a mid-term review, mindful that the last review with that name turned into the most radical overhaul of the CAP in its history. Instead the assessment is being dubbed the CAP ‘Health-Check’. At present, there does not seem to be a huge appetite for another wholesale reform of the CAP – especially as there is a major review of the whole EU budget (including the CAP) scheduled for 2007-08.

Despite all this, some reforms are likely to be on the agenda for the Health-Check.

• Cuts in cereal intervention prices to deal with the large surpluses building up in central Europe. However, the problems are such that action may need to be taken before the proposed Health-Check. As a consequence (and also to sweeten the pill), any changes in intervention prices or standards could also see the set-aside requirement being removed.

• Additional cuts in dairy support prices could be on the cards, while an end-date for milk quotas might also be announced.

• It’s possible that the EU will look at the level of compulsory EU modulation. By 2007, this will stand at 5% and is scheduled to remain at that level. Ministers might agree to increase this percentage to direct more funding at European Rural Development.

• There is also the possibility that the EU Commission will try to persuade member states to move away from historic SPS systems towards a regional basis, as adopted in England and Germany.

• One further issue that may be included in the Health-Check is capping. Capping limits the amount of aid that any single business can receive from the CAP. The idea has appeared in previous reforms, with a limit of €300,000 being proposed (just over £200,000). In the past, capping has always been removed from any agreement due to the UK and Germany rejecting the proposal as they have large farm sizes. However, capping is an idea whose time has perhaps come.

• Any money raised through capping can be recycled into rural development spending in the country concerned and, politically, it may be expedient for governments to be seen to be clamping down on large subsidy recipients. As it is likely that capping will only apply after modulation and financial discipline deductions, the result may well be that in the UK, only a few hundred farm businesses will be affected – not a very big lobbying block.

We are grateful to Andersons, the farm business consultants, for their contribution to this bulletin. We have taken great care to ensure the accuracy of this newsletter. However, the newsletter is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. © Smith & Williamson Limited 2006.