Year XLIII, 2001, Number 2, Page 99
Reform of the Common Agricultural Policy
and a European Constitution
European Agriculture at the Start of the New Millennium.
The state of European agriculture at the start of the new millennium is certainly a cause for considerable concern. Following the emergence of new cases of BSE and the recent foot-and-mouth-disease outbreak, two phenomena that have affected livestock farms in a number of European Union (EU) countries, support is growing among the most enlightened farmers and consumers for safe products and for the preservation of the rural environment. Alongside this growing alarm over health and environmental questions, Europe is also currently faced with international pressure to grant produce originating from the major manufacturing nations and from the world’s developing areas greater access to its markets, and with the difficult enlargement of the Union to the countries of central and eastern Europe and the Balkan area.
The deadlines for dealing with these problems are rapidly approaching: in November 2001, WTO agricultural negotiations, suspended in Seattle in 1999, are due to begin again in Qatar, and amid-way adjustment of the Agenda 2000 regimes for cereals, oilseeds and agricultural spending is scheduled for 2002, followed by a review of milk quotas the year after, while a precise date is still to be set for a review of the regime governing meat. Finally, the European Council in Nice (7-10 December, 2000) reiterated that the first of the candidate countries would be granted EU membership as from 2003.
It can thus be said that European agriculture at the start of the new millennium is faced with three interdependent sectorial challenges that throw into question its very identity and its destiny. These three challenges are: the Eastwards enlargement of the EU (to the countries of central and eastern Europe and the Balkan area, and subsequently to Turkey); the affirmation of a multifunctional rural economy in the wake of the technological revolution and in the light of the growing urgency to protect consumer health and the environment; and the opening of the Millennium Round negotiations that are crucial to the future of the WTO.
They are three challenges that throw into question the aims, principles, mechanisms and resources associated with the main common policy decided by the European Commission: the Common Agricultural Policy (CAP).
The debate over Europe’s agricultural policy, in part fuelled by vested interests, by protectionist inclinations and by government plans for a re-nationalisation of the agricultural policy, has consequently become very heated in recent months. However, we have yet to see, at European level, an adequate and democratic debate on the aims and instruments of the agricultural policy that might allow the definition of a global strategy in which internal objectives — relating to production (in both quality and quantity terms), health (human and animal) and the protection of the environment — are rendered compatible with external objectives, that is to say with the role that Europe must play, on the international stage, in promoting the world’s safety and development.
It is necessary, therefore, to identify clearly the nature of the challenge, in order to understand which parts of the CAP are still valid and, if necessary, to work out a new policy. The main point that must be stressed is that the CAP, in spite of its merits, is also characterised by distortions, privilege and waste and it has, for a long time, attracted criticism because of this. And yet, to date, no adequate reform has been developed to resolve the problem.
European agriculture has, for years, been crying out for a deep reaching reform, or new “social pact”, with the capacity to define its multifunctional identity within the rural economy, but so far none has been forthcoming due to the intergovernmental method that, with its vested interests, has, until now, always determined the way the EU has been governed. Any decision reached is ultimately nothing more than the fruit of difficult compromises reached between the agriculture ministers of the member states, themselves often conditioned on an electoral level by national agricultural lobbies. And this goes against the general European interest, which is for a modern agricultural system, internationally competitive and able to make a positive contribution to the health of the continent’s citizens, animals and plant life.
The Initial Strategic Basis of the Common Agricultural Policy.
The current concerns over farming — the call is for safe, quality farming that is not harmful to the health of people, plants or animals — and the demand for growth that is both sustainable and environment-friendly, which today dominate the debates over the future of the planet and the European model, are a long way from the ideals on which the Common Agricultural Policy was initially based in the 1950s.
The CAP was conceived by the six founder members of the European Economic Community (EEC) in the difficult post-war years and in the context of the Cold War. At the time, only France was producing surplus cereals, while the new Federal Republic of Germany was in severe deficit for food products, Germany’s main farming areas being concentrated in the central and eastern regions of the country. It was an arrangement that allowed other countries to exploit their relative positions of strength: the Benelux countries were strong in the area of animal products, and Italy, for purely environmental/geographical reasons, was comparatively advantaged where typically Mediterranean products were concerned.
It is worth remembering that the people of Europe at this time could still recall the agricultural crisis of 1929-32 and the food shortages endured during two world wars; furthermore, they were faced with the strategic urgency to increase agricultural production in order to protect their ability (severely undermined by the blockade of Berlin and the Korean War) to guarantee their own supplies and by the need to eliminate a persistent balance of payments deficit.
European farming as a whole was still technically backward and, in many areas, still somewhat feudal in character; it was also rather unprofitable and conditioned both by climate and by fluctuating international food prices.
European agriculture bore no comparison to that of North America, which, during the two world wars and the subsequent period of reconstruction, had become Europe’s main supplier of cereals. The United States had 4 hundred million hectares of agricultural land for its 2 hundred million inhabitants, and the country’s farmers numbered just 4 million. The EEC’s six founder nations, meanwhile, had a total of 65 million hectares of cultivable land, 17.5 million farmers (the equivalent of 26% of the working population) and internal production that covered only 85% of the food requirements of the entire population (150 million consumers). On the basis of this comparison, it is easy for today’s reader to appreciate the vast difference, in development terms, between American and European farming in the years immediately following the end of the Second World War. The by far superior state of American agriculture was undoubtedly due not only to the country’s different historical and political course of evolution, but also to structural differences that, still now, heavily penalise the European sector (differences that can be attributed to its territorial configuration, to its environmental conditioning, to the organisation of land ownership and to the social-cultural order that prevails in country regions).
In any case, at its conception, the Common Agricultural Policy had, as an initial framework of reference, both the anti-cyclical policies conducted in Europe in the ‘30s, and the Farm Bill adopted in the United States in the same period. The members of the Spaak committee that presented its final report in 1956 — this report formed the basis of the Treaty of Rome, signed the following year — were perfectly aware of the success of the agricultural policies that were being implemented on the other side of the Atlantic and of the benefits that a regulated continental market could bring. This allowed the negotiators to define precisely (in Art. 39 of the Treaty) the objectives of the Common Agricultural Policy: to increase agricultural productivity, to guarantee a “fair standard of living for the agricultural community”, and a secure supply of food at stable and reasonable prices to consumers. The Treaty left it to the institutions to decide what else should be included in the CAP and indicated, as the necessary instruments, only a common organisation embracing the agricultural markets and one or more financial funds.
Now, years later, it can be remarked that the CAP mechanism was put together in a reasonably short time and led, in the space of a decade, to the organisation of an integrated agricultural common market as well as to the attainment of the strategic objective of Europe’s self-sufficiency in the supply of cereals and meat. Indeed, six months after the birth of the EEC, in July 1958, the Stresa Conference was held, gathering the ministers of agriculture and representatives of farming organisations from the Six. This conference established the basic principles, still valid today, underpinning the common policy: a single market and uniform prices within the EEC, Community preference and financial solidarity.
On the basis of the results obtained in Stresa, on the 30th June 1960, the European Commission put before the Council a series of proposals for the introduction of six Common Market Organisations (CMOs) for cereals, pork, eggs and poultry meat, fruit and vegetables and wine, of a European Agriculture Guidance and Guarantee Fund (EAGGF), and the funding rules. These instruments are still in place and still operational, even though they have, since their introduction, been modified by reforms and by the incorporation of other measures.
The CMOs constitute a structured set of mechanisms, organised sectorially, through which, in a free movement setting, common European prices and interventions in support of common market prices are guaranteed, as well as a device to support exchanges with third-party countries. The EAGGF is the financial mechanism that, in cooperation with the states, supports structural reforms and measures designed to protect internal prices. It is funded through a hefty share of the Community revenue, known as “own resources”, which is made up of customs duties, agricultural levies and a share of national revenue from VAT, and to which, in more recent times, increasing contributions from EU member states have been added.
The Contribution of the Common Agricultural Policy to European Integration.
The quest to find new solutions for the main European common policy must be based on an objective examination of its successes and its defects.
Its successes have been both numerous and significant. The first thing that must be emphasised is the decisive contribution made by the CAP to the attainment, in the space of just a few years, of the strategic objective of self-sufficiency in the supply of food for the Community. It is also important to recall the coherence that initially existed between the premises, principles, and objectives of the policy and the instruments adopted in pursuit of the same. Achievements can also be recorded in other areas, and it is worth comparing a few recent figures with the situation at the start of the Six-member community.
At the end of the ‘90s, EU’s 15 member countries were farming a total of 134 million hectares of land, had 7.4 million agricultural units employing a total of 7.8 million people, 5% of the workforce (as opposed to the 13.4% still recorded in 1970) with the sector generating around 1.6% of the EU’s GDP (as opposed to 5.4% in 1970). The average farm size has gone up, over the last 40 years, from 13.3 to 17.4 hectares, while the overall surface area of land given over to farming has dropped by 5.3%. It is also important to draw attention to the considerable increase in Europe’s prominence the world’s agricultural market. Looking, once again, at the end of the last decade, the EU was the world’s second largest exporter of agricultural products, (exporting 22.8% of the total), second only to Latin America (24.7%), and the biggest agricultural importer, absorbing 27% of the world total.
Second, the CAP was, by means of the structural guidance and price support for agricultural production guaranteed though the EAGGF, the first major common policy in the sphere of the Communities to combine European planning and a market approach; it favoured capital accumulation, provided incentive for technical progress and technological innovation, and it slowed down the flow of labour out of farming and into industrial employment. It was the first European policy funded by the Community budget’s “own resources”. It must also be added that the modernisation of European agriculture began with the launch of the CAP. In the ten years from 1961-1971 the productivity index of the Six (measured as the GDP per person in work) rose from 100 to 188 in the area of agriculture and from 100 to 166 in that of industry, and this was accompanied by a marked reduction in the disparity between hourly rates of pay in the two sectors.
Third, the CAP guaranteed the free movement of agricultural products among the Community’s founding states and led to the introduction of the European Unit of Account (EUA) — a forerunner of the European Currency Unit (ECU) — that, as early as the 1960s, heralded the advent of the single market of industrial goods and services (1992) and the introduction of the euro (1999). As well as serving for the management of the EEC budget, the EUA was also the unit in which the single European prices guaranteed to farmers were expressed. One EUA was equal to one US dollar and, on the basis of the exchange rate of each of the member states’ currencies against the dollar, a system was developed (the so-called “green currencies”) for converting into the various national currencies the intervention prices applied on the national markets. It is worth adding that the working of the common agricultural market was upset, at a certain point, by the intervention of external factors, such as the European monetary disorder of the 1970s and ‘80s and the subsequent introduction of monetary compensatory amounts (discussed further below).
Fourth, the CAP was crucial to the working of the industrial customs union. There could be no free movement of manufactured goods without the free movement of agricultural products. This fact reflected the interests that have, on an economic level, always sustained the Franco-German political axis: while the free movement of manufactured goods favoured Germany, France was the greatest beneficiary of the agricultural policy. It is important also to underline that continued pursuit of the national agricultural policies would have reduced the industrial competitiveness of the Six, with different domestic price levels and differences in the prices of imported foodstuffs producing different inflationary trends, which is in fact what happened during the years of monetary disorder in Europe.
Fifth, the CAP protected the internal market against upsets due to fluctuations in international prices, producing benefits for European producers and consumers.  This is an important point that allows the debate over free trade and political intervention in economics to be approached in more correct terms. The CAP is still a valid argument against the views of those who believe that the European economy would be best off specialising in the production of manufactured goods and services, relying on the world market for its supplies of food and agri-industrial products: it is by protecting its internal market that Europe has saved its consumers from being blackmailed by manufacturers who have a worldwide monopoly on the trade of certain food supplies. Without the CAP, Europe would have been paying a considerable “green bill”, in addition to its already hefty “black bill”.
Sixth, the cost of the CAP has been modest overall, absorbing, on average, around 0.6% of the EU’s GDP, to which must be added a further 0.6% borne by the member states. It can thus be concluded that, with resources amounting to little more than 1% of its annual GDP, the European Community has, through the CAP (regardless of the strengths and weaknesses of the latter) implemented a strategic and successful policy that has brought agricultural development and social peace in rural areas, and rendered Europe self-sufficient in the supply of foodstuffs. When the high costs of the CAP are cited, the fact is often overlooked that the main countries that support free trade in agriculture in fact spend more per farmer than the EU, have state monopolies on the export of food supplies and facilitate considerably and in various ways the exportation of their surpluses. The USA spends 2% of its resources on its federal agricultural policy.
The Defects of the Common Agricultural Policy.
These considerations on the successes and the relative cost of the CAP do not alter the fact that the policy has produced, over the years, surpluses and distortions of agricultural production that could have been avoided with the introduction, as soon as the initial objectives of self-sufficiency in the supply of foodstuffs had been achieved, of a timely reform. Equally, both the management of the monetary crisis of the 1970s and 1980s and the setting out of the external trade policy failed to address the real nature of the problem.
In reality, the Common Agricultural Policy has been a victim of the functionalist approach to European integration — an integration obtained in the ambit of the Treaties — and of the absence both of a supranational European government and of the relative democratic political decision-making mechanisms. This is a problem that can be appreciated more fully by drawing a comparison with the political situation in the United States. In America, the Presidency and Congress, although both strongly conditioned by local agricultural lobbies and by various opposing interests, regard agriculture as a public asset of federal interest, and manage agricultural policy accordingly. Agriculture is an important element in the complex power equation in Washington wherein food and industrial supplies, price levels, agricultural revenues, research and scientific applications (witness the case of the new biotechnologies), protection of the environment (scant) and of health (witness the vigilant Drug and Food Administration) as well as volumes of public expenditure on the sector, together with the use of “alimentary power”, influence the nation’s foreign policy. This is what happens when poor harvests emerge in China, Russia, or the developing countries of the world. Europeans, it might be recalled, reaped the benefits of this approach during the war and in the immediate post-war period.
Europe’s agricultural policy, on the other hand, is divorced from all the main complementary instruments of intervention (monetary policy as a means of guaranteeing single prices, fiscal policy as a means of determining what resources should be channelled into rural development, overseas policy as a means of rendering internal policies compatible with its relations with the rest of the world and with the opportunities offered by the same).
Unlike the situation in the United States, in Europe, the Commission can only advance proposals, while the European Parliament can do little more than express its views on all the decisive issues relating to agricultural policy, from price guarantee spending to taxation, from the budget to the very modification of the Treaties. In short, it is devoid of any real influence over the question of CAP reform. The only European body equipped with any decision-making power is the Council of Ministers, but this of course is a setting in which national interests are represented and in which the compromise that wins out will always be the one that reflects the prevailing national interests. This institutional deficit became clear as soon as the substantially well-defined and common objective of self-sufficiency in food supply had been achieved, and the political choices for the future began to take shape. In the absence of European supranational mechanisms for the making and implementation of political decisions, the task of defining new aims and instruments and the role of agriculture in European society and in the world remained firmly in the hands of the national governments and of vested interests.
All this makes it possible to explain three major defects of the common policy: distortions of planning policy and of the market approach; the introduction of monetary compensatory amounts (MCAs), and the trade policy towards the rest of the world.
As regards the first of these, distortions of planning policy and of the market approach, what occurred can be attributed, on a political and technical level, to a series of factors:
1) The only planning element that proved workable, in a framework of defective (intergovernmental) power, was that of intervention on prices, which were always set somewhere between the minimum and maximum levels demanded by the national agriculture ministers and their lobbies.
2) The system of agricultural prices and the buying in of surplus produce at guaranteed prices favoured a progressive increase in production, at a rate superior to that of the market’s consumption capacity (+2% annually vs. 0.5% respectively).
3) For a long time, no limits were placed on how much should be produced or how much surplus bought in; this led to the creation both of costly stocks of unwanted produce and of tension in relations with certain trade partners in the world whose markets were being damaged by Europe’s subsidised exports.
4) Intensive farming methods, encouraged by the intervention price guarantee, have had negative repercussions on the environment, favoured the diffusion of single-crop farming and led to the disappearance of thousands of traditional vegetable species, swept aside to make room for more profitable ones, as well as the spread of breeding and fertilising systems that have upset the natural balance between man and plant and animal life (“mad cow” disease, dioxins, nitrates).
5) The price regime most benefited the larger, more competitive units of agricultural production and failed to take properly into account the incomes of the overwhelming majority of small and medium size agricultural operations run at marginal cost.
6) In view of the difficulty in removing the structural causes of the underdevelopment seen in the Mediterranean areas, the measures designed to favour the region’s wine and fruit and vegetable production assumed the character of a relief measure and, in this sector too, generated excess production and waste.
7) Because of the continuous increase in expenditure, which for years funded waste rather than sustainable growth, the guarantee system gave rise to a difficult situation between European countries, which could be categorised as the net payers and the net beneficiaries of the system.
It can also be added, once again, that the intervention price guarantee (in practice, the buying in of surplus produce at a guaranteed price in order to prevent prices collapsing) not only distanced farms from the market and created vested interests (many agricultural operations were farming for intervention buying rather than for the market), it also created a rent effect that kept the value of land high and thus impeded the buying and selling of land and, as a result, the creation of efficient farms.
The second major defect of Europe’s Common Agricultural Policy resulted from the attempt to create a common market in the absence of a single currency. A common currency did, in fact, exist in Europe in the ‘50s and ‘60s: it was the dollar that, in the context of the international fixed exchange rate mechanism established at Bretton Woods in 1944, served as the currency of reference for all the European national currencies. In fact, the monetary compensatory amounts that upset the European fixed price regime were introduced when this fixed exchange rate system broke down. The crisis came to light at the end of the 1960s, starting with the devaluation of the pound in 1967, but its impact on the Common Agricultural Policy was not felt until 1969. In August that year the French franc underwent an 11.1 % depreciation, which was followed, in the October, by a 9.25% revaluation of the German mark. A mechanism was introduced that, intended as a temporary measure, instead became established as the international monetary system entered a definitive crisis, in the wake of President Nixon’s decision (15th August 1971) to abandon the gold convertibility of the dollar and the subsequent propagation of exchange rate fluctuations.
This mechanism was a clear reflection of the pressure exerted on the governments by the various agricultural lobbies. The French franc - German mark crisis mentioned above, a crisis that later extended to other European currencies, upset the system of prices expressed in EUAs, whose function was to preserve the institutional uniformity of agricultural prices in trade exchanges between member countries. To guarantee the free movement of agricultural products within the common market, the single European prices were maintained. However, unlike the what was happening within the common market as far as manufactured goods were concerned, in order to prevent the spread of inflationary effects in countries with a devalued currency and a squeeze on agricultural revenues in those whose currency had undergone a revaluation, the national agricultural prices were left at their own levels, only to be translated into single European prices on the basis of special conversion rates (“green rates”). Furthermore, in order to prevent speculative behaviour (i.e., an increase in demand for the products of countries with a weak currency and a reduction in the demand for the products of countries with a strong currency), it was decided that MCAs should be levied as taxes on the former (negative MCAs) or paid as subsidies on the latter (positive MCAs). The mechanism proved to be extremely costly, and indeed underwent a series of revisions. Today, it is possible to affirm that the MCAs certainly had the effect of guaranteeing, without discrimination, the free movement of products within the common market and in trade exchanges with third-party countries, but they also encouraged a re-nationalisation of agricultural policy, and benefited, above, all the countries with a strong currency whose competitiveness they protected. It was not until 1999, and the introduction of the single currency, that the process of removing the MCAs could be embarked upon.
The third defect was the lack of a coherent strategy for the management of the Common Agricultural Policy. A foreign trade policy would, like the single currency, have necessitated the creation of a European federal state. The lack of a supranational government, capable of developing a coherent and responsible strategy to govern external relations, has repeatedly exposed the EEC to the diktats of successive US administrations, expressed at GATT trade liberalisation negotiations. On other occasions, it has induced the Commission and the national ministers, in deference either to some mistaken notion of free trade or to vested interests, to grant third-party countries trade concessions that, in certain regions, are not compatible with the protection of the rural economy and environment.
It is emblematic to recall that following the opening of the markets to duty-free imports of manioc, soybean and corn gluten, requested by the United States in the 1970s, animal breeding in Europe, which had previously been forced to rely, for feed, on more costly European cereals, on pastureland and on the production of alfalfa, became even more economical. This had two negative effects: it led to an increase in the production of meat and milk products and to an increase in cereal surpluses, due to a fall in internal demand (again an effect of the competition originating from these imported animal feeds). What is more, as a result of agreements reached at GATT negotiations, the EU still today can neither facilitate its own production of soybean, nor subsidise the grinding of the protein crops, which are used in animal feed.
Burdened with excessive stocks, the European Community seized the opportunity presented by the Soviet Union’s agricultural crisis of the 1980s to export, at subsidised prices, its surpluses of cereals, meat and dairy products, taking market shares away from the United States and other major producers and becoming, temporarily, the world’s largest exporter of agricultural products. This prompted a bitter dispute with Washington and other capitals, a dispute that was not resolved until the 1995 Marrakech agreement that imposed a 20% reduction, over three years, of internal aid for agriculture, the abolishment over six years of 36% of all export subsidies and finally deregulation of market access through the replacement of all protectionist border measures with tariff equivalents, in other words with import duties (to be reduced by 36% over six years).
Another apparently ill-considered trade policy measure was the opening up of the European market to imports, from third-party nations, of rice, meat and flowers — a measure that was destined to throw the rural economy of vast farming areas into crisis, undermining efforts to safeguard the environment and the European territory without, as we shall see, making any real contribution to solving the development difficulties of the exporting nations.
Attempts at Reform Caught Between Internal and International Restrictions.
The perverse effects of the CAP on the price policy are not a new development: in fact they were witnessed quite early on, as soon as the objective of self-sufficiency in the supply of foodstuffs had been achieved. A first attempt to correct the instruments that had been introduced was seen in the European modernisation plan developed by Commissioner Sicco Mansholt. His 1968 Memorandum, despite generating little support as a result of the reactions of professional organisations, is still today worth recalling because it constituted the basis of inclinations that were later to emerge. In Mansholt’s view, restructuring should be regarded as a priority and strategic intervention, while the internal price policy should be solely a temporary and short-term measure — a safety net serving to protect farmers from the effects of fluctuating trends and to support them during the period of structural change.
A subsequent development came in 1972, when the Council of Ministers issued three social-structural directives, on investments, on abandonment of the farming profession and on training, that later opened up the way for a series of schemes: early retirement, reorganisation schemes, aid for selective investments supported by development plans, measures to promote the marketing and transformation of agricultural products, sector-based or regional development programmes, aid to encourage cooperation between producers and regional support for mountainous and disadvantaged areas.
It is, again, important to underline that the CAP, despite the intergovernmental restrictions placed on it both by the European Community and by vested interests, managed gradually to assimilate a growing awareness of the need for a new role for agriculture — for an evolution away from the initial objectives of growth (in quantity terms). Over the 1980s, increasingly widespread attention was paid to structural policies and rural development, starting with the Integrated Mediterranean Programmes of 1985, which were geared at modernising agriculture in the continent’s Mediterranean regions following the accession of Greece, Spain and Portugal. However, the first real project came with Jacques Delors’ reform of the structural funds in 1988. A multi-fund mechanism was introduced, which combined the capacity for intervention of the European Regional Development Fund (ERDF), the European Social Fund (ESF) and the EAGGF. The rural sector was once again targeted for intervention, a policy being developed (with specific objectives, principles, instruments and financial means) that was gradually refined through Agriculture Commissioner MacSharry’s reform of 1992, the Maastricht Treaty, which came into force on November 1st 1993 (see Art. 130), the Agricultural Strategy Paper of December 1995, the final declaration of the Cork Conference of 7th-9th November 1996, which acknowledged the multifunctional character of agriculture and its key role in the rural sector, and the simplification of the complex management of the agricultural, regional and social funds through the creation of a Forum for economic and social cohesion (Spring 1997).
Alongside these interesting developments, it must also be remarked that, at the end of the ‘80s, the urgent need for a reform became increasingly evident for internal reasons (the increase in both stocks and Community expenditure) and also as a result of international constraints (the GATT negotiations). The outcome of the debate was the aforementioned MacSharry reform of 1992, which must be acknowledged for recognising the negative effects on rural areas of the excessive intensification of farming, for recalling the need to impose controls on the use of water resources, and for underlining the opportuneness of placing restrictions on the further specialisation of production and on further increases in the size of agricultural operations, pointing out the environmental advantages and the return to be gained, in an economic sense and in employment terms, from organic farming, mixed farming and old fashioned crop rotation.
The MacSharry reform sought, in the sphere of intergovernmental power relations, for the first time to trigger a reverse trend in the area of support for farming: the principles remained the same, but the mechanisms were changed, with a shift away from price support towards direct payments. The reform was applied to cereals since this was a sector that, as we have seen, stood to gain nothing from increases in demand for animal feed due to excessively high internal prices and increasingly fierce competition from cereal substitutes, such as soybean, manioc, and corn gluten, which the Community, bowing to international pressure, had allowed into the market tariff free.
Basically, in order to restrict internal production and bring prices closer to those applied on the world market, the 1992 reform led to a drop in prices in the seed crops (-29%) and beef (-15%) sectors, to the establishment of schemes to compensate farmers for loss of income, to the introduction of set-aside incentives as a means of controlling production levels, and to the introduction of accompanying measures: the agri-environment scheme, afforestation and early retirement (50% of farmers are over 55 years of age). The reform affected the oilseed regime, favoured the development of white meat (in relation to red meat) production, and led to a 2% reduction in milk quotas, but it did not touch the regimes for tobacco or lamb/mutton.
The MacSharry reform succeeded in reducing rapidly cereal stocks (from 30 million tons in 1993 to just 3 million in 1995), in reducing seed crops and the use of fertilisers and pesticides, and in increasing the use of cereals in European industry. In the view of many, it managed, by bringing the interventions into line with world trade, by reducing agricultural surpluses, and by containing production costs, to soften the blow of the reduction of institutional prices and protection. That said, the 1992 reform failed to deal adequately with other structural defects; instead it generated an increase in common expenditure (the burden on the Community budget) as a result of the shifting of charges from the consumer to the tax-payer; it also preserved rent, production quotas and increased the gap between continental and Mediterranean producers.
But the MacSharry reform did provide the basis that allowed the Community to enter the Marrakech round of GATT negotiations with increased bargaining power.
The Agenda 2000 Package and the New Challenges for European Agriculture.
To date, the (extremely limited) processes of reform that have emerged through cooperation between the governments of the EU member states have been conditioned by constraints both internal and external. The former are due to the increased spending on the CAP and the friction that this has produced in relations between the member states (respectively net contributors to and net beneficiaries of the resources generated). The external constraints, meanwhile, are the result of international pressure — this often takes the form of reprisals over the dumping of European exports — for an opening of the EU market. Even the Agenda 2000 compromise (over the CAP and the enlargement of the EU to the countries of central and eastern Europe and the Balkan area) reached by the Berlin meeting of the European Council in 1999 reflects, more than anything, a balancing of national agricultural interests and budgetary constraints.
The paradox that emerges, above all, from the compromise reached over budget resources, is that the Agenda 2000 not only fails to strengthen and extend European integration, it actually helps to slow the process down. The main concern was, for a six-year period (2000-2006), to keep the size of the Community budget stable, below the ceiling of 1.27% of the EU’s total GDP, thereby subordinating structural enlargement objectives and objectives that are in the, general interest to the limited resources available. This is the consequence of the progressive drying up of the “own resources” that fund the European Community budget (customs duties, agricultural levies and a quota of national revenue from VAT), itself an effect of international trade liberalisation and tariff reduction policies. In 1999, it was calculated that “own resources” together account for less than 50% of the community budget (with duties and levies together accounting for less than 15%), with the rest coming from the national budgets (percentage quotas of each country’s GDP). This prompts a series of typically Thatcherite calculations: Germany contributes 28% of the Community budget and receives 14.1 % of the total, as well as a similar quota for agriculture; France contributes 17.5%, receives 17.1 %, but receives a higher share of agricultural expenditure, 22.5%; Italy pays 11.5% of the total, and gets 11.8% in return, as well as a 12.5% quota for agriculture, and so on. In this setting, political conclusions are bound to be drawn, with the result that each EU country seeks to contribute as little as possible to the Community budget, while at the same time seeking to maximise its return, thus limiting the overall resources available for the implementation of Community policies.
This result clearly goes against the ambitions of the EU and the new challenges it faces, beginning with the crucial one of its enlargement. It is a contradiction that again appears even more marked when a comparison is made with the US situation: in Europe, we see the governments of the member countries placing a limit (1.27% of the total GDP) on Community budget resources for a six-year period (2000-2006) and hailing it as a great success, while the government of the United States has at its disposal a mass of resources amounting to 20% of the GDP.
Enlargement to central and eastern Europe will bring a confirmation and strengthening of the EU’s supremacy as a world trade power and, at the same time, have two strategic repercussions on its international relations. The first of these is linked to the fact that the EU is an innovative, productive and social model of supranational integration of different production systems, within whose ambit it is possible combine efficiently a programme (objectives, principles, instruments and interventions) and a continental market (free movement of people, products, capital and services) in the realisation of an agricultural system that is multifunctional and technologically advanced (environment, rural economy, research and employment). The second repercussion will be a strengthening of the interest that Europe, as the world’s leading commercial power, will have in the development of an ordered international trade system embracing world areas that have reached different levels of development.
These three challenges — enlargement, a multifunctional agricultural system and an ordered international trade system — must be examined in greater depth, also from the viewpoint of the opportunities they offer the European Union. However, it must first be made clear that these three challenges require a limited increase in the resources for the European Community budget, since the real problem is the capacity for democratic government of a Union that is currently thrown into crisis by the prospect of increasing even by 0.25% the resources available for the common policies. European agricultural reform thus depends on a deep-reaching review of the political decision-making mechanisms, which must be rendered democratic and freed from the sole dominion of intergovernmental relations.
Enlargement to the Countries of Eastern and Central Europe and the Balkan Area.
The countries of eastern and central Europe and the Balkan area are faced with severe environmental problems, are dependent on external food supplies and need to implement a radical reorganisation of their production and distribution system. After the fall of the communist regimes, privatisation triggered, in these countries, a vast, but still insufficient, restructuring of their agricultural-food systems, and in particular their processing of primary products. According to the Agenda 2000, the agricultural sector is (in terms of its surface area, its contribution to the GDP and the number of people it employs in relation to the total active population) relatively more important in the countries that are candidates for accession than in the present EU member countries. In these candidate countries, more than 22% of the workforce, that is to say a total of 9.5 million people, is employed in agriculture, which still generates 9% of the GDP. In the EU, on the other hand, only 5% of the working population is employed in agriculture (8.2 million people), which contributes just 2.4% of the GDP. Furthermore, while labour productivity in the east and central European and Balkan area is just 6% of that recorded in the EU, in the case of agricultural productivity, the figure rises to 16%. Thanks to the acceleration of modernisation processes, which could make it possible in a short space of time to begin to realise the potential of local production, agricultural production in these countries has great growth prospects. At the same time, enlargement will increase Europe’s agricultural land by 60 million hectares (40%). Two thirds of these extra 60 million hectares will be seed crops, bringing a 55 % increase (to 77 million hectares) in the surface area of seed crops in the EU, even though it will be land of varying quality and exposed to differing climatic conditions. Beetroot, milk and meat production are also set to rise.
The fifteen EU states are thus faced with the problem of enlarging the market organisations and structural funds to the new members and of procuring the resources needed to fund the same. On a practical level, however, it would not be possible to extend current structural and market policies to these countries immediately as this would expose central and eastern European consumers to a rapid and excessive increase in the prices of basic products. Applying the CAP rules to the candidate countries would not only necessitate the injection into these economies of a staggering volume of resources, it would also lead to an increase both in surpluses and in these countries’ internal price levels. Since it is known that the process of accession will, in any case, lead to an increase in local demand and in prices themselves in the new member states, the provision of aid, in the form of compensation payments under the CAP rules, to farmers eastern and central Europe and the Balkan area would not therefore be justifiable. Furthermore, the prices that are guaranteed to western farmers in accordance with the CAP are around a third higher than those in force in the candidate countries and on the international markets, and are thus destined to fall.
In view of the backwardness of the candidate countries — the purchasing power of their citizens is only around a third of that enjoyed by the current EU citizens, the competitiveness of their products and their cost of labour is low and the managerial capacities of their farmers are less well developed than those of their western counterparts due to the lower technological content and quality of their produce — enlargement will demand a colossal effort of union. Indeed, in the light of this backwardness, targeted structural intervention, rather than price support, will be decisive where these countries are concerned, and it will have to be accompanied by considerable legislative efforts to define the legal framework of the sector and the organisations that will manage it, the control of the markets, the modernisation of the production units and, above all, to guarantee a higher standard of veterinary and phytosanitary controls.
The New Multifunctional Rural Model.
Alongside the precautions that are necessary in view of the problems linked to enlargement of the Union, consideration must also be given to several important opportunities it offers. Upon the accession of the candidate countries of central and eastern Europe, a production system will come into being able to boast broadened continental dimensions and the capacity to serve a population of over half a billion, a population characterised by rising average per capita incomes (the candidate countries being likely to achieve relatively quickly levels close to the average ones recorded within the Community, which is what happened in the case of the Mediterranean member states). This will be accompanied by an extension, to the new members, of EU standards (in terms of both quantity and, above all, quality) of food consumption. This will result, on the one hand, in possible greater autonomy for the EU as regards its supplies of commodities (cereals, sugar, meat and milk) and, on the other, in greater attention to Mediterranean agriculture, local and quality products, meat, milk-dairy products, fruit and vegetables and alcoholic drinks. In view, too, of consumer preference for organic produce and concerns over food safety, there are real prospects, also in the light of the current evolution of European policy towards rural areas, for the creation of an organised continental market, with the capacity to serve as a world model of legislation for the safeguarding of the environment, the protection of human and animal health and the defence of the historical and cultural values of rural areas. Thanks to the presence of a highly advanced system of services and industry, that of agricultural production, food processing and distribution and the production of renewable raw materials now has the opportunity to become more enterprising and competitive.
If these premises are valid, European agriculture must now choose the direction in which it wishes to move. Historically, agriculture has remained impassive in the face of growing industrialisation and the birth of the new information and telecommunications-oriented society. Today, however, the multifunctional character of agriculture is widely acknowledged and thanks, indeed, to progress in telecommunications, information technology and transportation, it is now possible to bring down the last production, cultural and environmental barriers that separate the industrial system from the rural system, the town from the country, the leading role played by the cities from the distribution of functions throughout the territory, and centralised decision-making systems from those operating in networks. Basically, the time is ripe for agriculture, as part of a multifunctional rural system, to stipulate a new “social contract” that might lead to the affirmation of a European model, developed according to complex social and production criteria, that has the capacity to combine a programme and an integrated continental market — a model that, allowing ordered trade between large areas, can be presented to the world as an alternative to the current, disorganised free trade system.
European agriculture can thus become the ground for a highly advanced experiment potentially involving a range of choices — ethical, scientific, production, environmental, social and cultural — and capable of giving decisive answers to the burning issues, such as animal cloning, genetically modified food and organic farming, that are at the very heart of the current debate over man’s relationship with his own health, and with the health of the land and of animal and plant life. It is time for agriculture to stop being the Cinderella of the production sectors, and to break free from its dependence on aid and from the clutches of vested interests, in order to regain a capacity for enterprise that will put it on a par with the other production sectors. One point, however, remains to be clarified. A production system that focuses on high quality, and on the safeguarding of health and of the environment cannot be expected to compete with systems that are not required to respect the same obligations.
The Millennium Round after Seattle.
The Millennium Round negotiations, whose content, following the failure of the WTO meeting in Seattle (30th November - 3rd December 1999), has altered to reflect the increasingly insistent demands of civil society for a multifunctional role for agriculture and for protection of the rural economy, represent the third challenge immediately facing the EU.
This new content emerged clearly in the three documents presented in Geneva at the end of June 2000 to the Secretary General of the WTO by the European Commission prior to a special session of the Agriculture Committee called in response to the request, on the part of the United States and Third World countries, for access to the European market for their agricultural surpluses. They also reflect a change in direction away from the purely commercial market access objectives that had dominated previous WTO and GATT negotiations. Brussels, for its part, affirmed, first of all, a crucial principle — that the liberalisation of trade should not be allowed to compromise each country’s right to take into due account, in the sphere of agricultural production, environmental concerns, the issue of food safety and quality and animal welfare. In practice, it made it clear that in agriculture, “non trade concerns” prevail over commercial interests. The Commission went on to underline the conclusions that derive from these premises, stating that countries sensitive to these needs have the right to protect their agricultural system and to enable their farmers to meet the demands of civil society.
This position represents a marked evolution in relation to the terms of the WTO Agriculture Agreement reached in Marrakech on April 15th 1994, which incorporated undertakings on the part of the developed nations to reduce internal support, to open the national markets through the introduction of reducible tariffs in place of non-tariff barriers and, finally, to reduce subsidised exports.
Substantially, the EU, having obtained in Seattle recognition of agriculture’s multifunctional character, made it clear that it could not engage in negotiations whose sole objective would be the opening of its agricultural market and, as a result the giving of ground on the part of European agriculture, which instead has a vital role to play in territorial protection and in the protection of rural society. In reality, the EU, with its 6% of the world population (increasingly ageing and certainly overfed), cannot become the outlet market for agricultural surpluses from all the world’s other regions, which, basically, was the threat contained in the Marrakech agreement. Furthermore, it should not be forgotten that the EU is already the area most open to international agricultural trade, being the world’s largest importer and second largest exporter of agricultural products.
There is a second aspect of the stance adopted by the EU in Geneva that is worth underlining. It is, in a certain sense, even more significant, since it can give world agriculture a more definite and forward-looking outlook than the indiscriminate liberalisation agreed in Marrakech is able to. According to the Commission’s document, the only strategy that can be pursued in order to achieve balanced and sustainable development in the world is that of safeguarding agricultural production wherever it has traditions or prospects. It is a strategy that is central to efforts to encourage all the countries of the world to produce, primarily, to meet the needs of their own populations, in ways that respect the environment, cultures and traditional consumption.
Exporting to Europe, let it be clearly understood, is no solution to the problems of Africa, Latin America or Asia; it leads to a spread, in the Third World, of intensive single-crop farming of produce destined for exportation to rich countries, a practice that is exploited by large multinationals, by commercial enterprises, and sometimes by corrupt politicians. And this occurs at the expense of the environment and instead of producing to meet the needs of the local population, who as a result are left dependent on the great world trade machine. It is true that not all countries can produce enough to render themselves self-sufficient, but the objective could nevertheless be pursued through the formation of macro regional continental areas within which it would be possible, with the support of appropriately oriented agricultural policies, to achieve the free movement of goods, the effective division of labour and efficient production.
This is substantially what happens within the single European market, the US market and the Chinese and Indian markets, and it corresponds to the recommendation made by Seixas de Costa, the EU president-in-office in Spring 2000, when he pointed out that while the countries of the southern Mediterranean demand that their agricultural products, if not their people, be allowed free access to the EU, they fail to practise the interregional cooperation that, by creating a regional market capable of attracting foreign investments and realising an efficient division of labour, would certainly constitute a mechanism that would enable them to develop.
A World Strategy for European Agriculture.
The European Union is thus faced with three immediate challenges that throw into question the traditional order of the CAP. In order to confront enlargement, the affirmation of a multifunctional rural economy and trade negotiations, what is needed is an overall political design. This design must be able to combine enlargement and reform of the CAP in pursuit of a multifunctional agricultural system that, on the one hand, is open to the world, and on the other, is supported by international alliances and the organisation of macro-regional agricultural markets in other continents, so as to strengthen the role of the WTO in the building of a new international economic order.
What needs to be underlined at this point is that the Millennium Round agricultural negotiations are a crucial element as far as the consolidation of the WTO is concerned. Indeed, if the intention is to strengthen the WTO in the context of the new negotiating round due to begin in Qatar in November, and to affirm a new international mission to renew and enlarge European agriculture, the EU, equipped with a broad political design, needs to become the leading player in the world negotiations, just as the United States did when, after the end of the Second World War, they launched an international liberalisation of trade in the new bipolar system.
On an internal level, this design must focus on building the agriculture of the candidate countries into a framework for the development of a market-oriented rural economy that also adheres to high standards in environmental protection, human health protection, animal welfare and the safeguarding of plant life. This means mobilising research and development, capacity for enterprise, market controls and the financial resources needed for structural policies geared at the protection of the environment, of health and of society. Naturally, the relevant objectives, principles, instruments and resources cannot be determined through the intergovernmental method; instead they must be decided through democratic procedures implemented within the context of reformed European institutions.
On an external level, the bases for this strategy stern from what took place in Seattle in 1999. Certainly, the meeting failed, in a diplomatic sense, with no convergence being reached in the negotiating positions of the main partners: the United States and the EU; but it also failed, on a political level, as a result of the demonstrations by protesters claiming the right to interfere in the management of the globalisation process. In Seattle, it emerged clearly that globalisation, on its own, cannot build a great world market capable of constituting a “common asset” from which all parties might benefit. In the wake of Seattle, it is no longer possible to debate questions of trade without taking into consideration the fact that new problems have begun to erupt on the world market, problems linked to technological hegemonism, to developmental models based prevalently on export, to competitiveness falsified by fiscal, social and environmental dumping, and to positions of strength gained through the use of food or energy as a weapon.
In Seattle, it was realised that globalisation needs to be governed and that large organisations like the WTO, which are still based on hegemonic relations between states, cannot guarantee adequate solutions to the problems of mankind. Obviously, the ultimate reference model for the governing of globalisation will have to take into account both current taking shape of an integrated civil society and, as a result, the affirmation of representative, democratic forms of government within the international organisations that govern the world.
A Federal Constitution for the European Union.
The problem that came to light in Seattle is thus both political (the overcoming of hegemonic relations in the world) and institutional (the establishment of democratic control over the current process of globalisation on the part of an evolving world civil society). To solve it, it is necessary to identify the subject responsible for this new “democratic government” of globalisation and the gradual strategic course that must be followed in order to introduce the same.
Today, only the European Union, providing it proves able to create an effective structure of government, has the capacity to express the will to ensure, through the strengthening of the international organisations, that the world system of states continues to remain open and in a state of evolution. The EU itself is, in both an economic and a political sense, the most advanced model of supranational unification that there is, and it is in its own objective interests to promote the development of multilateral rather than hegemonic relations. The United States, on the other hand, is showing signs of a growing disenchantment with the organisations that protect the multilateral trade system that the US itself successfully promoted between market economy countries in the years following the end of the Second World War.
This is a fundamental strategic point and also a starting point for the EU’s efforts to become leader of the process, combining internal reform of its agricultural policy with the Millennium Round negotiations.
Europe’s interest in new, multipolar, balances of power in the world is real and has a structural basis. The affirmation of peaceful relations with the rest of the world, relations that are based on cooperation, is in the objective interests of Europe as a whole, none of whose plans — in the military, energy, technological or financial spheres — contain hegemonic instruments, even though Europe does enjoy a strong negotiating position in all these areas of contrast and collaboration.
The EU is the world’s biggest trading partner, indeed it is the second largest exporter and the largest importer (in volume terms) of agricultural products. Its influence on international trade is not the only reason why Europe has an objective interest in the orderly working of the world market. The EU is more open to overseas trade than other industrial areas, which means that its internal economy is more sensitive to the effects of external circumstances affecting both its exports of manufactured goods and its importation of raw materials (witness the sensitivity of Europe’s economic cycles to oil prices). This means that its interest in keeping the structure of international trade open is subject to the need to see the same regulated on an exchange rate level (one might think at this point of relations between the euro and the dollar) and on a legislative level, through the introduction of rules to guarantee fair competition and of environment and social-health protection regulations.
In short, it falls to the EU to shoulder the burden of political leadership; but it has to demonstrate its capacity to take on the role and to bear the responsibility that comes with being a great world power, able to offer the world a model in the social and production spheres that is convergent with the interests of the forces of reason at work in other countries. It is a role that, if destabilisation of the post-bipolar world order is to be avoided, the EU must take on quickly, equipping itself with the necessary capacity for democratic decision-making and action — a capacity that the instruments of intergovernmental cooperation do not allow it to acquire.
What Europe needs, as an initial strategic step, is a new institutional framework with the capacity for democratic, supranational government. And this framework can only be provided by a federal constitution. The prospect of this was opened up last year (though the interventions of the German foreign minister Joschka Fischer and other authoritative European figures) making it possible to believe that, in the wake of the Nice summit, a constituent political cycle might be started in Europe leading to the definition of the new federal institutions — even if this development is restricted to a vanguard of member states — and of the new supranational policies that Europe so urgently needs.
 The World Trade Organisation (WTO) is the international body whose establishment, prompted by the EU, was the most significant result of the Uruguay Round trade negotiations. It was set up to ensure order in world trade and to regulate the liberalisation of international trade. The WTO replaced the GATT (General Agreement on Tariffs and Trade) secretariat, the provisional body created to govern the process of the liberalisation of trade at world level that followed in the wake of the failure of the 1947 conference in Havana.
 For a rapid historical overview of the launch of the CAP, see Jacques Loyat and Yves Petit, La politique agricole commune (PAC), Paris, La Documentation française, 1999, and Various authors, Agenda 2000 e la riforma della pac, Rome, Confederazione Italiana Agricoltori, 1999.
 The Common Market Organisations (CMOs) intervene to guarantee the prices of over 60% of agricultural products. In the case of cereals, rice, sugar, milk and dairy products and beef, these organisations guarantee both the buying in of surplus produce and protection against imports (through price setting). Depending on the production sector in question, they can also guarantee: price support and direct aid for farmers (cereals, durum wheat and olive oil), direct aid (oilseed, linen, hemp and cotton), import price protection and export subsidies (poultry and eggs), import price protection regimes (some fruit and vegetable produce). The guaranteed internal prices policy (target prices, threshold prices for imports from third-party countries, intervention prices for the public buying in and storage of surplus), let it not be overlooked, undoubtedly played a decisive role in increasing strategic production, particularly of food produce from continental agriculture (cereals, meat and milk).
 The European Agriculture Guidance and Guarantee Fund (EAGGF) can be divided into two sections: the guarantee section (that absorbs 90% of the fund) is currently spent on direct payments to farmers and on the price support policy, in roughly equal measures. Price and market policy expenditure is “obligatory expenditure”, decided by the governments of the EU member states and not open to question in the context of the European Parliament’s debate of the Community budget. The guidance section is structural in nature and used to help fund farm modernisation programmes and to help set up young farmers, and also as aid for rural transformation, commercialisation, diversification and development programmes. These interventions are conducted in a decentralised fashion in collaboration with the states, which also co-fund them. In the 1980s, the objectives of the guidance section were, together with the social and regional funds, incorporated into a new structural policy mechanism. The EAGGF absorbs, overall, almost 50% of the European Community budget and, since an inter-institutional agreement was reached to reduce agricultural spending, the budget plan specifies annually the forecast requirements.
 See Various authors, Agenda 2000 e la riforma della pac, cit.
 For further considerations, see Dario Velo, “Il mercato comune agricolo e il processo di integrazione europea”, in Various authors, Il mercato comune agricolo, Florence, La Nuova Italia, 1979.
 To appreciate the way world price fluctuations affected farmers’ incomes and consumers, it is useful to consider the fact that, between January 1995 and Summer 1998, international grain prices fell, as a result of the financial crisis in South East Asia, from 400 US cents per bushel to 200 US cents, having peaked at 600 in the Spring of 1996. See Michael Smith and Nikki Tait, “Down on the Farm”, in the Financial Times, 7th January, 1999.
 See Various authors, Agenda 2000 e la riforma della pac, cit., p. 19.
 It is worth stressing here that there is a difference between a single currency, like the euro, the dollar, the pound and even the old national currencies, like the German mark, the French franc, the Italian lira, which circulate in an exclusive and sovereign fashion, and a common currency, like the eurodollar, the ECU, the EUA and the Special Drawing Rights (SDRs), which can serve as reference units for determining the value of the currencies to which they are linked.
 The euro, indeed, as a single currency is supported by the European central bank, which can be regarded as the second great foundation stone in the construction of a European federal state, the first being the direct election of the European parliament. Both remain unstable, however, as they await the introduction of a federal constitution, the decisive step that would mean their consolidation, as recognised in statements by authoritative figures like the German foreign minister, Joschka Fischer, and the presidents of Italy and Germany (respectively, Carlo Azeglio Ciampi and Johannes Rau) and others.
 See, “Agenda 2000. Per un’Unione più forte e più ampia”, in Bollettino dell’Unione europea, Supplement 5/97, Luxembourg, European Commission, p. 116.
 See Ferdinando Riccardi, “Al di là della notizia”, in Bollettino Quotidiano Europa, 10-11 July 2000, pp. 3-4.
 See, Ferdinando Riccardi, “Al di la della notizia”, in Bollettino Quotidiano Europa, 3-4 April 2000, pp. 3-4. In the editorial, Riccardi also relates an opinion expressed by European agriculture commissioner Franz Fischler who, referring to the effect of “globalisation on the environment, on health, on social norms and on cultural diversity”, remarked that the European agricultural model offers an answer to these worries and, more than mechanical calls for a total liberalisation of agricultural trade, is able to offer agriculture future-oriented prospects.
 See, Alberto Majocchi, “Il dopo Seattle e i limiti della globalizzazione”, in Piemonteuropa, December 1999; Guido Montani, “Globalizzazione, spontaneismo e democrazia”, in L’Unità Europea, December 1999.