WRITTEN QUESTION E-3475/97 by José García-Margallo y Marfil (PPE) to the Commission (31 October 1997)

Subject: Agenda 2000: areas of CAP in which expenditure will increase

The Agenda 2000 presented by the Commission on 15 July 1997 (COM(97) 2000 final) considers that the future reform of the Common Agricultural Policy (CAP) intended to tackle the Union's low level of competitiveness in this area and to enable it to cope with the global liberalization of the market in food products, will lead to savings which will, in part, help pay for the cost of enlargement to include the countries of Eastern Europe without increasing the Community budget beyond 1.27% of GNP. The agricultural reform will primarily consist of further switches from price support schemes to direct payments, fixed at a suitable level.

Can the Commission specify which areas of the future agricultural policy will prove to be more costly than under the current CAP and provide an estimate as to the sums involved?

Joint answer to Written Questions E-3473/97, E-3474/97 and E-3475/97 given by Mr Fischler on behalf of the Commission (18 December 1997)

In the context of Agenda 2000, the Commission is proposing to continue the approach of the 1992 reform, i.e. reducing support based on artificially high guaranteed prices and increasing support based on direct aid to farmers.

While the burden of price support falls above all on consumers, that of supporting farm incomes through direct aid falls on the taxpayer and therefore shows up in the public budgets. However, it does have some major advantages:

- reducing prices makes it possible to export more without subsidies, which prevents new intervention stocks from building up as a result of over-production; it also strengthens the competitiveness of Community products on the internal market;

- to the extent that support prices are reflected in retail prices and spending on food accounts for a greater proportion of total family expenditure in low-income families, price support has a negative social impact which direct aid does not have;

- the impact of income support on farmers' incomes is appreciably greater, since direct aid reaches farmers without intermediaries while the impact of high prices depends on production costs;

- support based on direct aid is more acceptable in the context of our international negotiations;

- lower prices will facilitate the accession of the central and eastern European countries.

From the budgetary point of view, financing support from the Community budget instead of the consumer's pocket will increase expenditure during the initial period. A detailed estimate for 2000-06 and for the last year (2006) is given in Table 1 below. For the entire period and all sectors together, the proposed reform will cost about ECU 22 billion more than the current arrangements. However, such a comparison should not disguise the fact that just maintaining the status quo would, according to the Commission's forecasts, quickly lead to an untenable situation after 2000 (over-production and build-up of unsaleable intervention stocks for certain key products).

After 2006, it becomes increasingly difficult to compare the budget cost of a reformed common agricultural policy (CAP) and an unreformed one. However, basing the CAP on direct aid should more or less stabilise its cost (unless aid levels are changed) while an unreformed CAP would continue to produce quantities intended only for intervention and costs would continue to rise, unless production ceilings are set at levels which are socially unacceptable.

Despite the increase in expenditure, the current method for calculating the guideline should permit financing of identified agricultural spending requirements, including compensatory allowances, the new rural accompanying measures and spending connected with the accession of the applicant countries.

As table 2 of Agenda 2000 shows, in 2006 Heading 1 would look as follows (in ECU billion):

- guideline at current prices: 59.2

- agricultural expenditure: 54.5

- margin: 4.7

Agricultural expenditure would cover:

1) EUR-15:

- Reformed CAP, including compensatory allowances: 47.9

- New rural accompanying measures and horizontal measures for fisheries: 2.1

2) New Member States:

- CAP (market management) 1.4

- Specific rural accompanying measures: 2.5

3) Pre-accession aid: 0.6

These forecasts are based on a series of assumptions, including 2.5% growth in gross national product (GNP), 2% inflation and production and consumption scenarios. The agricultural guideline margin should make it possible to cope with any deviations of expenditure caused if these assumptions fail to become reality.

ECU billion

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