AGRICULTURE: COMMISSION EXAMINES CONSEQUENCES OF BUDGET FREEZE.

Summary:In order to reflect the wish of certain Member States (notably France, Germany, Sweden and the United Kingdom) to reduce the cost of reforming the Common Agricultural Policy (CAP) over the period 2000-2006, the European Commission (which itself proposes raising the current Euro 45.188 billion ceiling on expenditure) has suggested in an internal document what it believes would be the unacceptable financial consequences of a freeze on expenditure under heading 1 (Agriculture) of the Community Budget.

Echoing the demands of certain EU Member States' national governments, the Commission's Directorate-General for Agriculture has analysed the financial impact of freezing the farm budget at 1999 levels. Were this to be the case, the agriculture guideline would, according to the Commission document, have to be significantly reduced. Given an inflation rate of 2% per year, the reduction would amount to Euro 5.210 billion in 2000, rising to 12.48 billion in 2006. The new approach would set farm spending at Euro 47.2 billion in 2006 (instead of the 59.68 billion proposed by the Commission).

Three options.

The Commission's Directorate-General for Agriculture has been considering the three policy options tabled by the Member States to reduce the farm spending guideline:

- * No reform of the dairy sector, an option that would indeed reduce the agricultural policy budget deficit. The Commission proposal (a 15% cut in intervention prices for butter and skimmed milk would be offset by a dairy cow premium and a 2% increase in milk quotas) would require spending of the order of Euro 2 billion according to those countries that believe a modification of the existing regime is not justified (France, Ireland, Belgium, Portugal and Luxembourg). The Commission believes an increase of 2% in quotas without a reduction in prices would lead to additional storage costs amounting to about Euro 600 million per year.

- * Retaining rural development expenditure within the EAGGF Guidance Section: this option would reduce the budget available for other structural measures by about Euro 2 billion per year, although rural development would eventually lose out in competition for scarce financial resources. In its proposals on supporting rural development, the European Commission suggests...