Mariann Fischer Boel
Member of the European Commission responsible for Agriculture and Rural Development

The Common Agriculture Policy: History and Future

Address at the German Marshall Fund
Washington, 14 September 2005

Ladies and gentlemen,

I'm very grateful to have this opportunity to speak to you about the future of European agriculture as I see it.

An event organised by the German Marshall Fund must be an ideal forum for a European Commissioner to make her first speech on her first official visit to the United States.

The Marshall Fund will always stand as a reminder of the generosity shown by the people of the United States towards Europe when we were all trying to pick ourselves up after the Second World War and work towards a new peace and prosperity.

Our transatlantic relationship, which Marshall Aid strengthened so much all those years ago, has had a lot of questions asked of it in recent times.

But it endures, and thrives. For evidence of that, we need look no further than EU-US trade and investment links, which have no equal.

And on a more personal level, I have received a wonderfully warm welcome here that promises fruitful discussions in the days ahead.

EU agricultural policy: some history

I'm here to talk about the future of European agriculture. But I'm sure you'll forgive me if I first talk about the past and the present. We can't comment sensibly on where we may be going if we're not sure where we've come from.

If you know anything about the arts in Europe, you'll know that agriculture has left a deep imprint on them that can be traced back through centuries. So much of our painting, so much of our poetry and music, has drawn its inspiration from landscapes shaped by the farmer.

Artists or writers may sometimes take a rather romantic view of life in the fields. But they don't lie when they show us that, in Europe, agriculture has been around for hundreds of years. And over this time, it has generally been closely integrated with the rest of society, with some exceptions.

This remains the case today. The European Union holds some of the world's best-known cities, but about 50% of its population still lives in rural areas.

The close connections between farming and wider society have had an important consequence: agricultural policy has been about much more than agriculture. It has been about social stability and our environment.

We need to see the EU's Common Agricultural Policy, or "CAP", in this light.

It's true that the CAP as conceived in the 1950s and 1960s laid a heavy emphasis on boosting production.

In fact, when France, Germany, Italy, Belgium, the Netherlands and Luxembourg signed the Treaty of Rome in 1957, among their stated goals for agriculture were the following:

• to increase agricultural productivity;
• to ensure a secure food supply at reasonable prices; and
• to give the agricultural community a fair income.

These aims were to be achieved within a common market that eventually kept domestic prices high through heavy import tariffs, export subsidies, and intervention buying when markets weakened.

In today's climate, this sort of language - the language of close market management - may almost sound like blasphemy in some countries.

But it was in a very different climate that the six founder states of the European Economic Community took decisions about agriculture in the 1950s and 1960s.

To cut a long story short: food security had come under serious threat during and after two world wars.

Critical food shortages appeared in places during the wars themselves. In fact, they almost turned the course of each conflict: let's not forget that one of the main combatants - Britain - nearly had to throw in the towel twice when its vital grain imports were being blocked by German u-boats.

And then at the dawn of the post-war period, many national farming sectors were too weakened to meet the food needs of their own people.

Added to this were the threats of extra mass-unemployment and environmental problems if farmers had no security and left their land to look for work in the cities.

In these conditions, creating a protected common agricultural market with powerful incentives to produce had a strong logic to it. It promised to underpin food security and social stability at a time of massive upheaval.

Of course, over time this solution began to outlive its usefulness. Productivity kept climbing while consumption did not, and surpluses began to build in the 1970s and 1980s - as did public spending on them.

The EU first responded in the 1980s, by imposing a few boundaries on what had been a fairly open-ended policy. We introduced strict quotas for milk production and also limited intervention buying.

This didn't solve the problem. So in 1992 we went further. We decided that guaranteeing prices didn't necessarily guarantee farmers' incomes. So we cut guaranteed prices in return for compensatory direct payments, and we obliged farmers to "set aside" portions of their arable land.

This was a bold move and a beneficial one. It was followed by extra disciplines signed up to in the Uruguay Round, including tariff reductions and caps on export refunds.

But all this has still not been quite enough, for several reasons.

First, the issue of quantity is moving into the background and that of quality is coming to the fore. Richer consumers are demanding that we give them the very best for their money. That means safe food with excellent taste.

Then there are environmental issues. Agricultural policy has usually borne these in mind, but nowadays the public is asking us to make a more specific effort to provide clean air and water and an attractive, vibrant countryside.

At the same time, there has been an expectation that spending on agriculture will be firmly controlled - though sufficiently well directed to allow the smooth integration of new member states into the European Union economy.

Finally, there's the ongoing discipline of globalisation. Many countries, like the US, have a comparative advantage in some agricultural products and want to make it count to the full. The pressure on trade-distorting subsidy and on market protection will remain heavy.

Responding to the challenges

Faced with these challenges, the European Union has not sat back passively and waited for the future to look after itself.

In 2003 and 2004 we gave the CAP a radical overhaul to make it fit for the 21^st century, in terms of both domestic and international requirements.

Let me outline the key points of these reforms now.

The centerpiece is a new type of support payment to farmers, which is no longer linked to current production. We call it the "single farm payment".

In order to receive this payment, farmers do not have to farm a given product. Instead, they must respect a number of demanding requirements related to environmentally friendly land management, and public and animal health.

This should mean that farmers' production choices will be directed by what the market wants, not by the range of subsidies on offer.

It also gives farmers a stronger incentive to give us the public goods and services we want - an attractive countryside where the environment and animals are cared for well.

I ought to give a little more detail to be accurate.

We have not yet entirely done away with old-style CAP tools. Some EU member states have used their right to keep a modest linkage between subsidy and production in some sectors. Also, we still run intervention buying and export refunds for the time being, and the production of milk and sugar is still restricted by quotas.

Nevertheless, the overall direction is clear: support for output is giving way to support for farmers. Those member states which have not put the single farm payment in place this year will do so next year. At that point, the level of separation between subsidy and production will be nearly 90% in the EU of 25 member states.

And we're moving ahead with work on the sectors not yet affected by the agreements of 2003 and 2004, to apply the same principles to them.

For sugar, there's already a proposal on the table; wine and fruit and vegetables will follow next year.

At the same time, we're sharpening the focus on another aspect of policy: assistance to the wider rural economy, rather than farmers alone.

Farming can deliver a great deal for our countryside, but it can't carry the whole of rural society on its shoulders. If we want our rural areas to prosper, we have to set the right conditions for a range of businesses to do well. And we have to protect and build on the countryside's special attractions that draw people to live there.

These points are reflected in three broad priorities which the EU recently agreed for rural policy in the period 2007 to 2013. These are:

• the competitiveness of farming and forestry;
• managing the land; and
• diversification in the rural economy, and the quality of life in rural areas.

Only by acting in all these spheres can we help our rural areas to fulfil their potential.

And let there be no doubt that rural development policy really is emerging from the shadow of farm policy to hold our attention in its own right.

To illustrate this, I should tell you that we're already siphoning cash out of direct payments to farmers and into rural development.

The sums are significant: the process has started at a level of €3 billion this year (or about $2.4 billion) and will hit a rate of €5 billion ($4 billion) in 2007.

Tentative predictions

In view of all these changes, I think farmers and the agri-food business feel they're moving into the future very quickly.

Although we still have a lot of work to do to complete and to bed down the reforms which we've agreed in recent years, the CAP is beginning to look very different from 20 or even 10 years ago.

A few years further on, I hope to be able to say a number of positive things about farming in the European Union.

First, it should be more entrepreneurial and competitive. The logic of the single farm payment is clear: farmers will make more money if they can spot market opportunities and seize hold of them. They will no longer be "subsidy slaves".

That should mean a greater range of high-quality products coming to market.

Second, it should be more environmentally responsible. We have made huge advances in this area over the years, but the reinforced link between subsidy and good farming practice should help us to go further.

Third, farming in the European Union should be holding its head high in a global trading system better geared to the needs of developing countries.

Despite recent setbacks, I still have every hope that we'll get the right outcome to the current WTO round. For agriculture, this will probably mean lower levels of trade-disporting support, the phasing-out of export subsidies, and more modest import tariffs.

That will set a challenge to EU farmers. But they can come out on top if they take the right attitude. It's natural to be concerned about foreign competition on the domestic market, but worrying won't achieve anything. More than ever, farmers must ask themselves where they can find a place in other markets - how they can make globalisation work for them.

****

Ladies and gentlemen, as I draw to a close, I admit that I've tip-toed around a question which some of you may regard as the most important: How much money will the EU be spending on supporting its agriculture in the years to come?

On this point, I'm put in mind of a comment from the writer John Sladek: "The future, according to some scientists, will be exactly like the past, only far more expensive."

Perhaps that's true of automobiles - if you long for the latest sports utility vehicle! But it's certainly not true of public spending on agriculture.

In 2002 the EU agreed to cap the budget for agriculture (as opposed to rural development) until 2013 - even though 10 new member states were going to join, and there was a strong possibility of bringing in two more.

Fitting so many extra countries under this ceiling means cuts in public money available per farmer.

Let me describe the overall situation with numbers. In 1988, direct aids and market measures for agriculture took up 62% of the total EU budget, and 0.67% of its gross domestic product.

In 1995, the figures were 48% and 0.51%. This year, they're 37% and 0.43%. We expect a further decline by 2013.

One can never predict anything with cast-iron certainty. But insofar as public funding will have a role in the future of European agriculture, I think that role will be about spending money well rather than spending lots of it. The push for subsidy-fuelled production has gone and won't be coming back.

I trust that in Europe we are moving smoothly towards that future.

Thank you for your attention.