by Hannes Lorenzen | 25 Jul 1992

Hannes Lorenzen

In what was hailed by the press as "the most radical overhaul of the Common Agricultural Policy in its 30-year history", EC ministers agreed last May to drastically reduce prices paid to farmers and install a system of direct compensation for them. The measures were presented as an important contribution to saving Europe's environment, as they encourage farmers to take land out of production and offer subsidies to those who adopt environmentally-friendly activities. However, a close look at the reform shows that it might do just the opposite, with Europe's genetic heritage being the first major casualty. Hannes Lorenzen of the European Parliament reports.


What to do with the European Community's Common Agricultural Policy (CAP) has probably been one of the most hotly debated issues in Europe over the past decade. It has come under attack from farmers, environmentalists, industrialists and Third World groups alike. The essence of the CAP is basically a system of guaranteed farm prices for specific products, way above those at world market levels, combined with various measures to block the entry of cheaper products from outside the Community. In the public eye, the CAP is often associated with surplus production and escalating costs. In 1991, the EC spent 33 billion ECU (some U.S.$ 45 billion), or 60% of its entire budget, on CAP alone. But the bulk of this money does not go to the farmers. A full two-thirds of it is devoted to non-productive activities such as stockpiling and destruction of the surpluses, or getting rid of them on the world market through export subsidies.

EC governments and Eurocrats alike were slowly becoming more and more alarmed about this policy-induced nightmare: an ever-rising bill for an agriculture which employs an ever-shrinking minority of Europeans. But the real pressure to overhaul the current CAP comes from the GATT negotiators and foreign countries like the U.S.A., which see the EC price and export subsidies, combined with protectionist measures to stop cheap agricultural products from entering the EC market, as unfair competition for their own farmers.

The heart of the now agreed upon CAP reform is a dramatic 30% cut in prices paid to cereal farmers over the coming three years, topped off by a 15% reduction in beef prices and a 5% lowering of butter prices, among others. These cuts are designed to move EC farm output towards world market price levels and progressively eliminate current subsidies. The European Commission argues that high prices paid to EC farmers in the past have stimulated dangerously intensive forms of agriculture together with the encumbrance of surplus production and environmental pollution. The new price reductions will, according to the Commission, help arrest further intensification of agriculture and thus alleviate the escalating damage to the environment.

All this sounds great, but in reality things might be quite different. Farmers in the EC have indeed benefitted from guaranteed prices above world market levels. But those prices paid to farmers have been progressively lowered over the years while more and more money is devoted to export subsidies. By increasing export subsidies, the EC ends up dumping its produce on the world market, which itself leads to lower prices to compete with. Thus the vicious circle gets worse and worse.

Contrary to the Commission's projections, farm price reductions in the EC have always lead to greater intensification and more surplus production. Between 1963 and 1983, EC cereal prices were reduced by 45%, and since then by another 30%. During this period, agricultural production increased and surpluses built up. Obviously, if farmers are faced with lower prices they either go out of business or they increase production, depending on whether they can make further investments or not. Both scenarios are the reality. The EC farming community has declined 35% over the past 15 years, while ever increasing production has become concentrated among fewer and fewer farms. Today, 60% of the EC's grains are produced by only 6% of the Community's cereal farmers, 75% of the milk comes from 25% of the dairy farms, and 80% of the pigs are raised by 10% of the pork producers. Slashing prices yet again under the new CAP regime is more than likely to step up this process: further concentration of production on fewer farms, which will have to drastically intensify their production methods in order to keep up.

Compensation... for whom?

The other side of the CAP reform coin is compensation. The policy-makers recognise that the newly imposed price levels are below the production costs of three-quarters of Europe's farmers, who will have to retire or find another job if nothing else is done. Only a quarter of Europe's largest farmers would be able to keep up with the lower prices... if they manage to increase output and lower their costs. So a system of compensation payments is being set up according to the number of hectares each farmer was planting, in the case of cereals for example, before the CAP reform, and average yield in each region. Thus, if you are a farmer in a high yield region and you have done your best to increase EC surplus production over the past years, you are likely to get most of the compensation. However, if you happen to be a farmer in a disadvantaged part of Europe which tends to provide low yields and harbour small farming production systems, you 'll end up getting the smallest part of the cake and a compensation that keeps you in the same trouble as you were in before.

In modelling the reform, one "mea culpa" the EC Commission was that, up until now, the bulk of the price subsidies ended up with the minority of well-off farmers. However, with the new compensation system linked to yield and acreage, the same is likely to happen. It is calculated that 80% of the compensation will end up in the hands of 20% of Europe's farmers. The end result is that the 20% better-off farms in the EC will, on the one hand, further intensify their production reacting to lowered prices, and on the other hand, catch most of the compensation from Brussels.

Obviously, an important question for farmers is: how long will the compensation last? And for the national governments: how much will it cost? Nobody really knows. Apart from the costs of the compensation system itself, a huge bureaucracy will have to be put in place to monitor who has the right to what compensation. Only in one German länd, Bavaria, it is estimated that over 200 extra staff are needed to do the counting. Officials from the EC Commission swear that the compensations will be paid until the end of time. But farmers rightly remain sceptical. As one observer stated to the press, "The farmers know that they are being paid to do nothing. That is a very vulnerable position to be in." The first attack against the compensation package might already come this year from the UK, whose turn at the rotating six-month EC presidency began this July with the firm intention to lower EC expenditure on just about everything. It might very well be that the compensation system merely serves as a short-term bait on paper to get the larger farmer unions to accept the reform package and close the discussion.

Set aside... for what?

One major condition for the large farms to receive the compensation is that they have to set aside at least 15% of their arable land, which means not using it for food production. This measure is intended to ensure that EC farm surpluses are once and for all cut down. Many doubt whether it will really work to that effect, though. The set aside scheme is basically imported from the United States -- where it has proved not to work. Despite 20 years of its application in the U.S., the system backfired: surplus production has increased continuously there, while whole regions have been losing their farmers.

The CAP set aside scheme is also often presented as a neat way to extensify production and recover soil productivity by taking the pressure off part of Europe's arable land. This is simply not true. "Setting aside" land in the new policy is not defined as leaving it alone to recover from intensive practices: heavy machines, toxic pesticides, chemical fertilisers, massive irrigation and draining. It means, rather, that farmers are not allowed to grow food per se on it. This is where Europe's biomass advocates come in. Potatoes, colza (rape), cereals and all sorts of other crops can be grown on the set aside land if they are used for non-food purposes such as making bioethanol, biocaburants, starch and other components for industrial use. Piles of studies are financed by the EC Commission and special subsidy programmes go to industry to make it technically feasible to use the set aside land more intensively than ever by producing raw materials for a newly emerging biomass industry. As long as you don 't grow "food" on the set aside land, you are free to do what you want with it. There is no limit on the amount of chemical fertiliser, herbicides or pesticides you can use on this land. Rather than extensify production, the set-aside rule will, again, intensify it.

If you are a large "competitive" farmer and are not interested in the biomass business, there is an easy trick around the set aside scheme. The set aside quotas are tradeable with other farmers. So farmers with poor soils might obtain and accumulate set aside parts from large farmers working on the best soils who then have their hands free to grow whatever surplus they want. As there are no rules about with whom you can trade your set aside land, we might end up with a situation in which the better-off farmers in northern France, UK and Denmark continue to produce Europe's food surplus, while entire regions in Greece, Spain and Portugal are officially "set aside".

Europe going green?

All in all, the reform will push European agriculture further into the split that was ripped open with the launching of the first CAP decades ago: "real" intensive and large farms provide the bulk of Europe's agricultural output, while the "unproductive" smaller farms can 't keep up. To a large extent that split is geographical. The EC Commission divides Europe into "advantaged" and "disadvantaged" regions. Currently, the "real" crop farming is done by large holdings concentrated in northern France, and parts of England and Denmark, while the intensive animal production takes place in the Netherlands, parts of Belgium, northern Germany and northern Italy. These farms roughly account for 25% of the Community's agricultural land, while the remaining 75% are dismissed as lacking economic efficiency.

By lowering prices and channelling the bulk of compensation payments to the already "advantaged" regions and farms, this split will be further enhanced. With the current CAP reform there is simply no agricultural future for 75% of the Community's farmers. For some countries, like Spain, Portugal and Greece, this means that there is no future for agriculture at all, as virtually all of their farmers fall into this "disadvantaged" group. But also in the better-off countries, many farmers will not survive the onslaught. In trying to figure out the future of their pesticide sales, the German agro-industry already reckons that only 80,000 of Germany's 400,000 farmers will be in business by the year 2002. The industry remains optimistic, though, as they expect that those fewer farmers will actually increase their use of chemicals to intensify operations.

The masterminds behind the CAP reform figured that they had to do something for the losers, and came up with a series of "accompanying measures". With 75% of Europe's farmers not needed any more for production purposes, the policy-makers decided to use some of the arguments of conservation groups by saying that the time has come now to recognise that farmers have an important role in the protection of the rural environment and management of landscapes, and that they should be remunerated accordingly. The move is clever in several respects. It allows the CAP reformers to present their package as "socially just" and "environmentally friendly", as for the first time these considerations are explicitly taken into account. Proudly presented as the "Agri-Environmental Action Programme", this part of new CAP offers subsidies to farmers if they start growing organically without chemicals or stop with draining, irrigation and ploughing up meadows. You can also get money if you stick to rare breeds or local crop varieties in danger of extinction.

But you have to hurry, if you want to pocket any of the ECUs earmarked for "environmental services". The budget is extremely limited: 400 million ECU (some US$ 540 million) in the first year, up to 900 million (or US$ 1.2 billion) in the fifth year. Beyond then, no further guarantees. This is merely 1% to 2% of what Brussels spends right now on its agricultural policies! And it is meant for three-quarters of the Community's farmers, who otherwise have no future at all!

Delinking agriculture and environment

Despite the enthusiastic reactions from EC bureaucrats, hard-nosed economists and free-traders worldwide, the new CAP reform is directing Europe's agriculture straight towards a profound disaster. Basically the reform amounts to a violent separation of a "productive" and "competitive" minority that produces the bulk of Europe's food and raw materials for industry, and a written-off majority that gets a few bucks to do some environmentally-friendly freewheeling or just go out of business.

With respect to genetic resources management and the vulnerability of our uniform crops and livestock, the reform could not be more sinister. Forced to further increase productivity, the competitive minority will be more demanding of and reliant upon ever fewer varieties and animal breeds to be able to attain the maximum results. Already, the most productive European farmers plant no more than one or two of the highest yielding crop varieties, each of them genetically uniform. This trend will unfortunately only be reinforced by the new CAP. Europe's agro-ecosystems will be further standardised and concentrated in fewer areas which allow for even fewer crop varieties to be sown on larger acreages. We 're heading towards a European agriculture based on the same wheat from Denmark to Greece, and the same cow from Holland to Portugal. The use of chemicals, fertilisers and hormones to sustain this unsustainable production will certainly expand, while regionally adapted and genetically diverse crop varieties and animal races will be forced into extinction.

The "accompanying measures" to promote some sustainable farming and nature conservation for the losers will certainly not compensate the loss of diversity in the productive sector. The rule is intensification and uniformity, the exception is caring for the environment. The rule provokes extinction while the exception allows for conservation... as long as there is money available. As the genetic resources community has slowly started to realise, the only way out of our spiral towards ever increasing genetic vulnerability on the farm is through the integration of production and conservation, rather that their separation. In this context, the last CAP reform is one giant step in just the wrong direction.


- "The development and future of the Common Agricultural Policy," communication of the Commission to the Council, Brussels, 1991.

- "EC agrees shake-up of farm policy," in Financial Times, London, 22 May 1992.

- "Farm reforms may bring a bitter harvest," in Financial Times, London, 8 June 1992.

Author: Hannes Lorenzen