EU Agrees to Agriculture Shakeup

After weeks of talks, Europe's much maligned common agricultural policy is to undergo unprecedented reforms, ending decades of blank-cheque subsidies.

But critics said they did not go far enough. French farmers, who fought a dogged rearguard action, will keep their subsidies until 2007, and angry development campaigners protested they would do little to reduce "dumping" of produce in world markets, or help unsubsidised third world farmers.

Compromise was reached early yesterday when France and its allies accepted a deal ending the historic link between production and cash - though not entirely, and not for everyone at the same time.

"The decision that has been taken is the beginning of a new era," said Franz Fischler, the EU's agriculture commissioner. "On the basis of these rules, the CAP will be very different."

Britain hailed the bitterly contested agreement as a benchmark for September's world trade organisation talks in Cancun, Mexico.

The CAP, which costs a 43bn euros a year - nearly half the EU's entire annual budget - will not come any cheaper. Handouts from Brussels will continue, though they will be distributed more evenly. But with 10 new countries, including Poland with millions of poor farmers, joining next year, there will be less for everyone.

The final deal came in Luxembourg after three rounds of talks and 16 hours of overnight haggling about changes. The deal cuts the key link between direct payments to farmers and production levels; makes cash for farmers conditional on meeting environmental, food safety and animal welfare standards; and diverts some direct payments formerly made to farmers to rural development.

Mr Fischler managed to preserve his main strategic goal: ending the cash incentives which created the notorious wine and milk lakes and butter mountains. That should leave farmers free to tailor their output to demand, and reduce overproduction and the need to dump surpluses on the world market.

From 2005, the EU will move to a fixed subsidy, based on the size of farms, rather than quantities of produce.

But Mr Fischler had to make other significant concessions to close the deal.

French farmers will be able to keep most of their subsidies until 2007, while reformist-minded member states - including Britain, Sweden and the Netherlands - will end the link between subsidy and production by next year.

With countries receiving different levels of subsidies, questions are bound to be raised about competition in the single market.

Andrew George, the Liberal Democrat agriculture spokesman, said the common agricultural policy was "becoming an uncommon policy, in that it will now be applied differently across each farming nation".

Mr Fischler was also forced to abandon his call to cut 5% off cereal prices, which weakens the effort to reduce trade distortions before the WTO talks.

Production-based subsidies can continue for up to 25% of cereal crops, and up to 40% of beef production.

The Tories accused the government and its allies of having caved in to the French, Spanish and Irish, but Margaret Beckett, agriculture secretary, said: "People just need to take a look at how far France has moved to come to this agreement, and what a dramatic change and shift that is.

"We are disappointed we were not able to get agreement to do more on price cuts, but this is not the last word."

Only last week, President Jacques Chirac threatened to veto a deal on which France could have been outvoted. He has ended up with a package that was hailed in Paris last night as preserving the country's main advantages.

Another innovation will be to place limits on payments to the largest farms, the biggest 20% of which currently get 80% of subsidies.

Many European farmers were unhappy. Gerd Sonnleitner, head of Germany's DBV farmers' union, said: "It's a typical EU compromise which gives and takes a little from everyone and creates terrible difficulties for those who have to implement it."

The issue remains bedevilled by complex detail, and jargon which includes terms such as degressivity, modulation and cross-compliance, suckler cow premia and national envelopes.

The CAP - originally a bargain struck between French agriculture and German industry - was set up in the EEC of the 1950s when wartime food shortages and rationing had not been forgotten.

Western Europe rapidly became self-sufficient in food, and massive surpluses of cereals and dairy products were sold on world markets where prices were lower. European exporters were then subsidised to sell their products abroad.

Some 45 years on, campaigners say, it still has to change much more.

CAP in hand?

Europe's farmers are to get a single, flat-rate handout depending on farm size, instead of on how much they produce

Temporary 'getouts' have been negotiated for states, including France, Ireland and Spain, which fear the changes might lead to unprecedented numbers of farmers quitting

Britain, the Netherlands and Sweden, which want to go ahead with more radical reform, are allowed to do so

Production-based subsidies will continue to represent up to 25% of payments for cereals, and more for beef

More CAP cash is to be directed to rural development projects, improvements to food quality, and protecting the environment

Subsidies are to be withheld from farmers if they fail to respect tougher rules on food quality and safety, animal welfare, and protecting the environment

Cash limits will be placed on subsidies to the biggest farms, which have traditionally received most of the money given out under the CAP

A new mechanism for financial discipline aims to ensure that the agriculture budget, fixed until 2013, is not overspent

A reduction will be made to the EU subsidies which prop up prices for butter, powdered milk and cereals when market prices fall below a certain level

Future reforms will cover olive oil, tobacco and cotton production