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While the recent decision by the EU Commission to reduce cereal import levies may have only short term and limited market implications, it raises serious questions about decision making in the European Union. With the implicit movement of goal posts, it contravenes the spirit of the Agenda 2000 cereal market reforms and was undertaken in contravention of political input. (990 words).

The most recent revisions to the EU's Common Agricultural Policy (CAP), commonly referred to as Agenda 2000 reforms were agreed upon 1999 after a protracted debate. It resulted in the fine tuning of the balance of support provided through the market intervention and through direct transfer payments, together with supply management provisions.

Acreage payments for cereals, together with set aside requirements, were first introduced as part of the McSharry Reforms in 1992 to meet the EU's WTO Paraguay Round commitments. Acreage payments are viewed as less disruptive of international trade than the direct market intervention with which the CAP had previously provided farm income support.

While the EU has been able to meet its 1992 WTO commitments to reduce the volume and cost of subsidized cereal exports, by 1997 it was generally accepted that this was mainly because cereal market conditions were favourable in the mid 1990's. And that after the year 2000 further adjustments would be necessary.

In July 1997 the EU commission first made its Agenda 2000 proposal to reduce further intervention support prices and increase acreage payments to compensate farmers partially for the implicit loss of income. The thinking behind the scheme was that lower intervention prices would reduce the gap between EU and world grain prices, thereby, reducing the cost of export subsidy programmes. Further in the context of fluctuating world prices the length of time that it would be necessary to use subsidies to export would be reduced and hence the volume of grain requiring export subsidies.

Providing full compensation from higher acreage payments was considered unnecessary as farmers were expected to benefit from occasionally higher prices when cereal supply situations tightened.

Between 1997 and 1999 world grain markets softened. Agenda 2000's practicability from the EU's standpoint and desirability from a farmer's standpoint looked increasingly questionable.

In particular farmers were asking whether world market prices would be far and long enough above the existing intervention support level to recover the loss of income from reduced intervention support not covered by higher acreage payments.

Agreement on Agenda 2000 was not possible in an agricultural forum but was finally reached in usual EU style at the eleventh hour at a meeting of the European Council of first ministers in March 1999. And it involved compromises on both agricultural and unrelated issues.

As a result of cuts in the intervention support last year and this and the weakness of the Euro European prices have declined at times to international levels and grain has been exported without subsidies meeting its WTO related objective.

Farm income has naturally declined substantially. But with world grain markets particularly for wheat tightening, the prospect for higher international prices levels and the opportunity for farmers to recoup some of their losses looked possible.

An issue that was raised but never seemed to have been fully addressed was that of the retention of EU's ability to apply taxes on grain exports, as it had done in the mid 1990's, to stabilize EU grain markets and stop prices rising with world grain prices. It seemed rather academic at the time when world prices were well below EU prices. Probably more importantly it would clearly have been a divisive issue as the interest of grain and livestock producers were diametrically opposed.

But at the time the word from the commission was that it would only be used in "extreme circumstances." And everyone assumed that this meant after cereal producers had had the opportunity to recoup what they had lost from lower intervention prices.

The recent decision to lower by 10 euros per tonne cereal import levies from Black Sea, Baltic Sea and Mediterranean regions in order to stabilize EU grain prices even before they had reached pre Agenda 2000 intervention levels, although undoubtedly within the letter of the law, seems wholly outside the spirit of Agenda 2000. It is certainly not the kind of decision that an unelected body such as the commission has any legitimacy in making.

It is understood that this measure was requested by Spain where poor harvest have resulted in grain prices rising to reflect the cost of importing grain. At the same time grain prices in other parts of the EU are barely above the lowered intervention support. It hardly represents "extreme circumstance."

While this gem first came to light as a EU Cereals Management Committee (ManCom) agenda item, it was to all intense and purposes imposed EU commission. The ManCom voted 15 for, 37 against with 35 abstentions on this commission proposal, but the requirements are for the committee to vote two thirds against to block such a proposal.

ManCom is composed of representatives of member states with decisions being made by Qualified Majority Voting - member states have from two to 10 votes depending on their size. This means that the decision was made most probably with the support of only three of the fifteen member states.

Beyond the manner in which the decision was made, the decision itself can be the subject of very serious criticism. Spain does not seem to have imported grain from the regions from which the levies are to be reduced and, therefore, there is no real reason to believe that Spanish consumers of grain will benefit materially.

But more critically there is a three-week delay before the measure is to be implemented during which the trade elsewhere in Europe will stand still fearful of the consequences. During the busy post harvest marketing season this is totally unacceptable.

This is more than a simple betrayal. It is incompetence.

October 15, 2001