By Christopher Lord

Editor-In-Chief.

Perspectives, The Central European Review.

Of International Affairs.

PRAGUE, Czech Republic (B)--The Common Agricultural Policy of the European Union is its largest budget item, absorbing over half of its central funds in a program of farm subsidies that has become the most important obstacle to EU reform.

The policy represents a political balancing act. It provides subsidies to farmers in poorer countries like Portugal and Greece, but also to farmers in the richest countries.

In the first case, it helps disadvantaged regions catch up. In the second case, it reflects little more than the power of the agricultural lobbies to prevent policy reform.

The EU runs an agricultural produce cartel. Food prices inside the union are kept artificially high by restricting the quantities of each crop allowed to come to market, and farmers are paid for any excess production over these agreed quotas.

In fact, they are also paid for crops they would have grown, but didn't, and also are paid the difference if they sell outside the EU at world prices.

Who benefits? France (24.5% of total payments) and Germany (16.3%) lead the pack. They are of course at the same time the two most powerful countries in the union. The present trend, if nothing is done, is toward more of this subsidizing of the wealthier countries.

The policy paradox is straightforward. France and Germany, along with all of the 15 member states, are committed to important reforms, the most difficult of which is extending membership to the countries of the former Eastern Bloc.

But domestically, it is impossible to get national farm lobbies to accept reforms that would lower their own incomes. This has proved a dead end.

While helping Greece, Spain and Portugal, though expensive, was doable, it would not be possible to subsidize Polish agriculture, in particular, along the present lines. So for 10 years there has been an endless succession of empty promises to do something.

But at last, one member state has come up with a concrete plan for reform. According to a Portuguese proposal, put together by Caporals dos Santos, minister of agriculture, there will be a phased liberalization of the policy.

Over a period of nine years, it will switch from a system based on production to one based on three new criteria: quality, employment and the environment. The plan will be presented officially to the EU as Portugal's proposal for reform.

The quality criterion is aimed at taking production out of the hands of bureaucrats. "Many farmers are led to produce things they don't want to, as the only way of receiving certain benefits," said dos Santos in Lisbon.

Rather than Europewide quotas, he foresees a regime of regional specialization, with farmers taking advantage of local soil and climate to produce the best possible products.

The employment criterion will benefit local communities, especially in the less developed countries, and work against the large agribusiness concerns that dominate agriculture in the richer countries.

The environmental criterion will attract considerable support politically, though farm lobbies are likely to be less enthusiastic.

The European public is increasingly hostile to the use of high-tech methods in farming, while farmers argue that opposition to pesticides, chemical fertilizers and genetically modified crops is based not on fact, but on romanticism and paranoia.

One thing that is certain is that no plan would get through the political process at a Europe-wide level without some radical changes, and the construction of these proposed criteria, it must be said, reflects domestic Portuguese interests more than pan-European ones.

Under the plan, Portugal would see its share of subsidies growing from the present 1.9% (11th place) to somewhere between 4.5% and 8.2%, with the most favorable result moving it up to sixth place. What is perhaps more important is the strategy.

After a one-year preparatory period, there would be a four-year period of transition, with the old system running alongside the new one. Farmers already registered with the CAP would continue to receive the old benefits, but new entrants to the market would have to accept the new rules.

Under the second phase, the artificially high prices of European produce would be brought down to match world prices. Simultaneously, all farmers would be progressively brought under the new regime. By 2011, the process would be complete.

The agricultural policy would be transformed into a system capable of financing the modernization of agriculture in the new member states, and would at the same time increase the competitiveness of European produce by improving diversity and quality, promote employment in rural districts and protect the environment.

The great virtue of this scheme is that it sets an agenda. Every detail will have to be argued and debated, and the reality is that any reform would have to preserve the relative advantages for the French and German agricultural sectors, something it is not immediately clear that this scheme can do.

But the Common Agricultural Policy has been the most important blockage in the road of EU reform, and many will see this imaginative yet practical scheme as a big step in the right direction.

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