France believed in general that the Commission had far exceeded the negotiating mandate that had been agreed to prior to the start of GATT negotiations. French representatives were particularly upset with the extent to which EU negotiators were willing to reduce or even eliminate export subsidies. The informal deal between Mitterrand and Kohl helped each side advance an interest of particular importance. This agreement was made possible by a meeting in September of 1991 of the Quadrilateral that confirmed that the terms of the MacSharry proposals could unblock the stalemate in GATT agricultural negotiations. Shortly thereafter, the German cabinet formally announced that it would not veto the CAP deal over a cereal price cut . An announcement from the French government in favor of the CAP reform quickly followed. To get to this point each government had to come to some hard realizations about the CAP reform under discussion. Germany was facing a domestic fiscal crisis induced by the costs of reunification. In addition, its farming sector had changed dramatically. While small farms had dominated in the West, the East German model was the factory farm. East German farms lagged in production, but they were expected to rapidly become more efficient with access to improved technology and information. Any surpluses produced by the East would, under the current model, add to CAP costs and expenditures. Germany was already one of the main underwriters of the CAP budget and was confronted with having to pay even more to fund the CAP. These budgetary increases would also come in addition to the growing costs of reunification. While some of the new money from added CAP costs would be filtered back to the East German farmers, Germany’s overall contribution to the CAP would likely increase at a higher rate than its return,blackberry cultivation as CAP costs continued to grow rapidly. It was therefore more economically advantageous for Germany to advocate for a smaller and less expensive CAP, which would reduce Germany’s overall contribution, leaving more money to be deployed as needed domestically. Germany also desired a successful conclusion of the GATT round, which would benefit its industry tremendously.
The MacSharry Reform marked the first time that Germany faced significant resistance to agricultural policy from industrial and economic circles, with the Federation of German Industry stating a preference for agricultural policy reform, albeit cautiously . This opposition from industry marked a major change, given that industrial and agricultural interests had been bonded in a close alliance dating back to Bismarck . A GATT deal could not be reached without progress in the agricultural sector, and a reduction in price supports would go a long way towards making GATT progress possible. Kohl therefore broke with Germany’s traditional stance against price cuts, announcing that “the EC agricultural reform was not possible without substantial price cuts, especially for cereals” . France’s acceptance of reform was made possible by four developments. First, there was recognition that a structural change needed to be made. Production that continued unchecked would lead to increasing expenditure and thus an endless cycle of budget crises. Second, French officials realized that the structural reform on the table, price cuts paired with compensation, favored the French production profile. At the time, France was not only an efficient producer but also Europe’s leading exporter of agricultural goods and the world’s second leading exporter of cereals, a position the French were bent on maintaining. Given the strong position of the agricultural sector, particularly in cereals, the French government and the French Grain Farmers Association recognized that France could remain competitive, if not gain market share, under a system of price cuts while less efficient farmers in other countries would not be able to compete with the French. The status quo in the CAP, with its system of export subsidies, high prices, and import tariffs allowed even small and inefficient producers to sell their goods competitively alongside those of the largest and most efficient producers. If prices were cut, large grain producers would remain competitive, due to their efficiency, but the smaller farmers would be rendered uncompetitive. With these producers driven out of the market, the larger and more efficient French farmers could then gain market share. The third development that pushed France toward accepting the reform was the acceptance that for some products, the status quo was no longer tenable.
The AGPB was warned by Guy Legras, DGVI director and part of the EU’s GATT team, that new GATT rules were likely to require duty free importation of PSCs, or “products to substitute for cereals” and that, without a cereals price cut, French farmers would be unable to compete with PSCs . Cereals producers grow grains for both human and animal consumption. If the system of high prices was maintained and the GATT agreement proceeded as expected, grains produced for animal feed would be far more expensive than the PSCs, and French grain growers would lose market share and revenue as livestock farmers turned to alternative food sources for their animals. So, while the main French farmers’ union, the FNSEA maintained its “no reform and no discussion of reform” position, the powerful grain farmers, represented by the AGPB broke with the FNSEA and lent their formal support to the French government’s acceptance of the MacSharry Reform. The fourth factor that led to France swinging to support the reforms was the fear of the consequences of a failed reform. Specifically, what was most feared was a quota system, a possible alternative way to check spending and production if price cuts failed. In other words, while the possibility existed to impose reform via price cuts now, the failure to adopt reform would put the CAP into a position where the only possible alternative to control CAP spending would be to impose a quota system. At this point, a quota system existed, but only for the dairy sector. It was controversial, because it placed a strict limit on production, dividing up “shares” among producers and prohibiting production beyond the specified amount, even if it could be done more cheaply and efficiently than a competitor. In terms of the internal market, if demand exceeded production limits in France, milk would have to be brought in from producers in countries where quota limits exceeded domestic demand. Externally, efficient French producers would be unable to produce and sell milk beyond their strict quota limit, restricting their ability to expand their market share. A quota system would place a hard limit on production, continuing to prop up smaller and less efficient producers by guaranteeing them a market while restraining the ability of the efficient producers to expand into and serve new markets.
While French farmers were split over price cuts, they were united in their opposition to a quota system. In sum, on this first core issue of the negotiations, price cuts, Denmark, the Netherlands, and the United Kingdom were in favor of them from the start. The southern bloc of Greece, Spain, Portugal, and Italy were not opposed, as these proposed cuts did not affect their main agricultural products. The final three member states took a more circuitous path to support for the price cut element of the reform. Germany, though traditionally in favor of high prices, ultimately supported price cuts in an effort to ameliorate a domestic financial crisis brought on by the costs of reunification and to help clear the way for a hugely beneficial GATT agreement. Though initially opposed, France ultimately accepted the proposed price cuts thanks to support from the AGPB, an acceptance that reform had to happen in order to preserve the CAP,plastic plant pot sizes and a recognition that the reforms on the table favored the existing French production profile. Finally, Ireland’s stake was only in the beef sector- it did not grow cereals, and its cattle were all grass fed. As in France, support from the Irish Farmers Association led to support for these measures from the country’s representatives. The second major issue under discussion concerned the measures to redirect support to small farmers. The support of the pro-market countries, Denmark, the Netherlands, and the UK, was won with two key concessions. While none of these countries opposed price cuts, they all opposed modulation. Home to some of the largest farms in Europe, these countries felt that their farmers would be disproportionally punished by a system that reduced compensatory payments for large farmers and redirected those savings to smaller farmers. The Commission ultimately dropped all systems that would modulate income payments to the benefit of small farmers. This concession was necessary for reasons that again echo welfare state reform. Under modulation, it was very clear which farmers would be subjected to financial loses but it was far more uncertain which farmers would benefit, how much, and when. With certain losers but uncertain winners, it was easy to rally opposition to the program. The lackluster defense of the program was exacerbated by the wide variation in production size and style in the member states. The clear losers could rally their leaders against the reform, but winners, not knowing who they would be, did not mobilize. Finally, it was broadly understood that the inclusion of modulation was a deal breaker for Denmark, the Netherlands, and the UK. In order for negotiations to proceed, it had to be dropped. Denmark, the Netherlands, and the UK also won a concession over their other major sticking point. They objected to the compulsory land set-asides, which would require only farmers with the largest holdings to remove land from production. Under the proposal, farmers would not receive any compensation for this set-aside land. As they were home to some of the largest farms in the EU and thus also the farmers who would be subjected to this set-aside policy, Denmark, the Netherlands, and the UK staunchly opposed this program, arguing that it was unfair to their farmers.
To quell these objections over compulsory land set-asides, and the “inequity” of small farmers being exempted from them and thus being eligible to receive some form of income support for all of their land, the Commission offered a further concession that all set-aside land would be eligible to receive compensatory payments. The third core issue in the negotiations was the milk quota. While the proposed reform called for a reduction in milk quotas, Italy, Spain, and Greece demanded an increase. This demand was strongly opposed by Belgium, Denmark, Luxembourg, the Netherlands, and the UK. These “northern bloc” countries were upset that the southern European countries were not respecting the system already in place . These countries, and Italy in particular, were singled out for demanding an increase its quota while not respecting the existing quota. Italy, for example, had still not implemented or adhered to the quota system adopted by the EU in 1984. An agreement was reached that included a guarantee not to cut quotas and an offer for a quota “adjustment” once the previous quotas had been applied satisfactorily . Though not directly specified as such, an “adjustment” was understood to be an increase. The final reform package included four central components. The first component was price cuts for the three sectors most affected by overproduction: cereals, beef, and dairy. These sectors were subjected to price cuts of 29%, 15% and 5% respectively. These cuts were to be lagged, coming into effect gradually over a period of roughly five years. Within dairy, milk production, which is regulated via quotas rather than price controls, was not subjected to any alteration of quota amounts, despite proposals to reduce their levels. The second component of the agreement was the adoption of a series of payments to compensate farmers for revenue lost due to the price cuts. Instead of being paid based on output through a series of high, fixed prices and export subsidies, farmers would now be paid a direct payment that had no connection to current production levels. The direct income payment would be calculated based on the historic yield of a given crop for that region. At this stage, the direct payment based on historic regional yields would only be applied to a portion of the farmer’s land.