The system of inflated prices was widely believed to be encouraging out of control production

The MacSharry Reform thus had two main objectives. First, reformers needed to bring the budget under control in both the short and long term, with specific attention paid to the surplus problem. Second, a reform had to be adopted that would bring support for agriculture into compliance with liberalized GATT trade rules without prompting a rebellion among European farmers and their political allies. While the MacSharry Reform laid the groundwork for a GATT agreement, it failed to reduce CAP spending. Instead, CAP spending increased even further in the years following the MacSharry Reform and excess production continued, albeit at a lower level. Given the crisis conditions confronted, the MacSharry Reform should have been a prime opportunity for cuts to be imposed on agricultural spending, yet as my argument predicts, it proved impossible to cut spending on farmers. Farmers simply received that money from new sources. The final agreement of MacSharry Reform included four central components. The first was a series of price cuts for cereals, beef, and dairy. The second component paired these cuts with compensatory payments to offset losses incurred by farmers stemming from the newly lowered prices. These reforms marked what would be the beginning of the process of decoupling CAP payments from production. The third initiative was a set-aside program that required land to be removed from production, with farmers being compensated for this out-of-production land. Finally, the fourth reform was a package of three non-binding accompanying measures that affirmed the environmental role of farmers, offered subsidies for land afforestation ,equipment for vertical farming and set up an early retirement scheme for farmers.

The purpose of this chapter is to account for the content of the 1992 MacSharry Reform and to explain why, despite the fact that there was urgent need for major change, the reform failed to reduce spending. The confluence of two major crises, budgetary and trade-related, allowed Agricultural Commissioner Ray MacSharry to make bolder proposals than had ever before been seriously considered in a round of CAP reform. As my framework for CAP reform conditions predicts, a context of disruptive politics facilitated the proposal and consideration of more dynamic reforms than would have normally been possible. These extraordinary circumstances were not enough to hold back the influence of farmers and their representatives, however, or produce a reduction in CAP spending. The disparate needs and demands of the member states led to a watering down of the final version of the reform so that changes were more circumscribed than initially proposed or even entirely abandoned; there were also significant side-payments to farmers. Disruptive politics were therefore important in facilitating the serious discussion and consideration of fundamental changes but they were not enough to stop the farmers from significantly weakening the final agreement and extracting compensation. The composition of the final reform package is consistent with my claim that it is difficult if not impossible to cut agricultural spending. Decoupling support from production simply led to farmers being paid via a new program, and not to actual meaningful cuts in farmer supports. Finally, the CAP reform process shared many features with welfare state retrenchment. The most ambitious and far-reaching reforms, like price cuts, were significantly watered down, and some, like shifting compensation in favor of small farmers while limiting payments for large farmers, were defeated outright. The core reforms ended up following a “vice into virtue logic”: rather than eliminating programs, existing programs were adjusted to fix inefficiencies and problems with their operation.

The final package included a number of side-payments, concessions, and exemptions in order to facilitate the agreement and overall spending levels increased, rather than decreased. The timing, negotiations, and content of the MacSharry Reform were fundamentally shaped by two pressing issues: rapidly ballooning spending that was pushing the CAP budget to the brink of sustainability and GATT Uruguay Round negotiations that were being held up by agriculture. Both of these pressures threatened the CAP’s continued existence. Without a correction to spending related to high prices and out of control production, agricultural expenditures would grow beyond the point of sustainability. A failed GATT Uruguay Round, with agriculture as the clear culprit, was expected to spark serious backlash against the CAP, both within the Commission and among member state governments. Consistent with my framework, the critical situation of the CAP and the serious nature of the pressures driving reform broke with politics as usual and created an opportunity for MacSharry to propose and advocate for major reforms. Previous CAP reform efforts had only tinkered with the policy. The MacSharry Reform, however, occurred at a time of “disruptive politics”, which gave reformers an opening to alter the fundamental operation of the CAP. GATT pressures informed the content of the proposed reforms, facilitating the consideration of policies that made the CAP less trade distorting. The surplus-induced budgetary crisis allowed debate over policies that would affect both how farmers were supported and the ways in which production was managed and controlled. Crucially, however, while disruptive politics may have facilitated systemic CAP reform, they were not enough to produce cuts to the farmers’ bottom line. By the late 1980s, surplus production of core European goods, most notably cereals, beef, butter, and milk, contributed to a budget that was also growing out of control. Overproduction was so severe that the EU, having filled all of its existing stores, had taken to storing food on ships in the North Atlantic .

Vividly demonstrating the problem of excess production, DGVI, the Directorate General for Agriculture, actually calculated that with the butter on hand in storage, “the road between Brussels and the southern end of Italy could be buttered as though it were bread” . These stocks began to build up in the early 1970s as did exports onto an already stagnant world market . While production in the EU increased 2% annually between 1973 and 1988, consumption grew only 0.5% annually over the same period . Over a twelve-year period, from 1980- 1992, the CAP budget tripled . The collapse of the world cereals market in 1991 made matters even worse for CAP spending, as export refunds to the sector increased fourfold,vertical farming systems adding another 5-6 billion ECU10 to CAP expenditure . The Commission estimated that CAP spending would increase by a further 20% in 1992 . Virtually all of this money was dedicated to keeping pace with the main costs of the CAP, which related to surplus disposal: intervention purchases, storage costs, and export refunds. Moreover, despite the rapidly expanding CAP budget, the income gap between “the highly productive minority and the economically less efficient but socially more important [majority] continued to widen” . A core problem with which the CAP reform would have to contend was the traditional system of high prices paid to farmers for their products. Ironically, it was also damaging the ability of farmers, particularly grain farmers, to compete. Because prices were so high, grain farmers who produced cereals for animal consumption were losing market share to cheaper animal feed substitutes, whose prices were not set by the CAP. In addition to immediate concerns about surpluses and the sustainability of the budget, CAP spending threatened the impending transition to the single market as outlined under the recently signed Single European Act . With the accession of Greece, Portugal, and Spain and the reunification of Germany, economic disparities within the Union increased. Greece, Portugal, Spain, and East Germany were comparatively underdeveloped, lagging behind their fellow member states, particularly in infrastructure. In order to improve competitiveness and enhance harmonization among the member states, massive structural development investments were needed in these countries. EU leaders viewed these investments and income transfers as essential, preparing the poorer member states for entrance into the Single Market and eventually, a currency union . The current share of agricultural spending, roughly 80% of the total budget, was already seen as an impediment to creating a redistributive function in the budget and as posing a threat to meeting the objectives outlined in the SEA. If CAP production continued unchecked and spending on agriculture increased as projected, the EU would be unable to fund regional development programs, putting progress toward the Single Market at serious risk. Commitments to these structural programs could not be easily ignored or delayed. A 1988 agreement, complementary to the SEA, committed the EU to a doubling of structural funds by 1993 and further stipulated that those funds would be aimed at supporting the cohesion countries of Greece, Ireland, Portugal and Spain .

For this reason, the general consensus was that the CAP budget could not be allowed to increase any further. Another major pressure to reform the CAP stemmed from the Uruguay Round negotiations of the GATT. Little progress had been made since the launching of the round in 1986 placed further pressure on the CAP. The preferences of the US along with the Cairns Group11 were diametrically opposed to those of the European Union. The US saw government support as the root of trouble in farm trade while the EU blamed the market . Specifically, the US called for dramatic liberalization primarily by reducing the protection and support afforded to European farmers under the CAP. The EU, however, argued that the aim of negotiations should be to “progressively reduce support to the extent necessary to reestablish balanced markets and a more market oriented agricultural trading system” but not to phase out support and protection entirely . The US, the Cairns Group, and many developing countries were frustrated by the lack of access to EU markets, privileged trade within the EU, and EU surplus dumping on world markets . If the talks failed, there was the very real threat that the EU would suffer retaliation from the Cairns Group . In December of 1990, GATT talks over agriculture completely collapsed at the Heysel Conference, which had been scheduled for the purpose of concluding the negotiations. The lack of progress in agriculture was a concern for all sectors. The agreement launching the UR stipulated that the round could not be formally concluded without an agreement in agriculture. By this time, key European leaders, most notably President of the European Commission Jacques Delors, French President François Mitterrand, and Chancellor of Germany Helmut Kohl, recognized that European farming interests were threatening the benefits that important sectors of the economy would realize from a new global trade agreement . Three areas of importance for the EU and its member states, trade, services, and intellectual property rights, stood to benefit significantly from the agreement. American domestic politics added a sense of urgency to finding an agreement in agriculture. The coming election presented the possibility that Bill Clinton, who had already expressed a desire to re-evaluate the US stance, would succeed George H. W. Bush. In addition, Congress’ “fast-track authority”, which requires Congress to accept or reject an international agreement in its entirety quickly and without altering the substance, was set to expire in 1993 . Given the position of the EU relative to the other major negotiating parties in the GATT, it was clear that CAP reform was required in order to reach an agreement on agriculture and thus conclude the Uruguay Round. Agricultural Commissioner Raymond “Ray” MacSharry knew, however, that he could not openly and directly link his CAP reforms to the GATT UR. Connecting CAP reform to the GATT would lead to the perception among the public and member state representatives in the Council of Ministers that “reforms were being made for the benefit of the Americans” . If the perception that CAP reform was being done for the sake of a GATT agreement took hold, MacSharry knew that his “reforms would be dead in the water” . For this reason, the reform package was presented as being constructed to deal with problems related to the budget and surplus production only . Any consequences these reforms might have for the GATT negotiations were, ostensibly, secondary. The combination of pressures confronting the CAP at the time of MacSharry’s reform, most notably concerns related to the GATT and how budget overruns would affect the SEA, meant that reformers were operating at a time of “disruptive politics”.