Lafontaine had long been at odds with Schröder over economic policy

The former sought to slash the CAP in an effort to reduce Germany’s EU financial contributions while the latter opposed spending cuts in an effort to protect German farmer benefits. France’s position was strengthened because an overall bi-partisan unity emerged from the divided government on matters related to the CAP. Despite these divisions, there was some agreement among the member states. The ministers broadly concurred that a reform should happen before the next round of enlargement, that the 1992 reform should be continued and extended, and that the intermediate strategy was the most favorable . More specifically, the ministers agreed that reform of the beef and dairy sectors was inevitable as at the time there were surplus problems with both of these sectors. However, they disagreed over the size of the cuts and degree of compensation. Germany wanted small cuts, while Sweden and the UK wanted cuts to be large. In terms of compensation, the UK and Sweden preferred to phase out compensation, while Austria, Finland, Germany, and Spain insisted on full compensation, and Greece, Italy, the Netherlands, and Spain claimed that compensation was discriminatory . Similar technical squabbles also broke out over how to handle the dairy and cereals sectors. Four other issues divided the EU member states. The first was dairy. The quota regime was set to expire in 2000. In order for it to continue, an agreement to extend it would have to be voted on by a qualified majority within the agricultural council. A majority of the member states, led by France and Germany,hydroponic vertical farming systems favored the Commission proposal allowing for the continuation of current price and quota policy on the grounds that it ensured a stable market and kept production in check.

These member states also recognized that the compensation that would have to accompany reform would push CAP spending beyond its limits. They argued that delaying the removal of quotas even further than the Commission had proposed, until 2006, would save the EU €8 billion in compensatory payments that it would not have to distribute if the system was left in place . The UK, Sweden, Denmark and Italy, however, all supported an end to the quota regime. They favored a more market-oriented dairy sector. Together, these four countries formed a blocking minority meaning that, if they stayed united, they could prevent a vote from passing under qualified majority rules. Problematically for this blocking minority, however, Italy was also a member of a group of countries, including Greece, Ireland, and Spain, that were willing to support the Commission’s proposal in exchange for an increase in their quotas . The Commission ultimately gave into the demands of Greece, Ireland, Spain, and Italy, offering them an increase in their dairy quota in exchange for their support, thus breaking the blocking minority. After Austria, Belgium, France, Luxembourg, the Netherlands, and Portugal argued that this quota increase was special treatment, the agreement was amended to increase the quotas for all member states, coupled with an additional specific increase for Greece, Ireland, Italy, and Spain. The remaining members of the now defunct blocking minority were promised only that dairy policy would be analyzed and evaluated as part of a mid-term review of the CAP, with the goal of allowing the quota system to expire after 2006. Unlike with dairy, the member states were largely in agreement that reform was needed for cereals and beef.

Efficient cereals farmers in particular were confident in their ability to compete on the world market, and also knew that they would fare better within the EU because they would not be losing market share to smaller and less efficient cereals farmers surviving on inflated prices. Beef producers would benefit from the declining costs of inputs from the cereals sector, once those prices were brought closer to world-market levels. For that reason, discussions concerned the level of cuts and compensation as opposed to whether or not reforms should occur at all. Germany, for example challenged the Commission’s cereal price forecasts, arguing that world cereals prices would soon rise to EU levels, rendering significant price cuts unnecessary. In addition, Germany and France supported price cuts for beef, but only so long as framers were offered full compensation. France, however, was firmly in favor of cereals price cuts. Unlike in Germany, French cereal farmers do not need to rely on price supports for survival; indeed, the French view these supports as exposing French grain farmers to unfair competition by “encouraging production in other regions which could not produce without price support” . During Agenda 2000, the FNSEA, dominated by the large grain farmers, had a particularly powerful ally in French President Jacques Chirac, described by one high-level government official as “the spokesman for the FNSEA” . The UK position on both beef and cereals was in line with their desire for greater market liberalization. More broadly, the UK remained opposed to essentially subsidizing the agricultural sectors and paying compensation to the farmers of other countries. For beef in particular, they asked that price cuts be increased to 30% and any compensation payments made temporary as opposed to permanent increases to the direct payment scheme . Ultimately, for beef the price cut was reduced from 30% to 20%. For cereals, the Agricultural Council agreed to keep the cut at the same 20% level, but to delay the full implementation with the cut being imposed in two steps instead of all at once. A buyout, increasing the beef premium, was needed to secure France’s support for the reform as well .

A third area of significant debate was the set of horizontal measures: cross-compliance, modulation, and payment ceilings. The countries with the largest farms, the UK and Germany, continued their staunch rejection of modulation or any ceiling on payments imposed. Their objection rested on the grounds that these policies “discriminate against large, efficient farms, thus undermining the objective of making European agriculture more competitive” . There was also widespread resistance to cross-compliance. The member states argued that they should decide environmental aims at the national level rather than having the EU attempt to set common environmental objectives for 15 member states, each with their own particular agricultural situations. In the end,vertical planting tower the Commission gave in to every major demand on the horizontal regulations: payment ceilings were dropped, modulation was made optional at the member state level, as was cross-compliance, and member states were allowed to determine their own environmental standards under the program. While these concessions may seem like a major loss for reformers, by including these policies in the reform, even if only optionally, Agenda 2000 reformers positioned their future counterparts to build on and extend the program, setting themselves up for systemic retrenchment in the future. These policies, while at this point not mandatory, had at least become part of the CAP system. The addition of these small, and seemingly unimportant optional new policies opened the door to deeper, structural changes in the future. A final area of debate concerned rural development and the drive toward further establishing the CAP’s second pillar. Austria, Finland, France, Portugal, Sweden, and the UK were all in favor of significantly strengthening the CAP’s second pillar. Despite a common preference for a stronger second pillar, these member states did not agree on what that should entail. Sweden, the UK, and to a lesser extent, Finland, advocated for a radical reform under which the second pillar would constitute the bulk of the CAP, with market measures and direct payments phased out over time. The others favored a more even distribution of spending between the two pillars while also working towards making the two pillars and their policies more complementary.

One notable way the Commission sought to more tightly join the two pillars was through cross-compliance whereby environmental standards, traditionally the domain of the second pillar, would be tied to direct payments, the purview of pillar one. France’s support for the second pillar marked a shift away from its staunch defense of the traditional CAP programs and was crucial in helping to secure increased financial commitments for rural development. The French government had recently adopted a new Loi d’Orientation Agricole and a major part of it, the Contrats Territoriaux d’Exploitation, was essentially targeting the same objectives as many of the rural development programs supported under the second pillar . Specifically, the new Loi d’Orientation Agricole was designed to preserve the smaller-scale family farms while also promoting high food quality standards and the preservation of the environment in rural and agricultural areas . An increase in funding for the second pillar would essentially allow France to cofinance its new domestic policy. In order to push forward progress toward reaching a final agreement and to illustrate the difference between reality and what the member states wanted the Commission distributed a table, within the Agricultural Council, that reported that if all of the outstanding demands of the member states were included in the final CAP agreement, the annual budget would be exceeded by €25 billion, or roughly 8% over the course of the six-year budgetary period . A compromise was reached and shortly thereafter, and the agreement was officially approved by the Agricultural Council. Importantly, this agreement was still subject to final approval by the European heads of state and government when the European Council met in Berlin a few weeks later to approve the entire Agenda 2000 package. The agreement reached by the Agricultural Council contained changes to the Commission’s proposal for all three of major sectors under discussion: beef, dairy, and cereals. For the beef sector, as a concession to Italy and France, a higher slaughter premium was approved. In addition, the price cuts were reduced from 30% to 20% and would take place in three stages, not one. Reforms for both dairy and cereals were delayed. Dairy reform would not begin until 2003 and would occur in three stages while the cuts to cereals prices would take place in two steps . Both of these changes were necessary in order to finance the increased expenditure in the beef sector. The financial question, however, remained unresolved; no agreement on a method for budget stabilization was reached. More problematic was that the compromise reached and approved by the Agricultural Council exceeded the spending limits the Economic and Financial Affairs Council proposed for the CAP by €7 billion. In the final agreement on this compromise within the Agricultural Council, Portugal was outvoted and France issued a reserve d’attente on the grounds that the financial problems had yet to be resolved . The lingering financial issue and France’s reserve d’attente facilitated the re-opening and further amending of this agreement by the European Council at the Berlin Summit. The Agricultural Council knew that although their agreement concluded negotiations for the CAP amongst the ministers of agriculture, further revision was still possible by their heads of state or government. They acknowledged as much in their formal press release to outline their compromise stating “the reform of the CAP is part of the Agenda 2000 package and that no part of this [agreement] can be considered definitively agreed until final agreement is reached on Agenda 2000 as a whole” . The European Council, which is comprised of the heads of state or government for all the member states, met at the Berlin Summit March 1999 to reach a final agreement on Agenda 2000. As part of these negotiations, the CAP deal reached by the agricultural ministers was re-opened by Jacques Chirac. As a former minister of agriculture who maintained close ties with the farming community, Chirac was considered an expert on the subject, and was arguably more knowledgeable on the agricultural policy and the inner workings of the CAP than any of his colleagues on the European Council, including Gerhard Schröder, Germany’s newly elected Chancellor from the left who chaired the Berlin summit. As it was a period of co-habitation in the French government, Chirac was particularly concerned with appeasing a core right constituency, the agricultural community, specifically those in the beef and cereals sectors . Fischler was aware that Chirac was willing to go to great lengths to cater to these interests. As one high level Commission official recounted, Chirac made Fischler well-aware of his displeasure with Fischler’s reforms to the beef sector when Chirac visited Fischler in the middle of the night during the negotiations and told him, , “I am the father of beef intervention and you are trying to destroy my scheme” .