TILLING THE SOIL IN A WIDER EUROPE

The Economist, August 20th 1994

The Central Europeans will one day join the European Union. Its farm policy must be adapted to their circumstances-and to its own

Extending the European Union eastward is no longer a matter of if, but how. The political promises have been made; now is the time to work out how to keep them. One item for which a clear strategy is essential-but is as yet non-existent-is farming.

For all the modifications it has undergone, the EU's common agricultural policy (CAP) remains what it always was: an inefficient and costly way of supporting a (by now) fairly small number of farmers. Central Europe is much poorer and has many more farmers. Simply integrating them into the CAP and its high food prices is impossibly costly. Neither the east's consumers nor the EU's farm budget would want to pay for it.

The temptation is to try to exclude agriculture: get the Central Europeans into the Union, but leave their farming out of the CAP. Even if this could be sold to the new would-be members, it would make a mockery of the EU's supposed single market; farming and food are huge businesses. Nor is a long transition period enough on its own. Even in 20 years' time, Central Europe's farming potential will remain high. More important, the would-be members need an agricultural policy in the interim. For it to be sensible, they need to know where they are headed-and that in turn must be the right destination.

Several of them are already trying to build CAP-like policies in the belief that this will prepare them better for membership. But neither their budgets nor their consumers can afford it. What is needed instead is a joint strategy: simultaneous reform of the EU's farm policy and of Central Europe's.

The EU reform should be based on two pillars. One would be a further weakening of the link between subsidies and out-put, so that subsidies do not - as today's CAP prices still do - both encourage overproduction and enrich the well-off. The way to do this is simply to cut intervention prices further. The second principle should be to shift more of the cost of farm-income support from the CAP budget to national budgets.

This approach would push CAP reform further in the direction it is already going. It would cause a political tempest but, with some modest and temporary compensation for the farmers affected, this might be overcome. The CAP's 1992 reforms have already lowered farm prices. Commitments made in the Uruguay Round of the GATT will reinforce the trend. And now that the EU grudgingly accepts the idea that farming should be subject to world trade arrangements, there will be continuous pressure for further price cuts. Extended to the east or not, the EU and its farm policy will become more market-sensitive.

EU farmers have been compensated for these changes, notably through payments for set-aside land. Meanwhile, other forms of support have been introduced that wreak less havoc on world farm trade than high support prices do. Some of these new methods - aid for environmentaly friendly farming, for example - may even serve useful purposes. Though supervised by the European Commission, the new forms of support can be adapted to local needs by national governments - and are partly financed by them.

An example of the new thinking can be found in the EU's recent accession agreements with Austria and the Scandinavian countries. They have even higher levels of farm support - and prices - than the EU. To bridge the gap, the new-member governments have been given considerable freedom to top up farm incomes. Some support will come from Brussels, but much of the cost will fall on national budgets.

Winners all round

This principle will have to be extended if the arrival of Central European farmers is to be made affordable. Lowering CAP prices would prevent farm output in Central Europe from soaring, as it would if today's prices were still in force. EU farmers could be bought off with a bit of compensation, as small as politically possible. Thereafter, farm support should be treated as income support. Some money would still come from Brussels, but more should come from national governments.

There are risk. Opening the door to more national support could lead to subsidised competition. The commission would need strong powers to monitor and approve - or disapprove - national aid programmes. But by co-financing some of them, it should have enough of a carrot to make its disciplinary stick effective. Another big advantage would be to make farm support more visible. As national taxpayers paid more of the costs, they might become less willing to see them rise. They might even start asking just why farmers should be entitled to such extravagant government hand-outs at all.