EU farm reforms in total disarray

EUROPE'S CONTROVERSIAL plans to slash billions of pounds from its annual spending and usher in a new wave of agricultural reform were in disarray last night as a stand-off among EU leaders left the reform process deadlocked.

After a full day the 15 member states appeared even further from agreement, and a Franco-German split threatened a full-scale crisis ahead of next month's deadline for agreement of reforms.

Gerhard Schroder, the German Chancellor, told fellow premiers that the latest compromise plans, designed to freeze the EU's pounds 30.7bn farm spending, were "unacceptable" because they watered down proposals to "stabilise" farm spending for 2000 to 2006.

Amid the worst Franco- German dispute for years, the French president, Jacques Chirac, outlined a different set of objections - repeating French hostility to key elements of a compromise reform package that Paris refused to endorse yesterday. Mr Chirac suggested a fresh start because the plans would hit the income of the EU's seven million farmers.

Jacques Santer, president of the European Commission, said he "wouldn't want to talk of a collapse". But one diplomat said: "The best possible outcome might be a crisis because that at least would concentrate minds."

Tony Blair said the UK's pounds 2bn-a-year rebate was "non-negotiable". Mr Chirac said: "We cannot avoid a re-examination of the British rebate."

Talks broke up early on Friday without agreement when a compromise package was opposed by France, despite a concession over cuts in milk quotas - a reform opposed by France's Agriculture Minister, Jean Glavany.

Ministers discussed a 3 per cent annual reduction in all EU direct farm subsidies; a 3 per cent annual reduction in direct EU arable crop subsidies and a 1 per cent annual reduction in all other EU direct farm subsidies.

Germany, which holds the rotating EU presidency, argued that the compromise would add 9bn euros (pounds 6.2bn) to the costs of the farm package over the years 2000-2006. Mr Blair sided with Mr Schroder over farm reforms, arguing that heads of government "have to get a very clear message to farm ministers about the need for real reform and a less costly agricultural package".

The deputy Dutch foreign minister, Dick Benschop, added: "It is very clear a signal was sent by the leaders to the agriculture ministers that the quality of their discussions has been insufficient."

France has agreed to the principle that most direct payments to farmers should be cut year on year. In exchange it wants concessions over the dairy sector as it believes its milk producers will not be able to compete in a free market.

And it is determined to oppose co-financing - proposal under which 25 per cent of agriculture spending would come from national, rather than EU, coffers.

The so-called Agenda 2000 reforms are seen as vital preparation for the EU's attempt to admit the former countries of eastern Europe.

Agriculture swallows up about half of the EU's spending and leaders accept that the system has to be reformed before countries such as Poland, which has a big and inefficient agricultural sector, can be brought in.

Spain, Portugal and Greece want increases in the EU's 35bn euro aid for poorer regions to ensure they do not lose when hard-hit eastern Europeans join. Mr Schroder said "solidarity is not a one-way street", and added that to say "spenders are good and savers are bad is a caricature".

Mr Schroder proposed a new initiative over duty free, which is due to be scrapped in the summer despite the objections of the German, French and British. The German Chancellor suggested VAT be imposed on the agreed date, but imposition of excise duty be delayed for two-and-a- half years. However, there was no sign of the unanimity needed to push the measure through.

THE PROPOSED FARM POLICY: WHO WINS AND WHO LOSES?

The proposal

Freeze farm spending at pounds 30.7bn a year - half the EU's spending - between 2000 and 2006

The

Winners

Germany, the Netherlands, Denmark and the UK are in the vanguard. They claim to have efficient farmers and pay much more into the EU than they get out.

The

Losers

France, Ireland and "Club-Med" states oppose the freeze - not always on financial lines. Any country where farmers tend to take to the streets has worries.

The proposal

Cut guaranteed prices in line with free market. Beef, cereals, milk could come down by 30%

The

Winners

Big "factory" farmers in Britain, France, eastern Germany, Denmark, Holland and Sweden - those who can compete in a market where prices are not rigged.

The

Losers

Small hill farmers in Wales, the Scottish highlands, Ireland and Spain. France is calling for cuts on cereals but fears its dairy farmers will not be able to compete.

The proposal

Year-on-year cut in payments that compensate farmers for being exposed to world markets

The

Winners

Good for big farmers who will increase production in the freer market. Direct payments will go up to compensate for cuts in guaranteed prices

The

Losers

This horrifies broadest spectrum of farmers. Small farmers will be forced to increase production to make up losses. Brussels suggests new funding to struggling areas.

The proposal

Co-financing by member states and EU until nations take 25% of direct payments EU now funds

The

Winners

A weapon to help Germany cut its pounds 8bn net contribution to the EU, which is backed by the UK and other countries that gain little from the CAP

The

Losers

France is the most stubborn opponent, arguing that this is the beginning of the end of the 37-year-old policy. Ireland is also alarmed, for financial reasons.

The proposal

Cap payments to big farmers - the millionaire grain barons

The

Winners

Hill farmers, smallholders and southern producers will not be shedding tears. Despite previous reforms, the richest 4 per cent of land-owners still pocket 80 per cent of CAP cash

The

Losers

One of the few reforms opposed by Britain, this would cut payments to anyone receiving more than pounds 100,000 per annum, hurting 5,550 farmers

The proposal

End of compulsory set-aside, helping clear way for cereal farmers to return to free market

The

Winners

Current plans would end curbs on grain production and are backed by countries with big cereal producers such as the UK, Sweden, Denmark, Holland and France

The

Losers

Governments in Germany, Austria, Greece, Ireland and Portugal favour keeping a minimum guaranteed price coupled with a small set-aside provision.