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On 26 June 2003, EU farm ministers adopted a fundamental reform of the Common Agricultural Policy (CAP). The reform will completely change the way the EU supports its farm sector.

The new CAP will be geared towards consumers and taxpayers, while giving EU farmers the freedom to produce what the market wants. In future, the vast majority of subsidies will be paid independently from the volume of production.

To avoid abandonment of production, Member States may choose to maintain a limited link between subsidy and production under well defined conditions and within clear limits. These new "single farm payments" will be linked to the respect of environmental, food safety and animal welfare standards.

Severing the link between subsidies and production will make EU farmers more competitive and market orientated, while providing the necessary income stability. More money will be available to farmers for environmental, quality or animal welfare programmes by reducing direct payments for bigger farms.

The Council further decided to revise the milk, rice, cereals, durum wheat, dried fodder and nut sectors. In order to respect the tight budgetary ceiling for the EU-25 until 2013, ministers agreed to introduce a financial discipline mechanism.

This reform will also strengthen the EU's negotiating hand in the ongoing WTO trade talks. The different elements of the reform will enter into force in 2004 and 2005. The single farm payment will enter into force in 2005. If a Member State needs a transitional period due to its specific agricultural conditions, it may apply the single farm payment from 2007 at the latest.

Commenting on today's decision, EU Farm Commissioner Franz Fischler said: "This decision marks the beginning of a new era. Our farm policy will fundamentally change.

Today, Europe has given itself a new and effective farm policy. The bulk of our direct payments will no longer be linked to production. To our farmers, it offers a policy which will stabilise their incomes and enable them to produce what the consumers want. Our consumers and taxpayers will get more transparency and better value for money.

This reform also sends a strong message to the world. Our new policy is trade friendly. We are saying goodbye to the old subsidy system which significantly distorts international trade and harms developing countries. Today's decision will give Europe a strong hand in the negotiations on the Doha Development Agenda.

The EU has done its homework, now it's up to others to move to make the WTO trade talks a success. But let there be no mistake. At the Cancún Ministerial Meeting, the EU will be ready to use its increased negotiating capital only if we get something in exchange. Unilateral disarmament is not on. The ball is now in the camp of other countries, such as the US, whose agricultural policies continue to be highly trade-distorting and have even become increasingly so."

The key elements of the new, reformed CAP in a nutshell:

• a single farm payment for EU farmers, independent from production; limited coupled elements may be maintained to avoid abandonment of production,
• this payment will be linked to the respect of environmental, food safety, animal and plant health and animal welfare standards, as well as the requirement to keep all farmland in good agricultural and environmental condition ("cross-compliance"),
• a strengthened rural development policy with more EU money, new measures to promote the environment, quality and animal welfare and to help farmers to meet EU production standards starting in 2005,
• a reduction in direct payments ("modulation") for bigger farms to finance the new rural development policy,
• a mechanism for financial discipline to ensure that the farm budget fixed until 2013 is not overshot,
• revisions to the market policy of the CAP:
  • asymmetric price cuts in the milk sector: The intervention price for butter will be reduced by 25% over four years, which is an additional price cut of 10% compared to Agenda 2000, for skimmed milk powder a 15% reduction over three years, as agreed in Agenda 2000, is retained,
  • reduction of the monthly increments in the cereals sector by half, the current intervention price will be maintained,
  • reforms in the rice, durum wheat, nuts, starch potatoes and dried fodder sectors

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Source: European Commission - 26th June 2003