Fattened up, now for the kill

Today, with Britain's cereal harvest about to begin, the European Commission will spell out its latest proposed reform for Europe's greatest, longest-running scandal - the Common Agricultural Policy. What Brussels advocates is a lurch towards a freer market, with cuts in guaranteed minimum prices for cereals, beef and dairy products. Farmers will be compensated with direct annual payments running into thousands - and for some hundreds of thousands - of pounds. These will continue indefinitely.

Food should become cheaper for consumers, but the overall pounds 30bn-a-year cost of the CAP for Europe's taxpayers is expected to rise by a few billion pounds a year.

The Commission wants us to pay farmers a straight subsidy, simply because they are A Good Thing. As a result European agriculture will continue to be, by international standards, massively overmanned, though employment in it will keep on falling fast. That overmanning is also seen as desirable, because we want a thriving, populated countryside which continues to look as we expect it to. Sort of traditional. It must seem grotesquely unfair to the tens of thousands of European coal and steel workers who have lost their jobs because of the massive withdrawal of state subsidies in these industries. But you have to admire the sheer lobbying muscle of those farmers. The CAP costs the average Briton pounds 3 in higher food prices and pounds 1 in taxes each week. Total cost to UK taxpayers - about pounds 3bn.

If we are to have these direct payments to farmers replacing artificially high prices for their produce they ought to have strings attached. But before going into that we should welcome the good in this reform. It is absolutely right that Europe should reduce guaranteed, "intervention" prices further and move closer to world market prices. Guaranteed high prices encouraged farmers to grow vastly more than consumers inside and outside Europe demanded. Mountains of cereals, skimmed milk powder and beef, and lakes of wine had to be stored and eventually dumped on world markets at subsidised, cheap prices. So European consumers had to pay unfairly high food prices within the Union, while outside, farmers in Third World countries struggled to compete with the cheap imports which harmed the chances of poor countries becoming self-sufficient in food.

Guaranteed high prices were an insane way of subsidising European agriculture, and the recent freeing up and tariff-busting in international trade - the Uruguay Round of the GATT - forced the European Union to start abandoning them. A 1992 reform of the CAP began the process. The single most important element was a 35 per cent cut in guaranteed minimum cereal prices, phased in gradually. To compensate, Europe's grain farmers were given a direct payment for each hectare of cereal they planted. The only string attached was that the continent's larger farms (which meant virtually all of Britain's) would have to stop growing cereal on part of their land (up to 15 per cent). They got an even larger payment for each hectare of this set-aside land. The idea was to grow less and cut surpluses by taking land out of production.

But then something strange happened. The internationally traded, world price of cereals began to rise much more rapidly than had been envisaged, thanks to a combination of bad harvests, soaring demand from fast-growing nations such as China and measures to cut overproduction introduced by big exporters such as Europe. Instead of dumping exports at subsidised prices, the European Union actually imposed an export tax to try to keep its grain within its borders.

Farmers no longer needed to worry about the decline in the guaranteed minimum price - what they were getting was way above it. They no longer needed the direct payments in compensation, but they still got them. The mid-1990s were marvellous times for the "barley barons" of East Anglia. Fortunately this absurd situation could not last; more cereal was grown world-wide, international markets readjusted and the world price came down. Now the European Commission is forecasting that farms will again produce mountains of beef, cereal and dairy products. Why? Because if farmers get a good, reliable price for their crops, they will inevitably grow more and more. Individuals improve their skills and find more land, while farming technology always improves and crop yields rise.

So another reform is needed to tackle these surpluses, but there are two other powerful incentives for Europe to go back on CAP once more. The amount of surplus food the Union can dump on world markets at cheap prices has been strictly limited under GATT - any breach would trigger a trade war. The next round of world trade negotiations is expected to curb this dumping still further. The accession of Eastern European states into the EU will also make the costs of the CAP to consumers and taxpayers very much higher.

Faced with these factors, there are really only two options for reform. Make Europe's agriculture run on world market prices or set quotas which ensure the continents' farmers do not keep growing more food. Quotas are by far the worse option, because they are more bureaucratic and keep prices artificially high.

The proposals to be unveiled by the Commission today include both. The aim is to cut guaranteed cereal prices down to world market levels at a stroke, while reducing beef prices more gradually - and compensating farmers with direct payments. A 10 per cent cut in the support prices for butter and skimmed milk powder is proposed, leaving them above world prices. Furthermore, the system of milk quotas for individual farmers is to continue beyond 2000, when it had been due to be reviewed.

Something roughly along these lines will eventually be agreed after about two years of intense argument between the EU member states. In the process, the governments and ministers of most nations - Britain and one or two others possibly excepted - will not question the need for continuing, massive subsidies for farmers. They will use the same justification for CAP as they have for decades; that it preserves small farms, and therefore rural economies, and conserves traditional farmland landscapes.

But it doesn't. Farming will employ fewer and fewer people as it becomes more efficient. Our EU partners are far more worried about rural depopulation than we in Britain. Their employment in agriculture has been dropping at a faster rate than ours and is forecast to continue. Our farms are, on average, five times as large as the rest of Europe's and a much smaller proportion of our workforce is on the land.

Intensification, too, is bound to continue. In the process the landscapes and wildlife we love are destroyed. Hedges are grubbed out to make bigger, more efficient fields, meadows and pastures rich in wildflowers and insects are ploughed up, while the wetlands which support so much of our flora and fauna are drained. You can slow the rate at which farming modernises with generous, unconditional subsidies. But you cannot stop it, and you are just as likely to speed it up. That is what happened in Britain and elsewhere, such as the cereal plains of the Paris basin - which are just as productive as anything in prairie-like East Anglia.

The right way forward for the CAP has to be a combination of world market prices and conditionality. If we subsidise farmers they must give us something agreed upon in return, and if they fail their grants must be whipped away from them. What do we want from our European farms? A diversity of native wildlife, attractive landscapes, safe food, minimum use of pesticides and fertiliser, humane treatment of farm animals, long-term conservation of key resources and a living for rural people. Continued subsidy must be conditional on farmers giving us these things. If they want to opt out, and make a living solely by selling their products at an unsubsidised price then let them. But hopefully, the majority would want to opt in.

There are all sorts of pitfalls. Take animal welfare, for example. The two factory-farmed creatures we are most worried about are battery and broiler chickens and pigs. Both are outside the CAP's subsidy regime. If you had a mixed farm with cereal and beef as well as pigs and chickens, you could end the farmer's direct payments for beef and cereal if he refused to treat his pigs more humanely. But the farmer would be just as likely to respond by stopping beef and cereal farming and stepping up pig farming.

Two overall principles should apply. One is that nations, regions and local governments should be given as much say as possible in deciding what they want from farming in their own area. If continental Europe wants to focus much of the subsidy on maintaining rural economies and populations, fine, but this is not a priority in Britain. Here people are, by and large, moving out from the city into the countryside and the rural economy is doing better than the urban one. Our priorities, at least in lowland England, are to have more woodlands, ponds and wetlands, conserve what little remains of semi-natural habitats and expand organic or low-intensity agriculture. The other principle is that subsidies should be in return for stopping the negative trends getting worse, and starting to make things better. If rural decline - of whatever kind - continues then the conditionality approach will have failed, just as the old ways failed before it. There also has to be scope for flexibility and imagination. We don't want a chocolate-box countryside.

It may sound like a waste of money to give pounds 3bn a year in subsidies for conserving British wildlife and landscapes. Think about what that could buy in terms of improved schools and public transport. But what is the alternative? Political realities dictate that European agriculture will continue to be massively subsidised. Britain, a net contributor to the CAP, must ensure that it gets its fair share of those subsidies (which will be around pounds 3bn). Better to ensure they are used to give us the countryside we want rather than simply give them to our farmers unconditionally.