The deal to not cut the CAP budget was extracted by France in exchange for supporting enlargement, and allowed the budget to increase by 1% each year until 2013 . This agreement was a major victory for France and the CAP, as the EU’s multi-annual financial framework at the time called for an automatic annual cut in the CAP budget . The proposal designed by Fischler and his team was also well received by the Commission because it addressed several of the main issues that provided the impetus for reform: food safety and quality, environmental impact, imbalances in the distribution of CAP support, and the CAP’s impeding of trade negotiations. Food safety and quality issues were addressed by cross compliance. Decoupling of payments and cross compliance handled the issue of environmental impact, while dynamic modulation confronted the problem of inequities in CAP support distribution. Finally, decoupling brought the CAP support payments into the WTO green box, and thus into compliance with existing WTO rules on agricultural subsidies. The core components of the proposed CAP reform were also structured so that they would directly address the challenge posed by enlargement. Doing away with payments tied to production and instead basing income support on historical yields tied to holding size would save the CAP money in both the short and long term. Farms in the East were, on balance,30 litre plant pots much smaller and less productive than those in the West.
As a result, their calculated income support payment would be comparatively low. In addition, there was no risk that, as these farmers gained access to improved resources and technology enabling them to improve their output, the CAP would have to fund larger payments. Instead, income payments would be tied to a low historic yield. Cross-compliance would serve as a further check on the amount of funds dispersed to the new member states. Eastern Europe already lagged behind the West in terms of existing environmental practices. Farmers in new member states would have difficultly meeting and adhering to these new standards, resulting in reductions in the funds paid to them. Countering some of these effects, modulation would allow some funds to be redirected from richer to poorer countries The MTR was the last opportunity to reform the CAP before the candidate countries would be full members of the European Union, and thus party to CAP negotiations. Unlike previous reforms, it would be much risker to put off or delay making reforms to the operation of the CAP. Even adopting reforms that were optional but not binding, as had been done in the past, was risky. If these changes, ones that were necessary to save the CAP but were deeply unpopular in the East, were not taken immediately, they would not be in the future because the new member states would band together to block them. The only component of Fischler’s proposal that was significantly revised by the Commission was dynamic modulation. The Commission altered the rules governing eligibility for modulation and income payment limits. Though the revised proposal maintained an exemption for farms earning less than €5,000, it added a provision stating that only those farms earning over €50,000 would be subjected to the full 19% reduction in direct income payments prescribed by modulation in order to ensure that small holders would not be targeted.
In addition, the final version of the Commission proposal removed the €300,000 limit on total income payments. The Commission also revised how the money collected under dynamic modulation would be redistributed. The new version significantly reduced the amount of money that would be directed to general rural development objectives and increased the amount that was to be set aside to fund future CAP reforms. This change was made in order to accommodate the rules that emerged from the Chirac-Schröder deal at the Berlin Summit in 2002. Specifically, it ensured that there would be some funds in reserve to uphold the agreement from the deal that allowed for a 1% annual increase in the CAP budget. These amendments to the Commission’s proposal were important victories for both larger and small farmers. Larger farmers avoided a cap on how much support they could receive and small farmers were granted important exemptions and protections from reductions in their income payments under dynamic modulation. After review and revision by the Commission, the official package of proposals was sent to the European Council on 23 January 2003. Among the member states, France and UK were the key players. France led the effort to block the reform while the UK was the primary member state that Fischler worked with to achieve the necessary votes to pass his reforms via Qualified Majority Voting . France was the leader of the anti-reform camp and used its relationship with Germany to cement a blocking minority, while the UK proved central to breaking the French-led blocking minority. Three groups emerged after the reforms were announced. The first group, the pro-reform coalition, consisted of the Denmark, the Netherlands, Sweden, and the UK. This group of countries favored reforms that would make the CAP more market-oriented. Sweden was a vocal new partner of the pro-reform club.
Upon joining the EU, Sweden had been required to reintroduce subsidies, which the government had removed in the early 1990s after a period of substantial agricultural policy reform . Sweden was thus a strong supporter of reforms that would move the CAP in a market-oriented direction. Other members of this group had long been proponents of market-oriented reforms. Agriculture in each of these countries was marked by the predominance of large holdings and/or highly efficient farming. Agricultural and political elites expressed the belief that their farmers, in general, would benefit from freer competition and the removal of support programs that served to prop up inefficient competitors in other member states. Within this group, the UK also objected to modulation. As one of the member states with the largest farms, the British felt that this policy, if adopted, would disproportionately negatively affect its farmers. The second group was the anti-reform alliance consisting of France, Germany, Ireland, Italy, and Spain. These countries took issue with nearly every aspect of the reform package, in particular decoupling and modulation. Germany, with large farms in the east and highly efficient farms in the west, opposed a limit being placed on total CAP payments. Both of these sets of farmers would be adversely affected by a limit on the total payment a farmer could receive. German farmers in both the east and west were already receiving more in direct payments than the proposed payment cap would allow. These member states also opposed the timing of the reforms, arguing that Agenda 2000 should be fully implemented before any further reforms were adopted . France’s position became even more staunchly anti-reform after a leftist cabinet was replaced by a center-right government in 2002, and Hervé Gaymard, a member of Chirac’s own party, was installed as minister of agriculture. Several agricultural lobbies posed three main reform critiques of their own. The lobbies argued that the new system of payments would not allow farmers “in the least-favoured regions, where low productivity and lower competitiveness” predominates to earn a livable income . The result, they argued,10 litre plant pots would be land abandonment and an increase in unemployment. Second, they voiced the concern that paying farmers regardless of production would negatively affect public opinion and could ultimately result in the complete termination of direct payments to farmers . Third, the proposal to base the direct payment on historical yields would serve to perpetuate past discrimination in favor of certain products, producers, and regions . The third group represented those countries in the middle that, while not completely opposed to the reforms, had some specific objections. Countries in this group were Austria, Belgium, Greece, Finland, and Luxembourg . Finland and Austria were traditionally protectionist agricultural countries and thus supported subsidies as a means to help their farmers. However, because Austria and Finland each had an agricultural sector that was predominantly small-scale and high value added, they favored strategies for rural development, greening, and multi-functionality, as opposed to production-based subsidies that favored large scale cultivation of commodity crops . At a meeting of the Council of Ministers on 8 April 2003, decoupling was discussed for the first time. Only the UK, the Netherlands, Sweden, and Denmark expressed support for Fischler’s proposal to completely disconnect payment from production . Most of the other member states preferred partial decoupling, whereby a portion of a farmers’ income payment would continue to be linked to how much he or she produced, but no member state offered any concrete ideas or proposals for how partial decoupling could be carried out .
While many countries were neither fully opposed nor fully in favor of the reform, no agreement could be reached without breaking the French-led blocking minority. Under the rules of QMV, a blocking minority consisting of a minimum of 4 countries that represented at least 35% of the population could prevent the passage of a proposal. Given the existence of this blocking minority, member states in the middle had no incentive to officially back reform, particularly since their formal support might provoke the ire of the farming community at home. There was no incentive to express support or even negotiate on the terms if the blocking minority could thwart the whole package. Though the Commission preferred to pass reforms with unanimous support, with the continued expansion of the EU, it was no longer feasible to pass reforms only with unanimous support. The adoption of QMV facilitated a faster negotiation process than was possible under unanimity rules, and ensured that a single country could not use a veto to stymie reform. Ireland ended up abandoning the anti-reform group early. Irish farmers’ unions opposed the reforms, but their members did not. The farmers supported the reforms because they felt they would provide them with adequate income support while also giving them the freedom to farm a greater diversity of crops . The Irish farm minister ultimately sided with the grass-roots farmers and against the farmer unions. Even without Ireland, however, the other four countries, France, Germany, Italy, and Spain, could form a blocking minority on their own under the rules of QMV. In order to break this minority alliance of France, Germany, Italy, and Spain, Fischler targeted the Spanish delegation, as it was believed that “Spain joined the French to gain some breathing space” rather than because of outright objection to the reforms . Fischler asked British Prime Minister Tony Blair to reach out to Spanish Prime Minister Aznar . Spain was a crucial country to flip, because it would break the blocking minority led by France.These caps, which would be applied primarily to big farms, would hit the UK especially hard . Fischler agreed and Blair began working with Fischler to swing the other member states in support of reform. One of Spain’s central demands was to amend the decoupling proposal to allow for partial decoupling in certain sectors, at the member states’ discretion. Partial decoupling would allow the Spanish government to continue allocating a percentage of income payments based on production in sectors important to Spain, namely sheep and goat farming. Once that concession was made, Spain shifted in favor of the reform. With the blocking minority broken, France and Germany quickly followed suit, hoping to grab some concessions in exchange for their support of the reform Similar to Spain, Germany and France also received a concession that allowed them to keep a certain percentage of income payments coupled to production for sectors of importance. The French switch was also motivated by pressure from the Association Générale des Producteurs de Blé , the cereals division within the FNSEA. Chirac’s opinion was strongly influenced by that of France’s national farming union, the Fédération nationale des syndicats d’exploitants agricoles , with some Commission officials describing Chirac as “entirely beholden” to the FNSEA . Chirac completely opposed decoupling until he was approached by AGPB leaders, who told him that they supported the policy change .