The case for the European Commission to press ahead with CAP reform will be strengthened today when the annual report of the EU's Court of Auditors delivers a damning verdict on colossal overpayments by the EU to cereal farmers and beef producers, including those in Ireland.
"They cannot be considered a sound use of public funds," the report says, arguing that not only did the farmers get far more in compensation than they lost through price cuts, but the system resulted in an incentive to produce more when the CAP should have been urging less production.
The court also reports payments of a staggering £19.5 million to the Union's 15 largest cereal farmers. In 1995 and 1996 EU farmers received some £3 billion in excess compensation payments for cereals and £600 million in excess beef and veal premiums, it says. The cereals payment system is the largest single element in the EU's annual budget, taking up a quarter of the entire EU spending.
The figures give credence to claims by the British government in an unpublished report circulated earlier in the year as part of the British campaign for the re form of cereals payments system and of the CAP, which argued that in 1993-1997, total arable aid overpayments to EU farmers was as much as £13.6 billion.
IFA president Mr John Donnelly said suggestions of over-compensation to beef producers in Ireland in 1996-7 were not valid as beef was selling at 20 per cent below the average EU price.
A spokesman for the Department of Agriculture at the time defended the payments, claiming the British believed that without the subsidy system, they could dominate the cereals market because of huge economies of scale in the 400-hectare farms of East Anglia. Only some 3,000 of the Irish producers operate large-scale and smaller farmers would have received payments of not much more than £1,500 per person, he said.
The over-compensation arises because the Commission has been reducing the guaranteed prices closer to the levels of the world market, in line with the Mac Sharry 1992 CAP reform, and compensating farmers for their notional losses.
Buoyant actual market prices have meant that farm incomes did not fall by nearly as much as predicted but the compensation was never adjusted because of the strength of the farm lobby.
In the case of wheat and oats, for example, prices remained static in 1993 and 1994, and fell by 19 and 25 per cent respectively in 1995, rebounding to well over their original prices in 1996. Barley dropped by less in 1994 and 1995, also rebounding in 1996, yet Irish cereal growers received arable aid payments of £46 million, £65 million, £82 million and £88 million in the successive years from 1993 to 1996, a total of £281 million.
Allowing for genuine losses in 1995 and variations in yields, this represents excess payments of up to £200 million in four years.
The same thing was happening to beef premium payments. Irish farmers received some £25 million in excess special beef premium payments last year.
The Irish member of the court, Mr Barry Desmond, who chairs the investigation of agricultural spending, said it was clear the approach of the Commission to farm subsidies was wrong. "Commissioner [Franz] Fischler is now specifically aware of the court's findings. In the context of CAP reform, the fundamental analysis will have to be taken into account and highlights the necessity to re-gear CAP to direct-income payments to farmers."
The Commission in its communication to the court also admits that in the cereals sector, the absence of any ceiling on compensation resulted in huge payments to small numbers of larger farmers - in the five largest EU countries 15 farmers owning 59,000 hectares between them received a total of £19.5 million.
In its reform plans under Agenda 2000, the Commission is proposing to cap payments in order to concentrate resources on poorer farmers.
The Irish Farmers' Association is campaigning against the Fischler reforms because it claims he will not adequately compensate farmers for further price cuts.
The court also found evidence of considerable overpayments to Germany after unification and it complains again that the heavily subsidised European tobacco growers were still producing tobacco which was unsellable in the Union.
