Effect of CAP reform not as severe as predicted

agricultural incomes and production as originally feared. According to a

new study by Agra Europe, the damage to the industry will not be

anywhere near as bad as predicted by the EC farmers' organisations.

The main impact of the CAP reforms will be in the cereals sector. The

application of a nominal set-aside of 15% of the total ''combinable

crops'' arable area is likely to reduce the EC area devoted to such

crops by about 8 or 9%.

This significant ''slippage'' stems mainly from the concentration of

the same resources on a smaller land area, leading to a rise in output

on the land which remains in production. Also there will be a tendency

initially for farmers to set-aside their worst land.

In the northern European countries set-aside probably will vary from

around 8% in Germany to 16% in the United Kingdom. Oilseeds and other

non-cereal crops are likely to carry the brunt of the effect of

set-aside.

''Arable farmers undoubtedly will suffer an initial reduction in

income as a result of the application of the new policy,'' says the

report. ''Marginal cereal growers will find that the compensatory

subsidies probably will not make up the loss of income resulting from

the fall in market price.

''By the end of the reform period -- the 1996-97 marketing year -- it

is likely, however, that the most efficient producers will have

recovered the slight loss in profitability resulting from the price

adjustment through increases in productivity.''

In the livestock sector the policy changes are expected to boost

average incomes, certainly for beef and sheep and proably grain-fed

livestock too. The extra returns from beef and sheep will come from

increases in direct subsidies, while the decline in the price of feed

grain should push up the profitability of pig and poultry farmers.

''The exception to this pattern will be in the dairy sector, where

continuing reductions in price, and/or quota cuts, will mean declining

incomes on those farms not maintaining a steady increase in

productivity.''

Conditions agreed under a future Gatt trade agreement are likely to

reinforce the trends already established by the MacSharry reforms in the

arable sector.

However, the effect could be more serious for livestock farmers --

though the direct subsidy payments will help to ''buffer'' producers

from the price-depressing effects of the likely Gatt arrangements.

The most important impact of Gatt on EC agriculture will be through

the reduction in the volume of subsidised exports by 21% from the

average 1986-90 level.

The report adds: ''If it is assumed that EC producers of either arable

crops or livestock products are unlikely to be able to export without

subsidies before the end of the decade, the new international trade

arrangements can be expected to impose significant reductions in the

export of wheat, coarse grains, beef, dairy products, and pig and

poultry products.

''If, however, the competitiveness of those sectors improves

significantly, and the Community adjusts its price support levels

accordingly, it is probable that significant quantities of grains and

white meats may be exported without subsidies.

(Copies of the report, Policy Impact Analysis, are available from Agra

Europe, 25 Frant Road, Tunbridge Wells, Kent).