18 OCTOBER 1991, Page 17

DOWN ON THE MONEY FARM

Boris Johnson explains how reform of the Common Agricultural Policy is stymied

Brussels FOR ONCE, the Northamptonshire barley baron looked a little anxious, even a bit rattled. News, disturbing news, had reached him from Brussels. 'Tell me,' he said in urgent tones above the howitzer Crump of a wedding band, his cheery face close by, 'farming — should I still be in it, then, eh?'

For those of us with the misfortune not to be born barley barons with several thousand acres of hugely subsidised wheat- growing latifundia, that question does not arise, or not in that way. When farm ministers meet next Monday in Luxem- bourg for a three-day, matchstick-in-eyelid session on farm reform, the hopes of the eating public are with them. What, £50 off our weekly family food bills? No 122 billion annual taxpayers' contribution to the Community budget? No more trade warmongering between Europe and the United States? No more rip-offs? No fraud?

A sudden, palpitating optimism has seized the opponents of the indefensible. If the boisterous Irish EEC agricultural. spokesman, Mr Gerry Kiely, is to be believed, babes unborn shall lisp the name of Ray MacSharry, slayer of the CAP. Mr MacSharry, farm commissioner and former Sligo meat dealer, has endured the scorns

and insults of the free-marketeers, 'Like putting an alcoholic in charge of a brew- ery,' said the Times a few months ago, actionably.

A hurtful, silly slur, as it turns out, no just because the commissioner has taken the pledge, but also because he is now credited with devising 'the most fun- damental farm reforms for a generation'. Price cuts of 35 per cent in cereals, and deep, deep price and quota cuts in the other northern food products now in such preposterous surplus — beef, butter, skim- med milk powder — were discussed for the first time last month. 'The CAP will never be the same again,' says Mr Kiely.

Where and when have we heard that before? It was only three and a half years ago, in February 1988, that Mrs Thatcher emerged from a special summit in Brussels, her sword apparently smoking with the dragon's mortal blood. Now it is back. Mr Gummer and his fellow farm ministers have about three months. Unless the EEC is to be bankrupt by the spring, and free trade with America stymied for years, they must slay the great worm again. Can they do it? What went wrong last time? Why, frankly, should it not go wrong again?

If you require a monument to the scale of the error of 1988, the vaunting over- optimism, imagine you are standing in St Peter's; or, rather, just outside it, because the whole place is full of grain, from

doorway to dome. Then imagine a further 214 such cathedral granaries, and you have

the dimensions of the EEC's grain surplus, foretold by the commission itself, which Will be in intervention stocks by the end of this year. At 30 million tonnes, it is a world record, the biggest amount of uneaten food Produced by any civilisation anywhere. Hitler pioneered the intervention system in the 1930s. But in his case it was also genuinely intended for the emergency feeding of the Volk. Of the 900,000 tonnes of beef in the Community's refrigerated hangars, some has been there for seven years. Oh yes, it is still frozen more or less. It is also, observers report, green. You could argue, in a perverse way, that there is cause for hope in this excess. The CAP shows what happens when one tries

to impose a basically Hitlerian or Stalinist command structure on a Western capitalist

market. It is a triumph of the individual Will, of ingenuity, cunning and lust to over-produce for one's own selfish ends.

Looking back, the officials can now see how their knitting unravelled. There were the unlucky imponderables, the weak dol- lar, the big North American harvests. There were a few technical errors, such as the 1989 easing up in dairy and beef quotas. But, at root, the attempt by a handful of bureaucrats to manipulate the decisions of nine million European far- mers, not to mention the great demi- monde of traders, shippers and shady customs men, was like pushing on a string. • `One constantly underestimates the re- silience of the farming community,' says one official who was responsible for the 1988 reforms; 'their ability to go on pro- ducing without making much of a profit'. The 'stabiliser' mechanism, a sort of fine for over-production, did indeed cause diminishing returns. But for the big barley barons the returns never diminished to zero. As long as the marginal profit was greater than the marginal cost, the surplus grain squirted into the intervention silos.

As for the legions of smaller livestock farmers, they had become acculturated to the nanny superstate. The EEC's interven- tion price was set only 2.5 per cent below the EEC market price. Why go to the trouble, the farmers reckoned, of finding buyers on the market, when Brussels was always there with an open cheque book? For, like the hedgehog, the farmers and traders know one big thing: that the EEC's Price is kept, for their benefit, about 30-40 Per cent above the world market price. This single anomaly is the mother of it all: the comatose Gatt world trade talks; the Churlish rebuff of eastern European attempts to enter the market; the pande- mic fraud.

It is disarming how frankly those who tried to reform the CAP in 1988 talk now about their adversaries. `They had superb intelligence, superb. We are talking about big systematic frauds carried out in a systematic way by commercial operators,'

says one civil servant. It still goes on. A price-fixing meeting has barely broken up in Brussels, when public telephones will ring at remote border crossings all over Europe. Depending on the news, a man will wave a lorry forward, or wave it back. For the essence of the game is in move- ment, or pretended movement: stolen cus- toms stamps, forged bills of lading; and all made worth it by the great price disparity.

For, classically, the fraudster need only claim falsely that he has exported produce outside the EEC, with the appropriate forged docket, and he can claim an 'export refund' to the value of the difference between the EEC price and the world market price. That, in a large shipment, can be tens of thousands of pounds.

We all think we know about Common Market fraud, the picturesque little did- dles; cows being driven round and round Ulster border crossings; Italian oranges being dragged underwater; one-eared cows; non-existent olive groves. The wells of outrage are exhausted. But it is not getting better, and it costs the EEC tax- payer some L5-6 billion Per year. Perhaps all that has happened is that its fiercest critic, Mrs Thatcher, has gone.

A representative of the Court of Au- ditors, the EEC's statutory financial watch- dog based in Luxembourg, says: 'The commission's anti-fraud unit does no se- rious work. They just push paper around.' And fraud, as I say, is only one of the weaknesses of the dual-price system. Draining, exploitation of the CAP requires no actual law-breaking.

One EEC official claims he resigned after six and a half years in the agriculture department, his nerves in tatters, after trying to protect the system from the ravages of the big five grain traders, which control the international market: Cargill, Continental, Bungy, Coote and Dreyfus. In their hands, the dual-price system is a crank for printing money.

First, secure a contract to deliver a large shipment of wheat somewhere outside the EEC — Egypt or Malaysia, or other destinations attracting a particularly high export refund — by a certain date. Re- member, no sooner does a shipment leave, say, King's Lynn or Ipswich, than the trader can claim a certificate from Customs and Excise confirming that he has exported that day; this he presents to the Interven- tion Board, which, out of EEC funds, supplies him with the export fund.

Next, use your position in the world market to make sure that you get as large an export refund as possible. This is done by 'levy play'. The Big Five are well placed to affect the world grain price: just make some concerted selling towards close of play on the Chicago commodities ex- change, at about the time when you offer to shift some of the millions of tonnes of EEC surplus grain abroad.

As the world market price falls, the Community's export refund rises. Watch-

ing owlishly and helplessly from Brussels, the EEC's civil servants know full well what is going on, and the poker game begins. Who will crack first? The traders must fulfil their contract, by a certain date, and the EEC, just as urgently, must offload its grain.

'Sometimes we used to say, No, you are manipulating the market. We accept no offers,' says the EEC official formerly responsible. But then they bluff you out; nobody makes any bids. It is a terrible game of nerve. It used to keep me awake worrying because you can never be sure whether you have done the right thing. I was trained as a diplomat and civil servant; it's not the sort of thing I signed on for. It's a crazy situation, if you have got civil servants trying to outface traders.'

No wonder some in Brussels look with longing at Mr MacSharry's plans to cut prices. The 35 per cent cut in the cereal intervention price, as well as other com- modities, would in theory destroy, at a stroke, the main source of woe. Eliminat- ing the dual-price system saves not just on price support, but also on export refunds, on storage costs and on fraud.

But, after the failure of February 1988, we are perhaps entitled to be sceptical. To sell the plan to French peasants and German smallholders, not to mention his native Ireland, Mr MacSharry has been obliged to add a huge range of direct income supports. In the oilseeds sector (rape and sunflower), the new system will come into effect from this autumn. Far- mers will be paid not to produce, but to be.

That is, subsidies will be largely payable per acre, not per head or per tonne, and in the first year of the system so much will be spent that the agricultural budget will actually increase by £5 billion. As for fraud, a child could see how to work this one: claim more acreage payments than you have planted acres, for instance. The commission is busy renting time on Nasa satellites, geo-stationary spies in the sky to verify farmers' claims.

The arena for deceit moves from the ports and borders to the homesteads. The possibilities for foolishness are endless. Spotter planes, already in use in some parts of the EEC, would have to contend with painted fields, Potemkin glasshouses. One Brussels agricultural expert, Mr Brian Gardner, believes large parts of the EEC where farms are not well charted would have to be patrolled on foot, even in southern Germany and Belgium, let alone in Greece. It seems impossible, unless one imagines a kind of European agricultural Gestapo (and some people do imagine it).

And then, on the much more important question of EEC over-production, why do we hear so little of the most obvious, glaring point? Giving farmers direct in- come support is not 'production neutral' and can never be. Instead of supporting their guaranteed price, one is reducing their costs. But that will needlessly drive the agro-businessman to produce more if he can still make a profit.

Once again, the bureaucrats seem poised to underestimate the strength of the basic rural disposition to make money out of

making food. Naturarn expellas furca, to- men usque recurret, as we say in Brussels.

Boris Johnson is the Daily Telegraph's EEC correspondent.