Tom Lambie: Reforms open doors for NZ

European Union farmers are among the most heavily subsidised in the world, receiving benefits worth over $200 billion a year.

This support was aimed to keep farmers producing traditional products, with the dairy, sugar, beef and sheep meat industries the most heavily subsidised.

In June, EU farm ministers adopted a fundamental reform of the Common Agricultural Policy (CAP), which radically changed the way the EU supports its farm sector. This year EU farmers will still receive subsidies, but the vast majority will receive support independent of how much or what they produce.

Instead of a sheep and beef farmer receiving different payments based on herd and flock numbers they will now get a single payment based on the area of land farmed.

The new CAP gives farmers the freedom to produce what the market wants.

They can now choose what to farm, and not be tied to a particular production type.

They will make judgments about consumer demand and the marketplace, and adopt new farming practices to remain profitable. This is a fundamental shift from producing what they always have and the expectation that the taxpayer would pay the difference no matter how unprofitable that was.

Conditions are attached to the new regime. To help farmers meet EU production standards more money will be made available for environmental, quality or animal welfare programmes by reducing direct payments for bigger farms.

Severing the link between subsidies and production is designed to make EU farmers more competitive and market oriented. But what will happen to farm incomes?

Most EU farmers will see only modest changes in the support they receive: the single farm payment will be based on historical entitlements and remain largely linked to farm size.

Base incomes will also be more stable, as farmers will receive the same level of subsidy each year, regardless of how much they produce. However this will decline over time, as the agricultural budget has been capped.

So what does CAP reform mean for New Zealand? New Zealand has long argued for the elimination of output-based support, which stimulates production and tilts the playing field against unsubsidised producers, including those in New Zealand.

The reform means we can expect to see small reductions in total EU production of most commodities, but larger falls in EU export levels. There should be significant falls in volume of subsidised, price-depressing beef on world markets, and dairy producers should benefit from a reduction in EU export subsidies.

Farmers in New Zealand can be pleased that the EU has at last moved towards a market-based agricultural system. This will strengthen the EU's negotiating hand at World Trade Organisation multilateral trade talks. It might also accelerate the removal of output-based support in the non-EU European countries, like the US and Japan.

CAP Reform will refocus EU farmers on consumer-focused, resource-efficient farming practices.

CAP and other trade reforms offer New Zealand farmers many opportunities, but we must continue to be at the top of our game to gain maximum benefit.

In the long run both New Zealand and European farmers will be the winners.

* Tom Lambie is the Federated Farmers' president