Given the benefit of hindsight and mature reflection, I asked former secretary general at the Department of Agriculture, Michael Dowling for his opinion as to what we might have done differently during the evolution of the Common Agricultural Policy (CAP).

His response was virtually instant.

He replied that we in Ireland were over-complacent as to how the European policy which we signed up to in 1973 would or could continue into the indefinite future.

If we and others had been more accepting of this inevitability way back then, problems could either have been averted or policy might have been steered in a more sustainable direction much earlier.

For those who do not know the name, Michael Dowling was a senior official at the Department of Agriculture for much of his working career. He gave 34 years of service before leaving to continue his career in the private sector.

In this interview, he relays some of the challenges and memories associated with representing the Irish Government through the Department of Agriculture in matters relating to European affairs and, in particular, CAP.

Michael Dowling hails from Kerry. He was educated at Saint Brendan’s in Killarney and left there to join the civil service and was appointed to the Department, where he spent all of his public service career, save for one year spent in the School of Public Administration. In his early years he completed a BA through night classes in UCD and Diplomas in Public Administration from UCD and the School of Public Administration.

Negotiations

In the Department he was not directly involved in the negotiations to join the European Economic Community (EEC). In the runup to accession, he had served as private secretary to the secretary general of the Department and later as private secretary to the minister, Mark Clinton. He became involved in the management of CAP-related issues shortly after accession and this continued until he left the Department in 1997.

In the early years of the CAP, farming and food production was supported through guaranteed prices and market interventions of various kinds, rather than direct support. This had been a relatively straightforward process up to just prior to Ireland’s accession, as prices were set in common units of accounts and exchange rates were relatively stable.

However, when member state currencies began to fluctuate considerably in the late 1960s and beyond, this had the potential to cause considerable variability between agricultural prices in the different member states and was likely to undermine the market support system.

This led to the introduction of special mechanisms – initially intended to be temporary but which became quasi permanent – to offset these perceived difficulties.

The consequences of their introduction created a major problem for Ireland in the first decade of our EEC membership.

MCAs introduced

From 1969 there was a considerable strengthening of the German currency (Deutsche Mark) compared to others and a decline in the value of the French franc.

This affected support prices in different countries and eventually it forced EEC administrators to introduce a measure called monetary compensatory amounts or MCAs.

Michael recalls that this was introduced as a temporary measure to balance out prices across member states, but it lasted for 20 years as a mechanism to resolve the variability in member state currencies. Various remedial measures were taken to deal with this problem which was only permanently resolved through the introduction of the single currency – the euro.

At the time when Ireland joined the EEC, its currency was linked to the British pound and both currencies were gradually depreciating. In the case of depreciating currencies, MCAs operated as a tax on agri-food exports and a subsidy on imports.

Given the balance of Ireland’s agri-trade this could – and did – lead to very substantial net charges on Ireland and to trade distortions. Thus, a system set up to prevent distortion was, at least in our case, having the opposite effect.

The remedy was periodic adjustment of the exchange rate against the unit of account (the so called green pound) but getting agreement on this proved very difficult and was only ever achieved after very hard negotiation in the Council of Ministers and, even on a couple of occasions, at European summits. Our link with sterling was an added complication but even when that was broken the negotiations, though less arduous, were still difficult.

The balance of UK agri-trade was obviously very different to Ireland’s and, as a result, UK ministers favoured a much more gradual approach to agri-monetary adjustment. In Ireland’s case, however, one of the main perceived advantages of joining the EEC was its support for agricultural production and this would have been heavily diluted without the MCA adjustment process.

Indeed, Michael recalls that one Minister for Agriculture, Mark Clinton, walked out of a Council of Ministers meeting over the issue of MCAs and subsequent to that, Taoiseach Garrett Fitzgerald also left a summit meeting of EU leaders over the same issue. Michael described getting agreement on MCA issues for Ireland as a constant battle.

Short adjustment – rapid price increases

Looking back at the early years of the CAP, Michael said Ireland had negotiated a five-year transition period to EEC prices. This was seen as a considerable victory at the time, as it brought higher farmgate prices to farmers much quicker.

Farm prices in Ireland were very low at the time of entry to the EEC and the ability to access higher European support prices earlier brought a considerable advantage for Irish farmers and, in the main, to the Irish economy.

This was important, Michael recalls, because later many other accession countries (new member states) were given a considerably longer transition period to achieve price equality.

Guaranteed prices

It is always important to remember that the CAP evolved in a Europe which had been torn apart by war and which, at the time, was in deficit in many basic foods.

This can be seen in Figure 1, which maps the level of self-sufficiency within the EEC/EU from 1974, just after Ireland joined. The figure shows the level of sufficiency or deficit of the three main commodities of relevance to Ireland – cereals were almost 24% deficit in 1974, beef was nearly 7% in deficit, while milk products showed a 2% surplus at that point.

By 1983, all our basic agricultural products were in surplus, but milk was by far the highest at 123% self-sufficiency. While cereals and beef were also in surplus at that time, the size of the surplus was small compared with milk. This heralded the need for EU action to contain and reduce milk production.

Up to 1993 the CAP supported the agricultural sector through market price support – setting institutional prices and using market interventions to take product off the market or support its export or use in industry.

It should also be remembered that guaranteed prices within Europe were about twice as high as the standard prices in other parts of the world at that time

The classic intervention system was conceived as taking product off the market in times of surplus with the intention of putting it back into the market when products were scarce and prices were higher. Prior to 1983 it was obvious that milk production in Europe would move beyond 123% self-sufficiency unless policy was changed. The result was the introduction of milk quotas in 1983.

Michael said that in many ways, agricultural policy in the early years of the CAP was naive. A production policy that guaranteed price levels to make production profitable would encourage farmers to produce more and more and, without some restraining mechanism, surplus was inevitable.

It should also be remembered that guaranteed prices within Europe were about twice as high as the standard prices in other parts of the world at that time.

Milk quotas were not simple

As well as having much higher prices, European produce, except for pigs and poultry, was receiving far higher support than in some other countries.

In the early 1980s Germany began to push for quotas on milk production as it saw that, given the rise in the milk surplus, the alternative policy response would be lower prices which it could not accept.

Michael recalls that during this era, agricultural policy in Germany was heavily dominated by Bavaria, which was a highly agricultural region. Most of its ministers for agriculture were from this region and they wanted stable prices – not necessarily very high prices.

At the time, the main alternative being put forward to reduce milk production was to decrease institutional prices by 20-25%. This was seen by most member states as unacceptable.

Michael suggested it was ironic that a shift to this reduced-price policy at that time might have helped Irish producers in the longer term, as it may have forced out weaker producers in other member states, leaving more space for the production and export of Irish produce. But it would definitely have resulted in severe short-term pain which might well have been at least partly offset by some form of state aid in the wealthier member states.

It is hardly surprising that Ireland resisted the pressure for change at the time. It is also interesting that Britain and Italy voted against the introduction of quotas while some other countries supported the move to decrease prices as the solution.

While Ireland did not want to see quotas introduced – we were a new member state and our agricultural production was only developing – we did accept them.

Michael said Ireland got a good enough package at the time; getting a quota which was 4.5% above our 1983 production level, while quotas for most other member states represented reductions on their production levels in 1981.

For example, the quota for the Netherlands, which was a big producer at the time, was fixed at 7-7.5% below its 1981 production.

Michael said we were able to negotiate these relatively favorable outcomes because we had only joined the EEC 10 years earlier in 1973, while other member states had enjoyed membership benefits and prices for much longer, so their agricultural systems were much more developed.

Change was inevitable

The quota system could be used to contain the milk supply situation (quotas were adjusted again in 1989) but the surplus position in most other sectors continued to deteriorate (Figure 1).

By the beginning of the 1990s the writing was on the wall – the price-driven policies had moved Europe into oversupply across a range of products and the intervention system was not working as originally intended.

Products like beef were automatically devalued once they went into intervention as it moved from a fresh product to a frozen product which had a lower value.

There was also the considerable cost of storage which was quite high in the case of refrigerated frozen products and availability of storage capacity quickly became an issue over time.

More generally, there was increasing anxiety within the EU about the cost of intervention and other market support measures and increasing international pressure against the EU system of export support.

Quotas had stabilised the milk supply situation, but this system was not seen as a solution for most other products. Something was going to be done. Change was inevitable.

GATT pressures

During this same period in the late 1980s and the early 1990s, world trade arrangements were coming into focus and were being formalised under the general agreement on tariffs and trade (GATT), which subsequently morphed into the World Trade Organisation (WTO). This added further pressure on the European system, which was using a market support system to maintain prices, intervention mechanisms to deal with oversupply and export refunds to subsidise the sale of EU products on to world markets.

Many other food exporting countries objected vehemently to this support process and this became a huge pressure in the redesign of the CAP.

This demand for change put Europe in a situation where it had to look again at its market-oriented support while designing a new system that would still provide acceptable support to producers.

Michael said the agricultural support system used in the US was broadly similar to that used in Europe, but it had a less formalised export support structure.

At that time, most other countries had no strong agricultural support policies at all and they considered support models to be highly trade distorting and anti-competitive. Indeed, virtually all parties considered the EU policy of export refunds to be highly objectionable.

A move to direct supports

These pressures were forcing a need for change in Europe’s market intervention support model.

Any alteration would also require considerable export adjustment and sensitivity. It was becoming increasingly evident in Europe that support for agricultural production would have to move towards direct farm support rather than market support and that any alteration could not involve a mainly market intervention policy.

So Europe was having to move away from price-driven product support to some form of direct assistance that would be production neutral or at least production limiting or offer very limited specific product support. GATT talks concluded with agreed limits on amount of subsidies to producers allowed.

In addition, significant reductions to the previous level of subsidies on exports were also agreed.

In some cases (eg butter), subsidised exports had been reducing anyway but in others (eg cheese and, after a transitional period, beef) the EU was committed to very considerable reductions in the level of supported exports.

Michael recalled that, while the targets were onerous, the outcome occasionally showed that some of the support may have been unnecessary in the first place. In one of the measures to keep the volume of subsidised exports within the agreed limits, refunds on Italian-type cheeses to the US were abolished.

This, however, had little or no effect on the actual level of exports as the market simply adjusted to the resulting higher prices. It was obvious that the Italian diaspora in the US were continuing to support their native product.

The 1993 MacSharry reforms

All of these pressures led to a substantial reform of the workings of the CAP which coincided with the period when Ray MacSharry was the Commissioner for Agriculture.

Direct payments in the milk sector were to come at a later stage

These reforms saw a substantial move away from price supports towards direct payments in virtually every supported sector, with the exception of milk and sugar which continued to be managed by quota systems to help limit overproduction and the need for exports.

Direct payments in the milk sector were to come at a later stage.

This was a very fundamental change at the time and it was strongly resisted by many countries. But as was the case with many other substantial reforms, the agri sector came to terms with it relatively quickly and to some considerable extent became protective of the new regime.

This was indeed a very fundamental change to the CAP at the time and, indeed, the EU would not have been able to agree the GATT deal but for the MacSharry reforms. Michael indicated that all subsequent reforms of the CAP were really a continuation of the MacSharry reforms. So it was foreseeable that future reforms would see a move from direct production-based payments to area-based ones, with potentially greater economic effects.

Allies in Europe

Michael Dowling was involved in various elements of CAP negotiations and European affairs from 1974 until he left the Department of Agriculture in 1997. He was Secretary General for two Irish presidencies.

He described one of these as being the most interesting and most challenging, as we were trying to steer all member States towards common positions as distinct from just negotiating from a purely national position.

Interestingly, Michael said it was easier for a small member state to be a good presidency for the EU project because it had fewer internal issues to resolve and it could focus more easily on finding workable solutions.

Asked who were our main allies in the EEC in the early years of the CAP, Michael said Ireland tried to stay close to the negotiating positions of countries like Germany, Denmark, France and the Netherlands.

As time moved on, we also became closer to Spain.

Asked about our association with the United Kingdom, Michael said the UK budgetary perspective often put us on the opposite side of the argument in terms of agricultural policy. However, he said that we always remained close to the UK on issues that related to the administration of the CAP, since our national administrative systems were, for historical reasons, quite similar.

Michael indicated that, in particular, Ireland had always stayed very close to Northern Ireland on issues that related to the development and implementation of CAP policy.

In this regard a level of direct communication had existed and this was justified because of the great challenge of administering schemes across a land border. History had told us that any variability in scheme administration either side of a border would lead to very significant difficulties. So talks with the UK and specifically with Northern Ireland had to be an integral part of the approach taken at European level.

Biggest challenges

Asked about the most difficult challenges he faced during his long career of CAP involvement, Michael said they were milk quotas and green pound issues.

These were protracted issues which involved very significant differences in the opinions of member states that were difficult to reconcile. However, as history has shown us, solutions were always negotiated which saw individual member states generally getting some but not all of what they wanted.

The family farm

Given the Treaty of Rome as the starting point for the CAP and the need to secure adequate food for Europe through support for the traditional family farm, I asked Michael if he felt that the family farm model had been cherished or abandoned in EU policy over the passage of time.

He replied that the family farm was a big issue for many countries, including Ireland.

Indeed, it was a central issue for policy for many member states and the basic ethos was for policy that would keep family farms strong and efficient. This is still important in the European concept, Michael said.

Asked if the accession of Eastern European countries diluted this objective, Michael replied that for instance, the vast bulk of Polish farms at accession to the EU in 2004 had only three to four cows but there were a small number of huge operations which influenced public perspective.

He said it was interesting to see policies evolve which sought to move the huge ranch-type operations back on to a family farm model.

Department of Agriculture: Joined 1963; Left 1997,

General Secretary: 1989 – 1997,

Served under ministers: Michael O’ Kennedy, Michael Woods, Ivan Yates and Joe Walsh.

Directly involved in the MacSharry CAP reforms.