The EU's Agricultural Budget and Selected Consequences of Cuts

Agricultural expenditures had been a major item of the EU budget over decades. Yet, consequent to extensive reforms that began in 1992, farming's share of the budget has been shrinking substantially. Expenditures for structural policies and competition have reached levels in excess of the agricultural budget. Nevertheless, transfers from the EU budget still represent a big chunk of the factor income for the agricultural sectors in all EU countries. Reductions in farm payments – as proposed in the consultation process preceding the debate on the new financial framework of the EU – would lead to a severe decline in farm incomes. This would accelerate structural change unless better market conditions were to compensate income losses from lower subsidies. Countries such as Austria or France would find their net payer position deteriorating because farm payments make up a large share of the return flows from the EU budget.