The income support system linked to production compounded the effect of these high prices, raising expenditure even further by fostering excess production that the EU was responsible for storing and dumping. Instead of proposing to scrap and redesign the entire program, an initiative almost certain to fail, MacSharry sought to make fundamental alterations to the aspects of the program that were most problematic. Specifically, MacSharry proposed lowering prices and removing land from production in order to address problems related to over production, ballooning costs, and environmental damage. The contents and overall design of the reform as elucidated in the leaked report were a product of MacSharry’s fundamental belief that price cuts and quota reductions were unavoidable. From his experience working on budgets in Ireland , MacSharry knew that “the EU could not keep spending 75% of its budget on agriculture. With twenty other Commissioners, one could not control 75% of spending” . Indeed, in Agricultural Council meetings, MacSharry warned that without correction, the CAP budget would overrun the ceiling placed upon agricultural spending. At the same time, MacSharry wanted to keep European farmers on the land. He argued that, “desertification of the rural area would be a disaster, and very expensive [for national governments]. There were no jobs, so people would be on the dole. The infrastructure already existed in the countryside for them: houses, roads, schools, and so on. If there was a rural exodus, new housing, roads, schools,blueberry production and so forth would have to be built to accommodate all of these people” . MacSharry’s plan for reform was first formally presented to the member states via a “Reflections Paper” published by the Commission in February of 1991.

The paper was purely qualitative and provided no specific numbers on cuts, compensation amounts, or any other action, unlike what had been published in the leaked document. The purpose of the document was to explain the proposed reforms in broad terms and to push forward and focus the debate on these matters . The Reflections Paper began with a discussion of two major problems that needed to be addressed in the subsequent reform. The first problem was production. Production had been increasing far more rapidly than consumption, resulting in the accumulation of massive stocks. Excess goods were then dumped onto an already stagnant world market, angering the EU’s trading partners. This problem of surplus dumping was one of the core sources of tension in the GATT that was forestalling progress toward an agreement. The second problem related to the economic well-being of farmers. Inequality was increasing. CAP support payments concentrated on the largest and most productive farms such that 20% of the Union’s farmers received 80% of the support. Meanwhile, the overall agricultural population continued to decline and the per capita income of farmers improved very little. This income problem highlighted a failure of the CAP to achieve one of the basic goals laid out in the Treaty of Rome, which formally proposed the creation of the CAP: to improve the standard of living and decrease income inequality in agriculture. These income problems persisted even though spending on the CAP was increasing rapidly from year to year The Commission argued that any reform undertaken needed to keep a sufficient number of farmers on the land because farmers play an essential role in preserving the natural environment and traditional landscapes of Europe. The Commission suggested that more emphasis be placed on this environmental role of the farmer and that rural development be promoted more broadly. Keeping farmers on the land was also tied to preserving the family farming model, which the Commission asserted was “the model…favoured by society generally” . Finally, the Commission suggested that reforms needed to make the agricultural budget “an instrument for real financial solidarity in favour of those in greatest need” by which it meant a more equitable distribution of support . Specifically, the Commission proposed that compensatory payments be modulated based on size of holding and income level. In other words, full compensation would be allowed up to a certain amount.

After that, the payment would be decreased, and the money saved would be redirected to smaller farmers and rural development objectives. Exemptions under quota and set-aside policies were also to be targeted towards the smallest and weakest producers. The broad objectives on market issues concerned re-balancing markets by bringing production back under control, promoting a system of production that relied on fewer inputs , and encouraging the spread of technology. The document singled out cereals, suggested that previous policies for the sector were flawed and instead proposed price cuts and mandatory removal of land from production. Lower cereals prices were needed to make European cereals competitive with animal feed substitutes, which were already a threat to grains in the European market, and stood to be an even bigger threat if and when the new GATT agreement was ratified. Overall, the contents of the Reflection Papers marked a sharp break with past practice in CAP reform . Instead of trying to make the existing system work, MacSharry was proposing systemic change and the, at least partial, introduction of new instruments, most notably a direct income payment. In addition, these reforms marked the first time that a proposal was made to directly and intentionally privilege smaller farmers. The proposals as first outlined by MacSharry in the leaked document were officially presented by the Commission in July of 1991, formally kicking off the CAP reform debate. This official proposal matched the specifics of the initial leaked document, with minor changes to the systems for managing price cuts and compensation payments. The Commission projected that, due to the extension of compensatory payments and the other new programs created for early retirement, afforestation, and environmental measures, total CAP spending would increase by 2.24 billion ECU. The Commission anticipated however, that expenditure on the CAP would decrease in the long run as stocks of cereals, beef, and dairy, as well as the agricultural population itself, declined . Still, estimates of how much savings there would be and how far into the future they would come were vague and unspecified.

The first group, Denmark, the Netherlands, and the United Kingdom, though in favor of the market liberalizing price cuts, was staunchly opposed to any “special treatment” for small farmers. Their farming sectors were comparatively large and efficient. With less protectionism and more liberalization, representatives for these member states believed that their farmers would gain market share at the expense of EU farmers who were propped up via protectionist policies. Countries in this group strongly opposed the Commission’s proposal to modulate aid in favor of small farmers, since their agricultural sectors were dominated by larger farmers. They believed that their farmers would be unfairly forced to bear the financial burden of sustaining unviable farms. In addition, the UK argued that modulated compensation offered farmers a perverse incentive to “split their holdings, becoming pensioners and non-competitive” . British Agricultural Minister John Gummer summed up his opposition to a program of modulation by stating that the United Kingdom was “not prepared to buy a reform at the expense of turning Europe’s agriculture into a tourist attraction for people who liked farming in Marie Antoinette style” . Fundamentally, all three countries advocated the largest possible price cuts with the lowest possible, ideally temporary,blackberry container size compensation administered at a flat rate to all farmers. France and Germany formed the second main group and maintained their traditional CAP alliance despite somewhat contradictory positions on the proposal. Germany, whose support for high prices, particularly for cereals, dated to the creation of the CAP , unsurprisingly objected to MacSharry’s proposed price cuts. German Agricultural Minister Ignaz Kiechle questioned the link between price cuts and production, suggesting that cutting prices for cereals would have little to no effect on production levels12 . That said, as one of the member states that underwrote most of the CAP budget, Germany generally favored all measures for controlling production, including set-asides and reductions of dairy quotas. France, however, rejected set-asides outright and was internally divided over the issue of price cuts for cereals. In addition to questioning the need for such a deep cut in cereal prices, French Minister Louise Mermaz called for the continuation of Community Preference, which would provide adequate protection for domestic supplies on the European market . Ireland’s main concern was over the cuts to beef prices, which it opposed even though it had no stake in the debate over cereals, as its cattle industry was grass fed. Finally, Ireland joined Germany and France in favor of a program of modulation that would focus support on the neediest farmers. This second group of countries was important for an additional reason.

Under the rules of Qualified Majority Voting France, Germany, and Ireland formed a blocking minority, while the Denmark, Netherlands, and the UK did not. So, while MacSharry and the Commission wanted to pass the reform with unanimous support, particular attention was directed to winning the cooperation of the group with the potential to block reform. All of the remaining countries, primarily the southern bloc, composed of Greece, Spain, Portugal, and Italy, accounted for the third group. The main agricultural sectors of these countries were largely excluded from the reform. Because farmers in these countries were typically poorer and less efficient than their northern counterparts, they stood to benefit from any redistributive programs, and thus were supportive of modulation. The minority of farmers in these countries that did grow products that were to be subjected to price cuts objected to a yield based calculation for compensation, as the yields in these countries were the lowest in the Union. If compensation for the price cuts was calculated on the basis of the historical yield in the area , then farmers in these countries would be paid a smaller direct income payment than farmers in other member states. Finally, Greece, Spain, and Portugal, and Italy most of all were particularly focused on the debates surrounding the milk quotas, hoping to preserve existing levels, if not increase them. The fact that every member state objected to at least some aspect of the program, and that many of these CAP positions put member states in direct opposition to one another, might seem to have doomed the negotiations from the start. However, as Dutch Farm Minister Piet Bukman, who chaired the Agricultural Council while the Netherlands held the rotating presidency noted, “all delegations agree that if there is no fundamental reform we will have an unbearable situation” . The common belief in the necessity of some kind of reform allowed for compromises to be made and an agreement to be reached, despite the wide range of positions held by the member states. In addition to internal conversations that each member state government held, part of the process of reaching the final agreement involved MacSharry and Arlindo Cunha, Portugal’s Agricultural Minister and Chairman of the Agricultural Council16 each working with the member states one by one. While Cunha toured the capitals in an effort to determine each country’s bottom line, MacSharry met with each minister privately, requesting a list of the 4-5 items most important to them. MacSharry agreed to include at least some of the requests in the reform in exchange for that minister’s support for the passage of the overall package of reforms . The bargaining that followed centered primarily on three core issues: level of price cuts for cereals, modulation, and milk quotas. Typically united in the CAP, France and Germany were divided over if and how much cereal prices should be cut. A major step in clearing the way for a deal was the reaching of an informal agreement between Mitterrand and Kohl. Germany agreed that it would not veto a cereal price cut in exchange for a promise from the French not to veto a new GATT deal, or at the bare minimum, to display “good will” . While Germany was opposed to any price cut for cereals since most of the farmers in the East grew that crop, it placed far more importance on a GATT deal. Conversely, France, favored cuts to cereal prices but had broad objections to liberalizing the CAP.