By this time, key European leaders, most notably President of the European Commission Jacques Delors, French President François Mitterrand, and Chancellor of Germany Helmut Kohl, recognized that European farming interests were threatening the benefits that important sectors of the economy would realize from a new global trade agreement . Three areas of importance for the EU and its member states, trade, services, and intellectual property rights, stood to benefit significantly from the agreement. American domestic politics added a sense of urgency to finding an agreement in agriculture. The coming election presented the possibility that Bill Clinton, who had already expressed a desire to re-evaluate the US stance, would succeed George H. W. Bush. In addition, Congress’ “fast-track authority”, which requires Congress to accept or reject an international agreement in its entirety quickly and without altering the substance, was set to expire in 1993 . Given the position of the EU relative to the other major negotiating parties in the GATT, it was clear that CAP reform was required in order to reach an agreement on agriculture and thus conclude the Uruguay Round. Agricultural Commissioner Raymond “Ray” MacSharry knew, however, that he could not openly and directly link his CAP reforms to the GATT UR. Connecting CAP reform to the GATT would lead to the perception among the public and member state representatives in the Council of Ministers that “reforms were being made for the benefit of the Americans” . If the perception thatCAP reform was being done for the sake of a GATT agreement took hold, MacSharry knew that his “reforms would be dead in the water” . For this reason,blueberry cultivation the reform package was presented as being constructed to deal with problems related to the budget and surplus production only .

Any consequences these reforms might have for the GATT negotiations were, ostensibly, secondary. The combination of pressures confronting the CAP at the time of MacSharry’s reform, most notably concerns related to the GATT and how budget overruns would affect the SEA, meant that reformers were operating at a time of “disruptive politics”. Reformers were concerned with not just the CAP in isolation, but also how CAP spending would affect progress toward the goals of the SEA. In addition, reformers needed to contend with the CAP’s impact on trade negotiations in the ongoing GATT Uruguay Round. These events and concerns opened the door for MacSharry to propose and advocate for deeper reforms to the CAP than would be possible when reformers were at work during a period of “politics as usual”.The articulation of the Commission’s formal proposal took place in three steps. First, MacSharry and his team drafted a full version of their vision for reform. This plan included specific numbers for cuts and compensation levels and was intended to be confidential until the Commission’s formal articulation of the proposal. The second step was the publication of a “Reflections Paper”. This paper explained the proposed reforms in broad terms and identified the main issues the Commission sought to address with this reform. The Reflections Paper was intended to push forward and focus the debate on these matters. The third and final step was the formal presentation of MacSharry’s initial plan, this time including the numbers that were omitted from the Reflections Paper. Preparations for reform began in the spring of 1989 with MacSharry’s creation of an informal working group. The team developing the reforms included the Chef de Cabinet, Paddy Hennessy, Jacques Demarty, who was Jacques Delors’ personal agricultural expert, and DGVI Director General, Guy Legras.

The group started their discussions by exploring whether the CAP’s existing price support mechanism could be maintained . At the same time as he was preparing the reform, MacSharry was also quietly meeting with the Americans about the GATT UR as a means to ensure that the changes being made to the CAP would comply with GATT rules and facilitate an agreement. MacSharry’s EU team quickly concluded that prices would have to be cut and moved ahead on constructing a reform to do so. Reformers intent on retrenching the welfare state are also known to work in secret. Keeping potential reform proposals out of the public debate, particularly those which include cuts or that involve an overhaul of the manner in which benefits are distributed, is an important way for reformers to manage dissent and opposition. While opposition will certainly spring up, developing the reform out of the public eye allows the reformers to present a full package, including information on the effects of the changes, as opposed to having to constantly defend a policy in development. MacSharry had three goals in his vision of reform, which shaped the content of his working group’s discussions. First, he sought to reduce existing production quotas. Second, MacSharry wanted to impose price cuts, with compensation targeted at small farmers. To MacSharry, attempting to channel aid to small farmers via price supports was costly and inefficient. Given that 6% of cereals producers were responsible for 2/3 of Europe’s output, and 50% of beef came from only 10% of producers, MacSharry saw price supports as a poor instrument for supporting smaller farmers. His third overarching goal was to improve the rural environment, which he sought to do via the promotion of less invasive but more efficient production, the extension of technology, and the redirection of aid .

By December of 1990, at the same time that the GATT negotiations had collapsed at the Heysel Conference, the working group had completed a paper outlining initial ideas for reform. The document was leaked to Agra Europe, a major news source on agricultural policy, which promptly published it in January of 1991. The document contained four main elements: price cuts, a system of income compensation, mandatory land set-asides, and some recommendations for measures related to the environment and early retirement. The bulk of the discussion within the leaked plan focused on the price cuts and compensation, which were targeted at cereals, beef, and milk. These three sectors represented the vast majority of surplus production. By reducing the prices for these goods, farmers would have less incentive to produce them. In addition to production concerns, price cuts in the cereals sector were necessary to protect the competitiveness and market share of those producers who grew grain for animal consumption. Because of the high prices of cereals, livestock farmers were increasingly turning to cheaper animal feed substitutes, imported from the United States and other non-EU countries. These animal feed substitutes had become price competitive with European grain, even though they were slapped with import levies. The new GATT deal included a provision that would force the EU to drop levies on the animal feed substitutes, meaning that unless grain prices were lowered to a reasonable level,planter pots with drainage animal feed substitutes would be far cheaper than cereals produced for non-human consumption in the EU. In order to keep these products competitive as a feed source for livestock farmers in Europe and abroad, cereal prices had to be lowered. The economic threat posed by animal feed substitutes actually gave MacSharry an opening to propose cuts beyond cereals. Price cuts for cereals meant that livestock farmers would see their input costs lowered. These lower input costs then allowed MacSharry to propose cuts to the beef and dairy sector that would not have been feasible absent lower prices for feed. A system of compensation was designed to accompany the price cuts. Until this point, European farmers were paid primarily through a system of fixed prices and guaranteed purchase agreements. The more farmers grew, the more money they could make, with the EU on the hook for buying, storing, and dumping the excess production. Under the new system of compensation, farmers would be given a “direct payment” which was calculated based on the historic yield of a farmer’s eligible land. Rather than attempting to overhaul the entire payment system in one fell swoop, MacSharry sought to decouple payment from production over time, starting with the most critical sectors. As such, only a portion of the farmers’ land would be supported by direct payments. The rest of their land would could continue to operate under the traditional system whereby farmers were compensated via a system of inflated purchasing prices for their products. For this reason, the reform is referred to as “partial decoupling”.

For the cereal sector, MacSharry and his team proposed a price cut of 35%. Cereals producers would be offered full compensation for their first 30 hectares of land in the form of a direct income payment based on the historic yield of the crop in that region. Compensation for their next 50 hectares of land would be reduced by 25%. A 35% reduction in compensation would be applied to any land beyond that. For dairy producers, the document outlined a 10% cut in the intervention price and an average reduction of 4.5% in quotas. Farmers producing under 200,000kg would be exempted from the quota cut, while those producing over 200,000kg would be subjected to a 10% cut in their quota. Finally, the team proposed a 15% cut in beef intervention prices. Beef sector farmers would be compensated for these cuts via an incease to the premiums they were paid per head of cattle. Beef and dairy farmers would also benefit from the proposed reductions in grain prices, which would translate to lower animal feed costs, reducing input expenditures. The pairing of cuts with compensation is a tactic also seen in welfare state retrenchment. Direct confrontation, through the slashing of benefits, often provokes mass protest, leading to the withdrawal of the proposals. For this reason, welfare state reformers will often pair cuts with a form of compensation to buy off resistance. While the reform tactic of pairing cuts with compensation may seem weak or ineffectual, it can and often does have broader implications. These changes to how farmers are supported are changes to the system of support. Once a small change is made to the operation of the program, it opens the door to broader and more systemic reform or retrenchment in the future. Indeed, future CAP reforms would build on and extend MacSharry’s partial decoupling. In a further effort to reduce production, cereals farmers would be required to remove some of their land from production, a practice called “set-asides”. This proposal was the most direct way to curb production, as swaths of land that had previously grown crops would now be required to lay fallow. The amount of land withdrawn from production was to vary based on the size of the holding, with the largest farms, those over 80 hectares, required to set aside 35% of their land. Farmers between 31 and 79 hectares would be required to remove 25% of their land from production while holdings 30 hectares and smaller would be exempted from set-asides altogether. The proposal included the stipulation that land set aside would not be eligible for compensatory payments . This stipulation was one of the methods through which MacSharry aimed to rebalance the disparity in support between large and small farmers. By not providing compensatory payments on set aside land, and by regulating the amount of set aside land based on the size of production, MacSharry could effectively garnish the earnings of the largest farmers while not affecting the payments to the smallest producers. In addition, the proposal could be presented as a means of curbing production and expenditures, while also helping to heal land that had been damaged by relentless production, with the redistributive effects a mere byproduct. These tactics of both disguising cuts and imposing cuts on some while channeling additional benefits to others again have parallels in the welfare state. When seeking to retrench social benefits, reformers might cut the replacement rate while raising, or at least maintaining, the minimum pension or unemployment benefit. Here, the protection of benefits for some limits opposition to a deeper longer term cut for others. This tactic helps to divide and demobilize resistance, because cuts are neither uniform nor fully visible. The entire package of reforms MacSharry constructed to address the surplus and budget problem mirrors a “vice into virtue” style strategy for designing welfare state reform.The system of high prices was already taxing for the EU coffers.