I welcome this opportunity to inform the House of the outcome of the negotiations on the mid-term review of the Common Agricultural Policy which concluded at the meeting of the Council of Ministers in Luxembourg early this morning. As the House is aware, outline proposals for the mid-term review of Agenda 2000 were presented by the Commission in July 2002 while the detailed proposals were published in January 2003. The proposals comprised the most radical reform of the CAP since its foundation and have been the subject of much analysis and intense public debate here and in other member states. The Council of Ministers has debated the proposals at each of its meetings this year. My officials and I have had close ongoing consultations with all farming, food processing and other representative bodies as the negotiations have proceeded, mainly through consultative groups which I established for this purpose. Issues and concerns have been identified and have been well known for some time. I have also made my position on the proposals clear both at home and in the Council of Ministers.
From the outset, my objectives have been to safeguard the benefits to Irish agriculture and to rural communities of Agenda 2000 and to ensure the best possible level of support and protection for our production base into the future. The agreement reached this morning was the culmination of a long process and represented a meeting of minds that the time to conclude an agreement had been reached. Any objective examination of the outcome of the negotiations will acknowledge that I have been successful in achieving my objectives. By any standards, the terms of the balanced agreement concluded in the Council represent a successful outcome to the negotiations from Ireland's point of view. The agreement which was reached will reshape the Common Agricultural Policy and secure its future by making it more relevant to modern society. We have the opportunity now to exploit the position to our advantage. I will deal with the various issues involved in detail.
The proposal to decouple direct payments from production represented a fundamental change to the CAP and was the most contentious issue throughout the negotiations. The Council agreed to amend the proposal for full decoupling of direct payments to give member states a number of options to implement decoupling in a manner best suited to their requirements. Besides providing the opportunity to reduce the paperwork associated with direct payments, about which farmers have been extremely critical, the new arrangements provide new opportunities for Irish farmers to respond to market demands. The menu of options agreed includes provision to allow each member state to decouple fully all payments. It provides for other options in relation to cereals, beef and sheep meat which allow for a variety of partial decoupling arrangements. Some of the options include up to 100% coupling of the suckler cow premium, up to 100% coupling of the slaughter premium and up to 75% coupling of the special beef premium. The sheep premium and the supplementary ewe premium may now be either fully decoupled or fully coupled. Furthermore, payments up to 10% of a member state's direct payments may be allowed for the purpose of encouraging specific types of farming.
I am convinced the outcome of the negotiations represents a significant improvement on the original proposals and that it makes increased simplification possible. From the point of view of the forthcoming World Trade Organisation talks, the new arrangements on decoupling will enable a substantial proportion of direct payments, depending on the choices made by member states, to qualify as domestic supports with no trade-distorting effects or effects on production or, at most, minimal effects. This refers to the so-called "green box". Such supports will therefore be protected from challenge at the negotiations. I have made it absolutely clear that the outcome represents the bottom line in so far as the WTO negotiations are concerned and that I will not agree to a new WTO round which requires further reform of the Common Agricultural Policy.
I intend to consult with the social partners with a view to introducing the model best suited to Irish requirements to maximise efficiency, competitiveness and the protection of the rural economy. Moreover, I intend to keep the arrangements under close review, particularly in light of the facility under the agreement which provides for a review by the Commission of the operation of the new arrangements after two years with a view to dealing with its possible impact on structural reform and markets.
I am particularly satisfied with the outcome which I secured in relation to degressivity and modulation. The Commission's proposals represented a very serious threat to the level of direct payments to Ireland which are of critical importance to farm incomes of which they now account for 69%. The total amount involved is €1.3 billion. I managed to secure the removal of the proposed reduction of up to 13% in direct payments to meet future financing needs. This is the degressivity proposal. The removal of this automatic system of annual reductions in direct payments was a major achievement and the compromise agreed, which requires the Council to review from 2007 onwards the financial situation annually if budget deficits arise and to take the necessary action, represents a much more satisfactory approach.
In addition, the proposed rate of modulation has been reduced from 6% to 5%. My objective of retaining modulated funds within Ireland for rural development measures has also largely been achieved. Modulation will commence in 2005 at a rate of 3% and will increase by 1% each year to 5%. When the agreed modulated system is fully implemented, Ireland will retain over €34 million per annum of the €40 million which will be raised through modulation. The retention of the €5,000 franchise or exemption will ensure that modulation will not be applied to about half of Irish farmers. This is a major improvement on the original proposal whereby the combined effect of modulation and degressivity would have resulted in €464 million being siphoned off direct payments over the period 2006 to 2012.
On milk, I am delighted to inform the House that I have succeeded in having the original proposals for an overall 10% reduction beyond the level agreed in Agenda 2000 reduced to approximately 4%.