6 CAP Reform and Implications for Member States: Budget and Trade Effects R.W. Ackrill, R.C. Hine and A. J. Rayner 6.1 INTRODUCTION The 1992 MacSharry reforms represented the most substantial modi- fication of the instruments of the CAP since its inception. Before the reforms, support had been administered through high market prices engineered by import restrictions and support buying. The new system, by contrast, depended to a large extent on direct payments from government to farmers to supplement a lower market price. Moreover, whereas support except for the dairy and sugar sectors had previously been open-ended, now the EC sought to constrain the quantities of production eligible for support (see Swinbank, 1993 as well as parts of other chapters of this book for information on the details of the 1992 reforms). From a support instrument perspective, therefore, the 1992 reform marked a significant change from the past. The CAP had moved to a new trajectory. Not only did the method by which farmers received support change, but also the source of support was significantly changed. The burden of support from consumers was lightened with the fall in market prices, whereas the burden on taxpayers increased sharply - despite initial reassurances on this score. By way of rather minor compensation for this, the taxpayer burden would become more stable and predictable. Compared with previous CAP reform discussions in the I980s, this development was rather surprising since the conventional wisdom was that CAP reform would be precipitated by the need to control the escalating budgetary cost of the policy. Faced with a choice between a confirmation of the stabiliser regime which would impose a progres- sive, uncompensated cut in producer prices in the arable sector, and a compensated price cut under the MacSharry reforms, the Council of 104 K. A. Ingersent et al. (eds.), The Reform of the Common Agricultural Policy © Palgrave Macmillan, a division of Macmillan Publishers Limited 1998