Resolution on the reform of the common agricultural policy (Agenda 2000 - Part One, Chapter III) (COM(97)2000 - C4-0522/97) - A4-0219/98

  Intervention in Strasbourg on 16 June 1998
  • by Arlindo Cunhapt
  • by Jack Cunningham - Councilen
  • by Jan Sonneveldnl
  • by Edgar J. Schiedermeierde
  • by Reinhard Rackde
  • by Konstantinos Hatzidakisel
  • by Daniel Varela Suanzes-Carpegnaes
  • by Vincenzo Violait
  • by Franz Fischler - Commissionde


Rapporteur : Mr Arlindo Cunha

The aim of the own-initiative report on the reform of the CAP in the context of Agenda 2000 is to provide Parliament with an overall analysis of the situation of European agriculture and generate a body of principles and general guidelines which might form a reference framework for the sectoral reports to be adopted subsequently and guarantee that Parliament can exert its influence on fundamental aspects during the negotiations. The report by Klaus Rehder on the accession of the CEECs and the working documents and opinions by Edouard des Places on Agenda 2000, which have already been adopted by our committee, provided important reference material.

    1. Previous CAP reforms

    The common agricultural policy (CAP) entered an accelerated process of reforms at the end of the 1970s as a result of the imbalances created by the production of structural surpluses in some sectors and the added burden this placed on the budget.

    Given that the CAP was virtually confined to a market and price policy, the only measures taken to correct these imbalances were a systematic reduction in guarantee prices at the annual rounds of farm price packages. Prices in real terms fell by an average of around 15% in the five years preceding the 1992 reform.

    Since then it has gradually become clear that cutting prices alone has not resolved the problem of market balance, nor has it halted the lasting decline in incomes. As a result, a number of common organizations of the market (COMs) were reformed, with mechanisms being introduced for the direct control of production and agricultural expenditure. The introduction of milk quotas in 1984 and of agri-budgetary stabilizers and overall maximum guaranteed quantities (MGQs) in 1988 are examples of these reforms, as is the creation of the guideline itself.

    The 1992 reform continued this development while introducing some substantial adjustments which gave a new slant to the traditional CAP model:

    - support for farm incomes was now in part provided through direct aid based on surface area or head of livestock, where this function had previously been played exclusively by the price system;

    - mechanisms for the direct control or restriction of production were strengthened for the reformed sectors (cereals, beef and veal, milk, sheepmeat and goatmeat and tobacco), the distribution of aid being made conditional on compliance with these restrictions. Compulsory set-aside, base areas and reference herds are examples of these mechanisms;

    - agri-forestry and agri-environmental measures were introduced which, together with the 1993 reform of structural policy under the Delors II package, constituted a significant step towards restoring the internal balance of the CAP. The Leader programme also contributed towards this objective;

    - some elements of 'modulation' were introduced geared to environmental objectives and protecting small farms, including exemption from compulsory set-aside for farms producing up to 92 tonnes of arable crops and from rules on stocking density for farms with less than 15 head of livestock.

    The 1992 reform affected those sectors in which the COM was more consolidated and with higher guarantee and protection levels, as is demonstrated by the fact that these sectors then accounted for around 70% of EAGGF-Guarantee expenditure and more than 95% of the accumulated surpluses.

    For the other sectors, a declaration was adopted, underlined by the 'Jumbo' Council of September 1993, to the effect that future reforms would obey the same principles. Nevertheless, those principles were not applied to the sectors reformed to date, rice and fruit and vegetables, particularly in the case of direct income aid.

    Six years after the 1992 reform, it is clear that some of the objectives have been met, such as the elimination of surpluses (The case of beef and veal is an exception due to the market crisis created by BSE), the control of expenditure and the increase in the consumption of Community raw materials in the livestock sector. The progressive fall in income has also been reversed to some extent, but there are other fundamental problems which remain to be resolved. The following paragraphs will address these issues.

    2. Structural development

    The new CAP does not appear to have influenced traditional trends in the structural development of European agriculture, nor has it reduced existing regional imbalances:

    - the number of farms continued to fall, from 8 million in 1990 to 7.2 million in 1993 and 6.9 million in 1995 (EU-12);

    - the concentration of ownership increased, with the average size of farms rising from 15 ha in 1990 to 17.5 ha in 1995, with the number of small and medium-sized farms declining and the number of farms over 50 ha increasing;

    - the number of people working in agriculture also declined, falling from 8 million MPU in 1990 to 6.6 in 1996, despite a relative stagnation in the years after 1993. This means that, in the space of six years, the sector lost 1.4 million workers, which is equivalent to an average annual reduction of 3.7%;

    - the ageing of the workforce continued, as did the rise in part-time farming. In 1995, only around 22% of those working in agriculture worked full time. These figures were higher in the more efficient and specialized agricultural systems and lower in multiculture, extensive and less competitive systems.

    3. The trend in incomes and economic aggregates (table annexed)

    Structural factors and factors linked to the competitiveness of Community agriculture meant that a start had to be made on resolving the problem of income through increasing use of direct aid to income.

    Gross value added at market prices (GVA pm) and final production grew by around 1% between 1990 and 1996 (at 1990 prices), which in practice represents stagnation.

    Trends in income, measured by net value added at factor cost (NVAfc)(NVAfc is the aggregate which remains after deducting repayments (R) and taxes (T) and adding subsidies (S). NVAfc = GVA pm - R - T + S), is quite different and reflects the increase in direct aid since 1993. NVAfc fell continuously from 1990 to 1993, after which it began to rise, with that rise continuing up to 1996. For the period 1990-96, with an overall trend in income of 7.7% in the EU-15, the trend in direct aid stood at 133%. Consequently, direct aid accounted for an average of 31% of overall farm income, against around 16.5% in 1992. Measured by work units, the trend in farm incomes essentially reflects the reduction in manpower and the number of farmers, with NVAfc/MPU rising from ECU 11 807 in 1990 to ECU 12 709 in 1993 and ECU 16 476 in 1996.

    Clearly, this aggregate analysis conceals diverse trends, either among Member States or among types of cultivation. As regards the latter, EAGGF transfers reflect the history of each farm type. In 1994, dairy farms received an average of ECU 13 140 from the EAGGF, while mixed dairy/beef farms received ECU 11 536, arable farms received ECU 11 207, farms specializing in fruit and vegetables received ECU 8081, and vineyards ECU 4590.

    The conjunction between the productive structure in the Member States and the sectoral impact of the reform and the past nature of COMs means that the type of aid granted under the EAGGF to the various types of farms differs considerably, as can be seen in columns D, G and H of the table annexed. A number of aspects should therefore be highlighted:

    - the direct relation between levels of income per manpower unit (MPU), column E, and levels of support granted under the EAGGF, columns D and F;

    - the direct relation of the support granted under the EAGGF, columns D and F, with production levels (column B), and its inverse relation with the variables employment and land, columns C and A;

    - levels of direct aid granted per work unit are four times higher in large farms with more than 40 ESU (economic size unit) than in the smaller farms with less than 16 ESU, i.e. ECU 5200 compared with ECU 1300 per annual work unit (AWU) (Source: PE - DGIV - WIP 29).

    These figures clearly suggest that the CAP has not been guided by a principle of equity between the various types of agriculture, and has not favoured economic and social cohesion in the EU's rural environment, but that it continues to reward quantity of production and does not take due account of the regional and employment dimension.


    4. Outlook for a new round of GATT negotiations

    The GATT Uruguay Round, which concluded with the Marrakesh Agreement in 1994, represented the first step towards integrating agriculture into multilateral trade rules. The agreement implies a reduction, over six years, in the aid and subsidies granted at internal level (20%) and external level (export refunds - 36% in terms of value and 21% in terms of volume) and improved market access, with a 36% reduction in the level of border protection.

    The contracting parties also negotiated a 'peace clause' which presupposes that none of the contracting parties will call the agreement into question until 2004 provided that 1992 aid levels are not exceeded. With regard to the CAP, it was assumed that compensatory aid for price reductions would be classified in a 'blue box' (Green box - aid compatible with international trade rules, Red box - aid considered as distorting those rules; blue box - exclusive classification for aid to compensate for price reductions under the 1990 CAP reform), and that they could therefore be challenged only as from 2004. Preparations for a new round of negotiations will commence in 1999.

    The successive trade panels set up against the EU within the WTO and the WTO Ministerial Conference in Singapore in 1997 show that the free-trade pressure exerted by the United States and the main exporting countries for agricultural products (Cairns Group) will continue on all fronts in the coming round: market access, internal support and export refunds, decoupling production aid (green box) and minimization of social, environmental and consumer protection rules.

    For all these reasons, GATT has placed European agriculture under enormous pressure in terms of external competition. While this pressure is exerted in a relatively homogeneous way on all sectors of agricultural production in the EU, the capacity to respond, adapt and consequently survive is deeply heterogeneous. As a general rule, the most outlying and least favoured regions and those with the lowest productivity will have the greatest difficulties.

    Accordingly, the EU will have to make it clear that it will not jeopardize its representative agricultural model and that it will defend it staunchly.

    5. Trends in farm prices and world markets

    The EU is the largest importer and second-largest exporter on the world market for agricultural products and cannot afford to ignore trends in the agricultural policies of its main competitors, which does not mean that it should passively accept their dictates.

    The United States has adopted a new agricultural policy for the period 1997-2002 (FAIR Act - Federal Agricultural Improvement and Reform Act), with an overall budget of $47 000 million, the main features of which are: (i) the end of compulsory set-aside and deficiency payments, which are to be replaced by direct aid decoupled from production, which is gradually to be reduced by a total of 30%, ending in 2002; (ii) the continuation of the system of intervention through guaranteed marketing loans, which are considered non-reimbursable where the market price is lower than the loan rate; (iii) increased support for exports through loan guarantees which may partially be converted into non-reimbursable guarantees (and which function as an export subsidy - marketing loans); (iv) a ceiling on direct aid set at $40 000 per farm and at $75 000 for loans, which, with the permitted accumulation, may reach a maximum of $230 000. However, since the USA does not include the cost of food aid when calculating agricultural expenditure as a whole, the latter seems lower than it actually is.

    The OECD, chiefly influenced by the United States and the Cairns Group, has consistently exerted pressure in the same direction, as demonstrated by a series of official positions and the recent ministerial meeting in Paris.

    Conditions in the EU are quite different from those in the above countries: going beyond the exclusively economic dimension, EU agriculture fulfils the function of occupying land, and the average size of its farms is 15 times smaller than in the US and 50 times smaller than in Australia.

    The main analyses of the market carried out up to now (FAO, OECD and Commission) show a trend towards a long-term increase in world demand for food, accompanied by a relative rise in prices. The highest growth in demand is concentrated in south-east Asia, the CIS countries, the Pacific, the Middle East in general and the developing countries.

    Nevertheless, the relative predictability of prices and trade flows does not mean that world markets will become more stable, as they are subject to a wide range of non-economic factors, not to mention monetary factors and future trade rules.

    6. The European agricultural model and multi-functionality

    The European agricultural model is a balanced combination of three basic functions performed by European agriculture: an economic function, a regional-planning function and a function in preserving the rural environment and countryside.

    The economic function of agriculture is characterized by the production of food and non-food raw materials, thus contributing to economic growth, employment and the balance of trade.

    In terms of regional planning, agriculture provides the basis on which commercial and industrial sectors can be created upstream and downstream, even though in many rural regions agriculture is not the largest sector in terms of manpower. Farmers also perform other fundamental services which benefit society, such as preserving the environment and countryside and traditional culture and heritage in a multifunctional framework.

    These extra-productive services which farmers offer society are privately remunerated only to a very small extent, as is, in general, the case of rural tourism or the production of craft articles. They therefore require public support which will guarantee their survival in the face of adverse pressures of geographical mobility, economic relocation and the attraction of towns. The experience of a number of rural regions shows that, where agriculture disappears from rural areas, no other activity survives.

    Agriculture's contribution to the environment has its roots in the interests of farmers themselves, being essential if farming activity is to be sustainable in the long term.

    In addition to its multifunctional nature, the European agricultural model is also based on the predominant tradition of family farms, which may coexist with commercial companies, cooperatives and group agriculture.

    7. Rural development

    Rural development is not geared exclusively to farmers but to the general diversification of the productive fabric in rural areas, given that agriculture alone cannot ensure that the local workforce, particularly young people, will remain in the area. Rural policy should boost non-agricultural investment, whether it is made on farms or outside them.

    In many rural areas, however, farmers provide the business base which needs to be strengthened and expanded. Rural policy must include measures aimed at adapting farms to the new context of greater competitiveness, which means giving practical form to the concept of multifunctionality. Given that diversification presupposes the rationalization and modernization of agriculture's productive function, structural policy should be integrated into the rural development component of the CAP.


    8. The Commission's proposals

    The proposals submitted by the Commission on 18 March 1998 give substance to the contents of the July 1997 Agenda 2000 document but do not alter the direction of its strategy.

    Our first task is of course to assess the proposals in relation to the stated objectives, which by and large are adequately set out in the Explanatory Memorandum which precedes the proposals. However, a reading of the proposals and the relevant financial framework reveal that the proposals have little to do with the intentions expressed. They display a lack of ambition and what the rapporteur regards as a perverse view of the future of agriculture and rural areas in the EU. Let us consider why:

    - they start from the principle that it is possible for European prices to be aligned with world prices and for export refunds to be dispensed with, something which in the medium term will only be a possibility for a small number of Europe's most efficient farmers;

    - they compensate for the expected fall in prices by means of direct income support based exclusively on the average productivity of each Member State and of each farmer; this means that the most intensive and competitive systems are encouraged and that proportionately less support is given to less competitive systems and to those which have the greatest difficulty in adapting, which is particularly the case with the remotest and least-favoured regions and those with the most extensive forms of agriculture;

    - when it comes to determining the average per-hectare unitary amount of aid for each Member State, the existing aid schemes, which are directly related to productivity, do not include any weighting of the individual Member States' productivity in relation to average EU productivity;
    - they do not incorporate any cohesion or equity criteria, contrary to what is laid down in the Amsterdam Treaty and to what was expressed at the December 1997 London European Council and the November 1997 Agriculture Council, which made specific reference to the need for the CAP to observe the principle of equity between farmers, products and territories;

    - they do not apply the same criteria to Mediterranean crops as are applied to cereals, oilseed, beef and veal and milk, as laid down in the statement by the Jumbo Council of September 1993; it is proposed that CAP expenditure should be increased by 14% in respect of cereals and oilseed, 67% in the case of milk and 69% in the case of cattle, in contrast to the budget neutrality in the case of oil and the 2.5% reduction in respect of fruit and vegetables;

    - they widen the gap between crops which do and those which do not qualify for direct income support, which will gradually create a kind of schizophrenia within the CAP: the wealthiest farmers will be those who benefit most from the EAGGF subsidies without having to expose themselves to major risks, whilst farmers with the lowest incomes will be required to live basically from what they earn on the market, with all the risks which that entails;

    - they include a proposal to restrict aid to individual farmers which is as innocuous as it is ineffective;

    - they do not in practice apply the official European agricultural model since they do not incorporate two of the main characteristics thereof, namely multi-functionality and family-based farming;

    - they do not encourage the multi-functionality of farms since they barely alter the amounts allocated to rural development but merely increase the agri-environmental measures and the maximum and minimum limits for compensatory payments to farmers in disadvantaged areas (including mountain, arctic and arid areas) which cannot be fully financed by the EAGGF; as regards investment for diversification and modernization purposes, the proposals merely transfer the funding thereof from the EAGGF Guidance Section to the EAGGF Guarantee Section;

    - if agri-environmental measures serving a specific ecological purpose are disregarded, support for the other aspects of rural development policy represent no more than 5% of CAP expenditure, which is too little for it to have any significant effect;

    - they do not contain any innovative positive-discrimination measures for small family farms, which are the ones which are most likely to disappear since they normally receive little from hectare-based aid schemes and their contribution to employment creation and land use in rural areas is underestimated;

    - they virtually ignore support measures for young farmers, who are the only guarantee that agriculture will continue in the future;

    - there is a virtual absence of measures relating to the quality and safety of food, other than the allocation of a perfunctory amount to such an important topic as animal health, the proposed funding for which is only ECU 100 million per year;

    - the proposals are silent on the strategy to be followed in the forthcoming WTO negotiations - a particularly important fact since those negotiations will take place during the period under consideration.

Further information from EPP Press Service, Tel. + 32 75 49 33 56.

Press Release on the CUNHA Report, by Mr Patrick BARAGIOLA (European Parliament, DG III/Information)