CAP: Main policy challenges for 2004-2010

Common Agricultural Policy: Main policy challenges for 2004-2010

Mr Franz Fischler, European Commissioner for Agriculture and Rural Development, believes the main agricultural issues around 2004-2010 might be:

Mr Fischler believes the main agricultural issues around 2004-2010 might be:

Of course farming has to be competitive. But let us not forget that a farm that is ailing economically cannot provide any special ecological services. Letting the free market regulate everything may work for car tyres, but not when we are talking about sustainable production of food and the stewardship of the countryside. I remember hearing the slogan "Down with the factory farm". And yet, without the CAP, would not efficiency thinking and cost reduction become the new watchwords and lead to negative impacts such as a concentration of farming in the best locations?

But the call is not just for scrapping the CAP. Another slogan was "Renationalise the CAP". What does this mean? Does it mean letting the distribution of money intended to promote rural development be decided at regional level? Then I am in favour. It is exactly what our policy is designed to achieve: decision-making and prioritising at regional level and not in Brussels, nor at central government level. What we must avoid at all costs is 15, or shortly 25, competing agricultural policies.

The CAP is better than the press it gets. Yet we should not overlook the results of our own reforms. The impact of Agenda 2000 is only now being truly felt. We have slashed the proportion of our budget spent on market support from 91% to 28% in the past decade. We are now spending 62%, compared with 9% then, on direct payments to farmers. A new area is rural development. Now I ask you: what other sector of the economy has been ready and willing to undertake such major reforms in the last ten years?

And so the question cannot be whether we should support agriculture, but how we should do so. And we must keep asking ourselves this question.

This is what I mean when I say reform is a process.

This is what we mean when we say that "we have to centre agricultural policy around the consumer".

This is what we mean when we use the dreadfully technocratic term "multifunctionality"

We will continue to develop the common agricultural policy. The next opportunity is the mid-term review, which we are due to present in June.

I can already say this: we should not put off remedying the weaknesses of our Agenda 2000 until 2006 and beyond. If we can improve things, we should do so quickly, since procrastination has rarely ever succeeded in making things better.

Every policy, and agricultural policy in particular, can only be successful in the long run if it meets the concerns of the society. But what exactly does the society expect? The answer to this is not necessarily as simple and certain as we may instinctively feel. Citizens nowadays have manifold expectations regarding agricultu re, and the role of the farmer. They want their agriculture to be competitive, but they also want the farmers to produce in an environmentally friendly manner. Their main concern is not so much the quantity produced, but the safety and quality of our food products. Moreover, they also want methods of production which respect the environment and animal welfare. And they want traditional landscapes to be maintained and rural areas to be dynamic and vital, and this is to be achieved with low prices.

As you can see, there are various interests and points of view, not to say conflicts, about the role of agriculture. Citizens are well aware that agriculture does not only produce food. And it is the responsibility of the agricultural policy to provide the framework for farmers to meet all expectations of society.

So what have we done on the European level till now? With our reforms in 1992 and the Agenda 2000 in 1999, we have shifted the focus of our policy. Before the reform, we were spending 91% of our budget for market support, today just 28%. However, it was out of question to abandon our farmers. This is why we introduced direct payments to compensate them for the price loss. 63% of our agricultural expenditure is being used for these measures today. As a consequence of this shift, European products have become more competitive, both domestically and internationally.

With the Agenda 2000 we have also reinforced and introduced a number of measures through which we promote the respect for the environment. Member States now have the possibility to penalise non-compliance with environmental requirements. This means that if a farmer does not meet the environmental requirements that are generally applicable, he will get less or no direct payments.

Another important step was the establishment of the second pillar of our agricultural policy: rural development. This policy tool allows us among others to reward farmers for those services that society expects from them and the free market isn't paying for. Agri-environmental measures and the support for less favoured areas belong to the most important measures of rural development policy.

But we also support the setting-up of young farmers, investments in agricultural businesses, afforestation and so on. This policy tool is based on the principle of subsidiarity and the promotion of decentralization. The European Union only provides the framework and it is up to the Member States, what priorities they set.

As you can see, the Rural Development Regulation gives us already a number of concrete possibilities to finance measures of Natura 2000. Unfortunately though, only a few Member States have made use of this possibility so far. But it is up to the Member States and regions to include these measures in their Rural Development Programmes. It is the people in the regions who know best what their countryside really needs; this is why we strictly observe the principle of subsidiarity.

However, another reason that Rural Development funds is not used as much as would be desirable might be the fact that there is too little money available. Altogether, rural development policy represents 10% of the budget of the CAP. This is a good start, but only a starting point. This year, the Mid-term Review of Agenda 2000 gives us the possibility of making further changes within our budgetary limits. I think that this could be a good opportunity to further strengthen the second pillar of our CAP.

I would now like to take a look at the current situation in the individual sectors and at future developments anticipated by the Commission, as these too are decisive in fixing the programme for the mid-term review.

1) Arable crops

Cereals

Trends in the cereals sector are almost entirely positive, with the exception of rye.

By reducing the intervention price, Europe's cereals sector has become much more competitive over the past few years. The favourable evolution of the dollar/euro exchange rate has of course also played a role in this process on the export side.

However, positive trends can be seen not just in exports but also on the Community market. We have been able to turn around the decline in feed grain consumption seen up to the end of 1992. Ten years ago only 84 million tonnes of feed grain was sold on the EU market. Since then, however, feed grain consumption has been rising steadily: 114 million tonnes were sold in the 1999/2000 marketing year and the latest forecasts for 2005 point to consumption of 123 million tonnes, or an almost 50% increase. This is a very striking example of how we have become increasingly competitive on our own market since 1992 thanks to our reforms.

This increased competitiveness has also been seen on the export side. In 2000/01 70% of wheat and barley exports were carried out without refunds. And if the current world market prices and the euro rate do not change too much, we can assume that no export refunds at all will be needed in future. This also means that the phasing-out of export subsidies will have hardly any impact in these sectors.

And finally, developments in intervention stocks are even better than predicted in Agenda 2000. Without reform, we estimated that 72 million tonnes of cereals would have been placed in intervention storage by 2005. Through our reform measures we expected to reduce stocks to 25 million tonnes. In actual fact, we have already exceeded this target, since only seven million tonnes remained in intervention at the beginning of the 2001/02 marketing year. We are however expecting this amount to increase to 10 million tonnes by 2005, due primarily to the difficulties in the rye sector.

Rye is what you might call our problem child. As a result of its poor competitiveness compared with wheat, static consumption and lack of opportunities on the export market, increasing amounts of rye are being taken directly into intervention storage. If we do not rethink our measures in this sector, we will have to contend with mounting intervention stocks in future.

I would also like to point out that the European Court of Auditors has reached the opinion that durum wheat cultivation in Europe is over-supported.

Oilseeds

The Agenda 2000 reform package set the area payments for oilseeds at the same level as for cereals. And so the decision to grow more cereals or more oilseeds is no longer determined by policymakers but by market requirements and farmers themselves.

Some people think we should grow more soya in Europe. But things are not quite so simple. Firstly, we are bound by the Blair House Agreement, which limits oilseed cultivation in Europe to 4.9 million hectares. And secondly, in most parts of Europe the natural production conditions for soya are much less favourable than for cereals.

Another reason why oilseeds have been pushed into the headlines is the Commission's initiative on the compulsory blending of biofuels. For diesel, rape is the main source of such biofuels. If such a decision is adopted demand will certainly rise and that will offer Europe's farmers an incentive for more extensive cultivation of rape. How great this increase will be obviously also depends on how prices evolve on the world market.

2) Beef and veal

In the beef and veal sector we have conflicting situations. Under Agenda 2000 public intervention is to be replaced by private storage in July 2002, with a safety net provided for in situations of crisis. If prices fall below EUR 1 560 per tonne ad-hoc intervention will come into play. By gradually reducing intervention prices by a total of 20% to begin with we were able to restore market balance. In October 2000 not one ounce of beef was in intervention and prices were stable.

Of course, the new BSE crisis has changed this radically. Intervention stocks are now set to rise to around 350 000 tonnes by the end of this year and are predicted to reach as much as 560 000 tonnes in 2002. We should therefore consider in the mid-term review what measures are needed to restore market balance. We should also bear in mind that the cuts in export refunds expected in the new Round will also have an impact.

3) Milk

The milk sector cannot be assessed in isolation from the beef sector. The Commission therefore plans to analyse the future of milk quotas along with the mid-term review.

In Agenda 2000 the heads of state and government extended the quota system to 2008. This decision can only be changed by a qualified majority. The intervention prices for butter and skimmed milk powder are to be reduced under Agenda 2000 by 15% from 2005/06 on. In return direct payments per tonne of milk quota are provided for from that point on.

As for the current market situation for milk products, things are looking extremely good. Thanks to the upturn in world market prices for skimmed milk powder we were able, a month ago, to completely eliminate intervention stocks. And since July this year we have been exporting skimmed milk powder without refunds. Butter stocks too are now at just 35 000 tonnes. Thanks to the price reductions provided for in Agenda 2000, we expect global consumption of milk products to increase still further, allowing a growing proportion of our future exports to be carried out without refunds. The latest forecasts indicate extremely positive trends. But we must remember that the Doha Ministerial declaration also calls for substantial reductions in trade-distorting domestic support, and this could well have an impact on the milk sector.

4) Rural development  

If we are to discuss the future of agriculture as a whole, we must look beyond the market organisations. With Agenda 2000 the EU expanded its rural development policy, which is intended to promote the sustainability of agriculture in a targeted manner. We have of course made some progress towards this goal, but the Berlin decisions did not go quite as far as the Commission had originally envisaged.

In particular, the Commission had planned in its draft Agenda 2000 package to make both cross-compliance and modulation compulsory. However, the Member States agreed that the introduction of these provisions should be voluntary. As a result we now have modulation in only three Member States. In public debate, however, it is becoming clear that citizens are calling for precisely the services from farmers which we wish to promote by means of cross-compliance and modulation.

And so, as far as the future of the rural development programmes are concerned, I believe that we should use the mid-term review to redirect even more funding from the market organisations to the CAP's second pillar. This would also have the positive effect that this part of the budget would be covered by the WTO's green box and would thus strengthen our international position in the new global Round.

In Agenda 2000 we made sustainability a key objective of the CAP. But reform is a continuing process. The mid-term review gives us an opportunity to make the necessary adjustments. And I am firmly convinced that, by preparing ourselves thoroughly, we will make the very best use of this opportunity.

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