S T U D Y
A C LOSER L OOK AT
EU A GRICULTURAL S UBSID IES
DEVELOPING MODIFICATION CRITERIA
Tobias Reichert
2
AbL & Germanwatch
Imprint
Author:
Tobias Reichert
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March 2006
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This publication is available on the internet at:
www.germanwatch.org/tw/eu-agr05e.htm
It is also available in German at:
www.germanwatch.org/tw/eu-agr05.htm
This study was commissioned by Germanwatch and AbL in the context of the cooperation project Entwicklungspolitische Neuorientierung der EU-Agrarpolitik (Re-orientation
of the EC Agricultural Policy in Regard to Development Policy). This project is supported by the Federal Ministry for Economic Cooperation and Development.
A Closer Look at EU Agricultural Subsidies - Developing Modification Criteria
Contents
Summary............................................................................................................................ 4
1. An Historical Overview of EU Agricultural Policy.................................................... 6
2. The CAP after the midterm review reforms of 2003 ................................................. 9
2.1 Broadened objectives .................................................................................................... 9
2.2 Altered agricultural policy instruments....................................................................... 10
2.2.1 Decoupled Single Farm Payments ........................................................................... 10
2.2.2 Cross compliance ..................................................................................................... 14
2.2.3 Modulation and “national envelope“ ....................................................................... 15
2.2.4 The second pillar – supporting rural development................................................... 16
2.3 Allocation of CAP funds............................................................................................. 18
3. A preliminary assessment of the reformed CAP from an agricultural,
environmental and developmental point of view .................................................... 20
3.1 Income support in rural areas and supporting smallholder family farms.................... 20
3.2 Environmental protection / Conservation of natural heritage ..................................... 22
3.3 Production, global trade and coherency with developmental objectives .................... 23
4. Proposals for a reorientation of the EU agricultural subsidy system..................... 30
4.1 Transferring CAP Funds from the first pillar to the second pillar .............................. 31
4.2 Support for smallholder family farms and rural employment..................................... 31
4.3 Protecting the environment and the countryside ......................................................... 32
4.4 World trade and coherency with developmental objectives........................................ 33
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Summary
The Common Agricultural Policy (CAP) of the European Union (EU), introduced in
1963, has met all of its original objectives. Yields and productivity of individual farms
and the sum total of agricultural production in Europe have all increased dramatically.
This has resulted, among other things, in the EU subsidizing surpluses of basic food
products for sale on the global market. This not only causes problems in the importing
developing countries and conflicts with traditional agricultural exporters, an agricultural
model focused on increasing productivity also has negative effects within Europe. It endangers the protection of the environment and the countryside, puts smallholder family
farms at risk and thus harms the development of rural areas.
The CAP reforms of 1992 and 2002 were only able to address these problems in a limited
manner. One reason for this failure is the fact that the objectives of the CAP were not replaced, but rather extended to include social objectives such as consumer and environmental protection, the support of rural areas and coherency with development policy. The
objectives became self-contradictory. When it came to implementation, the groups which
profit most from a policy of increased production, large farms and agri-industrial enterprises, were usually able to get their way.
In the agricultural reform of 2003, the implementation of which began in 2005, protecting
the status quo is a central theme. The main element of the reform is a decoupling of internal support from production. In most Member States, a Single Farm Payment decoupled
from production has been introduced. In this manner, most farms receive almost the same
level of support as before the reform, without, however, being bound to the cultivation of
a particular agricultural product such as, for example, wheat.
Germany chose a combination model for the implementation of the agricultural reform.
This consists of a mixture of (regionally uniform) payments calculated differently for arable land and pastureland as well as some payments based on historical individual entitlements (top up). The latter are to be converted step by step between 2009 and 2013 into
a regional (by state) uniform payment. Cross compliance, i.e. the additional requirements
to which decoupled payments are bound, intended to hinder environmental damage and
help keep land in good agricultural and environmental condition, generally only confirms
existing rules. It therefore does little to advance sustainable agriculture.
Although the Single Farm Payment predominately aids a transfer of income to well-off
farmers and does little to help reach the many CAP objectives, these payments are, at the
present time, slotted to receive three quarters of the EU agricultural budget. The new
European Agricultural Fund for Rural Development (EAFRD) must fund the bulk of its
rural development objectives with only a quarter of the funds available for agriculture.
Furthermore, modernization and increasing productivity remain EAFRD objectives although both are supported by other means. Not only that, these objectives can lead to
further production of surpluses within the EU. In contrast, objectives such as improving
the environment and the countryside or supporting rural development are objectives
which add to the public good. Despite this, the EAFRD offers no real incentives for the
cultivation of land of high natural value or for agri-environmental programs, but rather
limits payments to compensation for costs incurred and income foregone.
From a developmental point of view, whether or not the reforms lead to a further dismantling of export subsidies is of utmost importance. EU exports at prices below the price of
production, particularly in the grain and milk powder sector, oust (predominantly smallholder) farmers in developing countries from their domestic markets. Previous reforms
have led to a reduction of inexpensive exports from the EU, especially of grain and beef.
A Closer Look at EU Agricultural Subsidies - Developing Modification Criteria
The prognoses for the coming years, however, predict a reversal of this trend. For wheat
and coarse grains, increased EU exports are predicted. Whole milk powder exports are
expected to remain the same. The decoupling of payments from production has practically no effect on EU exports. The expected increase of cheese exports, on the other hand,
is not likely to have much effect on developing countries.
The following analysis demonstrates that the latest reforms will not enable the CAP to
adequately address social objectives such as environmental protection or rural development. Neither will it be able to avoid causing problems in other countries, due to a model
which is concerned primarily with production.
Changes must be made on many levels if the subsidy system is to consistently support social objectives:
•
The transfer of income via direct payments can only be justified when these payments
also help meet employment and socio-political objectives. This can be achieved with
new and stronger instruments such as binding payments to employment. In this manner, a clearer connection to the goal of rural development can be made.
•
The EAFRD must concentrate solely on social objectives: protection of the environment and the countryside, food safety, animal welfare and the support of rural development. State subsidies for modernization can not be justified, as modernization usually goes hand in hand with laying off workers and such payments also act indirectly
as export subsidies.
•
To reach the objectives named above, the EAFRD must have more funds. Since a
raise in the EU agricultural budget is highly unlikely, funds which were originally
planned for direct payments must be transferred to the EAFRD.
•
No measures taken should discriminate unduly against farmers in other countries,
particularly in developing countries. Even a subsidy system built on the above model
could, in certain circumstances, lead to products being exported below the true cost of
production. The EU should therefore publish data on average production costs to facilitate a comparison with export prices. Furthermore, export companies should introduce levies to ensure that products are not sold at below market prices.
•
Farmers from other countries can also be discriminated against when the EU raises
food safety standards and only helps EU farmers adapt to the new standards. The EU
should therefore help others, especially small export companies in developing countries, adapt to EU standards.
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1. An Historical Overview of EU1 Agricultural
Policy
The roots of the EU Common Agricultural Policy (CAP) go back to the postwar years,
when the European population suffered from hunger and malnutrition. At the time,
Europe depended on the import of basic foodstuffs and also on food aid from the USA to
meet its needs.
The main instruments of the CAP, first implemented in 1963, were therefore aimed towards increasing food production and achieving agricultural self-sufficiency. The objective was to increase the productivity of agricultural workers and farmlands. This was also
meant to result in higher income for less farm workers, with surplus labor from the agricultural sector thus freed to work in the booming industrial sector. The most important instrument of the CAP was stabilizing internal prices. To this end, a number of measures
were introduced:
•
The central measure was the introduction of ”intervention prices“ for most agricultural products. When prices fell below the intervention price, the state moved in and
bought out and stored surpluses, thus forcing higher prices by manipulating supply.
•
The agricultural markets of the EU were protected by tariffs and quantitative import
restrictions. Only products (or amounts) which could not be provided by European
farmers were imported.
•
For some products, production quotas were also set within the EU – particularly for
sugar and milk.
The extent to which the original objectives of the CAP have been fulfilled is remarkable.
Productivity has risen enormously since the end of the second world war, increasing
Europe’s agricultural self-sufficiency. Parallel to this development, the number of farms,
and to a greater extent the number of farm workers, has sunken dramatically. Despite this,
by the end of the 1970s, only 15 years after the commencement of the CAP, the EU was
self-sufficient in almost all basic agricultural sectors (although the self-sufficiency in
animal products (meat, milk, eggs) was only possible on the basis of imported animal
feed). At the same time, the negative effects of the drastic increase in productivity on the
environment and on rural areas was starting to become evident. Intensification, concentration, shut downs and specialization within agricultural production led to ground and
water pollution, a decrease in biological diversity in wild, domestic and cultivated species
and to soil degradation and soil erosion.
The continuing incentives for increased production soon led to a supply surplus in basic
foodstuffs. To prevent a fall in internal prices, authorities intervened by buying up surpluses on a large scale. To keep storage costs low, export subsidies supported depositing
the bulk of these surpluses on the global market. These measures were also necessary for
sugar and milk. These products were regulated by productions quotas, but the quotas were
a good deal higher than internal EU needs. In the case of sugar, there is the additional
problem of “C sugars”, produced over the quota and thus not allowed on EU markets.
These sugars are not subsidized directly, but the high internal price for sugar within the
quota acts as a cross-subsidy which makes global trade at dumping prices possible.
1
The European Union has undergone many name changes since its conception. In the following, the designation EU is used consistently.
A Closer Look at EU Agricultural Subsidies - Developing Modification Criteria
The somewhat involuntary emergence of the EU as one of the most important agricultural
exporters led to considerable conflicts with the USA. To protect its position on the global
agricultural market, the USA also introduced massive subsidies of its exports and thus
aggravated the further fall of global market prices. The losers in this scenario were, for
one, global competitors who could or would not subsidize their exports. To this group
belong, for example, Australia, New Zealand and Canada from the industrial countries
and developing countries such as Brazil, Argentina and Thailand.
Additionally, small farmers in the importing (developing) countries such as Burkina Faso,
Jamaica and Cameroon were hard hit by the much cheaper competition on their local
markets. They were forced to switch either solely to subsistence production (for their own
needs only) or to the production of export crops such as coffee, cacao and, later, fruits and
vegetables. This trend was aggravated by the fact that the production of basic food crops
was neither supported by development programs nor by national agricultural policy. It
seemed more rewarding, according to the cost benefit calculations of project planners, to
support the cultivation of export crops and then import basic foodstuffs at low global
market prices.
An increase in international tensions, rising public expenditures for intervention, storage
and export subsidies within the EU as well as an increase of environmental problems and
food scandals led finally to a sweeping reform of the CAP in 1992. A further important
2
factor was the opening of the Uruguay Round of the GATT , during which the USA, together with the EU, tried to lay down multilateral rules to curb the subsidy race in their
agricultural sectors.
The most important change of the 1992 CAP reform was the reduction of the intervention
prices for cereals, oilseeds and beef, bringing them closer to world price levels and thus
reducing incentives for surplus production. The farmers’ loss of income was compensated
primarily by direct payments. In order not to create new incentives for increased productivity, payments were not bound to actual production, but based on historical farmland
area, crop yields and number of livestock. At the same time, particular crops and livestock had to be produced in order to receive direct payments. Furthermore, a portion of all
farmland had to be put in set-aside.
In addition to the reformed marketing regulations, for the first time monies were made
available as incentives for rural development and environmental protection. However,
these amounted to only circa five percent of the EU’s total agricultural expenditures.
These reforms have made almost no dent in the food surplus situation in the EU. Grain
production, for example, has not been significantly reduced. Nevertheless, export subsidies were reduced for two reasons:
1) Grain exports in general were fewer, as grain, thanks to the low prices, could be used
as feed.
2) The gap between internal and global prices was closed significantly. Thus a much
smaller amount of export subsidies was sufficient to bridge this gap.
Sugar and milk, however, are two important sectors which remained practically untouched by the CAP reform of 1992. Exports and export subsidy levels for sugar remain
practically the same and have fallen insignificantly for milk products. An adjustment of
production or sales quotas to reflect EU internal demand was not made, or the adjustments were inadequate, although quotas for both product have long been in effect.
2
The GATT (General Agreement on Tariffs and Trade) binds signatories to trade liberalization and to certain
principles of trade policy. The GATT was integrated into the World Trade Organization (WTO) at the
grounding of the latter in 1995.
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The “Agenda 2000“ CAP reform of the late 1990s led to relatively small changes. Guaranteed prices were, for example, reduced further and higher uniform premia for cereals
and oilseeds were introduced. Furthermore, a price reduction for the milk intervention
products butter und low-fat milk powder was set for 2005, for which farmers were partly
compensated by direct payments. At the same time, the milk quota was raised by 1.5 percent. Sugar was once again exempted from a reform. Measures to protect the environment
and support rural development were expanded and united in the so-called “second pillar”
of the CAP.
The decision, after the midterm review in 2003, to divorce subsidies from production had
a much greater impact. However, the second pillar was not strengthened to the extent that
the Commission proposed. Determining the extent to which this new CAP with its extended objectives can support sustainable rural development in the EU without obstructing the same in the developing countries is the object of this study.
A Closer Look at EU Agricultural Subsidies - Developing Modification Criteria
2. The CAP after the midterm review reforms
of 2003
2.1 Broadened objectives
With the CAP reforms and the general broadening of EU objectives in the Treaties of
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Maastricht , Amsterdam , and Nice , the catalog of objectives for agricultural policy was
broadened perceptibly. Having fulfilled the original objectives of increased production
and self-sufficiency, other objectives became more important. The European Treaty (art.
33) names only the following as CAP objectives:
a) to increase agricultural productivity by promoting technical progress and by ensuring
the rational development of agricultural production and the optimum utilization of the
factors of production, in particular labor;
b) thus to ensure a fair standard of living for the agricultural community, in particular by
increasing the individual earnings of persons engaged in agriculture;
c) to stabilize markets;
d) to assure the availability of supplies;
e) to ensure that supplies reach consumers at reasonable prices.
However, new objectives of almost equal importance have been added. The Gøteborg
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European Council concluded in 2001 that the CAP should better reflect the public demand for food safety, food quality, differentiated products, animal welfare and the protection of the environment and the landscape. In the European Community Treaty, the
following objectives are obligatory for all European policy:
•
Article 2 of the EC Treaty: The principle of sustainable development (1997);
•
Article 6 of the EC Treaty: Environmental protection requirements must be integrated
into the definition and implementation of Community policies and activities;
•
Article 153 of the EC Treaty: Consumer protection requirements shall be taken into
account in defining and implementing other Community policies and activities;
•
Article 157 of the EC Treaty: Support for handicapped rural areas. Article 157 explicitly names the European agricultural budget as an instrument to finance this objective
•
Article 174 of the EC Treaty: Environmental protection and “prudent and rational
utilization of natural resources“, whereby the CAP is neither explicitly nor implicitly
mentioned;
•
Article 178 of the EC Treaty: The sustainable economic and social development of
the developing countries shall be taken into account in all policies likely to affect developing countries.
3
With the Treaty on European Union (also known as the Maastricht Treaty) the European Union was founded
The Treaty of Amsterdam amends the Maastricht Treaty
5
The Treaty of Nice replaces the Maastricht Treaty
6
In 2001, the European Council launched a European Union Strategy for Sustainable Development which
dealt directly with some CAP measures, focusing on the sustainable use of natural resources, food safety and
food quality.
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In supplementary regulations can be found:
•
Animal welfare (No. 6 in the preamble of Regulation 1783/2003 on rural development – amendment to Regulation 1257/99);
•
Maintenance of permanent pasture (No. 4 in the preamble of Regulation 1782/2003
on direct support schemes);
•
A fair standard of living for rural populations (Nr. 21 in the preamble of Regulation
1782/2003) as an objective of direct payments.
The current Regulation EC No 1698/2005 from 2005 also called the European Agricul7
tural Fund for Rural Development (EAFRD) identifies the following objectives for rural
development: competitiveness of agriculture and forestry, improving the environment and
the countryside and rural development.
Within this extensive catalog of objectives, the protection and development of smallholder family farms is never explicitly mentioned. The focus lies rather on the rationalization of agriculture. This can be seen not only in the fact that the goals of 1963 remain
part of the CAP, but also in the newest reform proposals for the Rural Development
Regulation, all implicitly aimed at helping farmers adapt to competitive conditions by
aiding restructuring.
2.2 Altered agricultural policy instruments
Not only was the catalog of objectives expanded, the instruments of the CAP were also
soundly reformed. The most important instrument by far remains the so called first pillar.
The common market organization measures for most products remain. This means, for
example, that the intervention prices for agricultural products were not completely abolished. They have, however, been lowered to such an extent that it will rarely come to intervention and when it does, the investment will be minimal.
2.2.1 Decoupled Single Farm Payments
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Single Farm Payments independent from production are the central instrument of the
first pillar. The previously existing premia for cereals and oilseeds as well as livestock
premia are to be decoupled from production (exceptions are elaborated below). This is
also true for the risk payments for milk. Single Farm Payments take the form of a premium which can be calculated on a regional level or on the farm level. Individually calculated payments are based on the premia that the farm has received in the past.
Single Farm Payments on the farm level are calculated based on historical reference. The
allotments are made according to the individual average of premia for eligible hectare and
livestock in the reference years 2000 – 2002 plus the individual milk premia received in
2004 – 2006 (amount dependant on milk quota). The size of the Single Farm Payment is
thus calculated according to the premia und production rates of the past. Farms therefore
essentially receive the same amount of premia as before the reform.
The goal of ensuring a fair standard of living for the agricultural community is here
clearly interpreted as maintaining the status quo. Entitlement is calculated by dividing the
individual premium by the number of eligible hectares. Thus a farm receives payments
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COUNCIL REGULATION (EC) No 1698/2005 of 20 September 2005 on support for rural development by
the European Agricultural Fund for Rural Development (EAFRD); L 277/1 Official Journal of the European
Union, 21.10.2005.
8
COUNCIL REGULATION (EC) No 1782/2003 of 29 September 2003 establishing common rules for direct
support schemes under the common agricultural policy and establishing certain support schemes for farmers.
A Closer Look at EU Agricultural Subsidies - Developing Modification Criteria
for the eligible hectares cultivated or used as pasture. A farm must therefore utilize at
least as many hectares of land as the entitlements calculated in order to receive the full
premium amount.
Alternatively, payments can be made as regional uniform premia. In this model, the hectare, livestock and milk premia previously received are divided by all eligible agricultural
hectare, excluding land used for growing permanent crops. The premium is then calculated by multiplying the number of eligible hectares a farm has by the uniform regional
payment entitlements. Each farm then receives a flat rate per cultivated hectare. The consistent implementation of the regional model would result in a massive movement away
from intensively farmed arable land and dairy farms towards large farms of primarily
pastureland. It is, however, possible to differentiate between arable land and pasture and
to determine different payments for each. A higher premium for arable lands can reduce
the danger of this restructuring.
The two models can also be combined. A part of the payment can be determined according to historical references and the rest can be regionalized. Furthermore, it is also possible to begin with an historical reference model of Single Farm Payments and later redistribute funds between regions, i.e. work towards a flat rate payment scheme.
Germany has decided on a combination model for its implementation of the reform. Payments are to be on a regional unified basis, with different levels for arable land and pasture. Payments are also partly allocated according to individual references amounts on a
so-called “top up” basis. Entitlements thus calculated are to be phased into a flat rate unified (on a state level) payment per hectare between the years 2009 and 2013. According
to Oxfam Germany, Germany has thus decided upon the “most difficult and wasteful procedure, not to mention the most confusing for farmers, which the new CAP allows”.
Taking the many possibilities for partial decoupling into account, it is, however, possible
to envisage even more complicated models than the German one. The combination model
by which individual payments are phased into regional, unified payments has the political
advantage of the restructuring effects of the regional model not coming into force at once,
but rather in the future and one step at a time, so that there is likely to be less resistance
from the “losers” of the reform.
In all models, the payment of the premia depends upon a farm cultivating as many hectares of land as it has been allotted premia. All models also include set-aside payments,
calling for a certain percentage of land (calculated according to historical set-aside obligations) to be put into set-aside. Furthermore, land for which farmers receive payment
may not be planted with permanent crops (wine, fruit trees) and fruits and vegetables may
only be planted with previous approval.
Each Member State must create a “national reserve” of entitlements. To this end, the historical reference on which the premia are based, no matter which model, are to be reduced
by 1%. Entitlements which are not used for three consecutive years are also to be transferred to the national reserve. The national reserve can be used to grant additional premia
to young farmers and farmers in “exceptional circumstances”.
Entitlements can also be traded, i.e. bought and sold, on a regional level. However, additional entitlements will only be allotted if the farm which bought them cultivates enough
additional eligible lands.
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Calculation of Single Farm Payments in Germany:
Premium (regional, uniform) for arable land: sum of the following payments for arable
land divided by hectare in the region
•
Payments for arable crops (cereals and oilseeds)
•
Seed aid
•
Payments for grain legumes
•
75 percent of the hops premium (decoupled proportion)
•
75 percent of the decoupled proportion of the starch potato premium (see below)
The national government estimates an average premium of 301 Euros per hectare nationally
for arable land. Regional differences range between an estimated 259 Euro in Lower
Saxony and Bremen and 338 Euro in Thuringia. The premium for arable land will also apply
to land put into obligatory set-aside.
Premium (regional, uniform) for permanent pasture: sum of the following payments divided by hectare of permanent pasture in the region:
•
Slaughter premium for beef
•
National supplementary payments for beef
•
50 percent of extensification allotments for beef
The national government estimates an average premium of 79 Euros per hectare permanent
pasture nationally. Once again, there are regional differences – between an estimated 47
Euros per hectare in Hessian and 111 Euros in North-Rhine Westphalia.
Single Farm Payment (based on historical references): average payment between the
years 2000-2002 plus the milk premium based on the quota for 31 March 2005:
•
special male premium for beef
•
slaughter premium for calves
•
suckler cow premium
•
ewe premium
•
50 percent of extensification allotments for beef
•
milk premium
•
25 percent of the decoupled proportion of the starch potato premium
•
decoupled proportion of the dried fodder premium
•
decoupled proportion of the tobacco premium (as of 2006)
The Single Farm Payment is then divided by the farm’s total eligible hectare (not including
land in set-aside) and added to the premia for arable land and pasture. Thus each farm will
have different premia levels for arable land and pasture, depending upon the amount of the
Single Farm Payment. Only the set-aside payment is the same for all farms in a region.
Between 2009 and 2013 the varying premia for arable land, permanent pasture and setaside land is to be phased step-by-step into one regionally unified premium per hectare.
The premia and Single Farm Payments can only be allotted when a farmer possesses sufficient eligible land. It does not matter whether, or how, the land is used. Arable land payments are thus paid even if pasture is cultivated. Only areas for which set-aside payments
are made must actually be in set-aside. Each farm must first use up its set-aside obligations.
This reduces the number of hectares which can be calculated for other payments.
If payment entitlements are not activated in a certain year, the farmer receives no payment,
does not however lose his or her entitlement. Only when payment entitlements are not used
for three consecutive years do they revert to the national reserve. Payment entitlements can
only be traded within state borders.
A Closer Look at EU Agricultural Subsidies - Developing Modification Criteria
In addition to the two models of decoupled payments and the combinations thereof, some
payments remain coupled to commodities or to cultivation area. This is the case for:
Commodity
Durum wheat
Protein crops (peas, beans, lupines)
Rice
Nuts (walnuts, hazelnuts, almonds, pistachios, carob)
Energy crops
Starch potatoes
Dried fodder
Max. payment EU-wide in million Euros
128
89
183
98
67.5
117
132.6
EU-wide ceilings exist for commodity or hectare based payments for all of these products. Each Member State may allot a certain share of each premium. The total amount of
these premia, circa 815 million euros, is not very significant considering the CAP total
budget of over 43 billion euros.
Member States are also free to only partially decouple payments. Up to 25% of the premia for arable crops, including cereals, may remain tied to production. There are also
many different models for livestock premia. Up to 50% of the premia for sheep and goats
can remain commodity specific. For beef premia, there is yet another model in which
some premia, for example the suckling cow premia, may remain 100% commodity specific if others are completely decoupled. Germany has taken advantage of the possibility
of leaving some product premia linked to commodities only in the case of hops, for which
25% of the premia remains linked to actual production.
Partial Decoupling in other EU Member States
Since the new Member States joined the EU at the start of the reform, they do not have the
option of keeping “old” measures. They will therefore allot all payments as uniform regional
premia.
The 15 old Member States, on the other hand, have made widespread use of the leeway
given them in choosing a model of implementation. Only Italy, Great Britain, Ireland and
Luxembourg have decoupled all payments from production. As its remaining coupled hops
premium is rather small, Germany is sometimes also considered a member of this group.
In the remaining old Member States, the following payments remain coupled:
Belgium:
suckler cow premium (100%), slaughter premium for beef (only in Flanders)
Denmark:
special male premium for beef (75%), ewe premium (50%),
Finland:
special male premium for beef (75%), ewe premium (50%
France:
cereals and oilseeds (25%), suckler cow premium (100%), slaughter premium for beef, ewe premium (50%)
Greece:
cereals and oilseeds (25%), durum wheat premium (40%), suckler cow premium (40%), slaughter premium for beef, sheep premium (50%)
Netherlands:
Slaughter premium for beef
Austria:
Hops premium (25%), suckler cow premium (100%), slaughter premium for
beef
Portugal:
suckler cow premium (100%), ewe premium (100%)
Sweden:
special male premium for beef
Spain:
cereals and oilseeds (25%), suckler cow premium (100%), slaughter premium for beef, ewe premium (50%)
Source: AgraEurope, 08/30/2005
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2.2.2 Cross compliance
The second central element of the reform of the first pillar is that payments are linked to
certain cultivation requirements. This is called cross compliance. The requirements are:
1) Following 19 statutory EU regulations and guidelines on standards of environment,
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conservation, animal identification, animal welfare and food and feed safety.
2) Regulations on the maintenance of agricultural land in good agricultural and environmental condition. The standards are set on a national level and also apply to land
in set-aside.
3) Regulations on the preservation of permanent pasture.
If these regulations are not upheld, payments can be reduced or, in drastic cases, even
stopped completely. Farmers must comply with these regulations on all agricultural lands,
also those for which no payments are received, such as land on which permanent crops
are cultivated.
The EU provides only a framework for the maintenance of agricultural lands in good agricultural and environmental condition, as shown in the table below. The Member States
must concretize these standards, taking into account their specific soil and climatic conditions, cultivation systems, the type of agricultural lands, crop rotation and farm types.
The focus of the European framework, as can easily be seen, is on ground soil protection:
Subject
Standards
Soil erosion:
Minimum requirements for topsoil cover
Soil protection via appropriate measures
Minimum standards for soil cultivation, adapted
to area conditions
No clearing of terraces
Organic matter in the soil:
If necessary, set crop rotation standards
Preservation of the proportion of organic matter Treatment of stubble fields
in the soil using appropriate means
Soil structure:
Appropriate use of machines
Preserve soil structure by appropriate means
Minimum stocking rate and/or appropriate reguAgricultural land maintenance measures and lations
Protection of permanent pasture
prevention of environmental destruction
Agricultural land maintenance:
No clearance of landscape elements
Avoidance of unwanted vegetation on agricultural lands
The following documents the national implementation of these requirements using Germany as an example:
The national regulation on maintaining agricultural land in “good agricultural and environmental condition” compromises, in addition to the ruling on preserving landscape
elements mentioned above, rulings on preventing erosion, maintaining organic matter in
the soil, soil structure preservation and the maintenance of set-aside lands.
9
The 19 standards are to be introduced in three phases (2005-2007). As of January 1st 2005, environmental
regulations on nitrate vulnerable areas, sludge, ground water, conservation of flora and fauna habitats and the
conservation of wild birds as well as four animal identification and registration requirements go into effect.
A Closer Look at EU Agricultural Subsidies - Developing Modification Criteria
To prevent erosion, it is forbidden to clear terraces. Exceptions require a permit obtainable only if terraces are not needed to prevent erosion. Furthermore, the German regulation requires that at least 40 percent of a farm’s arable land be covered either with plants
or with plant remnants. Tilling is not allowed in the period between December 1st and
February 15th. Here too, permits may be granted to allow exceptions in areas with a low
danger of erosion.
The maintenance of organic matter in the soil and the preservation of soil structure must
either be ensured by following a particular crop rotation, or the proportion of humus in
the soil must be recorded annually in a topsoil analysis. The crop rotation requirements
are, however, not difficult to fulfill, as they only require the cultivation of three different
crops of which each must cover at least 15 percent of the land. Different cereals and even
summer and winter varieties of the same crop are regarded as independent crops. It is not
necessary to cultivate cover crops whose sole purpose is to increase organic matter.
Set-aside land must be planted, or self-planting must be allowed, whether the set-aside
was compulsory or voluntary. Growth on set-aside arable land must be shredded and distributed (i.e. land must be mulched). Set-aside permanent pasture land must be either
mulched once annually or cut and freed from the cut grass.
The regulation on maintaining permanent pasture is, as are the other regulations, interpreted rather liberally in the German implementation. Each state must calculate the per10
centage of permanent pasture of all agricultural lands as a base. This base is to be compared annually with the current percentage of permanent pasture. If the percentage sinks
less than five percent, nothing happens. If the percentage sinks five percent or more, permanent pasture may only be divided after receiving permission. Only when the percentage of permanent pasture goes down more than 10 percent does the state require farmers
(who receive payments) with contiguous permanent pasture to sow these lands again or to
create new pasture lands. Thus the regulation for the maintenance of permanent pastures
can be gotten around by dividing existing pastures and creating new ones somewhere else
later.
2.2.3 Modulation and “national envelope“
To better finance the second pillar measures (see 2.2.4), direct payments for farms are to
be reduced. In 2005 the payments are to be reduced by 3%, in 2006 by 4% and in 2007 –
2012 by 5%. However, farms are reimbursed for reductions made on the first 5000 Euros
in the form of additional aid of up to 250 Euro.
At least 80 percent of the money saved by this reduction, or modulation, is returned to the
Member States in which farms payments were cut. In Germany, the return on modulation
funds is at least 90 percent, due to compensation for the cessation of rye intervention.
Whereas modulation is obligatory for all Member States, it is possibly for Member States
to voluntarily put aside up to 10 percent of direct payments for incentives for programs
which protect or promote environmental welfare, improve product quality or support
marketing schemes for agricultural products. This regulation gives Member States committed to sustainable agriculture a much freer hand. Farmers who practice specialized
forms of agriculture may receive special payments from this so called “national envelope“. The Commission has laid down the particulars of these payments and the criteria
for allocation in a special directive.
To date, only Italy, Portugal, Scotland and Sweden have taken advantage of this opportunity. In these States, taken together, circa 220 million euros annually are distributed
10
Permanent pasture land in 2003 plus permanent pasture newly reported in 2005
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AbL & Germanwatch
through their “national envelopes“ – less than 0.5 percent of the entire CAP budget. As
the decision to introduce a “national envelope” had to be made by August 2004, this
regulation will have no practical impact in Germany nor in the other Member States.
2.2.4 The second pillar – supporting rural development
11
The second pillar , introduced in the Agenda 2000, is to complement further reforms of
the CAP. The objectives of this instrument are: sustainable cultivation of natural resources, innovation and improved competitiveness in rural areas as well as economic and
social cohesion. These objectives are not covered in the first pillar, which has as its main
objective stabilizing farm incomes.
In September 2005, the European Agricultural Fund for Rural Development (EAFRD)
went into effect. This Regulation constitutes the second pillar of the CAP. All earlier
regulations are consequently superceded. The objectives are structurally divided into
three “axes”:
Axis 1: Improving the competitiveness of the agricultural and forestry sector
Axis 2: Improving the environment and the countryside
Axis 3: Rural development.
As a methodical fourth axis, the “Leader approach” is to be supported. In this approach,
local action groups and civil society members work out strategies for the development of
their region, to be implemented in cooperation with local and national authorities. Measures of the other “axes” should be integrated into these strategies.
Axis 1: Improving the competitiveness of the agricultural and forestry sector
Measures to improve competitiveness are divided into four areas:
a) Improving human potential:
•
Support for vocational training over and above traditional training,
•
Advisory services to support general improvements or compliance with statutory EU
regulations on environmental protection, public, animal and plant health and animal
welfare,
•
Start-up support for young farmers in the form of a premium of up to 40.000 Euro,
•
Support for early retirement for farmers who transfer their farms to young farmers or
to farmers who want to increase their holdings;
12
b) Measures aimed at restructuring and developing physical potential:
•
Investments in the modernization of agricultural holdings,
•
Investments to improve the added value of agricultural products by:
11
13
•
improving competitiveness,
•
providing help adapting to EU legislation,
•
improving processing and marketing of agricultural products,
The second pillar is based primarily on Regulation 1257/99 and its follow-up, Regulation 1783/2003
Persons who are under 40 years of age, are setting up an agricultural holding for the first time, posses adequate occupational skills and submit a business plan are eligible for this premium
13
Under the former regulation, products for which a surplus situation exists could not be supported. This
limitation is not found within the EAFRD.
12
A Closer Look at EU Agricultural Subsidies - Developing Modification Criteria
•
Improvement of infrastructure, particularly land improvement, the introduction of
new technologies and water resources management,
•
Restoring agricultural production potential damaged by natural disasters and introducing appropriate prevention instruments;
c) Measures to improve product and production quality:
•
Support for farmers to adapt to demanding EU standards in the fields of the environment, public, animal and plant health, animal welfare and occupational safety. Compensatory payments can be made as flat rate aid over a period of up to five years,
•
Support for the participation in food quality schemes which exceed Commission and
national regulations. This includes organic products,
•
Supporting producer groups for information and promotion activities for products under food quality schemes;
d) Support for transitional measures in the new Member States:
•
Semi-subsistence agricultural holdings undergoing restructuring ,
•
Forming producer groups.
Two objectives of Axis One are particularly prominent:
•
Meeting obligatory food quality and production standards supported by advisory service, investment aid and flat rate payments
•
Modernization and improvement of overall performance, supported by advisory service, vocational training and investment aid.
Axis 2: Improving the environment and the countryside
The following instruments support environmental land management:
a)
Compensatory allowances for farmers in mountain area and other areas with handicaps as well as areas which fall under the NATURA 200014 directives - payments are
allotted per hectare cultivated to compensate for costs incurred and income foregone
due to environmental factors;
b) Payments for agri-environmental and animal welfare measures :
Farmers and other land managers who voluntarily make agri-environmental or animal
welfare commitments can receive these payments. Commitments must go beyond the
mandatory standards established in cross compliance. Payments are to compensate
for costs incurred and income foregone due to the commitment and may also cover
non-remunerative transaction costs necessary for the fulfillment of the commitment.15
The incentive component, of up to 20 percent of the costs, found in Regulation
1257/99 is herewith superceded;
c) Payments for non-productive investments which improve the ecological and social
value of NATURA 2000 areas or other areas of high natural value.
14
Under NATURA 2000 fall a European-wide network of regions of particular interest for biological diversity. These areas, determined by the Member States and applying uniform criteria, must be cultivated in a
manner which protects and if possible improves them.
17
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AbL & Germanwatch
Axis 3: Rural development
The following measures support the diversification of rural economies and improve the
quality of life in rural areas:
a) Diversification into non-agricultural activities to provide alternative income, support
of micro-enterprises, encouraging tourism and the maintenance, restoration and upgrading of the natural heritage;
b) Provide basic services for the rural economy and population. Village renewal and development and the conservation and upgrading of the cultural rural heritage;
c) Vocational training;
d) Training on preparation and implementation of local development strategies.
The Regulation requires that in each Member State at least 25% of the EAFRD total contribution to the program be put into Axis 2 (land management) and at least 10% of the
EAFRD total contribution go to Axis 1 (competitiveness) and 3 (quality of life). At least
another 5% is to go to measures planned and implemented according to the Leader concept. The fund is also to be one of the central financing instrument for the NATURA
2000 program to maintain biodiversity.
2.3 Allocation of CAP funds
The two pillars of the CAP by no means have the same financial resources at their disposal. Currently, more than 80 percent of EU agricultural expenditures go to first pillar
measures. Correspondingly, only 20 percent are left for second pillar measures. The most
recent EU agricultural reform will cause no fundamental changes here. The EU Regulation on direct payments dictates that expenditures for the first pillar not rise. A silent consensus hat been reached to interpret this as also meaning they should not fall.
The EU Commission thus planned, in the Financial Perspectives 2007 - 2013 (a sort of
long term financial plan), only a small reduction in first pillar expenditures – from 43.7
billion euros in 2006 to 42.3 billion euros in 2013. Altogether, the Commission planned
for total first pillar expenditures in this period of 301 billion euros. The annual expenditures for the second pillar were to rise from 10.5 to 13 billion euros, resulting in a total
expenditure of 87 billion euros. To this sum, the modulation funds from the first pillar
16
must be added – almost another 9 billion euros according to EU estimates. In this
model, all in all almost a third of all EU agricultural expenditures would have gone towards second pillar measures. More than two thirds of all CAP expenditures, on the other
hand, were earmarked for income transfer in agricultural communities. The commission
planned almost no changes in the extremely unfair distribution of income transfer, which
hit smallholder farms hardest. Only a third of agricultural expenditures were made available for the implementation of the comprehensive, and sometimes mutually exclusive,
catalog of objectives found in the second pillar.
The Member States however rejected the Commission’s budget proposal. The net payers
in the EU – those countries which pay more for the EU budget than they get back in return - demand much lower expenditures than those proposed by the Commission. Germany, together with the Netherlands and Sweden, is the loudest representative of this position. After months of tug-of-war, the Member States came to an agreement on a new
proposal in December 2005. In the agricultural sector, the expenditure for the first pillar
15
“Transaction costs“ are not defined in the regulation.
EU Commission: Financial Perspectives 2007-2013: Follow up to president Barroso’s letter of 20 October
2005
16
A Closer Look at EU Agricultural Subsidies - Developing Modification Criteria
should be reduced by 8 billion to a total of 293 billion for the entire period. The cuts in
the second pillar are much more dramatic. Between 2007 and 2013 only 69 billion euro
are to be spent; 18 billion less than proposed by the Commission. Together with modulation funds, the net sum is 77 billion euro, or 27% of the agricultural budget. With this,
even more emphasis is put on maintaining the status quo as opposed to investing in sustainable rural development. Almost three quarters of all agricultural expenditures go to
this end. The new proposal of the Member States does allow voluntarily raising modulation up to 20%, but it seems unlikely that many countries will take advantage of this option.
The European Parliament, for its part, voted down the proposal of the Member States in
January 2006. Its main criticism, however, focused on budget cuts in areas such as research and education. It is therefore questionable whether a compromise between Council
and Parliament will lead to an increase in the planned expenditures for the second pillar.
The only “silver lining” is the resolution of the Member States to subject all agricultural
expenditures to a comprehensive inspection in 2008 – and perhaps once again begin a
new reform.
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3. A preliminary assessment of the reformed
CAP from an agricultural, environmental and
developmental point of view
As shown in Section 2.1, the objectives of the CAP have been broadened immensely
since the 1990s. Almost all aspects of sustainable development are, via various EU treaties, resolutions and regulations, explicitly or at least implicitly also CAP objectives. The
objective of maintaining and improving smallholder family farm structures is never explicitly mentioned. Development goals are also found only indirectly, as the effects on the
sustainable, economic and social development of developing countries must be taken into
account in all European policy. For these reasons, in the following the instruments of the
reformed CAP are investigated not only as to whether the CAP’s stated objectives are
met, but rather on an expanded concept of sustainable agricultural development which has
arisen from intensive discussions in civil society and emphasizes international developmental aspects to a greater degree.
The effects of decoupling on land use, production, prices and global markets have, to
date, been estimated by the EU itself and by the OECD on the basis of econometric models. The following sometimes refers to the results of these analysis, although the models
do not fully reflect reality. In some models, for example, it is not possible to reflect voluntary set-asides. In others, the beef sector is not included directly, but only pasture land.
Finally, national differences in implementation can not be taken into account. The OECD
analysis is thus based on a Single Farm Payment scenario in which all countries either
make use of maximum decoupling options or opt only for partial decoupling. The effects
of cross compliance and the instruments of the second pillar can not be depicted in an
economic model.
3.1 Income support in rural areas and supporting
smallholder family farms
a) Decoupled payments:
Single Farm Payments based on historical reference are calculated by the average hectare
and animal premium for a certain time period plus, when applicable, the milk premium.
This Single Farm Payment amounts to an institutionalization of current inequalities and
represents a discrimination of micro and small enterprises. Regional, flat rate premia on
the other hand, that is a uniform payment per hectare, help extensive farms and areas with
handicaps most. More work-intensive small farms tend to have less area and therefore
profit little from a regionally uniform premium per hectare, as opposed to large enterprises rich in hectares. Exceptions can be found in farms which consist primarily of land
formerly not eligible for area based premia (pasture, vegetable fields) and now eligible
for regional uniform premia.
In general, decoupling payments from production gives farmers more freedom to decide
what to produce, how much to produce and of which quality. Particularly in the beef and
17
milk sector , payments were previously bound to the amount produced – the more steer
were slaughtered, or the higher the milk quota, the higher the premium. After the reform,
these amounts no longer play a role in determining the sum of the decoupled payment. A
17
No direct payments were made for milk before 2004. These were, however, introduced in 2004 and must
be decoupled by 2007, at the latest, EU-wide. In Germany, they will be decoupled in 2005.
A Closer Look at EU Agricultural Subsidies - Developing Modification Criteria
farm which converts to extensive production, in order, for example, to fulfill quality criteria such as longer feeding times, pastured animals, renunciation of certain highperformance fodder etc. no longer has to fear receiving less premia.
On the other hand, the danger exists that land in less profitable areas will be maintained
with the least exertion possible and no production will take place. This problem can arise
with payments based on historical reference or with regional uniform payments. Should
this be the case, there will be no increase in employment and no impulse for local or regional economic development, for example in the processing industry.
Some analysts question direct payments, particularly regional uniform hectare premia, as
an effective long-term instrument for income transfer to farmers, as the rent for leased
farms could rise depending on the hectare premium. Thus it is the owner, and not the
user, of the farm who profits most from direct payments. In the USA, similar effects have
been observed as a result of direct payments there. The more area is farmed by tenant
farmers instead of by the owners, as a result of structural changes, the less working farmers have from direct payments. When this happens, the objective of the income transfer is
no longer met by this instrument.
The objection to this scenario is that the possibility of passing on premia to the landlord
already existed with the coupled payments of previous EU agricultural policy. The rental
price reflected the productivity of and premium for the land, the latter of which was
known to the tenant. With the decoupling of the payment and its design as a Single Farm
Payment, the automatic transfer from tenant to owner should be stopped. The premia is
no longer bound to a certain area, but is given to the farmer (tenant). If a tenant no longer
leases land, because, for example, s/he is unwilling to pay the rent demanded, s/he does
not lose the right to the premium. The new premium regulation is aimed at strengthening
the working (tenant) farmer. Whether it will do so in praxis remains to be seen.
b) Cross compliance
The current cross compliance requirements, in which Single Farm Payments are bound to
compliance with certain EU standards, do nothing to further income redistribution in favor of small farms. On the contrary, large farms can for example profit by putting a portion of their area in set-aside, mulch it with only a small investment of money and labor
and for that alone become eligible for the highest SFP possible. For smaller farms with
less area this isn’t an option – direct payments alone don’t generate enough income
c) “Second pillar” measures
The second pillar is comprised of the Regulation on the European Agricultural Fund for
Rural Development (EAFRD). One of the regulation’s three axes for rural development
support remains ‘increasing competitiveness in the agricultural sector’. To this end, investments are supported aimed at restructuring and developing “physical potential” or investments to help farmers adapt to demanding obligatory European standards. The new
regulation, in contrast to its predecessor, no longer requires farmers to demonstrate “economic viability”. Furthermore, “physical potential” is not defined, which means that not
only economic criteria but also other social criteria can be taken into account. This
doesn’t exactly fit under the axis objective “increasing competitiveness”, but this isn’t the
only passage in which the regulation is unclear and contradictory. It is also possible to
support classical modernization investments, particularly those investments which increase productivity and thus lead to a decrease in jobs.
Other second pillar support measures range from support for direct marketing schemes to
encouraging tourism. For these measures agricultural enterprises, but not exclusively agricultural enterprises, can be supported. This allows smallholder family farms to diversify
their income sources to include more than only agricultural production.
21
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AbL & Germanwatch
The support for young farmers could slow down structural changes which favor large enterprises. The support criteria do, however, allow the support of young farmers who focus
on rationalization and increasing production.
Smallholder family farms can also profit from the payments for mountain areas and other
area with handicaps, which often have the disadvantage of being more labor intensive and
offering fewer possibilities for rationalization. As small farms tend to make use of more
(family) workers per hectare, compensatory payments can add significantly to farm income.
3.2 Environmental protection / Conservation of natural
heritage
a) Decoupled direct payments
An OECD analysis expects significant extensification in the dairy sector as a result of the
decoupling of direct payments. In their model, the density of cows per hectare is reduced
by 14%, while pasture land for dairy cows increases by 16%. At the same time, the area
for beef production and arable crops is reduced. The OECD expects a two to three percent
decrease in the land used for grain and oilseed production. At the same time, intensive
production methods should lead to slightly higher yields per hectare. The production
should thus remain about the same or continue to increase slightly.
Econometric models don’t take voluntary set-aside into account. Therefore it is possible
that pasture land for dairy cows won’t increase, as assumed above, but rather that former
pastures, particularly in areas with adverse conditions such as in the highlands, are put in
set-aside and that milk production with the same or higher intensity is relocated to regions
with more favorable conditions. The same is true for cultivation methods which require
extensive pasture lands, such as suckling cow or sheep farms. These farms are not very
profitable and are therefore very dependent on direct payments. These lands may merely
be kept in “good agricultural condition” at a marginal cost. In Germany for example, to
receive the full premium it is sufficient to simply mulch fields.
From the results of the OECD analysis, it can be assumed that pasture lands will increase
and that maintaining permanent pasture, at least on a EU scale, should not become a
problem. If there is an extensification in the dairy and beef sector, it should not be too
great a strain on the environment.
b) Cross compliance
The current cross compliance regulations lead neither to higher standards of environmental protection nor to additional measures aimed at maintaining natural heritage. The
reduction of direct payments due to infringements against cross compliance regulations
act primarily as a higher penalty for breaking existing laws. This could lead to an more
farmers following statutory requirements and thus at least lessen negative effects on the
environment. However, this is dependant upon the implementation of monitoring and punitive measures within the individual Member States.
In general, it is beneficial that under cross compliance existing landscape elements such
as bogs, hedges etc. must be preserved and that payments are also made for these “nonproductive” areas. However, farms which do not have these landscape elements also receive payments for all of their hectare. An incentive is missing to foster the planting of
hedges, trees, etc. which are important for the environment and especially for biodiversity.
Cross compliance criteria allow mulching as an inexpensive measure for the conservation
of set-aside areas. This is problematic from a conservationist point of view, as it leads to
A Closer Look at EU Agricultural Subsidies - Developing Modification Criteria
even less biodiversity than, for example, extensive animal husbandry. Extensive pasturing
leads to an increase of bushes per hectare and is thus often propagated by conservationists. However, the danger exists that extensive pasturing could lead to cross compliance
criteria not being adequately fulfilled. This would mean a reduction in direct payments
not only for the area in question, but for the entire enterprise.
The fact that sanctions affect the entire farm might also result in incongruous dealings
with NATURA 2000 sites. NATURA 2000 calls for a for the protection and management
of places of high natural value. If this is unsatisfactory, premia for the entire farm are reduced. To avoid this, such sites may be given up completely. This is particularly probable
if the NATURA 2000 sites only make up a small proportion of the total area of a farm.
c) Second pillar measures
Improving the environment and the countryside, for example improving soil productivity,
is of particular importance within the EAFRD. At least 25% of all funds are to go to
payments for this axis. Natural handicap payments for mountain areas and other areas
with handicaps are included in this axis. Thus the focus is no longer on increasing production, but rather on agri-environmental management in disadvantaged areas. The payments are to be made on the basis of area and thus no direct production incentives come
into effect. With this instrument, support for disadvantaged regions could be designed so
as to prevent important ecological areas from lying fallow. However, clear criteria for the
particular support for areas of high natural value are missing from the regulation.
The second pillar instruments lessen the risk for the (non-)cultivation of NATURA 2000
areas described above, which could arise as a result of cross compliance. The planned
compensatory payments from the EAFRD axis for environmental improvement are not,
however, enough incentive to continue cultivating these areas.
A similar problem exists for agri-environmental and animal welfare payments. The
planned incentive components are no longer an element of the new EAFRD regulation.
The ruling, that undefined “transaction costs” can also be covered, is not by itself enough
of an incentive for farmers to maintain or improve agri-environmental or animal welfare
conditions.
3.3 Production, global trade and coherency with
developmental objectives
One of the main criticism of the CAP from trade and development policy groups was and
is that massive surpluses are exported at prices that lie below the cost of production. This
takes place either with the help of direct export subsidies, particularly in the case of milk
products and sugar, or, as in the case of wheat, with the help of direct payments coupled
to the production area. These payments allow farmers to sell their products at prices be18
low the cost of production –on the global market and on EU internal markets. Whether
or not this will change with the CAP reform remains to be seen, as the reform has either,
as in Germany, just been implemented or, as in many other EU countries, has yet to be
implemented. The effects on production, prices and exports will be not be clear for many
years.
The following is therefore based on impact analyses of different organizations and institutes, which estimate the impact of developments in the EU and on the global market with
18
For an analysis (in German) of the dumping of EU milk and grain exports, see Kleinwechter, Uli 2003:
Dumping im internationalen Agrarhandel – Ursachen und Quantifizierung; and Burmann, Alexandra 2004:
Dumping bei EU-Agrarexporten – Ein Quantifizierungsansatz am Beispiel Milch; both Germanwatch, Berlin
and Bonn
23
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AbL & Germanwatch
the help of econometric tools. Particular use was made of the “World Agricultural Outlook“, an analysis by the OECD and the international Food and Agriculture Organization,
FAO. The World Agricultural Outlook scenarios go up to the year 2014 and make comparisons with historical data from the beginning of the 1990s easier. The FAO makes the
most comprehensive data on global production of and trade in agricultural products available. The historical data in the following originates from this source. To put the common
forecast of OECD and FAO in the proper perspective, alternative forecasts of the EU
Commission and of the Food and Agricultural Policy Research Institute (FAPRI) in the
USA were also taken into account.
These global models can not adequately reflect in detail one specific policy change such
as the CAP reform. They do, however, allow for an estimation of how such changes effect other international developments in a probable scenario. Furthermore, none of the
models reflect policy changes currently under discussion, such as the abolition of export
subsidies or a further opening of markets – policy which could well arise as a result of
WTO negotiations.
OECD and FAPRI studies of the effects of the CAP reform only contain forecasts of the
effects of decoupling for the years 2004 – 2008. They neither consider possible effects of
cross compliance, nor do they take second pillar measures into account.
The effects of international markets can best be portrayed by the net trade – export minus
import – of the EU with the rest of the world. In the following is shown therefore not only
the total import and export sums but also the balance of both. Particular attention is paid
to the 15 “old” EU members, so as better to compare development forecasts with the
situation before the last CAP reform, a reform that took place before the extension of the
EU. The forecast exports of the 25 EU Member States are given less the difference be19
tween production and consumption of the new Member States. Starting in 2005, the net
exports of the EU-25 are shown.
i) Grain
As shown in the section “An historical overview of EU agricultural policy”, grain production continued to increase after the first agricultural reforms of 1993 and 2002. Exports, however, decreased significantly due to increased internal consumption – chiefly as
fodder. The reform of 2003 won’t, according to impact assessments, lessen exports further. Nevertheless, the EU claims to have designed its agricultural policy so that trade
distorting elements are reduced. This does not seem to be the case. All estimates show a
clear increase in wheat exports from the 15 old EU Member States and thus the EU as a
whole. These exports are expected to cover a part of the projected import upsurge from
Asia (not including India and China), the Middle East and Africa. The OECD and FAO
predict an average increase in wheat exports in the EU-15 from 2005 to 2010 of more
than 25 percent compared to 1999 to 2003. The estimates of the EU Commission and
FAPRI have a similar order of magnitude. The EU proportion of globally increasing exports thus remains fairly constant. Accordingly, the effects of the CAP reform on global
20
market prices remains negligible. An OECD study calculates a total reduction in wheat
exports of only circa 4% as a result of the CAP reform.
19
For example: If an EU-25 net export of 100,000 tons is estimated and, at the same time the production in
the new Member States is 20,000 tons greater than consumption, the export of the EU-15 is given as 80,000
tons. This data is based on changes in inventory value in the EU 25 estimated by FAPRI, production and trade
for the EU-15 and the new Member States are estimated separately.
20
OECD, 2004: Analysis of the 2003 CAP Reform; Paris
A Closer Look at EU Agricultural Subsidies - Developing Modification Criteria
Source: FAO/OECD: World Agricultural Outlook 2005-2015, FAOSTAT,
Calculation and graphic representation: T. Reichert.
The extent to which the EU will have to resort to export subsidies in order to dispose of
rising amounts depends, according to the OECD and FAO, primarily on the exchange rate
of US dollars to euros. If the euro is strong (ca. $1.30/euro), more exports must be subsidized. If the reduction of export subsidies agreed upon during the last WTO negotiations
21
is implemented quickly, this could lead to the EU hitting the ceiling for subsidized exports. If in this scenario the guaranteed prices are not lowered, the state would probably
have to buy the surplus wheat, leading to a renewed increase of wheat in storage. Nevertheless, the EU Commission predicts a complete dismantling of public warehousing of
wheat by 2008. This prediction is, however, based on the premise that the current export
subsidy regime remains.
The scenarios for coarse grain –all cereals except wheat and rice – are more divergent.
The prognosis shown in the graphic above, based on the FAO/OECD analysis, presupposes an increase in production in the EU-15 countries. The production in the new Member States is, in this scenario, stagnant. The predicted rise in net exports is therefore based
primarily on the production in the old Member States. The EU Commission, on the other
hand, expects a small increase in production in the EU-15 and a significant rise in production in the new Member States. The EU also predicts an increase in the net export of
coarse grain, only this prediction is based on a surplus produced exclusively in the new
Member States.
According to the OECD analysis, the adjustment to the CAP reform, assuming maximum
decoupling, will have even less influence on the production of and trade in coarse grain as
it has on wheat. Exports would lie only 2% below the predicted level without decoupling.
The export of coarse grain is more dependant on export subsidies than wheat and is therefore bound to a set ceiling by the WTO treaty. As this ceiling has never been reached in
the past, the predicted rise in exports is sanctioned by the current WTO discipline. If,
21
The ministerial declaration of the WTO conference in Hong Kong dictates that by 2010 a “substantial
amount” of export subsidies must be eradicated.
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AbL & Germanwatch
however, export subsidies are abolished more quickly, this could, as in the case of wheat,
lead to a significant rise in intervention storage.
ii) Beef and milk products
The decoupling of premia will affect the beef sector much more directly, because it is no
longer necessary to keep or slaughter animals in order to receive headage or hectare payments. The continuation of the milk quota will indirectly lead to a reduction of male
calves. Due to the rise in milk production per cow, a (generally) stable quantity of milk
can be produced by less and less cows. Less cows give birth to less calves. OECD and
FAO expect a preliminary rise in beef production as inventory of beef and milk cows is
reduced and more animals are slaughtered. After 2010 however, the production is expected to fall noticeably, especially in the 15 old Member States. OECD and FAO expect
prices to remain stable until 2007 and then rise slightly.
Source: FAO/OECD: World Agricultural Outlook 2005-2015, FAOSTAT,
Calculation and graphic representation: T. Reichert.
All scenarios are based on the assumption that milk quotas, even with accompanying low
milk prices, remain binding and continue to determine production. Taking into account
the planned increase in quota levels, milk production will increase by 1,5% by 2008.
Changes are expected in the way in which this milk is utilized. The production of
skimmed milk powder and, to a lesser extent, butter will decrease due to lower intervention prices for these products. Instead, a sharp increase in cheese production is predicted,
as demand continues to rise. This trend is particularly true for the old Member States. In
the new Member States, at first a small increase in skimmed milk powder production is
expected, which should decrease slightly later. The production of whole milk powder
will, according to EU scenarios, remain essentially the same, with a slight decrease in the
old Member States balanced out by a slight increase in the new Member States.
The main changes in the dairy market – lower intervention prices, higher quotas and
compensatory payments – were decided upon in the Agenda 2000. Therefore the effects
of the CAP reform of 2003 on this sector are negligible. Lower intervention prices for
skimmed milk powder will, however, probably favor an increased production of cheese, a
product for which there is more demand on the market.
At the same time, OECD and FAO expect a sharp fall in prices for raw milk and for all
important milk products. Cheese prices are not expected to fall as drastically.
A Closer Look at EU Agricultural Subsidies - Developing Modification Criteria
Source: FAO/OECD: World Agricultural Outlook 2005-2015, FAOSTAT,
Calculation and graphic representation: T. Reichert.
Source: FAO/OECD: World Agricultural Outlook 2005-2015, FAOSTAT,
Calculation and graphic representation: T. Reichert.
Since 2002, the EU imports more beef than it exports. This trend will continue after the
CAP reform, especially after the initial reduction of beef and milk cow herds and the concurrent rise in beef production ends in 2009. Without the new Member States, which produce more beef than they consume, the net imports into the EU would lie even higher.
OECD/ FAO and the EU Commission expect exports of skimmed milk powder in the
EU-25 to shrink dramatically. Nevertheless the EU will remain net exporter. The 15 old
Member States will produce less skimmed milk powder than they consume, but the expected increase in production in the new Member States will more than compensate.
FAPRI on the other hand expects both old and new Member States to remain net exporters, with a smaller margin than currently found. All scenarios expect butter to remain a
net export product in the new and old Member States – with varying predictions for the
amount by which exports are decreased. The export and production of whole milk powder
is expected to remain fairly constant. Neither butter, skimmed nor whole milk powder
however, can find external markets without export subsidies. A speedy reduction of ex-
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AbL & Germanwatch
port subsidies would therefore lead to a sharp rise in public warehousing of these products if neither the milk quota nor the prices were lowered.
In the cheese sector, all organizations expect an increase in exports, especially from the
old Member States. This is however the only milk product which the EU currently is able
to sell in large quantities without the help of export subsidies. The prognoses do not
specify what percentage of cheese exports will in the future be dependant upon export
subsidies. Due to sinking milk prices, lower prices for cheese are also expected, and, subsequently, a reduced dependency on export subsidies.
iii) Impact of second pillar measures
As mentioned above, second pillar measures are not taken into account in CAP reform
impact analysis scenarios. However, it is more than probable that measures conceived to
improve competitiveness will have a significant effect on EU production and exports.
This is especially true for the support of modernization investments aimed at “developing
physical potential”. These measures have the clear objective of farms producing more at a
lower cost. For products such as grain, where the EU is already a net exporter, this could
lead to a further increase in exports. The problem of dumping is thus exacerbated, as the
farmers do not need to get returns for investments needed to increase productivity solely
from market proceeds.
In Germany, and in most other Member States, investments for improvements are rarely
made in the arable crop sector, but rather predominately in beef cow and milk farms.
Furthermore, at least in Germany, production capacity investments are not supported directly– a voluntary restriction which the EAFRD allows Member States. Other Member
States, such as, for example France, grant all farms subsidized interest rates for investments. In all cases, direct payments for investments lower costs and can thus lead to
dumping.
With this in mind, it is worrying that improving competitiveness remains a central objective of the second pillar and that the EAFRD Regulation does not contain any limitation
on support for products for which a surplus already exists within the European Union.
In the case of investments necessary to adapt production to new EU standards, there is
less danger of indirect export subsidization. Nevertheless, importers, particularly developing countries, are at a disadvantage when it comes to upholding product and quality
control standards. EU producers not only have a head start getting information, but also
can receive financial aid to adapting to new standards.
Agri-environmental instruments, particularly agri-environmental programs, do not have
restricting total EU production as an objective, and are therefore useless to this end. Particularly when incentive components are discontinued, there will be even less reason for
farmers in favorable areas to take part in agri-environmental schemes and to maintain or
develop extensive agricultural methods.
It is an interesting fact, that one of the reasons the Commission’s EAFRD regulation no
longer contains incentives for agri-environmental schemes is that the regulation would
then no longer fulfill the conditions of the WTO Agreement on Agricultural. The WTO
allows payments for environmental measures, but only in the form of compensation for
additional costs incurred from the participation in environmental schemes. No additional
financial incentives are allowed. In the area of investment support, on the other hand, no
effort was made to conform to WTO rulings. Had this been the case, only farms with objectively verifiable handicaps could receive support.
A Closer Look at EU Agricultural Subsidies - Developing Modification Criteria
iv) Conclusion
The CAP reforms have led to a decrease in exports for most agricultural products since
the 1990s and thus also to a decrease in dumping. They have not, however, been by any
means sufficient. The prognoses, particularly for the grain sector, show that exports could
increase even though the subsidy system provides less incentives for production. No
longer linking subsidy payments to production, the main adjustment of last reform, will
not fundamentally change this. The EU will continue to export grain under the cost of
production and thus contribute to low global market prices. Clearly, the decoupled Single
Farm Payments will then be used to compensate for the difference between (export)
prices and the costs of production.
Developments in other sectors, for example the renewable resource processing industries
(for energy, building materials etc.) will most likely have a much greater impact on grain
production and export amounts. Whether cultivating grain for human or animal consumption is more or less lucrative than cultivating rape or other crops depends on many
factors, from state subsidies in this sector to the development of oil prices. The decoupling of direct payment means that premia at least no longer present an obstacle to crop
conversion. In other words, the Single Farm Payment does not play a role when determining the profitability of a certain crop.
Lowering intervention prices in the milk sector leads to a decrease in the production and
export of butter and skimmed milk powder. The production and export of whole milk
powder however, a product which is often in direct competition with local products in developing countries, remains essentially unchanged. The increase in cheese exports will
presumably not have a significant negative effect on developing countries, as they neither
import nor export cheese to any appreciable extent.
Only in the beef sector does decoupling promise to significantly support the trend towards
decreasing production and exports. Particularly Latin American exporters in Argentina,
Brazil and Uruguay could profit from this. On a macroeconomic level, this is of course
positive for these highly indebted countries. To what extent an increase of beef exports,
mostly produced on industrial farms, will have a positive effect on poverty reduction remains to be seen. From an environmental viewpoint, the danger is high that particularly
Brazil will have a further incentive to clear-cut rain forests – at a time when the logging
of Brazil’s rain forests is already at a record high.
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4. Proposals for a reorientation of the EU
agricultural subsidy system
The analysis shows that the instruments introduced in the last CAP reform, particularly
those of the first pillar, do little to help meet broad social objectives. Furthermore, although they do minimize some effects of the problems brought on by earlier, more production-oriented subsidies, they offer no real solutions. Therefore, it was already problematic that the Commission planned more than two thirds of all CAP expenditures for
the first pillar and thus for decoupled direct payments. The decision of the Member States
in December 2005 exacerbates this problem. Currently, only a little more than a quarter
of EU agriculture expenditures are earmarked for the second pillar.
The manifold instruments of the second pillar are not all equally suited to fulfilling social
objectives. The axis ‘competitiveness’ in particular contains measures which are more
likely to cause problems than to help solve them.
With this in mind, and in the context of the current discussions on the EU budget and the
ongoing WTO negotiations, it is not improbable that the current system of agricultural
subsides, despite the CAP reform of 2003, will need further reforms. The European
Council resolution to review agricultural expenditures anew in 2008 is the first sign of
further reforms to come. In the following, some criteria for future reforms are developed,
so that social and environmental objectives can be pursued more directly and unwanted
side-effects, particularly in developing countries, can be avoided.
The bottom line is that public support measures for agriculture must be bound to social
contributions such as protecting the environment and natural landscapes and maintaining
biodiversity. This can only be achieved by sustainable farming methods. Many civil society groups, and partly the European Commission as well, demanded such improvements
during the discussions around the last CAP reform and its implementation. These voices
could not however make themselves adequately heard above the voices of those interest
groups intent upon securing the status quo. A further difficulty is that in the WTO
Agreement on Agriculture restrictions on, for example, the subsidization of agrienvironmental schemes are much more stringent than restrictions on direct payments. The
latter must be independent from production, but are subject to no other conditions.
Changes must therefore be made on many different levels, if the subsidy system is to consistently help meet social and environmental objectives:
•
The transfer of income within the first pillar can only be justified when the transfer
helps meet occupational and socio-political objectives. This can be achieved by
strengthening existing modulation and cross compliance instruments and creating
new instruments. In this manner, a greater coherency between the first and second
pillar can be reached.
•
The second pillar must concentrate solely on the objectives: preserving the natural
environment and landscape, food safety, animal welfare and promoting sustainable
rural development. Public subsidies for modernization measures can not be justified,
as they usually result in job loss and act as indirect export subsidies.
•
Measures shall not unnecessarily place farmers from other countries, particularly developing countries, at a disadvantage. Even a subvention system which has been redesigned according to the above-named criteria could, in certain circumstances, lead
to the export of products below the cost of production. Furthermore, farmers from
A Closer Look at EU Agricultural Subsidies - Developing Modification Criteria
other countries can be put at a disadvantage when food safety standards for the EU
are raised, but only farmers in the EU receive support adapting to the new standards.
4.1 Transferring CAP Funds from the first pillar to the
second pillar
In light of the current EU budget discussions, it is more than unlikely that the EU will
raise expenditures for rural development. On the contrary, Great Britain’s demands to
radically reduce expenditures for agriculture and instead put more money into research
and other measures to improve the competitiveness of other industries has support from
many governments.
Due to this controversy, the EU has not yet been able to reach consensus on a mid-term
financial plan. However the compromise will look in the end, it can safely be assumed
that the budget for agriculture will shrink rather than grow. More spending for rural development can only be achieved by transferring funds from the first to the second pillar.
4.2 Support for smallholder family farms and rural
employment
Lasting economic rural development is only possible when enough people live in rural areas and these people make a living wage. Agricultural policy must not only ensure that
income is generated in rural areas, or is transferred to these areas, but also that this happens in a manner which benefits as many people as possible and also provides employment. This should be a focus of first and second pillar measures.
a) The role of the first pillar
The most important instrument for a socially responsible distribution of agricultural subsidies is a model based on employment and digressive modulation. In this model, payments to large enterprises would be reduced when they are not able to verify the payment
of social insurance. A proposal for such a model was made in 2001 by the German Asso22
ciation for a New Agricultural Policy.
It is also possible to expand cross compliance to include social criteria; providing, for example, social insurance or paying union salaries where applicable. Other cross compliance requirements, on animal welfare, environmental protection or maintaining the countryside (see 4.3), are often, when they are effective, also labor intensive, and thus go hand
in hand with a higher employment rate.
b) The role of the second pillar
With an adequate budget, the EAFRD fund for rural development can, with specific
measures, greatly help increase employment in rural areas. Modernization should not be
one of these measures, as it leads to a drop in employment.
Measures which create more jobs are investments in improved quality, direct marketing
and processing. The criteria for investment support should therefore be broadened to explicitly mention the effect on employment. Job creation should also be an objective of
payments for mountain areas and other handicapped areas.
22
“Auf dem Weg zu einer neuen Agrarpolitik in der Europäischen Union” (Towards a new Agricultural Policy in the European Union )– Common Platform of Environmental, Agricultural, Animal Welfare and Consumer Organizations); October 2001
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4.3 Protecting the environment and the countryside
A mandatory condition for all forms of public support of agriculture must be that they
neither directly support methods which are damaging to the environment nor indirectly
create incentives for such methods. Decoupling direct payments from production is, all in
all, a helpful measure in this regard, even if ecological methods of extensive agriculture
such as suckling cow and sheep husbandry could be affected negatively (compare 3.2).
As a further measure, subsidies should support agricultural methods which conserve or
improve the environment. With the CAP reform, the EU now has three political instruments aimed at achieving environmental objectives:
•
Requirements which, if not fulfilled, can result in fines;
•
First pillar cross compliance measures, whereby the standards to be met are almost
the same as the requirements;
•
Second pillar measures which either compensate for the costs of fulfilling high standards for, for example, the cultivation of NATURA 2000 sites or finance voluntary
agri-environmental schemes.
a) The role of the first pillar
One of the main questions which must be answered about cross compliance commitments
is whether decoupled payments are mainly an instrument for the transfer of income or
whether they should also be seen as a form of remuneration for fulfilling a social duty as
farmers. Currently, the answer clearly tends towards the former. This would be more justified if the payments from the first pillar were reduced by effective modulation or were
bound to social criteria.
It is also worth thinking about how large enterprises in favorable areas will react to demanding cross compliance criteria which exceed minimum legal standards. It is possible
that they waive the modulated (= already reduced) payments completely, adhere only to
the legal standards and intensify production in order to reach the lowest cost per product
possible. Should this be the case, two largely separate agricultural sectors could emerge in
the EU:
•
Large farms in particularly fertile areas, concerned only with increasing production
and lowering costs;
•
“multifunctional” labor-intensive farms in less fertile areas of high natural value,
which receive a considerable share of their income through payments from the first
and second pillar.
Cross compliance criteria should not in any way come into conflict with agrienvironmental programs. On the contrary, participation in an agri-environmental program
should automatically count as fulfilling cross compliance criteria for those hectare in the
program.
b) The role of the second pillar
The implementation of statutory environmental standards should not, as a rule, be supported by the second pillar. Only if large investments are necessary to adapt to a new
standard is financial support justifiable, and then only if the aid leads to investments being made before the law requires them.
The EU Commission plans to make the EAFRD Fund for Rural Development the central
instrument for financing NATURA 2000 programs. For farmers, the cultivation and
maintenance of sites of high natural value is costly. Nevertheless, they only receive payments which compensate for additional costs incurred. It is questionable whether that is
A Closer Look at EU Agricultural Subsidies - Developing Modification Criteria
enough of an incentive. Not only that, all Single Farm Payments can be reduced if NATURA 2000 restrictions are not upheld, as explained in section 3.2. To avoid this, some
farms could give up cultivating these sites altogether, and opt to forego the payments for
them. This would lead to these areas laying fallow and thus losing their environmental
worth.
Maintaining and improving NATURA 2000 sites which have arisen as a result of agricultural use is an important social contribution of agriculture. It should therefore be remunerated accordingly. Payments should therefore compensate not only for additional
costs, but also add to a farm’s profit. Only then will NATURA 2000 payments be enough
of an incentive to make the risk inherent in the cross compliance sanctions elaborated in
chapter 3.2 worthwhile. A true incentive makes demanding restrictions more acceptable.
Much the same is true for the participation in voluntary agri-environmental schemes outside of NATURA 2000 sites. In this case, the first pillar Single Farm Payments are not at
risk if the voluntary requirements are not met. Nevertheless, higher profits are the better
incentive for participation in voluntary programs. Agri-environmental schemes should be
designed so as to contribute significantly to the maintenance and improvement of the environment, natural landscapes and the countryside.
Funds for NATURA 2000 and agri-environmental schemes, can, if they follow the above
proposals, help maintain agriculture in handicapped areas, where farming often significantly benefits the environment. It is therefore important to attune payments for mountain
areas and other areas with handicaps to these programs.
4.4 World trade and coherency with developmental
objectives
An important objective of the last CAP reform was to steer production decisions towards
the needs of the market and thus make “market stabilizing” measures such as public
warehousing and export subsidies superfluous. This has the added bonus of more agricultural subsidies fulfilling the WTO criteria for permissible “green box” measures. The
assumption is that decoupled direct payments do not have a distorting effect on trade and
production. Agricultural products can then be exported without limitations, even if the
farm on which they were produced profits from direct payments.
The prognoses for the effects of the CAP reform within the EU make the thesis that decoupled direct payments have a minimal effect on production and trade questionable. Although almost all subsidies in the grain sector are decoupled, an increase in the production and export of wheat and coarse grains is nevertheless expected. If these prognoses
are borne out, then decoupling in its present form can not solve the problem of dumping.
The prognoses on which this analysis is based all assume that the current options of export subsidy allocation remain. Many products, particularly butter, skimmed milk powder, whole milk powder and to a lesser extent also coarse grains, would have little chance
on the global market without export subsidies. Therefore, should export subsidies be
abolished completely, an option which is already being considered in the WTO agricultural negotiations, these products can no longer be exported, or only in much smaller
amounts. This would have a grave effect on EU internal markets; for example, the state
purchase of these products would lead to an increase in public warehousing.
On the other hand, both cheese and wheat are much less dependant on export subsidies
and these are the very products for which the greatest increase in exports is expected. For
both products, decoupled direct payments are apparently utilized to make up for the difference between market prices and higher costs of production.
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AbL & Germanwatch
Cheese is predominately exported to other industrial countries. Not only price, but also
quality, taste and region of origin plays a central role in marketing. Producers thus have
better export opportunities even when their products are not directly subsidized. In most
developing countries, cheese is neither produced nor consumed in large quantities. Therefore, the effect of cheese exports on their economies is limited. More problematic are the
artificially discounted EU grain exports. In many developing countries, these exports
compete directly with basic foodstuffs which are, as a rule, produced locally and marketed by family farmers.
To prevent the CAP from effecting international agricultural markets negatively, particularly in developing countries, new measures, alongside decoupled payments, are necessary. The measures outlined above: binding Single Farm Payments to rural development
objectives, environmental protection and employment would, in many regions, result in
an increase in extensive farming methods and thus reduced production. Whether these
measures alone would keep the production of all important products at or below the level
of EU consumption is difficult to predict. Many different factors; including which requirements would be bound to payments, whether adaptation was mandatory or voluntary, and whether or not it is possible to further increase productivity, must all be taken
into account. It seems unlikely, that environmental and rural development criteria alone
can prevent the production of surpluses in the EU and the subsequent dumping on the
world markets.
The CAP must therefore include instruments which allow measures to be taken when the
principle of coherency with EU developmental goals is not upheld. In the dairy sector,
such an instrument – the milk quota – has existed since the 1980s. Unfortunately, the milk
quota constantly lies above EU consumption levels. In the Agenda 2000, the quota was
even raised and this level was upheld in the latest CAP reform. From a developmental
23
viewpoint, it would be a good idea to lower the quota to reflect EU consumer needs.
Currently, quotas exist only for milk and, in another, for developing countries more
problematic, form, for sugar. Quotas are much more difficult to regulate for arable crops
such as wheat because their cultivation is very weather dependant. Therefore, other instruments are necessary to prevent support for farmers producing these crops indirectly
becoming support for exports. The mandatory set-aside of 10 percent of all arable land, in
effect since the CAP reform of 1992, is evidently insufficient.
An effective mechanism must reflect the fact that decoupled payments and to a lesser degree, payments coupled to environmental and social standards, cover a part of the costs of
production. Thus prices can habitually lie below the costs of production, which invariably
leads to dumping when the products are exported. Theoretically, WTO members have the
right to protect their markets from dumped imports. To do so however, they must prove in
a complicated procedure that dumping exists beyond doubt and demonstrate the extent to
which dumped products harm domestic production. For most developing countries, this
procedure is too demanding, particularly in the agricultural sector, in which it is difficult
24
to obtain exact data on the costs of production.
The EU must therefore take action against indirect forms of dumping on its own initiative, if the Member States are serious about their responsibility to meet their stated as developmental objectives. An important step in this direction would be greater transparency
23
For a discussion (in German) of the effects lower quotas would have on family farms and the environment
see Hofstetter, 2005: Anforderungen an eine Reform der EU-Milchmarktordnung aus der Sicht bäuerlicher
Organisationen in Nord und Süd; AbL und Germanwatch
24
The WTO Agreement also provides for special limitations for anti-dumping measures aimed at agricultural
products.
A Closer Look at EU Agricultural Subsidies - Developing Modification Criteria
in the allocation of subsidies. To this end, representative data on the costs of production
should be collected and published in each Member State, and in some cases on a regional
basis, for the most important agricultural products. This data could be used as an important indicator of suspected dumping. However, this data would rarely provide a sufficient
basis for anti-dumping countermeasures in developing countries. Governments could hold
back from levying anti dumping tariffs for reasons of foreign policy, for fear of jeopardizing foreign aid payment from EU Member States or because of pressure from domestic
interest groups which have an interest in cheap imports. The, as a rule, poorer rural
populations have less influence on the political process.
Rather than wait for countermeasures from importers, the EU should itself become active,
by for example, levying export duties to make sure that agricultural products are not exported under the average cost of production. Since it is the exception to the rule that
farmers export directly, the chambers of commerce should be responsible for these duties.
An alternative approach could be to determine the average subsidy per hectare – this
shouldn’t be too difficult in countries with a flat rate Single Farm Payment such as Germany – and divide this amount by the average yield per hectare for each product. This
would result in an average subsidy payment per hectare which could be added to the export price.
Responsible EU developmental policy in the agricultural sector does not however end
with the prevention of dumping. As the most important export market for many, mostly
small, developing countries, the EU must make sure that access to its markets is not unnecessarily limited. The planned support of European farmers, through the EAFRD,
helping them adapt to new production standards, should therefore be accompanied by a
similarly funded program of development aid for the same purpose. With this aid, small
and midsize farms in developing countries which export to the EU should be informed
about changes in EU standards and receive support to adapt production and quality control measures accordingly.
35
AbL – Peasant Farmer
Association
(Arbeitsgemeinschaft
bäuerliche Landwirtschaft)
Germanwatch
The AbL is an association of farmers
that promotes socially and ecologically sustainable agriculture and represents positions of farmers in legislation reforms in regard to agricultural policy.
•
Fair world trade and fair
chances for developing countries by cutting back dumping
and subsidies in world trade
•
Compliance of multinational
companies with social and
ecological standards
•
Effective and fair instruments
as well as economic incentives
for climate protection
•
Ecologically
and
sound investments
The AbL is a union of farmers practicing both conventional and organic
farming, and the majority of these
farms are small and medium-sized
farms.
AbL Activities include:
• To maintain agriculture without
genetically engineered crops
• Fair allocation of land formerly
owned by the GDR in East
Germany
• Seeds: Opposing the duty to
disclose information and fees
for reproduction of crops under
license
• Networking with associations
focused on environment and
development policy and agriculture
At EC level, the AbL cooperates with
farmer organisations from other EC
Member States in the framework of
the Coordination Paysanne Européenne (CPE), at international level
with the worldwide farmer movement
La Via Campesina.
The AbL has published the monthly
newsletter 'Unabhängige Bauernstimme' for 30 years. And since ten
years, the AbL publishing agency has
published the yearbook 'Der Kritische
Agrarbericht'.
AbL • Arbeitsgemeinschaft
bäuerliche Landwirtschaft e.V.
Bundesgeschäftsstelle
Bahnhofstraße 31
D-59065 Hamm/Westf., Germany
Since 1991, Germanwatch has promoted a social and ecological design
of globalisation. Our central goals
are:
socially
Through intensive dialogue with politicians and business people, public
and media relations and issue-related
campaigns, Germanwatch promotes
the readiness of the German population to accept the necessary structural changes.
Reorientation in economics and ecology is necessary in the North so that
people in the South can live under
humane conditions and all countries
of the world can develop in a socially
and ecologically sound way.
You can also help to achieve these
goals and become a member of
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