20. We consider that the
following raises questions of political importance. We make no
recommendation for its further consideration, but suggest it would
be relevant to a debate covering the Common Agricultural Policy
price proposals for 1997-98:-
MINISTRY OF AGRICULTURE, FISHERIES AND FOOD
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(17924)
6112/97
COM(97)59
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Draft Council Regulation determining measures and compensation relating to appreciable revaluations that affect farm incomes.
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Legal base:
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Articles 42 & 43; qualified majority voting.
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Background
20.1 The Common Agricultural
Policy (CAP) expresses agriculture support prices, levies, subsidies
and compensatory amounts in terms of the ECU. These prices and
payments are converted into national currencies using special
exchange rates known as green rates. In order to provide stability
for farmers' incomes on the one hand, and prevent trade distortions
on the other, there is a complicated system for setting the value
of green rates.
20.2 A major reform in
the calculation of green rates took place in 1995[52],
following the German Presidency, and had the effect of strengthening
the protection for strong currency Member States. In order to
reduce the cost of the new system, the Commission proposed further
changes.[53]
These provided that, where a Member State had an appreciable green
rate revaluation[54]
which would reduce the value of ECU payments in local currency,
the green rate which would apply to all direct payments[55]
would be frozen at the level prevailing before the revaluation
and would remain frozen until 1 January 1999. The change would
not affect "trading" payments, relating to import or
export duties and levies and intervention payments, which would
be calculated in the normal way when the margin within which currencies
fluctuate is exceeded.
20.3 The revised arrangements
also provided for the creation of a ceiling, calculated for each
Member State undergoing an appreciable revaluation, within which
aid could be paid to farmers to compensate them for income losses
arising as a direct result of the cuts in other CAP payments caused
by the revaluation. 50% of this ceiling could be paid from the
EAGGF[56],
and the Member States have the option to pay the remaining 50%
from national funds. The revised measures applied to all eight[57]
Member States undergoing "appreciable" revaluation in
1995 and 1996. The Commission is now proposing to introduce a
number of new elements to apply to appreciable revaluations occurring
during 1997.
The Commission proposal
20.4 The Commission considers
that the adoption of the euro will bring to an end the need for
special agri-monetary arrangements, but is concerned that the
transition from the present arrangement to a system of direct
payments in euros will require the elimination of gaps between
agriculture conversion rates and market rates. In its view, it
is therefore important that there should not be a large divergence
between frozen rates and adjusted rates. In its report on the
agri-monetary system which we considered on 29 January[58],
the Commission said it intended to make no major changes prior
to 1999, but would consult among the experts of the agri-monetary
management committee on the best way forward. The Commission
is, however, now bringing forward ad hoc measures to apply
during 1997.
20.5 The major affect
of the proposals would be to limit the rate at which the green
rate for direct payments is frozen so that it could not exceed
by more than 7% the green rate which would have applied had there
been no freeze. Losses to farmers could be offset by increasing
compensation for income lost. In place of the previous ceiling
per Member State for compensation of income loss, the proposal
would give the Commission responsibility for setting a precise
figure to the Commission through the agri-monetary management
committee. The method of calculating the aid would not change.
If entitlement to compensatory aid were calculated at less than
150 ECU (£112.23) per holding it would not be paid. If there
were further green rate changes during the six months after the
"appreciable" revaluation, there would be a automatic
review of the need for aid.
The Government's view
20.6 In an Explanatory
Memorandum dated 4 March 1997, the Minister of State at the Ministry
of Agriculture, Fisheries and Food (Mr Baldry) says that the Government
was opposed to the arrangements introduced in June 1995 but, once
introduced, it considered they should apply to all Member States
facing "appreciable" revaluations in order to ensure
equality of treatment between Member States. "Consistent
with that approach, the Government has pressed the Commission
to bring forward proposals to extend identical treatment to the
appreciable revaluation of the UK green rate on 21 January."
20.7 The Minister of
State considers that applying a limit on the green rate freeze
only to those occurring in 1997 is not logical. Re-alignment
would require an adjustment of 8.5%; a ceiling would reduce this
to 7% and would erode the guarantee of total protection from green
rate movements that hitherto applied. Member States which had
already benefited from locking in higher compensatory payments
would not be affected. It would therefore do nothing to eliminate
gaps between green rate and market rates at the start of the third
stage of Economic and Monetary Union, and would not reduce gaps
in excess of the 7% limit for Member States that had already frozen
their green rates. The eight countries which had revalued already
would not be affected and, at present, only the UK would be subject
to the limit. The Government considers that, if such new mechanisms
are introduced, they should impact equally across all Member States.
Conclusion
20.8 There is no doubt
that the arrangements relating to agri-monetary compensation need
a thorough overall. It is less clear how this can be achieved
given the unsoundness of the basic regulation which requires constant
derogations from it. We agree with the UK Government that, if
the Commission is to make changes in the way these derogations
operate, they should apply equally to all Member States affected
and not just to those that fall into the net in 1997. The proposal
is expected to go to the 17-19 March Agriculture Council and,
in view of the wide gap caused by the strength of sterling, action
will be needed to prevent further distortions. We clear the document
now before us, but consider it will be relevant to the annual
debate on the CAP price fixing for 1997-98.
52 (15271) 11061/94; see HC 70-i (1994-95), paragraph 8 (30 November 1994), and Official Report, European Standing Committee A, 14 December 1994. Back
53 (16126) 1527/95; see HC 70-xvii (1994-95), paragraph 10 (24 May 1995), and HC 70-xxiii (1994-95), paragraph 8 (12 July 1995). Back
54 An appreciable green rate revaluation is one which more than cancels out the effects of previous green rate devaluations. Back
55 Direct payments include arable area payments, livestock headage payments and structural or environmental payments. Back
56 European Agricultural Guidance and Guarantee Fund. Back
57 Belgium, The Netherlands, Austria, Germany, Denmark, Sweden, Finland and Ireland. Back
58 (17773) 12725/96; see HC 36-xi (1996-97), paragraph 18 (29 January 1997). Back
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