AID SYSTEM FOR FLAX AND HEMP
| (20717)12992/99COM(99) 576
| Draft Council Regulation amending Regulation (EC) No. 1251/99 establishing a support system for producers of certain arable crops to include flax and hemp grown for fibre.Draft Council Regulation on the common organisation of the market in flax and hemp grown for fibre.
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| Legal base: |
Articles 36 and 37 EC; consultation; qualified majority voting
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| Document originated:
| 10 November 1999 |
| Forwarded to the Council:
| 15 November 1999 |
| Deposited in Parliament:
| 29 November 1999 |
| Department: |
Agriculture, Fisheries and Food
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| Basis of consideration:
| EM of 14 December 1999
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| Previous Committee Report:
| None; but see (17015) 5215/96: HC 51-xiv (1995-96), paragraph 2 (27 March 1996)
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| To be discussed in Council:
| Following receipt of European Parliament Opinion
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| Committee's assessment:
| Politically important |
| Committee's decision:
| Not cleared; further information requested
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Background
2.1 Under the 1992 reforms of the Common
Agricultural Policy (CAP), direct area payments for producers
of the main arable crops (cereals, oilseeds and proteins) were
introduced under the Arable Area Payments Scheme (AAPS) to compensate
them for reductions in the Community support (intervention) price
for cereals. These payments were subject to certain conditions,
notably that they could only be made in respect of eligible land
(that is, land in arable production prior to 31 December 1991);
that the producer would have to set-aside a given proportion of
his eligible land; and that, if production in any defined region
were to exceed a pre-determined "base area", there would
be a proportional reduction in the payments in that region.
2.2 The AAPS was subsequently extended to
include linseed, but two other important arable crops —
flax and hemp — have remained outside the Scheme. As a result,
they enjoy higher aid rates than other crops: for example, the
cereals rate in England is currently 320.06 euro/hectare, whereas
for flax, it is either 708.98 euro/hectare where the crop has
been retted[20]
but not de-seeded, or 615.40 euro/hectare in other cases, and
for hemp, 662.88 euro/hectare. Equally to the point, neither flax
nor hemp is subject to the eligible land provisions or to the
base area restrictions which apply to other crops. One consequence
of this has been a significant increase in the areas planted to
these two crops, and hence in the budgetary expenditure on them,
and this led the Commission to put forward in 1996 a proposal
to amend the flax régime. This would have introduced a
Maximum Guaranteed Area (MGA) for all Community production, under
which there would have been a 1% cut in aid for each 1% by which
the MGA was exceeded. It would also have differentiated the level
of aid according to the harvesting method (see below).
The current proposal
2.3 Since its 1996 proposal was not adopted
by the Council, the Commission has now come forward with a fresh
set of proposals to tackle what it sees as the problems in the
flax and hemp sectors. It points out that the present support
arrangements, which date from 1970, were mainly introduced to
support a "traditional" activity in certain areas of
Belgium, France and the Netherlands centred around long fibre
flax, harvested by pulling, and for which the main outlet is the
textile industry. However, it goes on to suggest that, despite
a recent reduction in aid rates and the introduction of a number
of other conditions designed to halt the increase in area, the
relatively generous aid still in place has continued to encourage
a marked increase in the production of short-fibre flax, which
is harvested by cutting, and for which the main outlets are paper-making
and recyclable industrial products (such as chipboard).
2.4 As a result of this, the Commission
says that, whereas the Community used historically to have some
70,000 hectares under flax, almost 208,000 hectares had been sown
in the 1999-2000 marketing year. It also points out that this
increase has occurred principally in Spain, but also to a lesser
extent in the UK. Thus, the area in Spain has grown from 187 hectares
in 1993 to around 126,000 hectares in 1999, with a corresponding
increase in the UK from 2,181 hectares to around 15,000 hectares.
It adds that the Community budget assigned to flax and hemp has
also increased from 74 million euro in 1995 to 158 million euro
in 1999.
2.5 The Commission's subsequent analysis
is hard to follow. It points out that, whilst "traditional"
long fibre flax has high production and processing costs, the
revenue it produces is also high, whereas, in the case of short
fibre flax, lower production and processing costs are matched
by low revenue. It goes on to suggest that the gross margins for
flax and hemp, taking account of the aid, are comparable with
those for competitor crops, but that, for a similar gross margin,
their high production costs are close to the amount of fixed aid
per hectare. It concludes from this that, when sales prices for
the end products are low, producers can still make a considerable
profit and even increase their margins simply by restricting their
production costs to a bare minimum. It says that "fibre flax
or hemp are thus grown, in some cases, for the chief purpose of
receiving the Community aid".
2.6 However, taking this as its point of
departure, the Commission somehow manages to draw a distinction
between long and short fibre flax. In the former case, it suggests
that subsidy-driven production in this sector is rare; that a
large reduction in aid would endanger its survival; and that there
is little scope for further expansion of production for the textile
industry without a detrimental effect on quality and market price.
It concludes that this sector should continue to be supported.
By contrast, it suggests that none of the products from short
fibre flax and hemp should be encouraged in their own right by
the Community. It backs up this view by on the one hand asserting
that the "generous" aid given to fibre used for paper
pulp production (which it says would otherwise make "virtually
zero" profit) is an "open invitation", whilst arguing
on the other hand that the alternative industrial uses for such
fibre have the potential to become viable, even if the Community
aid is sharply reduced.
2.7 Against this background, the Commission
makes a number of detailed proposals to come into effect in July
2000, clearly aimed at reducing the incentive to produce short
fibre flax, without damaging the traditional producers, or those
"whose products are economically viable". These would
entail a single per hectare aid for producers of flax and hemp,
which would be reduced progressively to reach the level of that
for competing arable crops by 2002-03. More specifically, since
the aid payable for all other arable crops is to be adjusted as
a consequence of this year's Agenda 2000 reforms, this would imply
a rate for flax and hemp of around 371 euro per hectare in 2002,
representing reductions of between 40 and 48 per cent in those
rates currently applying. This step would be coupled with the
introduction of a straw processing aid. However, as this
would be intended "to ensure continued production for those
outlets judged to be worthy of support", the rate for "traditional"
long fibre flax would be fixed at 60 euro per tonne in 2000-01,
rising to 200 euro per tonne from 2005-06 onwards, whereas short
fibre flax and hemp would receive only 40 euro per tonne until
the end of 2004-05, and nothing thereafter.
2.8 At the same time, the Commission proposes
that, in addition to aligning aid rates with those for other arable
crops, flax and hemp should more generally be subject to the conditions
set out in the AAPS. In particular, this would involve set-aside
requirements, and their being brought within the eligible land
and base area arrangements. There would also be a system of Maximum
Guaranteed Quantities for the processing aid — one for long
flax fibre, and the other for short flax fibre and hemp —
which would be divided up between Member States, according to
average areas cultivated during the last five marketing years.
The UK quota would be confined to short fibre flax and hemp, and
would be 12,100 tonnes.
2.9 Other measures envisaged by the Commission
include the removal of the current provision for a promotional
deduction from the fibre flax aid; the abolition of private storage;
and the establishment of a licensing system for the import of
hemp into the Community. In all, it considers that the reform
proposals would reduce the costs of the regimes to 82 million
euro in the 2000-01 marketing year, and to 58 million euro by
the first full year of implementation in 2005-06.
The Government's view
2.10 In her Explanatory Memorandum of 14
December 1999, the Minister of State (Commons) at the Ministry
of Agriculture, Fisheries and Food (The Rt. Hon. Joyce Quin) says
that "on the face of it, the processing aid proposal discriminates
against producers of short fibre flax and hemp in favour of traditional
producers of long fibres for textile use". She adds that
the proposal also fails to take fully into account the environmental
benefits of growing renewable raw materials such as flax and hemp
fibre for which new markets are being developed, and whose development
the Government is seeking to encourage. On the other hand, she
considers that, subject to satisfactory arrangements being negotiated
on the processing aid, and in particular a closer alignment of
the rates of aid for long and short fibre flax, the incorporation
of fibre flax and hemp into the AAPS would be "broadly in
line" with UK policy of broadening the coverage of that Scheme.
So far as the impact on the UK industry is concerned, the Minister
says that the proposed introduction of the measures in 2000 could
create a problem for growers, who have already made their plans
for next season's growing, but that they (and processors) are
being consulted on the proposals, following which a Regulatory
Impact Assessment will be provided.
Conclusion
2.11 Since the Minister has promised
to produce a Regulatory Impact Assessment following consultation
with the industry, we will await receipt of that before taking
a view on these proposals. In the meantime, however, we have a
number of questions on which we would like further information
from the Minister.
2.12 First, whilst there is undoubtedly
a case for reducing the aid rates for flax and hemp to bring them
more into line with other arable crops, it seems clear that the
Commission has set out to curtail the increase in short fibre
flax production in Member States such as the UK, whilst protecting
"traditional" production in other regions of the Community.
However, we find its economic justification for drawing such a
distinction both impenetrable and unconvincing, and we would welcome
the Government's views on whether the Commission has in fact provided
any objective justification for its proposal. We would
also like to know what effect it considers the proposed UK processing
aid quota of 12,100 tonnes would have on the industry here.
2.13 Secondly, the Minister has said
that the incorporation of flax and hemp into the AAPS would be
broadly in line with UK policy. We can see the attractions of
this, but it strikes us that it could have unwelcome consequences.
For example, to the extent that the recent growth in flax production
in the UK has tended to be on ineligible land, this would presumably
be curtailed if aid for this crop were in future to be confined
(as it is for other AAPS crops) to eligible land. Likewise, if
flax and hemp production is somehow to be linked into the base
area system, there would appear to be a very real risk that this
would lead to overshoots of the sort which have already occurred
in England and areas of Scotland, and so reduce the aid payable
to all arable producers. The Minister's Explanatory Memorandum
is silent on these points, and we would like her to comment on
them.
20 Retting involves subjecting flax to the chemical
action of rainwater over a period of several weeks, so as to make
it easier to separate the fibre from the straw. Back
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