APPENDIX 27
Memorandum submitted by the Farmers' Union
of Wales (A37)
INTRODUCTION
1. Since its creation, the Common Agricultural
Policy has been continuously adapted and reformed in order to
meet changing circumstances. The principles of the CAP were decided
in the Treaty of Rome which established the European Community
in 1957.
2. The central objectives prescribed for
the agricultural policy under Article 39 of the Treaty of Rome
are to ensure a fair standard of living for the agricultural community,
stabilise markets, ensure reasonable prices to consumers, take
account of the social structure of agriculture and of the structural
and natural disparities between the various agricultural regions
(The evolution of the CAP is shown at Annex 1).
3. The CAP was created at a time when Europe
was in deficit for most food products. The strategy devised was
aimed at redressing this situation, and mechanisms were implemented
to support internal market prices and incomes, either through
intervention, border protection, or through deficiency payments.
4. During the 1970s and 1980s, the prices
and guarantees provided through intervention and production aids
stimulated output at a rate beyond which the market could absorb
production which resulted in the build-up of costly stocks. It
led also to the EU having to dispose of surpluses onto the world
market, with heavy export restitution payments.
5. Income support depended almost exclusively
on price guarantees and the level of support was largely proportional
to the volume of production so that the larger and most intensive
farms tended to be the major beneficiaries of support, with, in
the FUW's view, insufficient attention being paid to those with
the greatest need within the agricultural industry.
6. By the late 1980s, the cost of the unreformed
CAP was placing a major burden upon the budget without having
a commensurate benefit in terms of protecting the interests of
farmers. An analysis of Commission statistics for FEOGA Guarantee
spending in 1990 indicated that less than 6.4 billion ECU of the
total 26.527 billion ECU actually spent was paid directly to producers,
the bulk of the budget—some 76% of the total—being
paid to down-stream intervention operators or on export refunds.
7. Against this backdrop, the FUW recognised
that the status quo was not tenable and that reform of EU agricultural
policy in 1992 was inevitable. It was for this reason that the
MacSharry proposals were perceived by the FUW as a basis for fundamental
reform, and it favoured the principle of support price reductions
coupled with reasonable compensation modulated in favour of smaller
and more extensive producers, supplemented by supply control measures.
Whilst the general principles of the package were retained, the
final outcome reflected the various pressures on the Commission
for compromise. The Agenda 2000 agreement has virtually eliminated
market support in the beef and cereals sector and has enhanced
the IACS based payments introduced in 1993.
IMPORTANCE OF
AGRICULTURE TO
WALES
8. Agriculture is regarded by the FUW as
a core activity in rural areas with one in five jobs dependent
on the sector. A viable agricultural industry is, in the Union's
view, critical to the survival of Wales' rural areas and to the
maintenance of the countryside. A further deterioration in the
agricultural industry will exacerbate adverse socio-economic,
environmental and cultural consequences. Support for the industry
should be multi-functional.
9. 80 per cent of the land area of Wales
is designated by the EU as less favoured and the range of primary
products is small based largely on milk, beef and sheep production,
and the scope for diversification in these areas to other products
is limited. Whilst the FUW recognises the decline of this traditional
industry, it considers that a combination of measures to limit
this deterioration, in tandem with a rural development programme
aimed at creating both on-farm and off-farm employment opportunities
compatible with other rural activities, will be essential if the
fortunes of Wales' rural areas are to be reversed.
10. The FUW does not, however, accept that
the agricultural industry should be perceived as an industry destined
to decay and contract but that, increasingly, market orientated
policies should enable it to take advantage of the increasing
prosperity of Third Countries and the increasing demand that will
emanate therefrom.
11. Whilst there is an understandable reluctance
on the part of tax-payers to under-pin market price support, the
FUW considers that decoupled support in the form of socio-economic
support and support for environmental goods will be essential
if the environment is to be maintained and if the well-established
linkages with ancillary industries dependent on a viable agriculture
are to be retained. The multiplier effect of agriculture on the
rural economy is approximately 150 per cent. In the future, however,
the FUW considers that there has to be reorientation of support—this
should not be used as an avenue to reduce support—with it
better targeted at the most vulnerable. The general objective
should be to maximise the number of viable agricultural units,
and to inhibit the polarisation of farms into very small and large
amalgamated units, thus retaining the pattern of the Welsh countryside.
12. Supply and processing industries can
only exist if farming continues. The recent foot and mouth crisis
has also highlighted the dependence of tourism and recreational
activities on a vibrant agricultural sector. Agriculture has a
major multiplier effect since income generated by both farmers
and ancillary industries is spent in the rural economy on goods
and services provided locally.
13. Provided agricultural resources are
effectively targeted and deployed, the FUW continues to believe
that they can be an effective measure in combination with other
methods of under-pinning rural communities.
14. Regional development programmes have
an important role in sustaining the rural population, but as we
have already emphasised, agriculture has to remain an integral
part of this strategy.
15. The demise of Welsh agriculture would
see not only the loss of agricultural employment but also the
loss of potential employment opportunities both down and upstream
of primary agricultural production. The FUW is committed to the
creation of additional job opportunities consistent and conducive
to rural areas created off the back of a viable agricultural industry
and not the replacement of jobs lost to an agricultural industry
left to decline. In this regard the FUW is concerned that, in
the absence of other income-generating activity, the emphasis
should not shift away from decoupled support expenditure which
could further prejudice agricultural incomes.
16. The FUW recognises the increased priority
being accorded to environmental objectives. The rural environment
of Wales has been largely created and maintained by farmers, and
it is the output of good farming practice of which people and
livestock are essential management tools. Unless livestock production
is profitable and incomes are reasonable, then the rural environment
will be prejudiced.
17. Statistics show that the number of agricultural
holdings in Wales is in long-term decline. Although this decline
has stabilised in recent years, this masks a shift, at the one
end of the size distribution, towards larger farms, and at the
other end, towards smaller, part-time farms. Since 1980 the number
of holdings of less than 10 hectares has grown by over 40 per
cent and the number of holdings greater than 100 hectares has
grown by nearly 60 per cent. During the same time period the number
of holdings between 10 and 50 hectares has fallen by 30 per cent.
18. The EU Commission has acknowledged the
need to reflect on how certain aspects of CAP policy management
might be better shared within Member States. This recognition
stems from an awareness that production systems vary widely both
within and across Member States, a trend which may accelerate
in the event of EU expansion. The FUW firmly believes that any
national discretion should be devolved to regional administrations
in order to ensure that the evolving CAP framework better reflects
the particular circumstances which exist in the different regions
of the UK.
19. The FUW is concerned that there has
been a persistent failure domestically to assist young farmers
in meeting the establishment costs associated with obtaining a
foothold in the agricultural industry. This contrasts sharply
with the position in other EU Member States. Clearly this distorts
competition and places young farmers in the UK, who are the life-blood
of rural communities, at a significant disadvantage when compared
to their counterparts in other Member States. Installation/investment
aids or subsidised interest rates have been a common feature of
support for young entrants on the Continent and, given the traditional
low return on capital invested in agriculture, have provided meaningful
and tangible support at a time when young farmers can face a substantial
burden of establishment costs.
20. The appreciation of sterling and the
failure of successive Governments to provide agri-monetary compensation,
to which Welsh and other UK farmers have been fully entitled,
has left the industry contending with support prices down by as
much as a fifth and with adverse trading conditions in both import
and export terms. During the past 10 years, farmers have also
been forced to contend with an increasing burden of paperwork
and controls which are not always applied with the same vigour
in other EU Member States.
21. Whilst household expenditure on food
is increasing, the gross output of agriculture in proportion to
the expenditure on food by households continues to decline. This
phenomenon is clearly shown by retail price spreads which illustrate
the declining share of consumer expenditure on food which returns
to the primary producer (Annex 2). Of those foods which can be
produced in the UK, 70 per cent of the raw materials are supplied
by UK agriculture. This compares to the period before the Second
World War when over 70 per cent of such food was imported.
RURAL DEVELOPMENT
22. The 1998 reform of the structural funds
was the beginning of a more integrated approach to regional development,
a policy move which had significant consequences for the EU's
rural communities. Assistance to priority regions was channelled
through national or regional programmes agreed between the Member
States and the Commission. Rural development measures were integrated
into these programmes. In 1993 the special needs of rural areas
received further recognition in the Treaty of Maastricht which
stipulated that, "the community shall aim at reducing disparities
between the levels of development of the various regions and the
backwardness of the less favoured regions, including rural areas".
23. Rural areas make up some 80 per cent
of the EU's total land area and are a home to a quarter of its
population. The Agenda 2000 reforms brought about a major re-think
in the way rural development programming was organised at a community
level. EU funding is now available for rural development programmes
everywhere in the community, instead of being only available in
designated regions, as in the past. A second new feature of the
rural development programme is that all Member States must now
operate agri-environmental schemes.
24. The EU's contribution to Rural Development
in individual Member States was based on historical take-up of
the rural development budget (Annex 3). The UK Government's unwillingness
to take advantage of these measures has cost the industry dearly
as the UK share of the EAGGF/guarantee section is a mere
154 million or 3.5 per cent of the total budget.
This compares with
315 million in Ireland (7.3 per cent of the budget)
and
760 million in France (17.5 per cent of the budget).
By way of contrast, the UK generates 8.7 per cent of the EU's
final agricultural production (1999 figures) as compared to a
figure of only 2 per cent in Ireland. The FUW believes that this
allocation should be the subject of urgent review and EU funding
should be distributed more equitably between Member States.
25. The lack of available funding has resulted
in modulation being applied across the board on CAP support scheme
monies paid to UK farmers. This money is match-funded by the Treasury.
However, the European regulation states that modulation should
only be applied if:-
— The labour force on holdings falls
short of limits set by Member States.
— The overall prosperity of holdings
rises above the limits set by Member States—expressed as
standard gross margin corresponding to the average.
— The total amount of payments under
support schemes exceeds limits set by Member States.
26. These criteria suggest that the blanket
reduction in subsidy payments is contrary to the spirit of the
EU's policy of allowing Member States to stabilise the employment
situation and overall prosperity of holdings.
27. The FUW is particularly concerned that
whilst the "top slicing" of subsidy payments may generate
substantial levels of funding for accompanying measures in areas
where the farms are larger and less subsidy dependent, the situation
in Wales is one in which modulation has a significant impact on
farm income. Welsh agriculture is, by its geography, climate and
topography, subsidy dependent and thus in LFA areas every 1 per
cent reduction in direct farm subsidy reduces net farm income
by 1.5 per cent.
WTO
28. The FUW supports the National Assembly
Government's position on further World Trade agreements and the
need for international trading systems to have proper standards
and effective labelling systems based on minimum standards of
animal welfare and environmental practice. The FUW also believes
that rules designed to prevent imports of meat which may be a
risk to human or animal health should be strictly enforced and
tightened.
29. The World market for food continues
to grow as more countries pass through the early stages of industrialisation.
This generates a tendency for larger quantities of meat products
to be included in diets which had previously been predominantly
vegetarian. The populations of those countries which are now moving
through the early stages of industrialisation are much larger
than already affluent countries. Given this scenario, a significant
increase in the overall growth of world demand for food is likely.
30. Climatic change is also likely to have
an impact on future food production. Over-dependence on imported
food exposes the country to the threat of uncertain food supply
given the potential damaging consequences of the global warming
phenomenon. Furthermore, this factor, combined with policies imposed
on farmers to reduce the impact of farming on the environment
and concerns that existing technologies may not be able to sustain
yield in some developing countries, all point towards less secure
food supplies.
31. The EU is the world's leading importer
of agricultural products and is the second leading exporter after
the United States, with two-way trade in agricultural products
exceeding
100 billion per year, or close to 7 per cent of total
trade flows.
32. The conclusions of the 1986-94 Uruguay
round provided for further talks on agricultural trade liberalisation
to start in the year 2000. During the course of 2000, WTO members
submitted their negotiating positions, and the EU position was
agreed by the General Affairs Council meeting in December 2000.
33. As far as domestic support is concerned,
the EU position has been that rules on domestic support should
facilitate a continuous process of reform. The FUW believes that
the impact on trade of the so-called blue and green box measures
has proved to be less trade distorting than market price support
and payments based on output or on variable input use.
34. The FUW believes that the role of agriculture
as a provider of public goods should be recognised. In this context,
the multi-functional role of agriculture, which includes its contribution
to sustainable development, the protection of the environment,
the sustained vitality of rural areas, and poverty alleviation,
need to be taken into full account. The FUW would also support
the EU proposal that specific measures, such as the use of the
precautionary principle in circumstances where there are concerns
about food safety and the need to ensure that trade liberalisation
does not undermine efforts to improve the protection of the welfare
of animals, are also integral to the next WTO agreement.
ENLARGEMENT
35. EU enlargement is cited by many commentators
as a major stimulus for a reform of the CAP. However, at a recent
debate hosted by the Centre for European Reform (CER), the EU
Agriculture Commissioner, Franz Fischler, stated that enlargement
could be accommodated within the agreed EU budget.
36. The EU Commission maintains that the
accession of up to 10 new members in 2004 could be achieved without
changing the financial framework agreed at the Berlin Summit.
The 10 candidate countries preparing to join the European Union
would bring with them a potential 100 million new consumers. Should
all 10 accession candidate countries join, the agricultural workforce
would increase by around 55 per cent and agricultural land by
some 25 per cent.
37. The economies of the accession candidate
countries are characterised by greater dependence on agriculture
than is the average for the EU. Farming accounts for some 2.4
per cent of EU GNP and employs 5.3 per cent of the Union's active
population, whereas the equivalent figures in the central and
eastern European countries are 9 per cent and 22.5 per cent respectively.
CONCLUSION
38. Commissioner Franz Fischler has publicly
confirmed that next year's mid-term review of the seven-year reforms
agreed in 1999 is not intended to result in the wholesale overhaul
of the CAP. In a recent presentation to the European Parliament,
Commissioner Fischler confirmed that the reviews will focus on
sectors most immediately prone to problems, namely beef and rye.
The focus on the beef sector has stemmed from the increasing surpluses
as a result of the BSE crisis which will result in intervention
stocks climbing to around 350,000 tonnes by the end of 2001, and
a predicted 560,000 tonnes surplus by the end of 2002.
39. The FUW is of the view that supply controls
in the form of quotas are a more sensible means of combating production
than free market forces. Were milk quotas to be removed, there
would be a swift and substantial rise in the volume of production
which would not only add to the EU's surplus but would also drive
market realisations down to unreasonable levels. The typical family
dairy farm in Wales would, in the Union's view, be particularly
vulnerable, especially now that the market has been deregulated.
In the absence of milk quota, dairy companies would seek to source
increasingly from milk suppliers proximate to creameries and markets,
leaving those milk producers remote and distant from the market-place
without an outlet for their production.
40. The FUW believes that if subsidies are
going to be further decoupled from production levels in the year
2006, then the revised framework must have regard to historic
production. The switch from headage-based to area-based support
in the LFAs (HLCAs to Tir Mynydd Scheme) has had a major impact
on the economic viability of many traditional family units. Were
this switch to occur with mainstream CAP support, then the consequences
for the more intensively stocked family farms would be devastating.
41. The FUW considers that future CAP reforms
must seek to secure the maximum number of viable family farms,
with a view to safeguarding not just the agricultural industry
but also downstream ancillary and upstream value-added activities
that have implications for the wider rural community and rural
infrastructure which will enable European agriculture to fulfil
multi-functional production, socio-economic, environmental and
cultural roles.
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