2 Common Agricultural Policy: reform of
the tobacco, olive oil, cotton and sugar sectors
| (24905)
12965/03
COM(03) 554
ADD 2
| Commission Communication: "Accomplishing a sustainable agricultural model for Europe through the reformed CAP — the tobacco, olive oil, cotton and sugar sectors."
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| Legal base | — |
| Document originated | 23 September 2003
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| Deposited in Parliament | 1 October 2003
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| Department | Environment, Food and Rural Affairs
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| Basis of consideration | EM of 14 October 2003
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| Previous Committee Report | None, but see footnotes
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| To be discussed in Council | No date set
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| Committee's assessment | Politically important
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| Committee's decision | Not cleared; further information requested
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Background
2.1 In June 2003, the Agriculture Council agreed the mid-term
reform of the Common Agricultural Policy (CAP) for the three main
"northern" sectors (beef, milk and arable crops), a
process which the Commission says effectively rounded off for
those commodities the move away from product to producer support
begun in 1992. At the same time, the Commission was invited to
submit in the autumn a Communication on the reform of three "Mediterranean"
commodities — tobacco, olive oil and cotton — based
on the same underlying approach of a single farm payment which
cuts the link between production and eligibility for subsidy.
The present document fulfils that request, and also sets out
a number of policy options for sugar, which is the one major area
of the CAP yet to be reformed.
The current document
Tobacco, olive oil and cotton
2.2 For each of these three "Mediterranean" commodities,
the Communication provides a background analysis accompanied by
specific proposals for reform.
2.3 In the case of tobacco, it notes that production
represents only 0.4% of Community agricultural output, but that
aid under the regime (in the form of premiums paid on production)
accounted for 2.3% of the budget of the Guarantee Section of the
European Agricultural Guidance and Guarantee Fund (EAGGF), despite
being subject to a quota. A small percentage of this producer
aid is diverted to a Tobacco Fund to finance a health campaign
and to help producers switch out of tobacco. The Communication
says that, in common with other areas of the world, production
within the Community has been declining in recent years, but remains
highly concentrated, with 70% of holdings being located in seven
regions, particularly in Greece and Italy, where the industry
also draws upon a significant labour force. The Commission observes
that restructuring problems are still acute in some areas, and
that any rapid run-down of the sector could cause major social
imbalances.
2.4 The Communication also draws attention to doubts
which have been expressed within the European Council about the
social justification for production-related payments to tobacco
producers, and the apparent contradiction between this and public
health concerns about tobacco consumption. Since public health
policies are among the priorities of the Community's sustainable
development strategy, the Commission notes that the long-term
viability of tobacco-growing as an economic activity has been
questioned, coupled with an awareness that alternative sources
of income would be needed to avoid social breakdown in rural areas
with a high dependency on this crop.
2.5 The Communication describes the olive oil sector
as a key element in the Community model of agriculture, accounting
for 4% of the utilisable agricultural land, of which just under
half was in Spain, about one quarter in Italy, and just under
one-fifth in Greece. The sector involves about 2.5 million producers,
equivalent to roughly one third of all Community farmers, and
is thus an important source of employment and economic activity
in the main producer areas, particularly in the winter. The Commission
observes that the Community dominates world production, but that
the harvest is noted for its fluctuations, and that consumption
has tended to be high only in producer countries (though its healthy
image has latterly led to an increased demand). The regime accounts
for 5% of the CAP budget, with support being provided in the form
of a production aid capped by national quotas.
2.6 The Communication says that, although cotton
is of limited significance in the Community as a whole in that
it contributes less than 0.5% to final agricultural output, it
is of particular importance to Greece, which accounts for nearly
80% of total Community production (and in which cotton accounts
for 9% of final agricultural output). It notes that holdings are
characterised both by their large number and small size, and by
their high degree of specialisation and intensification, which
in turn has resulted in low biodiversity and soil impoverishment.
Support under the regime, which dates from Greek accession in
1981, accounts for about 2% of the CAP budget, and takes the form
of a production-linked, crop-specific aid, paid through processors,
and capped by national quotas.
2.7 In considering its reform proposals for all three
sectors, the Commission says that it has taken into account both
the similarities between their structural and production characteristics
and the specific features of each. It also believes that, based
on the objectives of the mid-term review, the reforms should establish
a long-term policy perspective which is in line with the budgetary
provision for the sectors in question; promote enhanced competitiveness
and market orientation, and improved respect for the environment;
give priority to producer income, as opposed to producer support,
through the transfer of a significant part of the current production-linked
direct payments to the single farm payment scheme as from 1 January
2005; and make such payments subject to recipients respecting
Community environmental and food safety standards ("cross
compliance").
2.8 It notes that direct payments linked to the level
of production already exist in the three sectors, and says that
the translation of these into a single farm payment scheme would
not present any major difficulties. However, in view of the concentration
of such input-intensive production in economically undeveloped
regions, the Commission says that it has paid attention to the
potential impact of decoupling and the attendant risk of production
being abandoned.
2.9 More specifically, it proposes:
- for tobacco, a decoupling
in stages over three years, at the end of which most of the aid
would have been transferred to the single farm payment, with the
balance devoted to setting up a financial envelope within the
second pillar of the CAP for restructuring tobacco-producing areas;
- in the case of olive oil, the existing
production-linked payments would also be converted into the single
payment, except that the Commission considers that complete conversion
could cause problems for certain regions and for low-output olive
groves: it therefore proposes that, for holdings larger than 0.3
hectares, 60% of the existing payments should be converted, but
that Member States should retain the remaining 40% in order to
grant producers an additional olive grove payment, calculated
on a per hectare or per tree basis, and intended to maintain the
trees, thus preserving the local landscape, and meeting environmental,
social and cultural concerns; and
- similarly, the Commission proposes that 60% of
aid to cotton producers should be transferred to the single
payment, with the remaining 40% being retained by Member States
as a new per hectare payment, subject to an upper limit on the
area receiving aid.
SUGAR
2.10 When the Council last considered the sugar
regime in 2001,[4] it decided
to extend the present arrangements until 30 June 2006, with only
minor modifications. At the same time, the Commission was asked
to carry out an extensive study of the sugar market, and to submit
a report, together with any appropriate proposals. However, it
says that it has chosen in this document to adopt a two-stage
approach, the aim being to provide the opportunity for a political
debate, before proceeding to formal proposals.
2.11 Since the regime has yet to be reformed, it
still contains the same essential features as at the time of its
introduction in 1968. These were set out at some length in our
Report of 29 November 2000, and comprise in particular a system
of internal price guarantees and production quotas, together with
the payment of export subsidies (financed by levies on producers)
and import duties, designed to take account of the fact that prices
within the Community have tended to be between two and three times
those on world markets. However, fixed quantities of traditional
supplies from the African, Caribbean and Pacific (ACP) countries
— mainly for the UK market — enter at preferential
rates, and the cane producers concerned receive the same price
as Community beet growers. The regime thus endeavours to cover
the interests of both beet and cane producers and refiners.
2.12 The market situation is also similar to that
reported in 2001, with sugar beet accounting for about 1.4% of
agricultural land within the Community, and annual production
varying between 15 and 18 million tonnes, as against an annual
consumption of around 12-13 million tonnes. Consequently, the
Community is a net exporter, even before it meets its existing
import commitments to the ACP countries, let alone those it has
now made to the least developed countries (LLDCs) under the Everything
But Arms (EBA) Agreement.
2.13 In commenting on current policy, the Commission
suggests that it has offered a number of advantages over the years,
including the assured availability of a stable and high quality
supply of sugar, and stability at relatively high prices for producers
both within the Community and in the ACP countries. However, it
also acknowledges that the policy has come under growing pressure,
and that its inherent disadvantages have become increasingly apparent.
These include the encouragement of substantial quantities of
sugar at non-competitive prices, which are surplus to domestic
requirements, and which must therefore be disposed of on the international
market, thus hindering the growth of primary industry in some
developing countries; the imposition of higher costs on processors
and consumers; and market partitioning, resulting from the system
of national quotas.
2.14 The Commission also comments that further pressures
for reform now include the extent to which the arrangements in
this sector are out of line with the reforms agreed for other
commodities; the commitments made by the Community under the EBA
Agreement, which it says could lead to substantial market imbalance
and a decline in the industry in many parts of the Community;
and the pressure for reform arising from the World Trade Organisation
(WTO) negotiations. As a result, it concludes that the balance
previously struck between the various interests must now be reconsidered,
and a new and sustainable policy agreed. It has accordingly put
forward three options — an extension of the present regime
beyond 2006, a reduction in the internal Community price, and
complete liberalisation.
The Government's view
2.15 In his Explanatory Memorandum of 14 October
2003, the Parliamentary Under-Secretary of State (Farming, Foods
and Sustainable Energy) at the Department for Environment, Food
and Rural Affairs (Lord Whitty) says that, since the UK does not
produce olive oil or cotton, the Government's interest in these
areas is principally budgetary and trade related, and that it
broadly welcomes the proposals as aligning these two sectors with
the reforms agreed for the "northern" regimes, though
in each case it would prefer to see full decoupling. In the case
of tobacco, he says that the Government has long found it perverse
that the Community should subsidise a product which damages health,
and that, although it would like to see even faster progress,
it welcomes the proposal to move to full decoupling, which would
end the specific subsidisation of this product.
2.16 The UK's interest in the sugar regime is of
course substantial, and the Minister points out that successive
UK Governments have pressed for reform, but have found little
support from other Member States. However, he also says that
one major influence now is the EBA Agreement, which will "allow
unlimited quantities of sugar into the [Community], duty-free,
from 2009".
2.17 On the three options put forward by the Commission,
the Minister says that extension of the present regime beyond
2006 would mean maintaining the present price and quota structure,
against a background of EBA imports which "would inevitably
lead to quota cuts for [Community] beet growers and EU cane refiners";
that a reduction in the Community price, whilst leaving the
main instruments of the regime intact, would bring prices down
to world levels, mean the phasing out of production quotas, and
enable Commission sugar producers to benefit from the single farm
payment; and that complete liberalisation would involve the dismantling
of the present support system, and pave the way for income support
for Community producers.
2.18 More generally, the Minister says that the Government
welcomes the Commission's paper, and is keen to see early progress,
since it believes that the current regime is highly distorting
and unsustainable, particularly in the light of the EBA Agreement,
and encourages anti-competitive behaviour, resulting in high prices
for consumers. He adds that the Government welcomed the CAP reforms
agreed earlier in the year, and would like the sugar sector to
evolve in a similar way, through fundamental, but managed, reform,
leading to a market-driven, simplified and deregulated approach,
though he also says that no sector of the UK industry should
suffer unfairly as a result of reform, and that account must also
be taken of the needs of traditional ACP suppliers, who may not
be able to compete in a reformed Community sugar market with lower
prices.
Conclusion
2.19 As has frequently been noted, the Community's
current financial support for tobacco production has long been
incompatible with its many efforts to curb smoking, and we therefore
share the Minister's welcome for the proposal that this aid should
be decoupled from production. Likewise, the partial decoupling
of aid for olive oil and cotton is a step in the right direction.
2.20 The position on sugar is, however, rather
different. On the one hand, there are substantial (and direct)
UK interests involved, whilst, on the other, the Commission has
at this stage sought simply to present a range of options, with
the intention of producing a more specific proposal in due course.
On that basis, there is a case for clearing the document and
returning to the subject when the formal proposals are available.
2.21 Nevertheless, before we feel able to take
a view on this, we would be grateful if the Minister could clarify
the position over the impact of the Everything But Arms (EBA)
Agreement, where he has highlighted the major impact this could
have on the Community market. This appraisal does however appear
to be markedly different from that given to our predecessors by
the Government when the EBA Agreement was being negotiated.[5]
For example, they recorded in their Report of 10 January 2001
that the then Secretary of State for International Development
had written to the Chairman of the International Development Committee
about the original Commission proposal saying that "it is
impossible to believe" that the least developed countries
would be capable of putting in place the type of "heroic
logistical operations" necessary to achieve the level of
import surge predicted by some in the UK sugar industry. This
view was endorsed in the oral evidence given by the then Minister
for Trade on 20 December 2000, when he said that, in the light
of experience in other sectors, the Government considered that
it would take a "long time" for the least-developed
countries to increase their current export level of 250,000-300,000
tonnes of sugar. Our predecessors subsequently recorded in their
Report of 28 February 2001 comments by the Minister on a text
produced by the Swedish Presidency (which was subsequently adopted,
with some minor amendments). He said that this text would ensure
that the quantities of sensitive products, such as sugar, were
capped at low levels, thus "satisfying those who believed
that the Community market would be flooded with cheap imports".
He also said that the budgetary consequences of the Agreement
for sugar would be zero.
2.22 On the face of it, there appears to be a
marked contrast between the views taken by the Government in 2001
on the impact of the EBA proposal, and those contained in the
Minister's current Explanatory Memorandum. We would therefore
welcome his comments on this. In the meantime, we are holding
this document under scrutiny.
4 (21743) 12087/00; see HC 23-xxxi (1999-2000), paragraph
10 (29 November 2000), HC 93 (2000-01), oral evidence taken by
the European Scrutiny Committee on 20 December 2000, HC 28-ii
(2000-01), paragraph 4 (10 January 2001) and HC 28-ix (2000-01),
paragraph 9 (21 March 2001). Back
5
(21715) 12335/00; see HC 23-xxxi (1999-2000), paragraph 10 (29
November 2000), HC 28-ii (2000-01), paragraph 3 (10 January 2001)
and HC 28-vii (2000-01), paragraph 2 (28 February 2001). Back
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