Examination of Witness (Questions 20-39)
10 MARCH 2004
MR IZTOK
JARC
Q20 Chairman: You mentioned in your presentation
that the predominant activity, the main activity, for Slovenian
agriculture was livestock. You also said that you were a net food
importer. Given the arrival of the Common Agricultural Policy,
could you tell us in a little more detail how you see your farmers—given
the fact that they have had a long transition period to understand
what is coming? How will they react? Do you have a strategy for
agriculture that says, "We would like to produce more of
our own food, and this is what we think will happen", or
do you see opportunities to develop new export markets beyond
those areas to which you are currently selling in the rest of
the European Union? How do you think people will respond to these
new market signals?
Mr Jarc: I assume that, first
of all, our agri-food industry would be able to compete in the
expanded, bigger internal market. Our agri-food industry was established
after the war, to supply the tourist industry on the coast of
Dalmatia, Istria and so on. So it was designed for a country of
20 million people. At the moment, they do not have enough of a
market. As you know, it is very difficult to find any free trade
even in the agri-food industry, in Europe or in the world. So
I believe that they have good products; they have trade marks;
and they have the strategy to get new markets—market niches,
especially in the neighbouring countries of Slovenia like the
north of Italy, Austria, parts of Germany, and so on—for
the agri-food products. That is, processed agri-food products.
Concerning the primary production—livestock and so on, as
you mentioned—we are talking about 50% of our production
here. As I said, we are expecting, especially regarding milk,
that the producer will be faced with pressure to decrease the
prices for, let us say, up to five or even 10%. This would of
course have a negative impact on the economic, social, and also
the political situation in that regard. However, I also believe
that, after a few months, the situation would normalise. I think
that the industry would find a new market and that the situation
would get better. The main problem we expect after 1 May is that
the dairy industry would probably lose a part of the Croatian
and Bosnian market. Why? Because, at the moment, we have preferential
agreements with those countries. For most of agriculture we have
tariff quotas which are a few times higher than the European Union
quotas with these countries. For example, in milk our quota for
export to Croatia is more than 12,000 tonnes of fresh milk. The
whole EU-15 quota at present is 3,000 tonnes. As you know, there
is a special European Union policy towards these countries, and
these countries would have a more or less unlimited approach to
our market—which is the closest market—and we would
have different terms of trade. This will be one of the problems
we will face in the future.
Q21 Chairman: So you could see the total
volume of activity, certainly from the farm sector, declining?
Mr Jarc: In livestock, yes, perhaps.
You ask what is our strategy. For example, farm tourism has significantly
increased in Slovenia. Starting from almost nothing 10 years ago,
we now have up to 2,000 farms working in the sector of farm tourism.
It is also worth mentioning that, at the moment, we have about
60,000 farmers applying for different subventions, but only one-third
of them are farmers getting their main income from farming. Two-thirds
of them have additional incomes. They work in the industry, the
service sector, and so on.
Chairman: I thought that you were about
to produce some brochures to circulate to the Committee, to whet
our appetite to come and try the agri-tourism!
Q22 Paddy Tipping: For some time now
you have been going through a process of adjustment in preparation
for accession. I wonder how an average, small farmer sees the
situation. Are they happy with the way forward? Secondly, when
accession actually starts, in terms of the average payment coming
to a farmer—will it go up or down? Will they be better or
worse off?
Mr Jarc: We say in Slovenia, and
I think it is true for the whole of Europe, that farmers are never
satisfied. That is also the case for Slovenia, and of course they
are not happy. They are afraid of the changes that are coming,
but I would say that they are well informed about those changes.
Also, as I said, we have been implementing a similar policy for
the last few years, and so the main policy measures will not change
a lot for them. Regarding the average payments for farming coming
from public funds, I must admit that here they will be two to
three times higher than in the year 2004, especially because of
the very rich Second Pillar programme—the programme of agri-environmental
measures—and the less favoured area payments. Here we expect
the payments to be two to three times higher.
Q23 Paddy Tipping: Your farmers sound
like typical British farmers: they complain about everything.
We say that in stronger terms! The way that you are supporting
them is changing, however, in that the payments are transitional
payments and are more Pillar 2 agri-environment payments than
direct subsidies.
Mr Jarc: Yes.
Q24 Paddy Tipping: You showed some slides
[11-13] about the method of payment that you were going to use.
Could you explain that a bit more? The notion of moving away from
historic payments, regional payments, to a single payment. What
will be the effect of that?
Mr Jarc: As I said, at the moment
we implement the so-called standard scheme. So we pay as you pay,
for different beef premiums, nine of them, and sheep and goats,
and crops, payment per hectare, and so on. If we had known before
that, for the new Member States, only the so-called regional payment
per hectare would be available, then probably two years ago or
so, when we were negotiating, we would also have asked for the
possibility to implement the simplified scheme—payment per
hectare. Because, according to our calculations, what will now
happen is that we will face some problems concerning the redistribution
of income. We know that farmers—let us say the most intensive
cattle farmers, beef farmers—will lose some income. In Slovenia
such a farm would be able to go up to, let us say, 1,000 euros
per hectare. Now we have calculated that, if we spread the funds
we have to all the hectares which are eligible in Slovenia, the
average payments would be approximately up to 300 euros per hectare.
The historic element you mention—some Member States call
it the Fischler element—should also be taken into account
in Slovenia. Whether finally we will have equal payment for all
eligible land, or whether there will be some differences, I do
not know at the moment. However, my opinion is that if we are
really going for this multifunctional approach in agriculture,
it would be better to have equal payments for all eligible land.
This would also mean less intensive and probably more quality-oriented
production.
Q25 Mr Mitchell: It is logical to assume
that production will go up where payments, whether it is subsidy
or price, to farmers increase and will go down where they decrease.
Which sectors will increase and which sectors will go down?
Mr Jarc: In production?
Q26 Mr Mitchell: The prices leading to
an increase in production.
Mr Jarc: In general, I would say
that the sectors where, due to different reasons, prices are higher
at the moment, are especially milk, beef to a certain extent,
poultry meat, eggs, wheat, and wine, which is also an important
product in Slovenia, whilst we also have some products where the
prices are lower or close to the level of those in the European
Union—sheep and goats, and so on. What we expect in the
future is that, in those sectors where prices are higher than
in the EU or where the tariff protection was high, there will
be a decrease of prices, and of course some problems. Those sectors
would be milk, the dairy sector, probably wine, and pork. Those
would probably be the three main sectors where one would expect
problems—especially milk, which is also extremely important
for us politically, and wine. That would be the estimation.
Q27 Mr Mitchell: You are already in trade
deficit in agricultural products.
Mr Jarc: Yes.
Q28 Mr Mitchell: And it is growing. You
will face increased competition from more imports; you said that
there will also be more exports, to compensate. Do you expect
the deficit to get worse or better?
Mr Jarc: The question of deficit—
Q29 Mr Mitchell: In agricultural products.
Mr Jarc: Yes. It was never raised
in this respect—that one would have a mission or goal to
decrease this deficit. On the other hand, this deficit is covered
by tourists coming in, the service industry, and so on—also
in the field of agriculture. So I would say that I would expect,
say, in the first say two or three years, major challenges, major
problems in this sector; and also because the industry is still
fragmented. In some sub-sectors there are already concentrations
taking place; market niches have been found in western Europe,
and so on; but not in most of them. So I expect that, in the next
two or three years, we will have problems. As I said before, however,
our industry has good-quality products. It is also important to
note that we have not closed even one establishment because of
problems with standards of food safety. That means that the industry
in general is at a good technological level. They will have some
problems of restructuring and so on, and there could be a problem
with some unemployment, but generally, in two or three years,
I am sure that they will be able to restructure themselves, as
other parts of industry have already done, five or ten years ago.
Q30 Mr Mitchell: Three years of uncertainty,
but are you relaxed about the balance of payments essentially?
Mr Jarc: Yes.
Q31 Mr Mitchell: What about the external
trade, outside the European Union itself? You will have the Common
External Tariff, but what will the effect of that be? Do you export
outside the EU on any scale?
Mr Jarc: At the moment, we export
something like 66% of agro-food products to the countries of the
former Yugoslavia, 12% to the countries of CEFTA[3],
and others to the European Union. If you take into account that
most of the CEFTA countries are coming into the European Union,
it means that 30% and even more of our agro-food trade will be
in the frame of the EU-25. The most important countries, where
we ask for your understanding to adapt the agreement and to make
a new one, are the countries of the former Yugoslavia. As you
know, at the moment there are only two agreements—with the
Republic of Macedonia and Croatia. There is nothing with Bosnia
Herzegovina and Serbia Montenegro. We would be interested in establishing
institutionalised trade agreements also with these countries.
Otherwise, Slovenia is too small to be a major player in international
trade in agriculture. I would say therefore that our markets are
close, in the region. We are oriented towards regional trade.
Q32 Chairman: Following on from Mr Mitchell's
line of enquiry, what are the really good, specialised food things
you are good at? What should we keep an eye open for that we cannot
get now?
Mr Jarc: Perhaps I may answer
in this way, Chairman. I would really like to invite you to come
to the country! I think that we are one of the secrets of the
new Europe concerning gastronomy and the quality of food in general.
Our cuisine, which is between the Mediterranean one and the central
European one, could be very interesting for the wider Europe.
I would say that, in addition to the food, we also have top-quality
wines, since we have learned a lot from our neighbours in Italy
and we are now competing with them. If you know the region of
Collio, for example, we have the same types of wines and the same
quality wine in Slovenia.
Chairman: We shall look forward to that,
but one of the members of our Committee, Mr Lepper, is going on
holiday to your country. Is that right?
Mr Lepper: I certainly intend to.
Chairman: So we will be sending an emissary,
even if we cannot all come. He will be reporting back to us, I
am sure.
Q33 Mr Lazarowicz: How do you expect
prices of farm produce to change in Slovenia after accession?
Prices at the farm gate, the prices of producers.
Mr Jarc: For most of the sectors?
Q34 Mr Lazarowicz: Do you expect them
to approach the EU levels? What changes do you expect?
Mr Jarc: I have already explained,
but there was one element which I forgot to mention. That is the
retailing system—the main retailers. It is interesting to
note here that the main retailer in Slovenia is still a Slovenian-capital
company. They have more than two-thirds, 70 to 80%, of the market.
This retailer has long-term contracts with our agri-food industry
in relation to supplies. I would say that, predominantly, our
supermarket shelves will in most part still be supplied by the
Slovenian producers. In the past, however, retailers and also
the agri-food industry were able to push the agricultural prices
down. I think that this process will also continue after the accession—especially,
as I said before, in the sectors where prices are higher than
the EU—livestock, meat, pork, poultry, wine—or where
we have had higher tariff protection in the past. I hope that
I have answered your question. As you know, it is very difficult
to predict the future. At the moment, we have some analytical
studies concerning the situation, especially in the agri-food
industry. What one could expect to happen is clear but, even then,
it is very difficult to predict what the future will be. For example,
in the dairy sector we have one company which has 70 to 80% of
the market. If this one company had a serious economic or financial
problem, the whole system could collapse. We have more than 20,000
farmers in all areas of Slovenia supplying this company with milk.
If that one company had serious problems, then no one knows what
would happen in the sector. It is very difficult actually to say
exactly what will happen.
Q35 Mr Lepper: As a supplementary to
that, you talked about production, and one of the factors we noticed
very predominantly in Hungary and Poland was the dominance of,
for instance, Tesco and, in Poland, French supermarket chains
in the retail sector. Has the same sort of process happened in
Slovenia, or are there signs that it is likely to happen, in terms
of the retail outlets?
Mr Jarc: Concerning the retail
sector, as I explained, the major player in the market is a Slovenian-owned,
Slovenian-capital company. They have 70 to 80% of the market at
the moment, I think. We also have the market open for foreign
competitors. In Slovenia, we have the German-Austrian company
Spar; we have the French company Leclerc; Aldi is coming from
Germany, and I think a British company was also interested at
one time to come in. So they are competitors. At the moment, however,
our retailer is very strong in this respect.
Q36 Alan Simpson: The Royal Society for
the Protection of Birds did an environmental impact assessment
regarding the accession states and said they thought that land
use changes were likely to bring with them negative environmental
impacts. What is your assessment of the environmental downsides
of accession for you?
Mr Jarc: It is a very complex
and interesting question. It is very important. In 2000, we adopted
the Slovenian agri-environmental programme. After direct payments,
this is the second biggest agriculture programme we are implementing
at the moment—from the point of view of the funds we are
investing in this. There are all kinds of measures in this programme.
There is also the protection of habitat, and measures concerning
the nitrate directive. We are even paying the farmers subventions,
as they are living in countryside where there is the presence
of wolves, lynx, and wild bears—which we still have in Slovenia.
We have measures to protect the water. What is also important
is that the majority of our production is already so-called "integrated
production". Integrated production is something between ecological
production and conventional production—using fewer herbicides
and, putting it bluntly, less chemistry. I think that we will
be able to retain this way of production in Slovenia in the future,
and even to improve it. As I said, we have significant funds to
implement this kind of policy, and I hope that it will bring results.
At the moment—and I think the European Commission studies
would also confirm it—we do not have serious problems with
the environment because of agricultural production: in water,
nitrates, and so on. The situation is stable at the moment.
Q37 Alan Simpson: Do you have the infrastructure
that can monitor that? One of the things that the Committee was
concerned about when we went to visit Poland and Hungary was that
it is one thing to have the policies, but the ability to monitor
the agri-environment standards that are set—particularly
in terms of traceability—was likely to impact seriously
on how far countries would be able to sell in European markets.
There is this whole set of issues as they go on into questions
about GM crops, the use of growth hormones, the use of antibiotics,
pesticides, and so on. Have you the infrastructure which can monitor
that?
Mr Jarc: One should know that,
for any measure we have in the agri-environmental programme, there
is a set of indicators which prove whether or not we are controlling
the situation; whether the farmers are really doing what is expected
of them. In this respect, we have a set of monitoring institutions—not
only in the frame of the agriculture ministry but also the environment
ministry—which are taking care of that. It is important
to note here that, from the year 2005 onwards, the so-called seven
measures of cross-compliance—the nitrate directive, bird
directive, and so on—are obligatory for all farmers in the
European Union, and also for Slovenia, beside those countries
that applied for the simplified scheme. For those countries that
are applying the standard scheme of payments, like Slovenia, the
cross-compliance is obligatory for everybody. It is also obligatory
that there is a system of monitoring and indicators, and the IACS
system is responsible for the overall functioning of it. The Integrated
Administrative and Control System which is taking care of the
payments from all points of view will also be responsible for
this cross-compliance, in order properly to implement the seven
directives—nitrates, birds, habitat, Natura 2000 and so
on. I think that this will even be strengthened—and it must.
This will be controlled by the Brussels inspectors.
Q38 Alan Simpson: Regarding the agri-environmental
programme you have in mind and in a policy framework, in terms
of your plans for your direct payments schemes and the decrease
of high intensive production, have you thought at all about putting
a ceiling on the direct payments? So that it does not just become
payments for land-holding, but that the additional payments would
increasingly be focused into those agri-environment schemes?
Mr Jarc: If you listened carefully
to the presentation, it is clear that our farmers would never
reach 100% of your direct payments—since we are going to
start to implement the reform before this would otherwise happen
in 2007. Of course, with this regional single payment per hectare,
the situation will change. Our farmers will never reach 100% of
payments, as it stands now in the European Union. The limits are
also defined by the ability of public funds to finance the farmers.
Q39 Diana Organ: The Commission's monitoring
report of November, looking at your preparedness for accession,
is saying that you are going to keep your farmers happy because
you have sorted out the payments agency and you have sorted out
the IACS system—which our farmers are deliriously happy
about! However, they did notice that there was considerable progress
that needed to be made in other areas. I wonder if you could say
a little about what progress you have made, notably about the
bureaucratic structures for the sugar and milk regime, and also
about veterinary control systems and trading live animals and
animal by-products. What progress have you made? There is a second
point which comes out of that. If you are not really as ready
as you ought to be from 1 May on the sugar and milk regime, what
disadvantage do you think that will be for your producers?
Mr Jarc: This is a very interesting
question, which is usually posed by the people coming to us from
Brussels.
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