Memorandum submitted by the Polish Ministry
of Agriculture and Rural Development
REFORM OF THE COMMON AGRICULTURAL POLICY
AND PROSPECTS FOR POLISH RURAL AREAS AND AGRICULTURE
1. On 26 June 2003, the Ministers of Agriculture
of the EU member states agreed on the reform of the Common Agricultural
Policy (CAP) which significantly changes forms of agricultural
support.
2. To a greater degree than so far a new
CAP will take into account consumers and taxpayers' concerns,
giving at the same time farmers more freedom in their choice of
the production type conforming to the market requirements. A prerequisite
to receive payment will not be a specific type of agricultural
production but maintenance of farmland in good agricultural condition
in compliance with the environmental requirements. To avoid the
abandonment of agricultural production, the member states can
disburse part of the payment in the hitherto manner, ie coupled
with production. Such a possibility may be only used in specific
cases and to a limited extent. However, in future most of the
subsidy will be paid to farmers regardless of the agricultural
production volume and type.
3. The key elements of the new reformed
CAP include:
— a single farm payment (SFP) or a
single regional payment (SRP) decoupled from production;
— making the disbursement of SFP or
SRP and payments specific for particular types of production dependent
on farm compliance with specific standards—a cross-compliance
rule;
— a reduction in direct payments (modulation)
for bigger farms and allocation of funds thus obtained for rural
development;
— a financial discipline mechanism
involving a reduction in direct payments, if the agreed limit
of expenditure on CAP is exceeded;
— changes on the following markets:
milk, cereals, high-protein crops, starch potatoes, dried fodder,
renewable sources of energy; and
— enhancing the role (the scope and
level of support) of rural development.
4. Particular elements of the reform will
be introduced in 2004-07. A new payments system may become operational
as early as in 2005. If a member state needs a transitional period
to implement the system due to its specific conditions in agriculture,
it will be able to introduce the system in 2007 at the latest.
5. The CAP reform should be assessed positively
from the European agriculture perspective as well as from Poland's
viewpoint, however, on certain conditions.
POSITIVE ELEMENTS
6. The major positive element of the reform
is CAP simplification by introducing a new direct payments system,
ie a single farm payment (SFP) or a single regional payment (SRP).
7. Resulting from such simplification, a
scheme similar to the single area payments system (SAPS) on which
Poland decided during accession negotiations will be formed. Thus,
transition from the single area payments system applied in Poland
throughout first years following accession to the new one will
be much easier than the adoption of the current standard system
existing in the EU-15.
8. Due to a fragmented agrarian structure
of Polish agriculture (as well as the other EU-25 states), such
change implies lower costs of CAP functioning to be borne by administration
and farmers alike. This will increase availability of funds intended
for the smallest farms.
9. Under the new CAP the rules for granting
SRP payments expand the possibilities of using the land eligible
for payments to grow crops. After the end of the transitional
period, the single regional payment would be favourable for, inter
alia, producers of non-starch potatoes and those of fruit
and vegetables (excluding multi-annual crops) who would also receive
payments. Such solution was not envisaged under the hitherto CAP
except for support for organisations of fruit and vegetable producers.
10. Decoupling of payments from farmers'
production decisions enables CAP simplification with positive
consequences, as it makes the sector more market-oriented and
allows farmers greater freedom in their adjustment of the production
structure to the market requirements and needs. This is of fundamental
importance for Polish agriculture due to the possibility of adapting,
following accession, the production and trade structure to the
Single Market requirements. Simultaneously, it implies an improvement
of the sector economic effectiveness and its competitiveness,
thus better use of opportunities created by European integration.
11. Payments decoupled from the current
production do not stimulate excessive intensification of production
and thus they have an less distorting effect on international
trade conditions. Given this aspect, decoupled payments make CAP
less open to criticism by third countries and improve EU's position
in the current WTO negotiations on trade and agricultural policy
liberalisation.
12. Thanks to the reform, greater importance
is attached to farm compliance with environmental, food safety
and animal welfare standards. To this end the following measures
have been taken:
— decreasing incentives for over-intensive
production by decoupling payments from agricultural production;
— introducing a new support instrument
financed from funds allocated for rural development (2nd CAP pillar)
for farms that are in the process of being adapted to the standards
that have not existed in national legislation so far;
— establishing agricultural advisory
system for farmers with regard to farm compliance with the requirements
laid down in the cross-compliance rule; and
— making disbursement of full direct
payments dependent on farm conformity to the cross-compliance
rule.
13. Due to the fact that agricultural production
is more extensive in Poland than in the EU-15, Polish agricultural
holdings should not have big problems with their adjustment to
some of the requirements introduced by the cross-compliance rule.
14. The adopted changes of CAP support a
multi-functional character of European agriculture. What is meant
here is not only decoupling income support from the current production
and making such support dependant on compliance with certain standards,
but also increasing funds for rural development at the expense
of limiting payments for large intensive farms. The role of rural
development will be enhanced in relation to agricultural production
support by transferring part of funds from the 1st CAP pillar
(direct payments) to measures under the 2nd pillar (rural development)
in the framework of modulation. The application of the modulation
mechanism in the EU-15 (it is not applicable to new member states
in the period of phasing in full direct payments) will result
in a reduction of differences in direct support intensity between
member states due to the exclusion of small farms (up to 5,000
euro per farm annually) from the payment reduction, thereby favouring
the countries with the disadvantageous agrarian structure and
less intensive production. In addition, part of the saved funds
will be redistributed based on cohesion principles, which is also
beneficial to these countries.
15. As regards Poland, the application of
modulation in the EU-15 will enable a more rapid reduction of
differences in direct support between the existing member states
and Poland in the period of phasing in direct payments.
16. It is also vital that, similarly as
in the case of modulation, the financial discipline mechanism
will not be applicable in Poland until the date full direct payments
are introduced.
ELEMENTS GIVING
RISE TO
DOUBTS
17. The reform gives the EU member states
the following possibilities: full simplification of the direct
payments system, postponement of the new system introduction (until
the end of 2006) and exclusion of part of the payments from the
new system and their disbursement based on the hitherto rules,
ie in relation to a specific type of production. Obtaining some
member states' consent to the CAP reform was conditional on such
flexible approach. However, this gives rise to many doubts. The
countries which will opt for such a "mixed" system will
pursue more complicated CAP than so far. Enabling CAP differentiation
in the member states (a transitional period for full application,
part of the payments disbursed on the hitherto rules) may distort
the conditions of competition on the Single Market and imply partial
re-nationalisation of CAP.
18. The evaluation of the new CAP cannot
omit doubts of an ethic nature relating to the fact that agricultural
holdings will receive payments without the necessity of being
involved in agricultural production. However, it must be borne
in mind that although obtaining payments under the new system
(SFP or SRP) would not be related to the obligation of agricultural
production, farmland will have to be kept in good agricultural
condition and specific environmental requirements will have to
be met. This function of agricultural support has been strengthened
as a compulsory system of checks on farm compliance with the rules
(cross-compliance) has been introduced. Such approach is in line
with a long-term objective of supporting a multi-functional character
of European agriculture and is an important factor that will legitimise
payments in the taxpayers and consumers' opinion when such payments
are no longer related to the requirement of agricultural production.
19. In Poland, the costs of introducing
the system of controlling farmers' conformity to cross-compliance
requirements may be considerable due to a large number of agricultural
holdings, thus a big sample of farms subject to on-the-spot checks.
Moreover, to bear high costs would not be fully justified in the
phasing-in period. Nevertheless, it must be emphasised that in
the period of SAPS functioning in Poland, the compliance with
the aforementioned requirements will not be compulsory.
20. As compared to the European Commission
original proposals, the effectiveness of the modulation mechanism
has been reduced significantly and thus the amount of funds reallocated
from countries with intensive agriculture to those with more extensive
agriculture. The modifications listed below have been introduced:
— the concept of a deeper reduction
of payments has been abandoned (a maximum of 19%) for the biggest
farms receiving more than 50,000 euro annually;
— the scale of the payment reduction
has been decreased to a maximum of 5% for farms obtaining more
than 5,000 euro annually; and
— a limit has been introduced that
at least 80% of funds from modulation will be retained in the
country where such funds have been saved on direct payments.
21. Such approach favours mostly rich countries
with intensive agriculture. It weakens, however, the cohesion
effect of the remaining funds distribution (a maximum of 20%)
saved on direct payments by attaching relatively considerable
weight to the UAA (utilised agricultural area) size criterion
in the country and negligible weight to the criterion of employment
in agriculture and richness (GDP per capita). Such significant
departure from the original concepts of modulation should be assessed
negatively from Poland's viewpoint. Hopefully, the possibilities
related to the idea of direct payments modulation will be fully
exploited in the future when this instrument becomes applicable
in Poland. It is, in principle, the only way to mitigate the differences
in the support level resulting from historical developments, plausible
in the framework of the specific budgetary limit for CAP.
22. The abolition of the intervention buying
in of rye should be assessed negatively from the viewpoint of
the Polish agriculture structure. In Poland, the share of rye
in the area sown to cereals is 22%, which is due to climatic conditions
and poor soil quality. The abandonment of intervention may result
in a drop of the rye market price, consequently in a decrease
in agricultural income in the regions where rye has a substantial
share in agricultural production. Abandoning its production may
lead to bigger areas of fallow land.
23. Despite higher decreases in intervention
prices of butter than originally planned under Agenda 2000 (25%
instead of 15%), milk quotas will be retained until 2014-15. Production
quotas can have a limiting effect on the long-term milk production
development in Poland (with regard to the production level and
structural and regional transformations alike) in a situation
where milk production quotas have lesser economic justification
due to a fall in the milk price. Since the reduction in intervention
prices and the accompanying introduction of direct payments to
milk will take place before the end of the phasing-in period in
new member states, it cannot be excluded that the EU will aim
at subjecting new payments to this mechanism. This would imply
a decrease of support in relation to other member states and a
change of economic conditions for the sector compared to those
agreed in Copenhagen. Such approach was criticised by Poland,
as expressed in the declaration attached to the documents summing
up the Luxembourg summit. It is estimated that in 2004-12 income
forgone of Polish milk producers due to covering additional (relative
to Agenda 2000) direct payments to milk by the phasing-in mechanism
will be over 330 million euro.
CAP REFORM AND
POLAND
24. Poland welcomes the opportunity to present
its comments on the proposal for the Council Decision adapting
the Act of Accession to the CAP reform. After the signature of
the Treaty of Accession, Poland, as an active observer, presented
on several occasions its position on the proposal of the CAP reform.
The detailed comments concerned key elements of the reform package—decoupling,
intervention price reduction, milk quotas, implementation rules,
etc. Poland underlined the need to respect the long-term objectives
for the development of agriculture and rural areas in Poland,
combined with the complex dimension of agricultural issues at
the European level. Poland's position concerned, among others,
the reform of the dairy and cereals sectors. It was presented
with details by the Polish delegation during the June Council
of Agriculture meeting in Luxembourg and was reflected in the
common declarations submitted by Poland and other acceding countries.
25. Poland would like to note that, unfortunately,
neither the Council Regulations introducing the CAP reform decided
in Luxembourg nor the proposal for the Council Decision adapting
Treaty of Accession are taking into account serious concerns expressed
by Poland.
26. Poland is particularly concerned by
the extension of the phasing-in mechanism on the new direct payments
introduced for some sectors, including milk sector, as well as
by freezing of the milk quotas for Poland until 2014.
27. The application of the transitional
period to the new direct payments (those in the milk sector above
the level fixed in the Agenda 2000 and the direct payments introduced
in energy crops and nut sectors), which are not covered by the
Regulation 1259/99, changes the conditions of Poland's membership
in the EU resulting from the Treaty of Accession. It implies the
extension of phasing-in mechanism, foreseen as transitional period
before obtaining a full amount of direct payments, on newly introduced
payments and new products, which are not listed in the Annex to
Regulation 1259/99. The Act of Accession introducing article 1a
to the Regulation 12599 is clearly limiting the list of the support
schemes subject to phasing in to the support schemes listed in
Annex to Reg 1259/99. Any support scheme not listed in this document
should then be applied as foreseen in acquis—without phasing
in. In the draft Council Decision the proposed article 143a to
the Reg 1782/2003 does not anymore refer to the limited list of
support measures. Contrary to the provision of article 1a Reg.
1259/99 the phasing-in mechanism is extended to all direct payments
introduced before 2013. The possibility of applying phasing in
to the new schemes requires a clear legal basis. Article 23 of
the Act of Accession does not constitute such a basis. It merely
provides for adaptations necessary in view of the CAP reform.
The removal of the reference to the list of support schemes is
going beyond the provision of article 23 of the Treaty.
28. The Polish side is of the opinion that
the provision of Art. 23 of the Act of Accession cannot constitute
any basis for the extension of transitional period over the new
direct payments. This article allows only for the adaptation of
the Act provisions to the new rules of the Common Agricultural
Policy and not for the modification of the negotiated conditions
of Poland's membership in the EU (Annex 1).
29. It should be reminded that the application
of the phasing-in mechanism to products covered by direct payments
according to the Treaty of Accession and the Council Regulation
1259/99 implies the reduction of expenditure from the common budget
by around 11 billions euros in the period 2004-13. It constitutes
42% of full amount of direct payments for which Poland would be
eligible without applying the phasing-in principle.
30. The amount of the milk quotas had been
the matter of long accession negotiations and was finally adopted
at the level of heads of governments—this should be valid
until 2007/2008 included. The amount of the quotas for the period
of 2008-09-2014-15 should be established taking into consideration
Poland's position and our economic interests. Given that the increase
of milk quotas accompanying the reform of the CAP compared to
the provision of the Treaty of Accession was applied in the case
of two current member states of the EU.
31. It should not be undermined that the
volume of milk quotas is of great importance for hundreds of thousands
of farms in Poland. Moreover, it is worthy mentioning that the
increase of the milk quotas in Poland does not represent any threat
to the Single Market due to the progressive limitation of direct
milk consumption at farms and the resulting rise of market demand
for milk in Poland. Currently, more than 2.3 million tonnes of
milk are directly consumed annually on farms and this amount is
constantly declining. Meanwhile the restructuring reserve contains
only 416,000 tonnes of milk. It implies that thousands of farms
producing milk in Poland will remain outside the system of the
milk quotas. This situation can entail some social problems, which
could affect particularly smaller holdings (Annex 2).
32. Poland truly hopes that the solutions
to be found in the course of the adaptation of the Treaty of Accession
to the CAP reform will take into account the interests of all
member states, on equal basis, including Poland and other acceding
countries.
Polish Ministry of Agriculture and Rural Development
January 2004
Annex 1
Poland would like to reiterate its position
on the principles which shall be respected in the process of adaptation
of the Treaty of Accession to the CAP reform in area of direct
payments, considering that:
— according to Treaty of Accession
the phasing in mechanism shall only apply to the direct payments
listed in the Council Regulation 1259/1999 of 17 May 1999;
— within the CAP the essential part
of the total support for agricultural producers is constituted
by the price support and the direct payments;
— in all previous CAP reforms the reduction
of price was accompanied by granting of direct payments at the
uniform rate per tonne or per head to all Member States;
— for Poland the level of direct payments
was one of the most sensitive issues in the accession negotiations
finalized in Copenhagen;
— our agreement for phasing in of the
support schemes listed in Annex to Regulation 1259/99 was based
on economic assessment of the entire package—including expected
support price level for agricultural products provided by acquis
published by the date of finalization of the accession negotiations;
and
— article 23 of the Act of Accession
allows only for the adaptation to the new rules of the Common
Agricultural Policy and does not allow for the modification of
the conditions of the membership in the European Union.
Poland reaffirms its position that:
— intervention price reductions for
butter going beyond schedule decided by Agenda 2000 shall be compensated
at the same rate for the milk producers in all 25 EU Member States.
Proposed phasing in of those additional direct payments would
increase the difference in the level of total support (measured
as a total of market price support and direct payments) between
EU-15 and 10 acceding countries and in consequence would be clear
evidence of the erosion of the preferences resulted from the accession
negotiations; and
— the principles of the Common Agricultural
Policy shall be respected when implementing new support measures
for energy crops and nuts and there shall be no differentiation
in support level between EU-15 and 10 acceding countries.
Annex 2
REMARKS OF
THE POLISH
SIDE ON
FREEZING OF
THE MILK
QUOTAS FOR
POLAND UNTIL
2014-15
Poland has an exceptional situation in the dairy
sector, which is different from the situation in the EU-15 and
in the other nine acceding countries.
The main differences are:
— a large share of milk produced not
being marketed but consumed on farms—2,300,000 tonnes in
2002 with steady decline;
— a very large number of milk producers
who do not sell milk (circa 515,000 in 2003);
— excessively fragmented milk producers—average
dairy herd size amounts to 3.3 cows per farm; and
— fast structural changes of dairy
farms (in the period 1996-2000 the number of dairy farms has fallen
by circa 400,000).
The structural change of the dairy farm sector
is far from being completed. This process will not be finalised
by the year 2006—when, according to the Treaty of Accession,
the possibility to increase the milk quota by up to 0.416 million
tonnes (from the restructuring reserve) will be given.
The milk production in over half a million of
semi-subsistence farms in Poland has a temporary nature. The experience
of the EU Member States has shown that with the economic growth
that most of small farmers quit the production of milk. The process
is even further exacerbated by the EU high sanitary requirements
concerning production of milk.
In the framework of the Treaty of Accession
a special support measure was designed to facilitate transition
of semi-subsistence farms into viable commercial farms. Poland
expects that this measure will speed up desired structural changes
in the Polish farm sector.
This would reduce the scope of on farm milk
consumption and increase the demand for milk and milk products
available on the market.
The freezing of the milk quotas until 2014 on
the 2006 level on one hand would significantly limit the development
of viable commercial dairy farms and, on the other, it would force
Poland to change its position from the current status of net exporter
into a significant net importer of milk and milk products. This
change is not desired as Poland has very good natural conditions
for competitive and sustainable milk production.
Poland should be granted the possibility to
use an additional restructuring reserve for the period 2008-09-2014-15
in order to accommodate the results of structural adjustments
in dairy sector and decline of on-farm milk use. This would not
lead to an increase in the total level of milk production in Poland,
neither will it lead to an increase in milk supply on the Single
Market.
According to Copenhagen agreements and the Treaty
of Accession, the milk quotas were established until 2007-08.
Thus, the quotas for Poland for the period 2008-09—2014-15
should be determined as a result of new negotiations between Poland
and the EU.
Polish Ministry of Agriculture and Rural Development
January 2004
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