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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 421-ii House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE ENVIRONMENT, FOOD AND RURAL AFFAIRS COMMITTEE
AGRICULTURE AND EU ENLARGEMENT
Wednesday 10 March 2004 MR IZTOK JARC Evidence heard in Public Questions 18 - 75
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Environment, Food and Rural Affairs Committee on Wednesday 10 March 2004 Members present Mr Michael Jack, in the Chair Mr David Drew Mr Mark Lazarowicz Mr David Lepper Mr Austin Mitchell Diana Organ Alan Simpson David Taylor Paddy Tipping Mr Bill Wiggin ________________ Memorandum submitted by Ministry of Agriculture, Forestry and Food, Republic of Slovenia Examination of Witness Witness: Mr Iztok Jarc, State Secretary for EU Affairs, Ministry of Agriculture, Forestry and Food, Slovenia, examined. Q18 Chairman: Mr Jarc, you are very welcome to our Committee. Thank you very much indeed for coming to talk to us today, as part of our inquiry into the enlargement of the European Union and the impact that the Common Agricultural Policy will have on the countries that are soon to be members. As a Committee, I think that we are delighted about enlargement. We had the pleasure recently of visiting both Poland and Hungary, to gain a flavour of some of the issues that we will be questioning you about. The advantage from our point of view is that, relative particularly to a country like Poland, Slovenia is a relatively small country. I think that it will be of particular interest to the Committee to explore the impact of the changes on the smaller accession states. I gather that you have kindly prepared a short presentation for us, so I wonder if I might ask you to address the Committee and to make your presentation, and then to take some questions from members of the Committee. Mr Jarc: Thank you, Chairman. It is indeed my pleasure to be called before your Committee and to give a presentation to you concerning the Slovenian accession in the field of agriculture. In terms of the structure of my presentation, and in order to understand Slovenian agriculture, I will first of all give you some data. I will then speak of what were our goals in the negotiations, and then how we see the effects of this on us. I know that you know Slovenia, but it is important to say that we have, in the transition period, had rather stable economic growth. After 1993, the growth of GDP in the economy was stable at between 3 and 5 per cent. It is also worth mentioning that, amongst the new Member States, Slovenia presently has the highest GDP per capita. It is important to know that we have been able to manage the unemployment rate. On the ILO rate, it is much lower than the unemployment rate based on the Slovenian data. It is about 7 per cent. We have a different measurement of unemployment. It is also very important to stress that the relative share of agriculture in the GDP is declining - from 5.2 per cent in 1992 to 2.7 per cent in 2002, and the trend being a further decrease. Slovenia is a net importer of food and always has been. We import roughly 40 per cent of what we consume in the country. With regard to Slovenian agriculture, it is worth mentioning that Slovenia has never faced the process of collectivisation of the land. Land has therefore always been in private ownership. That is very important. However, there are three other elements where our agriculture differs significantly from the other new Member States. First of all, in the past there have been size limits defined by the State. Farmers were generally not able to have more than 10 hectares of arable land and 25 hectares of forest. An additional, very important, element is that we have natural restraints on agriculture. About 75 per cent of our land is located in less favoured areas for agriculture and forests make up more than half of Slovenia. In addition, farming in Slovenia is always family farming. We do not to a major extent have the bigger units, co-operatives, and so on. We have some, but not many. Regarding our agriculture policy before the accession, I would like to underline that the main word for us is "multi-functionality". In Slovenia, agriculture is part of the rural life. We see agriculture as one of the main business activities in rural areas, where more than two-thirds of Slovenians live. A significant feature of Slovenian agriculture is that, in 1999, we decided to go for a reform of the agriculture policy. This reform copied the CAP into our national system. So from 2000 onwards we have had similar payments - direct payments and so on - to those the European Union has. Turning to how we handled the negotiations and what were our objectives, our objectives were equal integration into the EU - that integration should not worsen the economic situation and that we should solve our problems in agriculture. I must say that the initial proposal of the European Commission in this respect was not favourable to Slovenia, especially in the field of direct payments. It should also be noted that Slovenian price levels are higher than the average in the European Union. This is another feature which differentiates us from most of the other accession countries. Prices are much lower than the average in the European Union. To compensate for this expected loss of income, we would need the same or a similar level of direct payments. As you know, the Commission's initial position was very unfavourable in that context. It is important to note that, in the reform of agriculture policy, we have significantly increased the Republic of Slovenia's budget for agricultural measures and policy - especially from the year 1999 onwards. It is also very important to note that the rural development, the structural policy measures, the so-called Second Pillar, for the year 2004 are the same size as the market price measures - so the First Pillar measures, direct payments, and so on. It means that this rural development concept in Slovenia is also financially supported. It is also very interesting to note that the Slovenian PSE - the product support estimate, an OECD measurement - is higher than in most of the OECD or EU countries. It means that Slovenia gives a lot of support to agriculture; in fact, the highest support. I turn to accession negotiations on agriculture. What were the results? Agreement. In the end, we agreed with the Commission and the European Union Member States that we will accept the EU position that there are no funds - and also perhaps a lack of arguments or reasons - to give the new Member States 100 per cent direct payments. So we adopted the position of the European Union of 25 per cent in the first year, but we have requested the opportunity to top up - to give additional money for direct payments from the national budget. In the year 2004 we will get from the European Union 25 per cent of funds and 60 per cent will be paid from our budget - so, altogether, 85 per cent. In the year 2007, therefore, we will have 100 per cent of payments in the EU. It is very important to mention that we have been able, due to the extensive and comprehensive rural development programme in Slovenia, to get additional funds for rural development during the negotiations - which is a very important and positive fact. What are we expecting, based on the accession negotiations in agriculture? We think that we have done a good job with regard to the preparation of the problems, adoption of the acquis, and institution-building. However, due to the high level of prices, we do expect certain problems in certain sectors - milk, and perhaps beef, wine, and so on. How our agri-food industry will react to the accession is very important. It is worth noting that at the moment two-thirds of our agricultural exports go to the countries of the former Yugoslavia, which is not the case for the manufacturing industry, where more than two-thirds go to the countries of the present European Union. The terms of trade with the countries of the former Yugoslavia will change significantly after our accession to the EU. This could have a negative impact on our industry. The slide presently on the screen shows the problems we faced before we chose the system of payments for the year 2004 and onwards. As you know, the European Commission proposed that we should have a simplified scheme of payments, that is, payments per hectare, or the standard system of payments, as you have in the UK. We have decided to go for a standard scheme - I think perhaps the only country amongst the accession countries. I am not sure about Malta, but I am sure about the others, which have all applied for the simplified scheme. Why? Because we have implemented and had this system in place in Slovenia for four or five years, and this is the major argument in this respect. Turning to agricultural reform, such reform did not come at the best time for us, since we were not able actively to participate in these talks. Nevertheless, we understood the European Union's reasons for going for the reform. Our intention is to finish this month the calculations concerning the different options which are on the table and to try, from 2005 onwards, to continue with the new type of payments. That is, the payments per hectare - the so-called regional, single-area payments - because this is the only solution which is offered by the EU to the new Member States. Finally, I would say that the Slovenian model of agriculture is based on multi-functionality. We have understood agriculture in a multifunctional way. It is also important to note that Slovenia has already been implementing a CAP-like system nationally for a few years. It is important to note that, in our own opinion, we would be entitled to have completely equal direct payments, and all other obligations and rights in the European Union. However, we understood during the negotiations that this was not possible. Based on that, we are ready to pay this difference, for some transitional period, from our national budget, for our farmers to go equally into the European Union. Based on the problems which I have previously noted - that is, the economic problems, the natural limitations in the environment, and so on - I would expect high prices and that Slovenian industry and agricultural primary production will face some problems when entering the EU. I thank you for your attention. Q19 Chairman: May I thank you for the clarity of your presentation. The brevity was commendable, and the quality of the English was outstanding. Thank you very much for doing that. One of the things which you said, and that all the ministers said when we went to Hungary and Poland, was to express an element of dissatisfaction, perhaps annoyance, that the level of initial support you were going to receive was not the same as the full members were receiving; but then you have agreed that you will still join on that basis. Why? Mr Jarc: We have had intensive debate, at home and also with the European Commission, concerning this question. The European Commission's standpoint was fairly clear. It is unarguable. It is that, to give the direct payments to those farmers, they will be getting additional income from receiving higher prices anyway. They have said that since 1998. I would confirm here that the initial Commission proposal, which came out in January 2001, was not new to us - or should not be anything new. What we have been trying to do in Slovenia, however, is to persuade the European Commission and European Member States that we are a specific case; that it should be noted that we have higher prices; that we have for some years been applying a domestic-based, CAP-like policy; and that our agriculture is similar to the agricultural situation in, let us say, Austria, northern Italy, parts of France, and so we are entitled to the same rights, and so on. I think that, in the end, the European Commission negotiators did not have any alternative but to allow the new Member States the opportunity of topping-up, since we believe that at that time there were no funds available to increase this offer. It has always been very clear, of course, that the political goal of Slovenia - and I believe of the other new Member States - was always, first of all, to become a member of the European Union. The results of negotiations in certain sectors were not in the first plan, of course. 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 per cent 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 per cent. 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 us a slide 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 10 years ago. Q30 Mr Mitchell: Three years of uncertainty, but you are 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 per cent to the countries of the former Yugoslavia, 12 per cent to the countries of CEFTA, and others to the European Union. If you take into account that most of the CEFTA countries are coming into the European Union - the Central European Free Trade Area countries - it means that 80 per cent and even more of our 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 per cent, 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 per cent 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 per cent 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 per cent 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 would change. Our farmers would never reach 100 per cent 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. Q40 Diana Organ: They love bureaucratic systems. Mr Jarc: No, they are noting the most difficult points - as you have done. The answer is not so difficult, however. You mention the questions of sugar, milk, and veterinary. Sugar - what is the problem with the sugar? Why did the Commission note in its report that this could be a problem? They noted that we do not implement market regulation for the sugar sector. It is true, but it is true because we have only one factory and so you cannot have any serious markets and so on. We simply are not able to implement it. Otherwise, the administrative system is in place, and everything else. Concerning milk, the Commission's remark is related to the absence at that time of a milk quota system for the individual producers. This was the case because Slovenia had negotiated for a one-year transitional period. So in October/November last year we still did not have the system in place. We do now have a system on paper. The government will soon adopt the regulation on this - how much milk one producer will be entitled to produce, the control mechanism, and so on. But this will be a kind of pilot year. We still have one year to implement this system on a national base. Only from 1 April 2005 onwards are we supposed to be a part of the European Union system in this respect. Concerning veterinary, here you are bringing up the most important question. As I said, I believe that establishments in general and also institutions in Slovenia are working well; but it is true that at the moment we still do not have all the regulations adopted in Slovenia. Why? I would say that there were legal questions coming out of this process. For example, the Commission would say that you were not 100 per cent implementing an EU regulation even if, for example, in the annex to certain regulations there is not a cross-reference to certain EU directives. Let us take, for example, the annex which is a form for the import to the internal market, and there is mention that this form is based on this or that directive, and so on. Our lawyers have always told us, "You cannot make this cross-reference to a third country's legal system. It is not possible in a Slovenian legal order". But the people in the directorate general will say to you, "No, you should have this cross-reference in your annex. Otherwise, we do not know whether you are going to implement this system". We have faced problems, such as where people have questioned whether we could define, let us say, the terminus of intra-trade community import into the internal market, as defined in EU legislation. The lawyers in Slovenia, of course, will say, "No, this is not possible. We are not a member of the European Union. We cannot define in our legal system the import into the internal market of EU-25 or intra-community trade, because we are simply not a member". The Commission, however, will say, "No, you have to define this now, immediately, because we do not know whether from 1 May onwards you will be able to implement this system". So I would say that, in general, there are some particular problems, more of a legal nature than in terms of content. With regard to the veterinary field and so on, I would say that there should be checks by the inspectorates coming from the European Commission, from the food and veterinary office which is based in Ireland, and this should be a valid estimation of this - and perhaps not someone saying that the legal order is not 100 per cent in place. Q41 Diana Organ: In other areas the preparedness of Slovenia has been noted, but do you think that there should be punishments - and, if there are, what should they be - for other Member States which are not as prepared and in good order as Slovenia is? Mr Jarc: I think that the good functioning of CAP, especially in food safety, is in the interests of us all - future partners in EU-25. I would try to avoid any measures in this respect, the negative ones especially. Some people are talking about invoking the safeguard clause and things like that - for the whole sector. They say, "Perhaps we need to invoke a safeguard clause for the whole of Poland". I would not like to say that this is not serious, but it is very dangerous. You cannot block the complete industry of one country because they have certain problems in this or that sub-sector - if there is not a threat to human life or something. Otherwise, you put employment in danger. I cannot imagine how this would work even in a country like Slovenia. Of course, the EU is, first of all, the internal market. It should function and it should function well. It should not harm the people living in this internal market. But when taking serious measures - cautionary measures and so on - I would be very cautious in this respect, and take all the consequences into consideration. Q42 Mr Drew: It would be very interesting for us, having visited Poland and Hungary and talked to both the government and representatives of the farming industry there, to get a feel for where we are with the politics of the direct payments. Clearly, agriculture has existed relatively successfully in the two countries we visited. In a sense, therefore, the direct payments could be seen as a bonus; but there is of course this resentment about how quickly you are able to access the full payments, if at all. Give us a feeling for the political views on that and what is felt by yourselves, and possibly some of the other new-entrance states. Mr Jarc: I could confirm that there is a feeling among the new Member States that we have been treated unequally - not on the same terms. As I said, this would have some political and institutional implications after 1 May, in a negative way. As I said in my presentation, however, Slovenia tried to understand the arguments during the negotiations, and we have found our own way of resolving this question. This is one of the issues which could, to a certain extent, harm the normal functioning of the EU later on. Q43 Mr Drew: Can you give me a feel for what strategic alliances you might want to be trying to form, better to make your case for equality and fairness? Is that going to be with other new entrants or are you going to make common cause with the French and the Germans, or maybe even the British? Mr Jarc: We are members, in the WTO for example, of the so-called group "friends of multi-functionality", and I think that in this respect we will stay the same in the frame of the European Union. As I said at the beginning, in the Slovenian case, agriculture has a multifunctional role - more roles than only agricultural production. I think that our behaviour will take this line. Q44 Mr Drew: Last week, Professor Erjavec rehearsed the view that, to some extent, the changes will eventually result in a re-nationalisation of agricultural production. In other words, you have joined a big club, signed up to the rules, which you think are unfair, and maybe the rules will become fairer but, as the rules become fairer, people say, "You can be a very loose member of this club". Does that hold any fears for you, or does it give you opportunities? The main thing is to get the markets; the system of support is of secondary importance. Mr Jarc: I think that Professor Erjavec had in mind the idea that, with the reform, some parts of the agricultural policy, the CAP policy, could go the way of re-nationalisation, since there are few options now open concerning the implementation for the Member States. I do not think that he had in mind the problem of internationalisation of the production. For Slovenia, I would say that as a small country, of course it is very important that the old policies, including agricultural policies, are functioning well at the European level. It is very important that there is this balance amongst all the partners and the system is functioning well because then this system will also to a certain extent guarantee for the smaller Member States that they will be treated equally and the system will function, and this is also true for the agricultural policy. I do not think that it is a good idea to renationalise the agricultural policy, for Slovenia of course. Q45 Chairman: Thank you very much indeed. The quality of your answers has been extremely good. Mr Jarc: Falling down with time! Q46 Chairman: No, I think you managed to answer very succinctly and very directly all of the questions which we put to you and for that we are most grateful. Our thanks again to the time and trouble you have taken to put on the very clear presentation at the beginning and I think you have given us a very interesting insight into how a smaller country is adapting with clearly some success towards full accession to the European Union, and we send you our best wishes for that. We shall watch with interest what happens to Slovenia. Thank you very much for coming to see us. Mr Jarc: I thank you too for this opportunity and when you are in Slovenia, please knock on our door. Memorandum submitted by Ministry of Agriculture, Slovak Republic Examination of Witness Witness: Mr Karol Zimmer, General Director, Section for International Affairs, Ministry of Agriculture, Slovak Republic, examined. Chairman: Mr Zimmer, can I formally welcome you to the Committee. You are the Director General of the Section for International Affairs for the Slovak Republic. You are most welcome to our Committee. I notice that you and your colleague very patiently sat through our previous evidence session, so you have the advantage of knowing some of the areas that the Committee are interested in and why particularly in this session we wanted to talk to two of the smaller accession countries, following the Committee's visit the week before last to Hungary and particularly Poland which, if you like, are at the opposite end of the scale to yourselves and Slovenia. Q47 David Taylor: You have said that for the accession countries the economic importance of agriculture and food is very significant in some cases. In Slovakia there seems to be a floating down on the figures that we have in terms of economic importance. In 1995 I believe agriculture contributed about 5.7 per cent of GDP and the most recent figures we have show about 4.5 per cent, so in eight years or so, it has floated down by about 20 per cent. Is the economic importance of food and agriculture declining and, if it is, what is happening to its social and its cultural importance? Mr Zimmer: Mr Chairman and members of the Committee, I would also like to thank you for this kind invitation and the chance to present the position of my country and the agricultural sector of Slovakia here on the premises of the British Parliament. If I may suggest, I will quickly go through a verbal presentation of the country and I will try to answer the first question in that, so let me start with the wider macroeconomic situation of Slovakia. We are a small country of 5.5 million people which was having a steady growth of GDP when in the year 2002 it was 4.4 per cent, and for the year 2003 we do not know the exact figure yet, but it will certainly be something around 4 per cent. Inflation these days is at about 8 per cent, but it is only the outcome of the further deregulation of prices and the tax reforms which were introduced in the country, otherwise the core inflation is much lower and without these changes it would be somewhere around 3 per cent. The strength of the economy may be shown with an exchange rate of the euro and the Slovak koruna, although, as I mentioned, we have inflation of 8 per cent this year, of 5 per cent after launching the euro, and the Slovak koruna in nominal terms is now stronger to the euro than when it was launched, so that is real appreciation of the koruna against the euro. Regarding the general performance, Slovakia has probably the lowest price level among the EU 25 countries, so although the GDP per capita would put us somewhere in the middle of the acceding countries, we would be somewhere on the level of Hungary. However, there are maybe two Slovakias. One is the very rich region of Bratislava, which is the capital of Slovakia, and that region is above the average of the European Union and that makes it the second richest region of the acceding countries. On the other side, in eastern Slovakia, we have two regions which are among the ten poorest regions of all the European Union, so there are quite clear, big regional disparities in the country. I may say also that this is true for the agricultural sector and I can say that the sector is characterised by two different groups. One is highly profitable in any conditions and the other keeps making losses, and unfortunately over the past year the majority had the bigger loss in the country than the profit of the first group, so the agricultural sector has made usually a general loss since 1989, when fortunately we got rid of Communism, with the exception of the years 2001 and 2002. We originally forecast that in 2003 there would be profit again, but we were hit by the famous drought which was almost all over central and southern Europe. That hit our crop producers hard and the prices for crops went up, which then hit the animal producers, so unfortunately the sector has lost again as a whole. I mentioned 1989 when agriculture played a very large role in that period when it employed up to half a million people and now it employs less than 100,000, so between 1989 and 2003, as you correctly mentioned, the size of agriculture and the importance of agriculture for the national economy has decreased significantly. It is not only true regarding employment, but also regarding the share of GDP, as you mentioned, and also it is the same with the trade balance and foreign trade. Slovakia is usually a net importer. Agriculture makes roughly about 3.7 per cent of exports of the Slovakian economy and slightly higher in imports where 5.7 per cent of total Slovakian imports are agricultural products. Also the importance to the economy shows in the wages when Slovakian agricultural wages are roughly at 75 per cent of the Slovakian economy wages. When I mention trade, I would say that we import primarily meat and meat products, tobacco and beverages and we export milk and milk products and also beverages. As for the production in the country, one could say that after 1989 it had dropped by more than 50 per cent and it has not recovered since and is still at roughly the same level, and both crop and animal production are creating about half of the sector's total production. There were some questions of my Slovenian colleague regarding the structure of the economy, the structure of agriculture. In Slovakia, we have about 60,000 entities that are involved in any agricultural activity, but of that, roughly 7,000 are farms or can be considered as farms. Out of that, 1,500 are legal persons and 5,500 are private farmers. I would also say that roughly 98 per cent of farming is in private hands and the rest, the 2 per cent, may be places like school farms and not state businesses. Q48 David Taylor: If I can stop you at that point, you have painted a very full picture of the economic importance and the recent history of agriculture and food. The latest figure we have is that the unemployment rate within the Slovakian economy was around about 18.8 per cent last year. Is that rate significantly different in rural and food-producing areas or is it higher, lower or much the same? Mr Zimmer: Slovakia is a rural country. I would say that by OECD statistics, out of 79 districts we have only eight urban districts, which are five districts of Bratislava and three districts of the city of Košice, which is in the eastern part of Slovakia, and the rest is semi-rural or rural, so it is rather difficult to differentiate the rates of unemployment between the rural and urban areas in the country. However, the Bratislava region has the lowest unemployment at around 4 per cent which can give you an idea of how the unemployment is in the other areas. I would admit that when I think of a map of the country with the different unemployment figures, yes, the agricultural areas are hit more by unemployment, but still the figure sounds really terrific, if I may use that word, but the reforms which have been implemented now since 1998 account for the fact that the unemployment peaked in 2001 at 19.2 per cent, which is very high, but the recent figures are already looking at about 15 per cent, which is still very high, but going down from 19 to 15 in a three-year period is, I think, significant progress. Q49 David Taylor: You gave a partial answer earlier on in your introduction, that since independence agricultural production was stable for the first five years or so and then fell heavily in 1999/2000 to about 85 per cent and then 75 per cent in those two years of the pre-independence levels. What were the key factors, other than those to which you have referred? Mr Zimmer: Our climate conditions. Within the last couple of years we have had very strange weather back in central Europe when we have had either droughts or floods. Diana Organ: So it is God's fault! Q50 David Taylor: Of the accession countries, Slovakia has some of the largest farms with almost all cultivated land falling in farms of over 50 hectares which is similar to the Czech Republic indeed. Do you not think that presents you with a comparative economic advantage against other accession states, apart from the Czech Republic? Mr Zimmer: This is a very interesting question and my answer may be longer than you would think, but let me first give you some figures. We have 46 per cent of farms smaller than 10 hectares, but their total area is only half a percent of the agricultural area, so their role is minor. Farms over 1,000 hectares are 10 per cent of all the farms, but they work on 76 per cent of the area, so really the big farms are the major ones in the country and even mostly they are legal premises, co-operatives or limited companies, companies on a legal basis, but even the small farms, as we call them, the average size will be 40 hectares which are pretty big farms compared to, for example, those in Austria or Slovenia. Yes, we believe that the big farms may have a competitive advantage, but there is an economy of scale in agriculture, we believe, still. I was talking about the two different groups, the always-profit-making and always-loss-making companies and lots of the always-loss-making companies were the old co-ops, co-operatives. The reason is that until recently there were self-budgetary constraints in the agricultural sector when the Ministry of Agriculture used to support these kinds of farms so that they would not go bankrupt and they would not create more unemployment in the lesser regions. We abandoned that policy. On the other hand, the co-ops also had not a very good ownership structure and that sometimes was creating incentives for the managers to rid the assets from the companies, from the co-ops, so that is why many of them are not performing as they could be. On the other hand, when you have big farms in the country and they are private or they have good managers, they are very profitable and it does not matter whether there are floods or droughts or whatever, they will make profits. Q51 Chairman: In these very large units of 1,000 hectares or more, do they predominate in any one sector, like livestock or arable, or do they cover all sectors of agriculture? Mr Zimmer: Again it comes from the history of the co-ops when the collectivisation of the land was creating huge farms of maybe 4,000 or 5,000 hectares and they were doing everything, so I think that the figure that I gave you at the beginning that in agriculture there were half a million people employed back in 1989, that is what the statistics say, but the reality is that many of these people were working at a co-op, but they were not farmers, they worked the machinery, they were drivers, they did crafts, but we cannot go back and change the figures now. Q52 Chairman: Do you think these units will stay general, doing everything, or start to specialise? Mr Zimmer: The good farms are starting to specialise and I think this is the only way they can be profitable. With this size of holding, they are specialising. Q53 Chairman: Are you attracting in any outside investment to take advantage of the opportunities of some of these bigger units? Mr Zimmer: Yes, not from the UK though, but the Danes and the Dutch have already found out that there could be some good farming in the country and they keep coming. This is talking about farming, but with the food industry I do believe that most of the dairy sector, milk processing, is already in foreign hands, and 100 per cent of the sugar sector is in foreign hands, and some of the meat production as well. The country is very open to foreign investment, very open, and we try to attract foreign investors in every single sector, including food processing. Q54 Mr Mitchell: The big farms are remnants of state farms or collective farms, are they? Mr Zimmer: Actually there were two sectors in the Communist time. One was on nationalised land, land which was nationalised after the Second World War, and these companies were privatised, so these are usually now joint companies or limited companies. Then you had the agricultural collectivisation, so the families did not lose the land, but they had to give it so that it would be farmed under a co-operative. After 1989, they just removed the ownership of the land, but the co-ops are still co-ops in that the land belongs to different families and it is farmed under one legal entity. Is that clear? Q55 Mr Mitchell: Yes. To what extent have you been able to harmonise the agricultural policy to the EU in the run-up period? Mr Zimmer: The policy which was implemented before in Slovakia was in some cases similar to what we will do after 1 May, after accession, but in many cases it was different. I would say that we had lots of coupled direct payments in the meat and milk sectors. The far biggest payment was for LFA areas to grassland and this is not really what the CAP is talking about, so this will change significantly, and also the importance of payments for crop reduction will be much higher under the CAP. Anyway, as Mr Jarc mentioned, we decided, we opted for decoupled payments, the so-called Single Area Payment, which means that all the envelope that comes from the negotiated figures would be spread over hectares of all agricultural land, so that would be a major part in Slovakia of payments which would be totally decoupled. Then we will have some topping-up in the crop sector and I think this would be most of the payments in the country, so the simplification of the system for us is really very extreme and we believe that this could work well. Regarding prices, the last study we have made was in the second half of 2003, but that said that in most cases in crop reduction the prices will stay stable and will probably go down in maybe the year 2009 and forward. This is due to the fact that the prices are almost at the level of the Union and, as I mentioned, the Slovak koruna is en route for appreciation towards the euro, so that does mean that the prices will probably go down or stay stable in crop reduction. It is a different situation in the animal sector where most of the prices will go up after accession. They will go up significantly in some sectors, but we believe that in the animal sector there will be an increase of more than 30 per cent and in the beef sector more than 40 per cent and these will be farm prices. We believe that this will of course influence the prices of food, so this may bring about some not very nice social outcomes when the CAP will bring quite expensive food to a not very rich country. However, we decided to join the Union and I believe that was a very, very good decision. I forgot to mention that there is one exemption in the crop sector and I believe you may even guess what that will be, which is of course the sugar sector where the prices for sugar beet would go up by almost 80 per cent, which is our suggestion, for the farmers of course. Q56 Chairman: Can you just explain why? What are the factors which are going to push the prices up? Mr Zimmer: The institutionalised prices in the Union in these sectors and the fact that we have now very free trade, and that we have lower tariffs, quota protection and tariff protection in Slovakia than we will have in the Union. We are a very small market, so we believe that the prices will, in many sectors, go towards prices in Austria and Germany which are very close to our country's, so these are the predictions, we would say, but in the milk sector you have the institutionalised prices that go with interventions for skimmed milk powder and butter and that will of course push the prices up. Q57 Mr Mitchell: You say your farmers are doing better on prices, but in subsidy terms, support terms, what is going to happen because your levels of support have been lower than the EU's and you have now opted for the Single Area Payment, so does that mean higher payments to farmers? Mr Zimmer: Well, the total budget will increase in the Slovakian Republic, the total budget of the Ministry of Agriculture's budget for subsidies for farmers, but I must admit that this increase goes to structural operations, which means support for investments, not really direct payments, and also we negotiated well on our Rural Development Programme, which means the payments for the less favoured areas and things like that. Regarding direct payments, yes, the payments will go up, but not really that significantly and if we did not put them up, as we are by the Accession Treaty, I do not think the budget share would be bigger than it was last year. I was listening to my Slovenian colleague and I really must support what he said, that the farmers feel some kind of unequal treatment and unfairness in that deal of 25 per cent phasing in. An example, Bratislava, is really on the border with Austria and Hungary, five minutes from the city centre. You may reach the border with Austria in five minutes and the reality is that a farmer would get 300 euros for some part of his land, the farmer who is just next to him, one minute from him on the Slovak side would get a quarter of that. That does not feel very good for the farmers, of course, in these regions. Q58 Mr Mitchell: You mentioned there input payments and you do make more input payments available to your farmers, like agricultural fuel, tax rebates, irrigation grants, those kinds of things. Presumably they are going to come down, are you going to be able to maintain those in an EU context? Mr Zimmer: We have been paying these things for a long time but the state aid is going radically down this year. I believe that the biggest share of the budget would go for the payments which are completely CAP, so the direct payments, co-financing of structural operations, co-financing of the development programme. This will be 90 per cent of the Slovak budget. Q59 Mr Mitchell: Let us try and wind it up, higher prices you are expecting for some producers, lower input support but single area payment subsidies. What is going to happen to farmgate prices in Slovakia? Which commodities are going to see the biggest changes? Mr Zimmer: The crop sector we believe will stay stable with the exception of sugar beet. The farmgate prices will go up. There are some differences in barley but in general the prices should stay as they are now and in the long term they may even fall down. In the animal sector we believe that the prices of mainly milk and beef will go up quite heavily. Most of the animal production prices will go up, I think the only exception is poultry where we believe the prices will go down after accession. Q60 Diana Organ: Notwithstanding the vagaries of the weather, flood and drought, after accession what do you think will happen to agricultural production in Slovakia? Mr Zimmer: I wish I could tell you. The thing is that it is really hard to predict. We spoke about this with the people from the acceding countries, the original members, the 15, people from the Commission and everybody is just guessing. I think the best example of this is that the farmers in Bratislava or Slovakia are scared of the Austrian farmers. At the same time the Austrian minister would tell you that the Austrian farmers are scared of the Slovaks going to the Union so the fear is on both sides. What we predict is that the amount of the production in the country will not change particularly all the time and we believe that there will be some reshaping of the agriculture trade but within the accession countries. There will be some changes in the share and flows of production between Hungary, Poland, Slovakia, Slovenia but not really with Austria, Germany or these other countries. We believe this first shaping will be like that. To give you a figure here, one third of the agricultural trade, of the imports to Slovakia is from the Czech Republic, so that is our main trading partner and the other third would be from all EU 15. The importance of trade with the EU 15, for all EU15 is on the level of the Czech Republic. Q61 Diana Organ: If you had to look across your sectors after everything has been adapted to the conditions in the CAP which sector would you feel most concerned about and which sector would you think is going to do the best? Mr Zimmer: I am afraid that the pig meat sector will be the loser and the poultry sector as well. Unless some new investment comes there I am really afraid for the farmers that do this. The reason is that they are not efficient, proportionately they are not efficient. I believe that is partly due to the fact that these two sectors are well protected over the period. So they have got some pillow but now we will take the pillow from them and I am afraid that they will fall down heavily. On the other hand, I believe we have good conditions for milk production and beef, sheep and goats. These may be the winners, and of course also some cereal productions, crop production may be winners. As I mentioned, the dual character of farm structure in Slovakia, it is also right with the soil. The sub Slovakia, it is really low lands and the cereal production can be very well done. On the other hand, the rest, two thirds of the country is hilly or mountainous, you will not get much maize there. So we believe that the south may improve their crop production and the north may improve milk and beef, maybe sheep and goats. Q62 Diana Organ: So the sectors that you think may be putting in extra production and might be faring very well, such as you said beef, milk and others, do you see that increase, and the way they do things, will that go into meeting increased consumer demand, or is going to be all exported? You talked a little bit about your net balance in agriculture and food products, and it is a situation that you touched upon with your trading with the Czech Republic, where do you think this extra production is going to go? Mr Zimmer: I think mainly it will stay in the country. The trade deficit with products that are produceable in the country is still quite large. It is not just that we are importing pineapples and bananas, we do produce things in country, so if the production is improved then I believe that most of it would be used in country and, of course, I mentioned the inflation figures and the unemployment rate, so I believe that this will also get better in the future and that will of course mean an increase in domestic demand. Q63 Diana Organ: I will ask this one question, if we were looking out for something what you would consider your very best product that we might look for to purchase and to consume and to enjoy? Mr Zimmer: I am happy you raise this question because I must admit when Mr Iztok Jarc was talking about their catering he was right. I do not know if you could get better pizza as you get in Slovenia anywhere in Europe, maybe including Italy. My colleagues told me the two lunches they had there were the best. The wine is really good there and I think that he was supposed to tell you that they had great prosciutto - very, very juicy. However, let's go back to Slovakia. Q64 Diana Organ: What is in your basket? Mr Zimmer: I will go back to Slovakia but in the capital of Slovenia, a Slovak white wine won the World Championship Medal last year so we have good white wines. We have great cheeses, both from cows and from sheep and goats, and we have some good meat products as well, but really if I may advise you try some good Slovak white wine and eat some cheese with that. Diana Organ: It sounds like a cheese and wine party. Chairman: We are salivating at the thought, it sounds very good! Q65 Mr Lazarowicz: We are talking about changes in prices after accession but how will accession affect the incomes of farmers when you take into account the direct payments and the market support mechanisms? Mr Zimmer: With the direct payments phased in we believe that the sector should stay in profit after the accession, at least on average. As I mentioned, in the last 15 years there were only two years of profit in sector, that was the years 2001 and 2002. Unfortunately, the restructuring the sector has undergone has been very hard to bear and I have mentioned the bad weather conditions already. When we have increased direct payments from the Union the situation should change and the farmers should make profits, but we still believe that in the next couple of years without the direct payments the sector as a whole would be making a loss. Q66 Mr Lazarowicz: We had evidence from Professor Tarditi from Sienna University, of which you may be aware, which suggested that the increase in Slovakian farmers' revenues could be around 148 per cent. Do you think that is too optimistic? What do you think the likely range might be? Mr Zimmer: I am afraid this figure probably comes from our Slovak friends. It is the only thing that will change it from total loss to total profit and that is where the recalculation is quite difficult to measure so the revenues will not change that much. No way. It will just change the usual loss up to a slight profit in the sector in the medium term. Q67 Mr Lazarowicz: Okay. On that basis, how far do you think that the income gains, wherever they are, will be captured by the largest sectors of the industry and how far will the gains be concentrated in that sector of farming? Mr Zimmer: This is a very difficult question to answer. I mentioned that the co-ops are on rented land or on somebody else's land. With capital payments the connection between the land and the payment is very strong so this may lead to the result that most of the money would be captured by the landlords and not by the farmers but we cannot predict that. Still the analysts of the CAP say that at least 50 per cent of the payments go to landlords not to the farmers under the current CAP. With decoupling this may go further. Q68 Mr Lazarowicz: I missed part of your evidence at the beginning for which I apologise and this question may have been asked or may have been covered, but how far do you expect there to be a substantial increase in foreign investment in the farming industry in Slovakia? In particular will there be any increase in land ownership by foreign companies? Mr Zimmer: There is some inflow of direct investment from abroad even in the agriculture sector and that is mainly the Danes or Dutch coming in, but for most of the accession countries it is a condition of the Accession Treaty that we may ban foreigners (physical persons) from buying the soil, and there will be some kind of regulation that the soil would not be easily bought by foreigners, at least physical persons, there is a possibility of course for the legal person to come in. I cannot predict how many investors will come to the country but I cannot say that there are queues at the border just waiting to get in and buy up the land. I do not think that is going to happen. Q69 Alan Simpson: Can I just follow that line. You are not having other queues, are you, where big agricultural companies are seeking to lease the land if they cannot buy it? Mr Zimmer: They lease. They have contracts for the land and most of the land is leased in the country, that is true. Q70 Alan Simpson: Okay, so really what I want to focus on is environmental impacts because one of the things we came across when we went to Poland was a recognition that the government appeared to have no particular competences at holding the big agricultural producers and pig meat producers to account for the environmental damage that they were doing within the country. Are your mechanisms going to be any better? Mr Zimmer: As I mentioned, we have opted for the Single Area Payment Scheme and that is, I believe, even more environmentally friendly than the current system in the EU15 because the Single Area Payment Scheme can only go to land that is in good agricultural condition, so the paying agency will have to check this, whether the land is suffering from erosion, things like that so, yes, the Single Area Payment Scheme will be quite favourable towards environmental protection and once we get to Single Farm Payments, as you will, then the cross-compliance will hit the country as well, so the paying agency and the delegated bodies will be forced to check that and enforce the regulations. Q71 Alan Simpson: Okay, but when the European Commission set up their network of independent agricultural experts, one of their comments about your country was that Slovakia "had a problem of unsustainable structure of agricultural production in less favoured agricultural areas from an economic as well as an environmental point of view." This was their concern about the less favourable areas and your ability to control the environmental impact of changes there. Do you think that is a fair criticism? Mr Zimmer: I think I would need more circumstances as to what they meant by that. I know in some accession countries there was a lot of land abandonment where the people would leave the land and let it go to bushes or trees. Actually that did not happen much in my country. I know that the level of environmental protection was lower in most of the ex-Communist countries than it was in the Union so this may come up from that, but we are in line with the regulations needed in the EU so I really cannot answer you now. I know that this does not look very nice that I am leafing through this book but I am searching for a figure that I saw here and I am sorry, I cannot find it. If I may, I will distribute this to you. It is a report on the Slovakian agriculture and food sector. I was having some comparisons about the level of fertilisers that we use and that the European Union average and I think we were something like one third in the fertiliser usage per hectare. Q72 Chairman: Do not worry, you can always send us the information afterwards if you cannot find it at the moment. Mr Zimmer: I love figures, that is why I am leafing through it. I will quit now. Q73 Alan Simpson: I will chase it in the report you give to us. One final question in two parts. The first is a very straightforward point: do you license GM crop production? The reason I ask that is one of the problems we are also trying to focus on is the ability of accession states to be able to monitor and deliver on traceability standards that the EU is going to require and it is whether you have the infrastructure to deliver that. Mr Zimmer: GM crops is a big issue in my country as well regarding the traceability. The conditions from the European Commission to the laboratories and the work of the laboratories in this field were very strict and the demands were very heavy and we fulfilled them so, yes, we are able to trace that. Q74 Mr Drew: You probably heard what I said to Mr Jarc about the relationship to the Common Agricultural Policy. Just to summarise it, I would welcome your views on this, that you are joining, receiving lower direct payments and presumably Slovakia would feel somewhat aggrieved about that, notwithstanding that your agriculture seems to be reasonably successful from all you have been saying to us. I am interested in the politics about who you are going to be talking to to try and get greater fairness. The final question I put to Mr Jarc was this one about renationalisation. Is that something that you would welcome or do you see that as completely against why you are joining the EU? Mr Zimmer: Regarding renationalisation of the CAP, we would not favour that. We would not favour a national agriculture policy, we prefer a horizontal one. On the other hand, we really welcomed the reform that was passed in June. We believe that the CAP should be changed and should be focused more on competitiveness rather than just keeping the production going on and on and on. I can be very honest now, when my Minister goes to the Council of Ministers one of the persons they listen very carefully to is your Minister because we sometimes share the view that says that although agriculture needs protection it should be given under more competitive pressures, if this helps you. Q75 Chairman: Can I just conclude by ask you asking you in terms of the Commission's Comprehensive Monitoring Report they highlighted a number of areas for further work both in terms of systems like the paying agency and in terms of adapting your national law, as we were discussing earlier, to EU requirements. Are you going to meet those deadlines? Mr Zimmer: We certainly hope so but I must admit that I was waiting for this question because I am kind of proud about what I can tell you now about that. We had a meeting about this Monitoring Report I think it was at the end of January and after a presentation the last statement from the Commission towards the paying agency and the IACS system was, "You have confirmed and we are really confident that you will make it by 1 May." We had three points, one was paying agencies, one was IACS and the last one was food safety, so at the last meeting with the EC they were confident we were going to meet the two. Yesterday we had a meeting with the chiefs of SACO which cares about food safety. If I may quote - and my Minister was even blushing over how nice they were to us because we have done a great job, and I believe that we have done a great job - the chief of SACO was saying that, "If there is any country among the acceding countries we do not have troubles with in food safety now, it is you." So I was really proud. The lady mentioned things like the search for experts in the field of the establishment of food safety, she would definitely recommend somebody from my country. So I think that we have done a very good job in that field. Chairman: On that very positive note and indeed underpinning the wholesomeness of the food from your country, we will draw our questions to a conclusion. May I thank you most sincerely for the time and trouble you have taken to prepare for this and for so candidly answering our questions not only with good facts but also with good humour. We wish you well in the remaining months and weeks that lie ahead and hope you will enjoy your full membership of the European Union. Thank you very much for coming to see us. |