37. In our view, the
subsidy of tobacco production in the European Community is a scandalous
waste of taxpayers' money. The entire system of premium payments
is designed to sustain production at costs which the market is
not prepared to meet. Far from solving the social and economic
problems of the areas which it purports to assist, it keeps small
scale tobacco growers in poverty and isolation and makes no attempt
to help them discover more satisfactory employment opportunities.
The tobacco sector is a hole in the ground into which money is
being poured with no thought for the long-term prospects of those
involved in it. The tobacco regime needs fundamental reassessment.
38. We recognise fully
the case for support of rural communities in less developed, disadvantaged
regions. We acknowledge the part played by tobacco subsidies
in propping up incomes from small farms which would not otherwise
be economically viable. But such a prop is not a long-term solution.
If those areas are to thrive in the future, then their economies
must be set on a more sustainable and defensible foundation.
Transition may be painful, but solutions which would be unthinkable
if implemented overnight become feasible if introduced sufficiently
39. Our view has not
been greatly coloured by considerations of the harm done by tobacco
to human health. Of course there is an apparent anomaly between
Community support for tobacco production and Community attempts
to discourage smoking, and the Community's message about smoking
would be clearer if subsidies to tobacco growers were discontinued.
But cutting Community production would not affect levels of consumption
either inside or outside the Community, since demand would simply
be met by supplies from elsewhere. Indeed to expect otherwise
is tantamount to denying the action of the market. Nevertheless,
considerable political will will be required if radical reassessment
of the tobacco regime is to be achieved and sensitivity to the
public health arguments - no matter how ill-founded - could assist
in creating it.
40. We welcome the Commission's
thorough and honest assessment of the state of tobacco production
in the Community. The proposal to introduce an element of responsiveness
to the market is attractive, in a sector which has hitherto been
insulated from market pressures. Proposals to encourage producers
to leave the sector voluntarily are also attractive, and innovative.
The bond proposal is particularly welcome, since it is an approach
consistent with the diverse circumstances of those in the industry.
41. But the Commission's
proposals stop a long way short of what is necessary, and will
not provide a sustainable system for the future. For example,
they take insufficient account of factors external to the tobacco
regime. They make no provision for response to likely future
pressures from the WTO for decoupling of subsidies. They ignore
the implications of likely enlargement of the Community, with
no suggestion of how tobacco production in potential new Member
States would be assimilated into the regime. Even if the regime
is modified now in the way the Commission proposes, it is clear
that it will need further, and more substantial, revision in the
early years of the next century.
42. The only external
factor which the Commission seeks to accommodate is that of changing
markets for tobacco, and the increase in high quality/low cost
production in developing countries. But encouragement to Community
producers to switch to better quality varieties does not address
the question of competitiveness. There is no reason to expect
that Community producers could grow those better varieties more
competitively than producers elsewhere, particularly on their
small and fragmented holdings and while, with high levels of subsidy,
there is no incentive to invest in more efficient methods of production,
43. Nor does the Commission
consider fairly the possibility of gradual disengagement from
tobacco subsidy. Its description of the implications of such
a development relates to an abrupt cessation of support, with
no account taken of the possibility of an extended period of adjustment.
Such a presentation makes disengagement appear politically unrealistic.
That is not a fair conclusion.
44. In discussing the
possibility of converting holdings from production of tobacco
to other crops, the Commission describes tobacco as a "crop
that generates high gross profit margins per hectare" (page
30). Since some 80 per cent of the revenue to producers from
tobacco is accounted for by subsidy, this is an astonishingly
misleading statement, and puts an unfair slant on considerations
of alternative economic activities. The reality is that tobacco
production in the Community is only sustainable on the back of
massive subsidies, and it is necessary to ask whether they represent
the best way of attaining the Community's objectives. We think
45. Another reason which
the Commission puts forward for rejecting disengagement from tobacco
subsidy is that the Community market organisation in tobacco might
be replaced by national organisations. We, on the contrary, can
see merit in such a development. A solution which allows Member
States to take their own action, within a framework of structural
measures set down by the Community, has many attractions and is,
moreover, one which the Commission itself has put forward in other
46. As noted in paragraph
21 above, the Commission acknowledges that solutions to the socio-economic
problems of tobacco producing areas will need to be found outside
agriculture. But this is not followed by any consideration of
what those solutions might be, or even how they might be identified.
This is a serious weakness in the Commission's report, and one
which we would hope to see rectified. It seems likely that this
arises from the rigidity of structure in the Commission which,
as we have noted on previous occasions,
makes it difficult for different policy areas to be integrated.
This is a serious impediment to rational policy-making.
47. As we have said,
the Commission's proposals for specific changes contain some welcome
elements. But even here there are weaknesses. The stated purpose
of the modulated premia is to force resources which are at present
used uneconomically to shift to more productive uses, in this
case the growing of better tobacco varieties. But the Commission
intends that the fixed portion of the premia should continue to
provide a satisfactory minimum income. This will inevitably impede
the process of shifting resources, since the incentive to switch
varieties will be modest.
48. The Commission's
proposal to pay modulated premia through producers' groups is
not clearly developed. Although its stated aim of simplifying
administration is to be welcomed, we perceive likely difficulties.
The Commission acknowledges that the "amount of aid received
by each producer will depend on the mean price calculated for
his own group" (page 36). It is possible therefore that
the incentive to join the right group will be at least as great
as the incentive to switch to a better variety of product. We
are also concerned at the Commission's complacency that scope
for fraud would be limited to "a zero sum game in which the
producers would be cheating each other" (page 35). The Commission
cannot absolve itself so lightly of its responsibility to prevent
fraud in the distribution of Community resources.
49. The most forward-looking
elements of the Commission's proposals are those designed to encourage
tobacco growers to leave the sector. But the idea of strategic
local development plans is not much developed, nor is the proposed
use of Structural Funds for Objectives 1 and 5(b). Most important,
there is no indication of how these ideas can be reconciled with
a policy which continues to provide incentives, in the form of
premia, to remain in tobacco production. This contradiction explains
why, as the Commission notes, previously enacted early retirement
measures for producers
have had a low take-up rate.
50. It is also not clear
from the Commission's report how much money will be available
to fund the proposals on leaving the sector. Since quota and
premia are to remain unchanged, it seems unlikely that sufficient
funds will be available to make much impact.
51. Our preferred solution
would be to combine the Commission's proposals with a gradual
reduction in both premia and quota. Phasing out gradually over
a period of perhaps 10 years would prevent the worst effects of
cutting off aid, and would permit diversion of increasing levels
of funding to those elements of the policy which can be expected
to achieve more long-term benefits than do subsidies. The best
mechanism in our view would be the saleable bonds contemplated
by the Commission. Such a programme would assist those who could
identify economic opportunities outside the tobacco sector, while
providing a continuing floor over a substantial period for those
for whom alternative income-producing activities were least available.
52. A satisfactory new
regime for tobacco must be keyed into the social security system
and the provision of pensions. It would also need to be underpinned
by carefully worked-out regional development programmes, including
the provision of infrastructure, training and access to information
technologies, and the encouragement of value-added activities
53. We recognise that
encouraging tobacco growers to leave that sector will be likely
to result in the transfer of some resources into other agricultural
products. But we do not share the Commission's anxiety about
the problems that this will create in those other commodity areas.
Those problems should be addressed by adjustment of those other
CAP regimes, rather than being used as an excuse to resist reform
of the tobacco regime. We have set out in a previous Report
our recommendations for reform of the fruit and vegetable regime,
which is a sector into which some tobacco growers might be likely
54. We recognise that
implementing changes in the tobacco regime will not be easy, and
that transition may well be painful. But it must be better to
seek to modernise and develop the economies of the tobacco-growing
areas, than to ensure the continuing dependence of producers on
subsidies. Moreover, since external factors make it inevitable
that sooner or later subsidies will have to stop, the process
of change must begin now if the Commission's predictions of doom
for tobacco-growing regions (page 29) are not to be fulfilled.
See, for example, 3rd Report, Session 1996-97, Third Country
Fisheries Agreements, HL Paper 28. Back
Regulation 2079/92. Back
1st Report, Session 1995-96, Reform of the EC Fresh Fruit and
Vegetable Regime, HL Paper 18. Back