Select Committee on European Union Tenth Report

PART 3: analysis and opinion

Scope of this Report

26.  It is clear that the European Union's Common Agricultural Policy does not meet current economic, social and environmental requirements. This is recognised by the European Commission and the governments of only a minority of EU Member States. The Commission has sought to remedy these shortcomings by proposing a set of reforms which have to be recognised as radical. The purpose of this Report is to discover what the impact of these proposals would be, were they to be accepted by the Council of Ministers, on the external aspects of European agriculture policy. We have found it convenient to structure our findings under the following headings:

·  eastward enlargement of the European Union

·  the Doha Round of agricultural trade liberalisation negotiations

·  the impact on the trade and agriculture of the less developed countries

·  the long term sustainability of agriculture.

27.  Throughout this part of the Report we present a qualitative overview of the key issues, based on our appraisal of the evidence, without observing too rigid a distinction between factual reportage and opinion. The passages highlighted in bold type contain specific conclusions and recommendations to which we wish to draw particular attention.

Viable agriculture and rural policy: the Mid-term Review proposals tested against OECD criteria

28.  It is helpful to begin this analysis by examining how far the current CAP and the reformed policy, as proposed by the Commission in its July 2002 blueprint for the mid-term review of European Union agriculture policy, meet accepted criteria for a viable agriculture and rural policy, such as those agreed by the OECD Ministerial Agriculture Committee in 1998 (see Box 3).
Box 3

OECD Criteria for viable agriculture and rural policy

The OECD Committee for Agriculture, meeting at ministerial level in 1998, agreed that governments should provide an appropriate framework to ensure that the agro-food sector:

·  is responsive to market signals;

·  is efficient, sustainable, viable and innovative, so as to provide opportunities to improve standards of living for producers;

·  is further integrated into the multilateral trading system;

·  provides consumers with access to adequate and reliable supplies of food, which meets their concerns, particularly with regard to safety and quality;

·  contributes to the sustainable management of natural resources and the quality of the environment;

·  contributes to the socio-economic development of rural areas, including the generation of employment opportunities through its multifunctional characteristics, the policies for which must be transparent;

·  contributes to food security at the national and global levels.[18]

Response to market signals

29.  In terms of gross agricultural production, most major sectors of the EU agriculture industry are currently heavily insulated from market stimuli. Either market intervention or direct production subsidies ensure that there is little response to fluctuations in international prices for the major agricultural commodities. The change to an income subsidy based system as recommended in the European Commission's mid-term review proposals would be likely to achieve this objective—provided that all current market support and production subsidies were removed. There would also have to be serious limits on the total amount of subsidy that any one farm business could draw in subsidy, otherwise it would still act as a subsidy to production. In this respect the January 2003 proposals have diluted the original July 2002 ones, which we regret.

Efficiency and sustainability

30.  There is little doubt that the part of European agriculture that produces over 80 per cent of agricultural output is efficient in terms of productivity: production of most commodities increases every year with less labour and fewer inputs. Some would argue that without subsidies it might be more efficient. It is difficult to decide what "sustainable" means in this context: in economic and production terms modern European agriculture is sustainable—if it were not production would be falling rather than rising. It is however clear that in many aspects, in the provision of public goods and in damage to the environment, modern intensive agriculture is not sustainable.

Integration into the multilateral trading system

31.  European agriculture is certainly not integrated into the multilateral trading system. Indeed, its relationship with the international market is outstandingly dysfunctional. Directly subsidised exports of dairy products, beef, sugar and coarse grains and indirectly subsidised wheat exports damage the domestic agricultural markets of developing countries and the international markets of competitive developed countries. Escalating tariffs and proliferating tariff quotas restrict access to the European market, with, for example, the European Commission introducing new tariff rate quotas for cereals from January 2003. The gross cost to the taxpayer of the CAP continues to increase.[19] Application of the Commission's mid-term review proposals should offer the opportunity for the market distorting elements of the present system eventually to be eliminated.

Provision of access to adequate and reliable supplies of safe and high quality food

32.  Modern agriculture in temperate climate zones has delivered security of food supply. European agriculture in its present state would provide this security, with or without current policies. Generally, European food is safe and of high quality. With the exception of the atypical BSE episode, most food safety problems are created after food leaves the primary producer.

Contribution to the sustainable management of natural resources and the quality of the environment

33.  Whether or not modern European agriculture "contributes to the sustainable management of natural resources and the quality of the environment" depends on definitions. It is clear that, in certain areas, modern agriculture has damaged the environment. Adoption of the mid-term review proposals would provide the means of reducing any harmful effects of agriculture on the environment. It does at least represent a step in the direction of making farmers more accountable for the environmental effects of their activities.

Contribution to the socio-economic development of rural areas

34.  It is doubtful whether modern agriculture contributes much to the "socio-economic development of rural areas". While it certainly puts money into the local economy, agricultural modernisation has been a major cause of reduction in agricultural employment in parts of Europe. This of course emphasises the need for specific, non-agricultural policies, to deal with the challenges of maintaining rural social structures.

Contribution to national and international food security

35.  European agriculture contributes to world food security by ensuring that the EU never needs to draw extensively on world food supplies to maintain its own consumption. It contributes to insecurity by undermining markets in third countries and thus diminishing food production capacity in countries which need to increase their own food security. Application of the Commission's proposals should moderate this disruptive influence of European agriculture—provided that the full implications of the plan are followed through.

36.  The Commission's proposals rightly stress the multifunctional role of agriculture. However, the Commission is recommending that the vital non-production functions of agriculture—the maintenance of rural structure, conservation of the countryside and environmental care—should be addressed through specific policy instruments, rather than by supporting agricultural production and markets. Implicit in these proposals is the acceptance that production based policies cannot deliver the non-
Box 4

CAP is something we can be proud of

Letter to The Financial Times, 23 September 2002

Sir,—Certain critics blame many of Europe's difficulties—and the world's—on the common agricultural policy. The media often take these criticisms on board without appropriate detachment.

The CAP is accused of encouraging overproduction. This is not fair. Butter mountains are things of the past. The CAP has been able to control production and at the same time allow ever-increasing levels of imports. The European Union is a big importer of agri-food products. We are far from being "fortress Europe". Storage, when it occurs, is for strictly sanitary reasons or for dealing with limited cyclical situations.

It is also claimed that the CAP, with its emphasis on production, encourages pollution. Let us not forget that, when Europe adopted the model in the 1960s, it was primarily to feed the population of a continent that was not self-sufficient. Production for its own sake is something else. Improvement of Europe's competitiveness came at this price. But today rational agricultural practices are developing and it is more than 10 years since the EU developed agri-environmental measures, confirmed by decisions taken in the context of Agenda 2000. Since the 1992 reform, followed by Agenda 2000, the changeover to sustainable agriculture has been steady, maintaining market competitiveness and contributing to the protection of the rural environment, while seeking to respond better to consumer demands.

It has also been said that the CAP was responsible for the BSE (mad cow disease) crisis. In reality, it was a lack of, rather than excess of, European policy that favoured its spread. Quality has continued to improve over recent decades. Food is safer now than 20 years ago. It is consumer reaction that has become stronger and that is good.

It is also widely asserted that the CAP costs Europe too much. But the financial framework agreed in Berlin has been largely respected and support for agriculture amounts to less than 1 per cent of total public expenditure by the EU and Member States, compared with 1.5 per cent in the US.

Some also claim that the CAP is responsible for causing hunger in developing countries. Nothing could be further from the truth. Agriculture in some of these countries, particularly in Africa, is primarily concerned with promoting self-sufficiency in food. This is seriously undermined by destruction of traditional agriculture in favour of cash crops, which encourages an increase in imports and in the indebtedness of these states. Production of crops such as cocoa and coffee depends on the markets for primary products, which have nothing to do with the CAP.

Let us stop the false accusations. Let us be justifiably proud of the progress made over the last 40 years. Together we can build a future for our agriculture. We wish to make a constructive contribution that respects the programme agreed in Berlin.

First, let us tackle the problems that exist in a number of production systems and correct the imbalances. Let us also reaffirm that farmers should be able to live on the price paid for their products and to absorb the costs arising from environmental requirements, food safety and food quality. Then let us reconcile farmers and society, a task that needs sufficient numbers of contented producers with confidence in the future to ensure the economic balance of all our territories and to maintain the diversity of our landscapes.

Last, let us put in place an ambitious policy for rural development and agri-environmental incentives that is less bureaucratic and more effective. Above all, let us be proud of building together an agricultural policy that meets our vision for our European civilisation. This is what we call our European model of agriculture, as validated in Berlin.

For us, agricultural products are more than marketable goods. They are the fruits of a love of the land that has developed over many generations. For us, Europe could never be a fortress isolated from the rest of the world. Europe should be proud of its model of rural civilisation, which it should do more to explain and share with others. It has been able to show the way through its "Everything but Arms" initiative, which other countries would do well to copy. Farmers must not become the "variable adjustment" of a dehumanised world. We see them as full participants in our society.

Yes, our ambition for Europe is a modern agriculture in which people and the land will play a part. Only by respecting these principles can we give tomorrow's enlarged Europe the agricultural policy it needs.

[Signed:] Fernand Boden, Miguel Arias Canete, Armando José Cordeiro Sevinante Pinto, Hervé Gaymard, José Happart, Wilhelm Molterer, Joe Walsh

The above are ministers of agriculture for, respectively, Luxembourg, Spain, Portugal, France, Wallonia (Belgium), Austria and the Republic of Ireland

production functions of agriculture in an efficient manner and too often not at all. The Commission's biggest political challenge is to persuade the majority in the Council that protectionist policies which disrupt markets cannot eliminate the inevitable shrinkage of the importance of agriculture in developed country economies: it can only shift the burden of adjustment on to other countries.

37.  A foretaste of the impending battle in the Council was provided by a letter to the press in September 2002 signed by the ministers of agriculture from seven EU Member States. It would require only one or two more to make up a majority of votes in the Council (see Box 4).

Implications of the Commission's Mid-term Review proposals for eastward enlargement of the European Union

38.  Assessment of the impact of the Commission's proposals on the agriculture of the ten countries now due to join the European Union from 2004 has been complicated by the terms for application of the EU agriculture policy agreed by the EU heads of government at their meetings in Brussels and Copenhagen in October and December 2002 (see paragraphs 21-24). While it had originally been intended to apply only the market mechanisms of the CAP and to make substantial structural payments in place of the direct subsidies paid in the present 15 EU Member States ("EU15"), the final agreement has resulted in a commitment to pay direct subsidies on the same basis as the EU15, fully, by 2011.

39.  As a result of this commitment, it is now difficult to see how the mid-term review proposals are going to ease the transition process; if anything they are likely to complicate matters. Certainly the subsidies as initially paid in the new Member States will serve to maintain people in agriculture and act as a stimulus to production. Subsidies are subsidies and if they are paid in the candidate countries their effect is unlikely to differ very much whether decoupled from production or not.

18   OECD (2002): Agricultural Policies in OECD Countries: A Positive Reform AgendaBack

19   See paragraph 15, footnote 3. Back

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