Select Committee on European Union Tenth Report

Impact on Less Developed Countries

113.  A major shortcoming of the mid-term review recommendations from the point of view of the less developed countries is that they make no proposals for the dismantling of the "traditional" EU support and protection mechanisms and that therefore access to the EU market for agricultural exports from the less developed countries will still be obstructed and their domestic markets disturbed by subsidised dumping of EU surpluses of dairy products, sugar and meat. While the first problem should to a great extent be overcome by the "Everything but Arms" concession, there is considerable validity in the argument that the sheer volume of the subsidies which will still be paid to EU farmers after application of the mid-term review proposal will still represent a hidden subsidy to production which will allow the EU to dump its products in less developed markets. In the dairy product and sugar markets, the unreconstructed common market organisations which will remain after application of the mid-term review proposals will in any case ensure that this market distortion continues. EU health, safety and quality standards are likely to remain a substantial barrier to the access of less developed country agricultural exports to the European market.

114.  The EU has a responsibility towards the world community, particularly towards less prosperous members, which it has yet to address properly. We share DFID's disappointment that the Commission has not looked in more detail at the impact of its proposals on developing countries. If there is to be any gain for the less developed countries in the mid-term review process it has to come from a significant reduction in the level of EU subsidisation of production. Only in this way can subsidised competition in the domestic markets of these countries and on the international market be reduced. For this reason it is not only necessary that the EU's subsidies be detached from production, but also that the level of subsidy payment to the individual producer be reduced. It is clear that large subsidies to large farms are a positive incentive to low cost production which will continue to undercut international markets—whatever form the subsidy may take. We deplore the complacent attitude of a number of Member States' governments to this problem, as revealed in the seven ministers' open letter of 23 September (paragraph 77).

115.  We therefore recommend that in order to act as intended, as an income subsidy only, the level of subsidy receipts allowed to individual holdings should be capped, as originally proposed, but at a much lower rate than that recommended by the Commission. The converted subsidy should be utilised only as a transitional income supplement, to be used only where hardship is created by elimination of EU support to production or in economically disfavoured areas (paragraph 78).

116.  As part of the mid-term review the EU must abandon its direct subsidisation of exports and scale down its import tariffs. Developing country trade is particularly affected by the EU's subsidised exports of wheat, dairy products and sugar. It is therefore all the more essential that the EU abandons its direct subsidisation of these exports and takes early steps to reform its dairy and sugar market regimes which remain the two outstanding examples of unreconstructed common market organisations. The Commission's January 2003 proposal to continue dairy quotas is a step in the wrong direction (paragraph 79).

117.  Where reform of European agriculture policy and the introduction of the "Everything but Arms" agreement harms the incomes of countries which are dependent on the high prices maintained in the EU market through long-standing preferential access agreements, the EU's development effort to diversify the economies of these countries should be intensified (paragraph 80).

118.  An important conclusion to be drawn from the evidence presented by less developed country and development agency representatives is that reduction of subsidised competition and the lowering of import barriers is only part of the solution to the problem of increasing the agricultural trade of developing countries. As important is the removal of health, technical and quality obstacles. We therefore recommend that more emphasis should urgently be given to development projects which will assist less developed countries to meet EU health, safety, quality and labelling requirements (paragraph 81).

Sustainability of European agriculture

119.  The three main features of the Commission's proposals—decoupling, cross-compliance and modulation—can be expected to make a significant contribution to the sustainability of European agriculture. The measures envisaged could on balance be expected to reduce the pressure of intensification of agriculture on the rural environment, to force farmers to have more respect for EU environmental, food safety and animal welfare regulations and provide funding for new measures to foster these desirable objectives. The degree of switch in importance from market support to these measures to improve the quality and safety of food and food production will however be seriously hampered by the relatively small amount of money likely to be transferred from Pillar 1 to Pillar 2. On the basis of the Commission's January 2003 modification of the mid-term review proposals, the total annual amount of money to be transferred to Pillar 2 in this way will be only €1.48 billion for EU25 by 2013.

120.  It is essential that the cross-compliance measures and the closely allied Farm Advisory system recommended in the mid-term review proposals are sufficiently effective to ensure that possible intensification stimulated by the reduction of support to production is discouraged (paragraph 90).

121.  The switching of funds from support of production to structural, environmental and other Pillar 2 considerations proposed by the Commission amounts to only a possible total of €1.5 billion for the EU15 by the end of a seven year period. We consider that this is inadequate to have any noticeable effect. We therefore recommend that—subject to careful monitoring and assessment of value for money—the modulation percentage should be considerably more than the maximum of 19 per cent proposed under the Commission's "degressive modulation" proposal of 21 January 2003 and that the time allotted to reach the full figure should be considerably less than what has now effectively become ten years. We deplore the delay in the application of this measure until 2007, as recommended in the January modification of the Commission's proposals (paragraph 91).

122.  A revised CAP should be less complicated, less bureaucratic and less centralised. It should offer farmers more choice about how to run their businesses. In this respect these proposals fall far short of the Commission's commendable intentions to deliver such reforms (paragraph 92).

123.  If environmental measures are to be effective it is important that, rather than being of an essentially prescriptive nature, the new policies envisaged within the mid-term review proposals should be designed to encourage and reward good land management. We recommend that the type of subsidised "best practice" measures being developed in the UK and in some other EU Member States should be adopted at the general European level (paragraph 93).

124.  Early agreement and the application of the Commission's cross-compliance proposals is if anything more urgent in the new Member States than in the EU15. This is because there are many habitats and species still surviving in eastern Europe which are now rare in the west. Failure to apply effective cross-compliance measures could result in these being endangered by the intensification of agriculture in these regions (paragraph 48).

Recommendation to the House

  1. This Report is made for debate.

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