Voluntary Report - public distribution

**Date:** 7/29/2004

**GAIN Report Number:** IT4016

IT4016

**Italy**

**Trade Policy Monitoring**

**Italy reaches an agreement on implementation of June 2003 CAP Reform**

**2004**

**Approved by:**

![](media/image1.wmf)Ann Murphy

U.S. Embassy

**Prepared by:**

Alberto Menghini and Sandro Perini

**Report Highlights:**

Italian agricultural debate is animated by implementation of Common
Agricultural Policy reforms. The Italian Government has finally reached
an agreement with Italian farmer unions and regional governments for the
implementation of the Common Agricultural Policy (CAP) reform approved
by the EU Council in June 2003. No official Government position has yet
been agreed for the reform of other sectors.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Rome \[IT1\]

\[IT\]

### 

### Implementation of the June 2003 CAP reform

After several months of negotiations, the Italian Government has finally
reached an agreement with farmer unions and regional governments for the
implementation of the Common Agricultural Policy (CAP) reform approved
by the EU Council in June 2003. The July 22, 2004 Italian compromise is
largely based on an official Government position paper presented by
Agriculture Minister Mr. Gianni Alemanno to agriculture and food
representatives a few weeks ago. The decision will be communicated to EU
Commission before the deadline of July 31, 2004.

The options left to EU member states by the June 2003 reform are
numerous, they affect all arable crops excluding rice (upon which no
country decision has to be taken), fruit & vegetables (as they are
subject to a separate regime) and the so-called Mediterranean Package
(tobacco, olive oil, hops, cotton), which is subject to a separate
proposal presented in April 2004. The June 2003 reform also affects
livestock and some aspects of the dairy regime.

#### Start in 2005 and full decoupling

Italy will start the new regime of payments in 2005. The option of
delaying the implementation to 2006 or 2007 was not welcomed by Italians
as the early start is expected to give stronger long-term stability to
farmers.

There will be a 100% decoupling of payments for all arable crops other
than seed production. The same will apply to the livestock sector.
Annual payments for farmers will amount to the average annual payment
received by the same farmer in the three years reference period 2000-02.
The only obligation for the farmer receiving the payments will be to
maintain the land in good environmental and agronomic conditions.
Payments will be adjusted in response to specific situations such as
property transfer in the reference period, land lease, etc.

#### Application of Article 69

Italy also decided to apply Article 69 of the horizontal regulation of
CAP reform (EC 1782/2003) on optional implementation for specific types
of farming and quality production. Article 69 states that

> "*Member States may retain up to 10 % of the component of national
> ceilings referred to in Article 41* \[the total country budget\]
> *corresponding to each sector\...the Member State concerned shall
> make, on a yearly basis, an additional payment to farmers in the
> sector or sectors concerned by the retention. The additional payment
> shall be granted for specific types of farming which are important for
> the protection or enhancement of the environment or for improving the
> quality and marketing of agricultural products under conditions to be
> defined by the Commission ..."*

According to the June 22 decision Italy will retain 7% or 8% of the
annual budget allocated to the affected arable crops, as well as 5% of
the annual budget for the livestock sector. The resulting amounts will
go into a national fund to finance quality measures and environmentally
friendly farming through plans that will be agreed between Rome
Government and regional administrations.

Although some of the provisions of the Italian scheme of implementation
may change slightly before being officially communicated to the EU
Commission, the structure of the decision seems definitive at the
moment. The table below summarizes the main provisions of the Italian
decision.

+-----------+----------------------------+----------------------------+
| Starting  |                            |                            |
| implem    |                            |                            |
| entation: |                            |                            |
| 2005      |                            |                            |
+-----------+----------------------------+----------------------------+
| **        | ## GOI decision            | **Comments**               |
| Product** |                            |                            |
+-----------+----------------------------+----------------------------+
| Arable    | 100% decoupling            | No major change forecasted |
| crops     |                            | in terms of planted area   |
| (excl.    | 8% of the available        |                            |
| Seeds)    | ceiling plafond to be      | No major opposition of     |
|           | distributed on the basis   | farmers and industry       |
|           | of quality standards       | associations               |
|           | (likely for sunflower      |                            |
|           | seeds, soy and durum wheat |                            |
|           | producers)                 |                            |
+-----------+----------------------------+----------------------------+
| Durum     |                            | Opposition from millers.   |
| wheat     |                            | They call for 40%          |
|           |                            | coupling.                  |
+-----------+----------------------------+----------------------------+
| Seed      | 100% coupled               | No major opposition        |
| p         |                            |                            |
| roduction |                            |                            |
+-----------+----------------------------+----------------------------+
| Rice      | No country decision to be  |                            |
|           | taken                      |                            |
+-----------+----------------------------+----------------------------+
| Beef      | 100% decoupling            | Major opposition by meat   |
|           |                            | slaughter associations     |
|           | 5% of the available budget |                            |
|           | ceiling to be distributed  | No major opposition by     |
|           | on the basis of quality    | farmers organizations and  |
|           | standards (suckling cow,   | meat traders               |
|           | adult male)                |                            |
+-----------+----------------------------+----------------------------+
| Sheep and | 100% decoupling            | No major opposition        |
| goat      |                            |                            |
|           | 5% of the available budget |                            |
|           | plafond to be distributed  |                            |
|           | on the basis of quality    |                            |
|           | standards                  |                            |
+-----------+----------------------------+----------------------------+
| Dairy     | Decoupling of payments     | No major opposition        |
|           | from 2005                  |                            |
+-----------+----------------------------+----------------------------+

With regard to rice, application of the reformed CMO on 1 September 2004
is creating some concerns in the country. Both farmers and Government
officials welcomed the decision taken at the July 20 EU Council to
change the current import regime for rice with a fixed duty as it better
guarantees Italian rice producers. The new import duty for husked rice
is fixed at 65€/t and for milled at 175€/t.

The implementation of other aspects of the June 2003 CAP reform is
harmonized throughout EU15, further details can be found at
[www.useu.be/agri](http://www.useu.be/agri).

**Mediterranean Package, Sugar and Other sectors**

The CAP reform agreed in June 2003 rules only some of the products
covered by EU Common Market Organizations. The reform for a group of
other products (tobacco, olive oil, cotton, hops) was approved in April
2004 with the name of Mediterranean Package. Official Government
negotiations for the implementation in the country of the Mediterranean
have not yet started. The table below reports unofficial prevalent
position on the issue by industry leaders and government officials.

  ------------- -------------------------------- -----------------------------
  **Product**   **Prevalent position**           **Comments**

  Olive oil     \>60% of the payment decoupled,  60% coupling is the minimum
                quality premiums to be agreed -- 
                Starting campaign 2004/5         

  Tobacco       Minimum decoupling (40%) in the  General satisfaction by GOI,
                2006-2010 transition period.     farmers organizations and
                After 2010 no national choice    processors for changes to
                (50% decoupled and 50% in funds  original Commission proposal.
                for sector restructuring)        

  Cotton and    Not relevant for Italy           
  Hops                                           
  ------------- -------------------------------- -----------------------------

Reform proposals of other sectors such as horticultural products,
processed fruit & vegetables are expected later in 2004 or in 2005.
There is great concern in the country about the effects of a possible
decoupling of payments in these sectors.

With regard to sugar reform, there is a general lack of consensus by
industry leaders and government officials for the proposal presented by
the EU Commission last July 14, 2004. Government of Italy unveiled last
week its strong opposition to the proposal as they fear it would greatly
undermine the already little competitive Italian sugar industry.