Voluntary Report - public distribution

**Date:** 6/28/2004

**GAIN Report Number:** E34028

E30000

**EU-25**

**Agricultural Situation**

**Agriculture Talks End For Romania and Bulgaria**

**2004**

**Approved by:**

![](media/image1.wmf)Christine Strossman

U.S. Mission to the EU

**Prepared by:**

Lisa Schroeer

**Report Highlights:**

Talks between the Council and Romania and Bulgaria on the agriculture
chapter ended on June 4, 2004, with the two countries getting basically
the same agreement as the recently acceded 10 New Member States (NMS).
These talks were much less painful than the yearlong negotiations for
the 10 NMS. There will be a phase in period for direct aid cap payments,
the possibility to "top-up" EU payments with additional funds, and an
option for the Single Area Payment Scheme. Both Romania and Bulgaria
negotiated favorable terms for their quotas with isoglucose, milk, and
ewe premium. Bulgaria wrapped up its overall accession negotiations on
June 15, and Romania has 7 more chapters to conclude before it is ready.
The countries are currently scheduled to join the EU on January 1, 2007.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Brussels USEU \[BE2\]

\[E3\]

Talks between the Council and Romania and Bulgaria on the agriculture
chapter ended on June 4, 2004, with the two countries getting basically
the same agreement as the recently acceded 10 New Member States (NMS).
These talks were much less painful than the yearlong negotiations for
the 10 NMS. There will be a phase in period for direct aid cap payments,
the possibility to "top-up" EU payments with additional funds, and an
option for the Single Area Payment Scheme. Both Romania and Bulgaria
negotiated favorable terms for their quotas with isoglucose, milk, and
ewe premium. Bulgaria wrapped up its overall accession negotiations on
June 15, and Romania has 7 more chapters to conclude before it is ready.
The countries are currently scheduled to join the EU on January 1, 2007.

**Phasing-in**

Just as the 10 NMS have a 10-year direct payment phase in period, so
will Romania and Bulgaria. Their period will begin in 2007, three years
after the 10 NMS, and end in 2016. During this period, they will receive
only a percentage of the direct payments applicable in the EU-15.
Examples of direct payments include area payments for arable crops,
nuts, protein crops and dairy and livestock payments. "Market support"
payments (mainly payments for processing agricultural products) will not
be phased in. Examples of these kinds of payments include: dried fodder,
flax/hemp and potato starch processing aid, as well as aid to producer
organizations for delivery of tomatoes, citrus, peaches and pears for
processing. These "market support" payments will be paid at 100% of the
EU level upon accession.

**"Topping-up"**

The same "topping-up" provision will apply to Romania and Bulgaria.
These payments, also known as Complementary National Direct Payments
(CNDP), are intended to offset the impact of the 10-year phase-in period
for direct payments.

Within defined limits, Romania and Bulgaria may use their own funds to
increase payments by a maximum of 30% (of the EU payment). In 2004, if
they could get 25% of the EU payment, they could top-up to 55%.
Topping-up allows Romania and Bulgaria to reach 100% of the EU payment
by 2013 instead of 2016. The table below highlights the phase-in period
taking into account the top-up payments.

## Percent of Aid 

  ---------- --- ---------- --- --------- --- ---------- --- --------- --- ------------
  Year           \% of                        \% Plus                      \% CAP AID
                 EU-15 CAP                    Top-Up                       
                 AID                                                       

                 Bulgaria &     10 New        Bulgaria &     10 New        EU-15
                 Romania        Member        Romania        Member        
                                States                       States        

  2004                          25                           55            100

  2005                          30                           60            100

  2006                          35                           65            100

  2007           25             40            55             70            100

  2008           30             50            60             80            100

  2009           35             60            65             90            100

  2010           40             70            70             100           100

  2011           50             80            80             100           100

  2012           60             90            90             100           100

  2013           70             100           100            100           100

  2014           80                           100                          100

  2015           90                           100                          100

  2016+          100                          100                          100
  ---------- --- ---------- --- --------- --- ---------- --- --------- --- ------------

Source: AgraFood East Europe Online

**Payment Schemes**

The NMS states had the choice of adopting the Single Farm Payment (SFP),
a form of decoupled aid based on historic production from 2000 to 2002,
or a simplified version, Simplified Area Payment Scheme (SAPS). See Gain
Report E34004 for greater detail. Since NMS did not receive direct
payments during the reference period and because implementing direct
payment systems is administratively difficult, the SAPS allows for a
flat per-hectare payment to farmers paid once per year, irrespective of
the crops produced, or even whether any crops are produced at all. The
only requirement is that the land be maintained in good agricultural
condition. This same option applies for Romania and Bulgaria.

Romania and Bulgaria may choose this option for up to three years,
through 2010. This time line is two years shorter than the 2004
accession countries, which have five years to utilize SAPS before
switching to the SFP regional plan. Before the countries can revert to
the SFP used by the existing EU-15 for direct payments, they must
demonstrate that they have the management and control systems in place
to do so. If they do not have these systems in place by 2010, they will
continue under the SAPS, but their aid percentage will be frozen at 50%
of the EU level. There is no set-aside requirement for SAPS, but
production quotas, which apply to sectors such as dairy and sugar, must
be respected. As long as a country employs SAPS, farmers are exempt from
the full requirements of cross-compliance under SFP. However, Romania
and Bulgaria would be required to meet these conditions starting in 2010
even if the EU decided to grant them an extension for the use of SAPS.

"Market support" payments in certain sectors, such as fruit and
vegetables for processing, are not included in SAPS. These schemes will
operate in addition to SAPS in countries that qualify for the payments
and have opted for SAPS.

**Quota Deals**

Both Romania and Bulgaria were able negotiate additional quotas for the
production of the sugar substitute isoglucose. Bulgaria received an
additional 18,635t of isoglucose quota and Romania obtained an
additional 6,000t from the original proposal set out by the Commission.
Bulgaria may also transfer its entire sugar quota to isoglucose. Both
countries also were able to negotiate a milk quota reserve. Pending the
outcome of a Commission report in 2008, the quotas could increase to
39,180t for Bulgaria and 188,400t for Romania in 2009. This provision
allows for an increase in milk quotas to account for undeclared direct
sales that may understate each country's production. The two countries
also received strong offers for their ewe premium.

The following table highlights the negotiations for key commodities.

  ---------------------------------------------- --- --- ----------- --- -----------
  **Agreed quotas, reference yields and base                             
  areas for Romania and Bulgaria**                                       

                                                                         

  [Quotas]{.underline}                                   Bulgaria        Romania

  Arable area (ha)                                       2,625,258       701,266

  Arable yield (t/ha)                                    2.90            2.65

  Durum wheat base area (ha)                             21,800          0

  Grain legumes base area (ha)                           18,047          0

  Rice base area (ha)                                    4,166           500

  Rice ref. Yield (t/ha)                                 4.60            1.68

  Dried fodder (ha)                                      0               0

  Potato starch quota (t)                                0               0

  Sugar quota (t)                                        4,752           109,164

  \- A quota                                             4,320           99,240

  \- B quota                                             432             9,924

  Isoglucose (t)                                         56,063          9,790

  \- A quota                                             56,063          9,790

  \- B quota                                             0               191

  Cotton - national guaranteed quantity (t)              9,115           0

  Tobacco - National prodution quota (t)                 42,243          12,312

  Milk quota - total                                     979,000         3,057,000

  \- deliveries (t)                                      722,000         1,093,000

  \- direct sales (t)                                    257,000         1,964,000

  Milk quota reserve (for possible release in            39,180          188,400
  2009)                                                                  

  Beef national envelopes (Euro)                         380,172         858,260

  Beef slaughter premia adult (head)                     22,191          1,148,000

  Beef slaughter premia calves (head)                    101,542         85,000

  Beef special premia (head)                             90,343          452,000

  Suckler cow premia (head)                              16,019          150,000

  Ewe premium rights (head)                              2,058,483       5,888,620

  Sheep national envelopes (Euro)                        2,176,155       6,216,782
  ---------------------------------------------- --- --- ----------- --- -----------

Source: AGRAFACTS & Agra Europe Online

**The State of Negotiations**

Bulgaria completed its accession provisional negotiations on June 15,
2004. However, Romania has 7 remaining chapters to complete. Questions
remain about Romania's ability to be ready in time for the accession
date of 2007. Talks with Croatia may allow for an easier delay of
Romania's entry, by possibly postponing Romania's accession until
Croatia is ready.

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