Voluntary Report - public distribution

**Date:** 4/21/2005

**GAIN Report Number:** E35075

E35075

**EU-25**

**Organic Products**

**Is the CAP reform a boost for organic production?**

**2005**

**Approved by:**

![](media/image1.wmf)Norval E. Francis, Jr.

U.S. Mission to the EU

**Prepared by:**

Karin Bendz

**Report Highlights:**

The 2003 CAP reform has no specific recommendations for subsidizing
organic farming. However many of the measures in the CAP reform have the
potential to stimulate organic production.

The main benefit should come from the change from a support system based
on a market support and production linked subsidies to a system based on
area farmed. Also, organic farmers are likely to be less affected by
modulation, at the same time as they will benefit from measures financed
by modulation.

Organic farming in the New Member States is expected to have a golden
future.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Brussels USEU \[BE2\]

\[E3\]

Since the 1990's the organic farming has developed rapidly in most of
the Member States (MS). The organic farm sector grew about 25 percent a
year between 1993 and 1998, and since 1998 it is estimated to have grown
around 30 percent a year. However, growth has slowed down recently. In
the MS of the European Union 5.69 million hectares are under organic
management and there were more than 143,000 organic farms as of
12/31/03. This represents about 4 percent of the agricultural area and 2
percent of the farms in the EU. The MS with the highest number of farms
and the greatest number of hectares is Italy, which has about one fifth
of the EU's organic land and more than a quarter of the organic farms in
the EU. There are substantial differences between individual MS
regarding the amount of organic farming. In Austria more than 12 percent
of the agricultural land is under organic management whereas in France
not even 2 percent is organic.

Land under organic management in the European Union (2003)

  -------------------------- ----------------------- ---------------------
  **Member State**           **Hectares organic      **Percent of
                             farming**               Agricultural Area**

  Italy                      1,052,002               6.86

  Germany                    734,027                 4.30

  Spain                      725,254                 2.84

  U.K                        695,619                 4.42

  France                     550,000                 1.86

  Austria                    328,803                 12.90

  Czech Republic             254,995                 5.97

  Greece                     244,455                 6.24

  Sweden                     207,488                 6.80

  Denmark                    165,148                 6.20

  Finland                    159,987                 7.22

  Portugal                   120,729                 3.17

  Hungary                    113,816                 1.94

  Slovakia                   54,478                  2.43

  Poland                     49,928                  0.30

  Latvia                     48,000                  1.92

  Netherlands                41,865                  2.17

  Estonia                    40,890                  4.59

  Ireland                    28,514                  0.65

  Belgium                    24,163                  1.73

  Lithuania                  23,289                  0.60

  Slovenia                   23,280                  4.60

  Luxemburg                  3,002                   2.00

  Cyprus                     166                     0.12

  Malta                      14                      N/A
  -------------------------- ----------------------- ---------------------

*Source: ZMP*

While the 2003 CAP reform has no specific recommendations for
subsidizing organic farming, many of the measures in the CAP reform have
the potential to stimulate organic production, according to an analysis
made by Agra Europe on a report from the European Commission.

According to the analysis, the main benefit of the CAP to organic
farmers should come from the change from a support system based on
market support and production linked subsidies to a system based on the
area farmed. Organic farms received less payment under the traditional
common market organizations and consequently will be less affected by
modulation. And at the same time they should benefit more from measures
financed by modulation.

Decoupling of payments from production favors more extensive farming
systems, and to this extent the CAP reform benefits organic farming
methods. In addition the exemption from the mandatory set-aside
obligation for organic farmers is an improvement. Also, the governments
have significant potential to provide support for organic production
through the use of their "national envelopes". (See [GAIN
E34095](http://www.fas.usda.gov/gainfiles/200411/146118181.doc), Rural
Development in the European Union)

According to the analysis, it is likely that the cross-compliance
provisions will generally be easier to follow for organic farmers
compared to conventional, and the new Rural Development (RD) policy
should provide a number of options of potential benefit to organic
producers.

As with other measures in the RD program, much depends on the
willingness of the national governments to match the EU funding. The
analysis states that without a uniformity of application by Member
State, there is a potential danger that increasing differences in
benefit to organic farming in different countries will lead to
competitive imbalances.

The overall conclusion is that organic farming will benefit from the
CAP-reform and that the sector will continue to increase its share of
total output. About 4 percent of the total land area of the European
Union is under organic management but there are large differences in the
development stage of the organic sector between MS, partly due to
differences in the policy environment.

The Commission reports that in all MS except Portugal and the U.K. the
average payments per hectare are higher for organic than for the average
of other environmental measures, however in several MS the average
payment per hectare to organic farms has decreased, most notably in
Denmark, France, Greece, Italy, Netherlands and Portugal.

Since organic production methods tend to be more labor intensive, due to
pest and weed management and the livestock density, organic farms
normally have to be larger than conventional ones to be able to provide
the "critical mass" of organic output. Nearly all MS statistics indicate
that organic farms are on average larger than conventional holdings.
However, production area doesn't always correlate with market share. For
example, while Italy has by far the largest organically cultivated area
in Europe, it only ranks fourth in retail sales. Such discrepancies may
be due to the fact that even within organic farming the intensity of
land use varies widely from intensive farming to the more extensive
grasslands, for example in the mountain areas in Austria. Also, organic
farms tend to operate diversified non-agricultural activities in
addition to the actual food production process. It is estimated that the
EU organic food production industry accounts for more than 40 percent of
the total world output of organic food.

The Commission report says that whether the organic production will
achieve the full benefits of the new policy depends on the
administration by governments of the MS, and that to maximize the
positive effects on organic farming MS should be encouraged to opt for a
regional approach to premium payments and to utilize national envelopes.
Also it is important that the governments monitor the effect of the
remaining significant common market programs on organic and other
"environmentally friendly" farming systems, especially in the dairy and
beef sectors, where both organic and conventional production could be
disadvantaged by the 2003 reforms.

Given all these incentives it is likely that the organic production will
grow in the EU. In Sweden, for example, the authorities have set as a
goal to have 20 percent of the agricultural land, and 10 percent of the
animal production under organic management by 2005. Also the organic
action plan that was launched by the Commission in 2004 is helping the
boost of organic production since it focuses a lot on consumer
information and research.

Organic production in the New Member States (NMS) is according to
AgraFood East Europe being offered a golden opportunity. While the farms
in the NMS on average tend to be at a disadvantage in the agricultural
mass production market, their smaller size is a positive advantage when
it comes to quality production. And the potential for increased organic
production is enormous.

On large farms in Western Europe it still pays better to mass produce
crops and livestock products then to employ extra labor to produce
organically, whereas in the NMS not only are there more plentiful
supplies of skilled agricultural workers in many of the countries, but
much of the land is likely to be more easily and more quickly converted
to fulfill organic standards, for the simple reason that it has in many
areas never been intensively farmed.

Nearly all of the output of organic food in the NMS is exported, since
domestic consumption rates for organic food are low, principally because
lower incomes generally mean lower consumption of this more expensive
type of food.

The geographical position of Germany, easily Europe's biggest organic
food market with annual sales of €1,3 billion, makes it a major target
for increased organic sales for NMS exporters. The total European sales
of organic products rose by around 5 Percent in 2003 to almost €11
billion, and the larger EU accession countries are expected to have a
better chance of capitalizing on this increase through their subsequent
inclusion in the EU Action Plan.

Organic food producers in Europe are considered to have the potential to
have a massive advantage in domestic and foreign organic food markets
due to the €80 million worth of government and EU annual research
funding to sector. This is four times more funding than funding for
organic food innovation in the rest of the world.

**Visit our website:** our website
**[www.useu.be/agri/usda.html]{.underline}** provides a broad range of
useful information on EU import rules and food laws and allows easy
access to USEU reports, trade information and other practical
information.

E-mail: AgUSEUBrussels@usda.gov

**Related reports from USEU Brussels:**

  ------------------------------------------------------------ ------------------------------------ --------------------
  **Report Number**                                            **Title**                            **Date Released**

  E34099                                                       Possible changes in EU-legislation   12/08/04
                                                               for organic farming                  

  E34075                                                       European Council adopts Organic      10/19/04
                                                               Action Plan                          

  E34025                                                       European Action plan for Organic     06/21/04
                                                               Food & Farming                       

  These reports can be accessed through our website                                                 
  [www.useu.be/agri](http://www.useu.be/agri) or through the                                        
  FAS website                                                                                       
  <http://www.fas.usda.gov/scriptsw/attacherep/default.asp>.                                        
  ------------------------------------------------------------ ------------------------------------ --------------------