Voluntary Report - public distribution

**Date:** 2/21/2006

**GAIN Report Number:** IT6011

IT6011

**Italy**

**Poultry and Products**

**Italy and EU Commission Discuss Poultry Sector Compensation for Avian
Influenza**

**2006**

**Approved by:**

![](media/image1.wmf)Geoffrey Wiggin

AgMinCons

**Prepared by:**

Alberto Menghini

Agricultural Specialist

**Report Highlights:** The Italian government, and the EU Commissioner
for Agriculture reported separately on the EU Council of Farm Ministers
meeting that discussed authorizing compensation for poultry industry
losses suffered due to AI-induced consumer fears. The reports differ
slightly in emphasis.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Rome \[IT1\]

\[IT\]

Text

As anticipated in GAIN IT6010, on February 20 Italy presented the EU
Council of Farm Ministers a request for EU authorization to introduce
measures to compensate the poultry industry and farmers for losses
suffered due to H5N1 avian influenza. The Italian request follows the
confirmation of 16 cases of H5N1 high path AI in wild migratory birds in
Italy (the most recent was a wild duck in Umbria on Saturday 18).
According to government and industry sources, Italian poultry companies
are suffering heavy losses as consumer demand for poultry products has
fallen irrationally by as much as 70% on this news.

Italian Ministers of Agriculture, Alemanno, and of Health, Storace, held
a bilateral meeting with EU Commissioner Fischer-Boel on Monday February
20 on the margins of the EU Farm Ministers' Council. An official press
release of the Ministry of Agriculture of the same day reads as follows:

*"The measures authorized informally by the EU Commissioner Fischer-Boel
after the bilateral meeting with Ministers Alemanno and Storace, as well
as after technical dialogue with the Italian permanent representatives
in Brussels, are:*

1.  *suspension of tax payments and social security payments by poultry
    farms until December 31, 2006;*

2.  *creation an emergency fund, with budget made available by Italy,
    for those suffering economic loss due to avian influenza. The fund
    would amount to about € 100 million and would be used to compensate
    for economic and social losses caused by interruption of farming
    activities, as well as to fund conversion of activities;*

3.  *for the fund to also pay compensation for lost revenue and
    increased costs incurred due to reduced production, including
    compensation for the market value of over-production.*

*Based on requests from Italy and Greece -- and supported by Germany,
France, Spain, Portugal, Malta, Hungary, Cyprus and Poland -- member
states presented the Commission with a request for agreement on an EU
economic plan to compensate the poultry sector for the effects of avian
influenza said Alemanno".*

The Italian Ministry of Agriculture quote can be found on
www.politicheagricole.it

The EU farm ministers' meeting has also been reported by EU Council
press release 6083/06 of February 20, 2006. The press release (page 17)
reads as follows:

*"The Greek and the Italian delegations, supported by the French,
Spanish, Portuguese, Maltese, Cypriot, Hungarian, Polish, Irish,
Slovenian, Dutch and German delegations, raised their concerns about the
economic impact of avian influenza on the poultry industry in the EU,
and asked that the Commission take appropriate measures to support
businesses severely affected by dropping prices of poultry meat. The
measures envisaged in particular by the Greek delegation may include:*

-   *Market withdrawal of existing stocks and finding additional outlets
    for their disposal, with the payment of equivalent compensation to
    producers.*

-   *Expansion of the export destinations (including the Balkan
    Countries) with the payment of export refunds*

-   *Funding of an information campaign on the safety of poultry
    industry products for the benefit of the European consumers*

-   *General economic and other support measures for those affected by
    the crisis.*

*Commissioner Fischer-Boel said her institution was already well aware
of the serious market disturbances in the poultry sector and of the
situation created by the outbreak of avian influenza in wild birds. She
reiterated that the Commission will continue to use export refunds
within the common market organization (CMO) for poultry as the main
management tool. She reminded the delegations that export refunds had
been increased by € 6/100 kilos of chicken in two stages during the past
meetings of the management committee, in January (€ 2/100 kilos) and
February (€4/100 kilos) from € 24/100 kilos to € 30/100 kilos.*

*As for the other measures envisaged by the delegations, she pointed out
that an information campaign might also be counter-productive. She made
clear that exceptional market measures could not be triggered unless
there is a major restriction to the free circulation of chicken and
eggs, which could justify such measures. However, she noted that if a
change occurs concerning the avian influenza outbreak, a review of the
situation could be envisaged. She emphasized that usual market tools
such as private storage or public intervention did not exist in the CMO
on poultry.*

*As for the possible withdrawal of existing stocks, she pointed out that
the industry should be able to reduce the output of poultry more rapidly
than in other sectors (beef) due to the short cycle of production in the
poultry sector.*

*As regards the possibility for Member States to grant state aid to
producers, she indicated that the Commission will examine the request
made by Member States in the light of their respective situation and
with a positive approach. Finally, she concluded that the possibility of
taking additional measures would take a longer period as a Commission
proposal is required, as is consultation with the European Parliament.
The Presidency concluded that the Council will come back on this issue
at its next meeting."*

# Comments

The two press statements by the Italian Ministry of Agriculture and the
EU Commission seem to slightly out of sync on what can, and cannot, be
done at this stage to address economic losses suffered by the Italian
poultry sector. In the event the Italian government decides to implement
the measures described by Minister Alemanno, they will have to be
reported (before or after implementation depending on the action) to the
EU Commission as state aid to the sector. As described, the suspension
of tax and social security payments, as well as any other payments of a
social nature, probably won't face much resistance from the Commission.
The Commission will question much more closely other market-related
measures not specifically foreseen by the EU poultry common market
organization as the disease has not affected any commercial flocks. The
picture would change completely were the disease to be transmitted to
commercial flocks and as a consequence they had to be culled. At this
juncture, however, the sector's only losses are caused by domestic
demand drying up, and while real, measuring these losses is not easy.
There does exist considerable flexibility in the sector to adjust
production if the current lack of demand persists.

The Italian consumer's extreme response to the discovery of AI in wild
birds by eschewing poultry products is something of a mystery. While
there is no doubt that demand has fallen considerably, Ag Office remains
skeptical that the 70 percent figure mentioned in the press and repeated
by farmer groups represents the true situation. Repeating it has been
advantageous for an industry very concerned about its immediate future
and willing to be vocal during a general election. Additionally,
Italians are particularly wedded to their food, which has, more than
history, or music, or literature, come to identify their own culture for
themselves. Thus, unhappy discoveries, or fears, about the food supply
can quickly translate into something volatile.