sou · GLB3150 · 1998-01-01 00:00:00 — The report commences with an identification of problems, where the major issues for the EU's agricultural policy are identified. This is followed by a review of the studies carried out by the EU Commission and others with regard to the Eastern European expansion. In subsequent sections, a brief description is given of the situation in the candidate states (the CEE countries). The description ends with a comparison between the CEE states and the EU. This comparison forms the basis for the analysis of the consequences of the different scenarios which then follows. The report is concluded with a chapter dealing with conclusions. #HAPTER $ESCRIPTION OF PROBLEMS The Eastern European expansion is the biggest expansion hitherto that the EU is now facing. In many ways it differs from earlier expansions. This, together with some other important factors, the WTO and the budget situation, suggest that the EUs Common Agricultural Policy should be reconsidered. The current agricultural policy in the EU risks locking in the agriculture of the candidate states on account of supply quotas and strict budget frames. The result of this could be that the potential of these states cannot be exploited. However, this leads to the possibility of the budget costs for the expansion relatively low. If, on the other hand, the candidate states are given the opportunity, with the aid of different kinds of market support, to exploit their potential, the budget will be exposed to an even heavier load, while at the same time the limitations of subsidised exports implicit in the UR agreement will prevent sales to countries outside the EU. #HAPTER %ARLIER STUDIES OF EXPANSION OF THE %5 IN THE AGRICULTURAL AREA During recent years a number of different studies have been made of the effects of expanding the EU with a number of states in Central and Eastern Europe. In 1995 the Commission presented a study for each of the ten candidate states. The study comprised I A descriptions of the market situation, the agricultural policy and the structural policy. In these reports there are no evaluations or proposals, but forecasts are made as far as the year 2005. Some increase in consumption is anticipated owing to an improvement in the general economic situation. Production is also expected to rise, but not to reach the levels which prevailed towards the end of the 1980s. In the Commissions so-called "Strategy Paper" from 1995, different alternatives were discussed for a reform of the CAP in face of a future expansion. The Commission recommended an ongoing successive reform in accordance with the guidelines which were applied for the 1992 reform. The Commission also emphasised that there is a need to expand the trade agreements between the EU-15 and the CEE states for the purpose of facilitating an expansion and of operating educational programmes in the CEE states. In the Spring of 1997, the Commission presented a forecast on the market situation over the next 10-year period. In this forecast, the Commission had toned down the growth of production in the CEE states. , , has also carried out studies of the development in Eastern Europe. The studies from the USDA reveal a more positive picture of the development in Eastern Europe with regard to production. The USDA is also of the opinion that the Commissions budget calculations are rather on the low side. As a solution to the problems, it is suggested that the EU should reform the CAP before the expansion by adapting the price level and dispensing with the direct payments. In , national institutes have also carried out studies to assess the consequences of an expansion. From the Polish side, fruit and vegetables are believed to have be competitive, something which in the long term also applies to the dairy area. Grain is a deficit product in and therefore will not be interesting to export. The opportunities for exports in the meat area are also judged to be poor. The studies which the investigator has examined do not provide any overall picture of the consequences of an EU expansion. Small changes to the parameters used have a major impact on the calculated effects. It is therefore difficult on the basis of this material to reach any definite conclusions, particularly in quantitative forms. #HAPTER 4HE #OMMISSION S PROPOSAL !GENDA AND THE #OMMISSION S OPINIONS ON THE CANDIDATE STATES In 1997 the Commission submitted both a proposal for reform of the CAP and opinions on the candidate states. In the opinion of the Commission, the 1992 reform of the CAP has been successful. Nevertheless further, steps must be taken to solve an increasing marketimbalance. To solve the problems arising on account of the CEE expansion and new negotiations within the WTO, the Common Agricultural Policy needs to be reconsidered. In comparison with the current goals the competitiveness of agriculture is pushed more into the foreground and additional goals are set for the environmental and regional policies. It is proposed that the individual states be given greater freedom to formulate the direction in these two latter policy areas. It is also proposed that the individual states should also be given the opportunity to link environmental requirements to the market regulation and to introduce a ceiling for how large grants may be received by the individual farmer. Simplifications in the "rule book" are also emphasised as an important measure. The reform proposal is not all-embracing, being restricted to grain, milk and beef. and several other products are not covered by the reform. The Commission nevertheless promises that a reform proposal will be put forward for I A tobacco, olive oil and wine. The Commission proposes that the same means be used as were applied for the 1992 reform, I E lowered support prices and compensation in the form of direct paymentts. The Commission is thus opting to adapt prices rather than restrict supply. On the same occasion, the Commission also presented the so-called candidate country opinions. Agriculture does not appear to have had any decisive influence on the Commissions proposal for choice of the states which will first be permitted to commence negotiations. In the total assessment for individual candidate states, structural problems in and generally weak agriculture in the are highlighted as problem areas. The Commission highlights the price differences between the candidate states and the EU as well as the food industry as the most difficult problem areas for the expansion. Most of the candidate states therefore need, in the view of the Commission, to be allowed long transitional periods. During the transitional period measures will be adopted to even out the price differences and strengthen the competitiveness in the food industry. The Commission firmly refutes the possibility for the candidate states to receive direct support (area and headage payments) during the transitional period. The Commission hints that the candidate states may be able to receive corresponding aid in the form of structural support during the transitional period. After the end of the transitional period the Commission has not made any statement on how the direct payments will be handled. #HAPTER 4HE +OMI#!0 REPORT , KomiCAP, on reform of the EUs Common Agricultural Policy stated in its report "Food & Environment - Swedish strategy for the EUs agriculture in the future" that new goals are needed for the EUs agricultural policy. These are formulated in two main goals: The EUs Common Agricultural Policy shall aim at the goals of making possible: ·a broad and varied supply of safe food at reasonable prices ·agricultural that is sustainable in the long term In the report it is emphasised that the expansion eastwards is an issue of high priority, and that a decision is quickly needed on a change of the Common Agricultural Policy to facilitate an accession. #HAPTER 4HE SITUATION IN %ASTERN %UROPE The agricultural sector in the CEE countries has, like society in general, been subjected to dramatic changes in recent years. Production has fallen steeply, prices have rocketed, consumption has decreased, the trade surplus has turned into a deficit, the agricultural policy has been redirected, etc. Some recovery has taken place during the last few years but in most of the countries the situation which prevailed in the beginning of the 1990s has not yet been reached. Major investments are needed in machinery and fixed assets, but also in knowledge and knowhow, and the sector must gain greater insight into how a market economy works. A generally weak economic situation has made it difficult for the countries themselves to give impetus to agriculture. In recent years, however, some foreign investments have been made in the Most of the foreign investments have, however, been made in typical consumer-close areas such as in and bakeries. There has been less interest in investing in basic industries such as slaughterhouses and flour mills. #HAPTER #OMPARISON BETWEEN THE %5 AND THE #%% STATES is the incomparably most important agricultural nation among the candidate states. is also a major foodproducer by comparison with the present EU member states. and are also important agricultural nations. Other candidate states have relatively modest production. The conditions are good in some of the CEE states for production of agricultural products. The CEE states have cost advantages and the structure is favourable in some of them. There is a long tradition of exporting food and there are well established channels, particularly in the markets to the east. Agriculture is usually less tightly regulated than in the EU and acts in a more competitive marketplace. The productive apparatus in the CEE states is vulnerable. There is a shortage of capital which results in failure to make essential investments, particularly in machinery and fixed assets. This applies both to the primary production and to the food industry. It is therefore difficult for the CEE states to create a continuous supply of uniform and high quality. Competence is lacking, especially in so far as company management and marketing knowledge are concerned. There are also institutional obstructions in the form of, I A, unclear rules on land ownership rights, something which also impedes competitiveness. In the short term the CEE states are likely to have the best possibilities to compete with the EU in the vegetable sector. The opportunities would appear to be the greatest for staple goods such as grain and oil seed. These products can be produced with a relatively modest capital input and the goods can be traded without extensive processing. Moreover, goods of this type are relatively anonymous in the eyes of the end consumer. Areas within the EU with low yields and a high cost situation are the ones most likely to be subjected to competition from the CEE states. Oil seed cultivation in is one example where competition from the CEE states may be keen. There also appear to be good for competion for labour- intensive special products where mechanisation is not a viable alternative. Examples of such products are fruit, vegetables and . Low labour costs are the foremost means of competing for the CEE states. In particular, the EU states in southern Europe will be exposed to the competition in these product areas. On account of quality problems, these products will be sold firstly as raw materials for the food industry. Animal products and special crops with a high level of mechanisation are more difficult for the CEE states to compete with in the short term. Substantial investments will be required, not least in the food industry. These products are more highly exposed to the end consumer, which necessitates an improvement in the image of the CEE states. On the animal product side it is primarily the northern EU states with large-scale animal production that will be exposed to competition from production in the CEE states. #HAPTER 3CENARIOS FOR DEVELOPMENT OF THE #!0 In the directives for the investigator it is stated that three different scenarios for the agricultural policy are to be included in the analysis, namely: · Marginal change of the CAP ·Complete liberalisation of the CAP ·Gradual reform of the CAP The Commissions proposals for a reform, Agenda 2000, imply relatively modest changes of the CAP. The investigator therefore considers it to be most practicable to use the Commissions proposals as a basis for evaluation of the scenario with only marginal changes of the CAP. Within this scenario it is also the opinion of the investigator that, for the sake of completeness, an alternative should be evaluated according to which todays production-linked support is converted to decoupled support. #HAPTER !NALYSIS OF CONSEQUENCES Marginal change of the CAP If the Common Agricultural Policy is formulated in accordance with the proposals put forward in Agenda 2000, the investigator believes that the policy will be more beneficial to agriculture in the EU-15 than to agriculture in the CEE states. Supply control is, for example, still an important element of market regulation. Measures of this type will impede exploitation of the potential that exists in the CEE states. In contrast, an agricultural sector within the EU which for a long time has been able to build up its production and has been protected from competition is likely to have a more favourable starting point if this policy is retained. The treatment of the direct support is a major element of uncertainty for the CEE states. If the EU asserts the underlying reasons which existed when the different forms of direct support were introduced, i.e. price compensation, there is a substantial risk that the CEE states will completely miss out on such support. Even if the CEE states will be entitled to direct support there are considerable difficulties in making just calculations which reflect the conditions prevailing in the CEE states. Even if the prices in the EU and the CEE states are gradually evened out upon the expansion a complete lack of direct support will be a severe competitive disadvantage despite the costs being lower, for example for arable land. Supply quotas also mean that trade possibilities for the CEE states are limited, and there may even be a risk of the EU attempting to solve some of its WTO problems by slowing down the development of the agricultural sector in the CEE states. Exports of food from the CEE states, primarily to eastward markets, which are profitable at present without export subsidies, would be impossible to maintain after joining the EU. The Commissions proposals in Agenda 2000 nevertheless mean that in the normal situation it is possible to export grain and beef without subsidies. The possibilities for the food industry in the CEE states are also disadvantaged by a policy that holds back the production potential. There is a risk of raw material supplies being rendered more difficult and of the industry not being able to develop. The consumers are adversely affected by higher food prices, which is also a negative effect. Increases in food prices have a particularly heavy impact in the CEE states where a large share of income is already being used for food purchases. Higher prices in the CEE states mean that farmers are given economic incentives to increase the use of fertilisers and pesticides, which have an adverse effect on the environment. Supply quotas and other regulatory intervention will result in difficulties for the agricultural sector to grow in the CEE states. Regional support may therefore be needed to facilitate, as a preventive measure, a transition to some other activity. The budget costs for the market support in the event of an expansion will be relatively limited in this alternative, in that production in the CEE states is held back. therefore states that the budget is not decisive for the possibilities of expanding the EU if the CAP is retained. In the coming WTO negotiations, the , among others, may impose demands on the EU to make the grants to agriculture less linked to production. In the opinion of the investigator decoupled support will give the CEE states greater opportunities to compete on the market by comparison with the current direction of the CAP. The change will nevertheless involve steeply increased budget costs and a risk of difficult administrative problems. For Swedish agriculture this alternative means that the competitive pressure from the CEE states will be relatively modest. Supply limitations and doubts about the handling of the direct support are factors which restrict offerings from these countries. This alternative is largely in line with the report submitted by the KomiCAP Parliamentary Commission. The investigator believes that this alternative gives agriculture in the EU-15 and the CEE states more equal terms when it comes to competing on the market. The comparative advantages of these countries in the form of fertile soils, cheap production factors and skilled company management, etc., can be put to use more efficiently. This alternative also gives farmers in the CEE states an opportunity to develop their farms within the framework of the existing potential. The investigator nevertheless wishes to point out that agriculture in the CEE states has a fragile starting situation. However, agriculture in the EU member states must also be realigned and adopt the changes which have not been necessary in consequence of the protection afforded by the regulations. For farmers within the EU this development, with removal of the support provided today, will obviously be negative, at least in the short term. According to this scenario, food prices will fall as a consequence of the removed of regulations. This is particularly important in the CEE states, where a large share of income is used for food. This scenario provides agriculture with better opportunities for development compared with the current policy being kept unchanged. In some of the CEE states, competition from the EU may, however, lead to farming being superseded. It may therefore be necessary for regional support to be made quickly available in these areas. The transitional measures in this alternative are directed towards the EU states, because the measures have to be completed before the expansion eastwards. The EU must first and foremost lower the internal support prices to the world market level. The time schedule for this will be guided by the market conditions. Of overriding importance, however, is that all products are embraced by the change. According to this scenario, the support will be dispensed with once the CEE states become members of the EU. Bearing in mind that the support will thus be temporary there is every reason to apply the currently valid support systems as far as possible to ensure that new systems will not become permanent. A different alternative could be a more decoupled support. The advantage of this type of support is that the market penetratation in the agricultural sector occurs more quickly. For this scenario means that competition will be than if the CAP remains unchanged. It is believed that CEE states with similar production and situated geographically close will be able to compete with the Swedish producers. To begin with, the CEE states would probably be able to compete with bulk goods used as raw materials in the industry. In the longer term there will be possibilities to compete also with more highly refined products. should also have a possibility to export to the CEE states. Hitherto the Swedish food industry has made few investments in the CEE states compared with other EU members states. The goal for the alternative designated gradual reform is the same as for radical reform. To achieve this goal it is presumed that transitional measures will be applied within both the EU-15 and the CEE states. The investigator wishes to emphasise that the need for transitional measures is different in the EU-15 and in the CEE states. For the EU-15, measures are needed which can facilitate a closening of the price levels within the Union to the price levels prevailing on the world market. To soften the effects of the price decrease, it may be necessary to introduce temporary compensation by some other means, for instance in the form of area and headage payments. If the payments are made available for only a short period, it is an advantage if todays support systems are utilised as far as possible to facilitate the administration. If the direct support is given for a longer period, the introduction of more decoupled grants should be considered. The length of the transitional periods can vary between different product areas. For grain, reforms have already been introduced whereas in the sugar area no reform work has as yet been started. Provided that the EU-15 and the CEE states will be united in a single market it will not be possible for reasons of competition, for the EU-15 to continue unilaterally with direct support after the transitional period. Agriculture in the CEE states is in need of other types of transitional measures. When the entirety is viewed, there is no advantage to be gained by the CEE states adapting their price levels to todays EU level. The transitional measures will therefore instead be directed towards developing both primary and food production. This may concern, for example, measures aimed at raising the product quality, increasing knowledge among the work force, increasing market awareness, improving the structure, etc. These measures are necessary in order for the CEE states to be able to compete in the single market. Trade between the EU-15 and the CEE states is a very important area in preparing for the expansion. The current trade agreements do not give the CEE states enough benefits to bring about the desired development. Another disturbing element is that the EU-15 provides export subsidies when trading with the CEE states and when exporting to the CEE states most important export markets, e.g. . Greater concentration on direct support and transitional measures directed towards the EU-15 will lead to temporarily rising budget costs. Regeringen tillsatte genom beslut sju stycken utredningar som gavs i uppdrag att utreda konsekvenserna av att utvidga EU. Utredningar tillsattes på följande områden: ·Rättsligt och inrikes samarbete Samtliga utredningar skall till redovisa sina betänkanden. 5PPDRAGET P¥ JORDBRUKETS OMR¥DE På jordbrukets område gavs i uppdrag att utreda konsekvenserna för , EU som helhet och kandidatländerna av vad avser jordbrukspolitikens samhällsekonomiska effekter såsom: 36 Uppdrag och genomförande I uppdraget ingår även att miljömässiga och regionala aspekter ska uppmärksammas. Utgångspunkten för utredningen är att samtliga 11 kandidatländer blir medlemmar men även andra sannolika alternativ bör redovi- sas. Olika scenarier för den gemensamma jordbrukspolitiken bör analyseras. Utifrån denna analys skall utredaren dra slutsatser om utvidgningens effekter för den gemensamma jordbrukspolitikens budget. Utredningen bör i första hand presenteras i form av kvalitativa resonemang då kvantitativa beräkningar inte alltid går att göra. Utredningen bör också bidra till att informera och väcka debatt. Direktiven i sin helhet finns i bilaga 1. Till utredaren har en expertgrupp varit knuten bestående av Departementsråden och samt konsulten . Gruppen har regelbundet haft sammanträden i syfte att bl.a. diskutera utredningens inriktning och att lämna synpunkter. Utredaren har givit i under ledning av professor i uppdrag att göra en studie över produktiviteten i den polska jordbrukssektorn. Arbetet presenterades i form av ett öppet seminarium. Vid seminariet deltog företrädare för näringsliv, statliga myndigheter samt från universitet.