sou · GLB3151 · 1998-01-01 00:00:00 — billion) was spent on environmental payments, a marked increase compared with 1995. This increase is mainly due to the fact that the three new Member States, , and , receive a higher proportion of environmental payments than the other EU countries. The Swedish environmental payments programme applies to ongoing five year periods and is based on Swedish environmental objectives for agriculture. These environmental objectives are those set down in the 1990 policy on food: When deciding on land use and production methods, consideration must be taken to demands for a sound environment and long term management of natural resources. The objective must be to ensure a rich and varied farming landscape and to CAP facing the future 45 minimize environmental loadof agriculture. 1989/90:146). The Swedish programme for environmental payments currently comprises ten different kinds of support, see SOU 1997:74. It is too early to reach any thorough conclusions on the effects the programme has had in . It is clear, however, that significantly larger amounts have been available for use in measures to strengthen the environment as a result of the EU environment payments. Yet the programme appears to have been dogged by a number of teething troubles. Certain payments, including payments for cultural environments, have greatly exceeded the budget framework, whereas payments for pasture lands have been claimed less than it was hoped. 3.4 The CAP and regional development 3.4.1 Objectives for structural and regional policy In the it is stated that agricultural policy should improve agricultural productivity. It also clear that special subsidies within certain frameworks may be approved in support of enterprises disadvantaged by structural conditions or as a result of special conditions in certain areas. With the approval of the Single European Act in 1987 it was written into the that Member States should strive towards social and economic unity. It was also agreed that Union would be in measures of structural adaptation in less favoured areas and in regions where industry is on the decline. 3.4.2 Instruments for structural and regional policy Structural support to the agricultural sector comes under the provisions of objective 5a. Support is voluntary for each concerned. Examples are investment aid, setting-up aid to young farmers and aid to formation of producer groups in the fruit and vegetable sector. Under objective 5a support is also granted to LFAs (less favoured areas). Compensation is given for higher production costs in the form of grants per livestock unit and, in certain cases, per hectare. Support from the structural sections may also be granted to develop and increase diversity and prosperity of rural areas, objective 5b. Measures which can be eligible for support are presented in special 46 CAP facing the future programme documents, produced in cooperation between the Commission and the for respective 5b regions. Objective 6 is designed to assist the northern regions of and , areas characterised by low population density. Measures taken in the area are in many cases the same as those of 5a and 5b, but in addition there are major infrastructure measures designed to improve opportunities for growth and employment in the region. 3.4.3 Regional effects of the CAP Regional effects of CAP market regulations From the outset the CAP was intended to stimulate production and improve farmers incomes through market price support. This meant that the areas with the best natural conditions also received the highest support in terms of amount. Changes in recent years to market regulations towards more direct payments have not changed the allocation between different producers to any great extent. This is because direct payments are also bound to levels of production, albeit historical levels. Products from the region, such as fruit, vegetables and wine, widely produced in the southern parts of Union, have, for the most part, lower levels of support than, say, cereals, milk and beef, which are largely produced in the middle and northern regions of Union. There are notable exceptions, however, such as olive oil, tobacco and cotton. However, it may be generally stated that the common market regulations favour the northern and middle parts of Union, especially the high producing areas. A general effect of market regulation is a higher level of production in Union than could be expected from a deregulated scenario. Market regulation thereby contributes to production and to open landscapes even in areas less favourable for production. Effects of support via the EAGGF Guidance Section Support which fall under the EAGGF Guarantee Section, i.e. market regulating measures in the form of market price support and direct payments, and support for accompanying measures for environmental improvement, etc., do not comprise the total support afforded to CAP facing the future 47 Measures within the Guidance Section which are also part of the agricultural fund EAGGF, are, as mentioned previously, intended to contribute towards levelling out the economic and social differences between EU countries and regions. Support is paid out inter alia to farming in mountainous regions and in LFAs. Support paid via the Guidance Section is partly financed from national funds. The EU element of finance within the framework for LFA support is an average of . In countries in the south, this EU element is higher than in the north. Direct support per farmer is generally speaking higher in the LFAs. A substantial levelling out of agricultural income between normal and LFAs has taken place in northern and central regions of Union, yet this is scarcely the case in the south. The spread between different regions in Union is greater for agricultural income per farmer than for the overall economy measured as GDP per capita. Regional consequences of the CAP in Market price support in , as in Union as a whole, goes mainly to the fertile regions with high levels of production. However, a certain levelling out has taken place thanks to the regionalisation of the area payments in . has also levelled out agricultural income via environmental payments, LFA support and national payments. The same tendency exists in the other new Member States and . The levelling out in is a result of support which finances itself, partly or . Roughly half of agricultural land lies inside regions for which some form of agricultural support is payable. In terms of figures, northern and central get some of the regional support. 3.5 The CAP and the rest of the world 3.5.1 World food supply Although world food production has been on the increase for many years, there are today some 800 million people who do not have access to sufficient food. However, this is not because there is too food in the world, but mainly is a result of an uneven allocation of resources and income in the world. In the declaration of the Summit in 48 CAP facing the future in it was agreed that poverty was the main cause of malnutrition. The participating nations are to strive towards food security in the world by halving the total number of undernourished people in the world by the year 2015. In order to reduce malnutrition, natural resources must be protected from impoverishment and rural areas must be developed. For this to take place a social, political and economic development must take place in the developing countries, alongside an increase of knowledge sharing and trade. According to the report from expert group 1 on the CAP and world food supply (SOU 1997:24), the majority of food forecasts (, , , etc.) indicate that the amount of food in the world will be sufficient in the short term. Current production resources are also deemed sufficient to produce the food required for an increasing population in the long term. According to the forecasts named, increases in production are expected to be greater than increases in demand up to the year 2010. This means that the worlds production of cereals alone, seen in terms of calories, would be sufficient to meet the need for calories of all the worlds inhabitants. In addition to cereals, an important source of calories in the world, there is a considerable number of other agricultural and fish products which further improve access to food on a global scale. However, increased incomes in certain developing country regions mean an increase in the consumption of animals, which in the short term can lead to higher prices for cereals. As a result this can be a problem for poor consumers of cereals who cannot afford to consume the same amounts as earlier. However, the view of the situation of food in the future presented by is far more negative. The Institute considers that the impoverishment of natural resources has gone too far and that for increased food production to feed a growing world population are small. An overall view of the world food situation shows that current production takes its toll on finite resources such as land and water. For food supply to be sufficient in the future, production should take place in such a way as to conserve natural resources to reduce the risk of long term environmental destruction, shortages of resources and thereby rising production costs. Thus there must be increased investment in knowledge, above all relating to production methods which actually conserve natural resources. However, a sufficient resource base combined with production sustainable in the long term, does not necessarily mean secure food supply for the entire world population. CAP facing the future 49 needs to be combined with sufficient incomes to ensure a distribution of food to ensure peoples nutritional needs. 3.5.2.The CAPs effects on the rest of the world The CAP provides support for production inside the Union, with the overall resulting effect of lower prices in the rest of the world. This affects producers, chiefly in developing countries where agriculture is not generally supported. Prices for agricultural goods in Union are kept high with the help of measures such as export refunds, measures of intervention, production limitations and border protection against third countries. The CAP also comprises direct payments which are paid out to farmers per hectare or livestock unit, and this has an indirect effect on prices. The CAPs influence on world markets varies between different products and different countries. The CAPs effects on the world markets are determined by three factors - the size of CAP support and border protection, EU trade agreements and the size of Union as a producer and consumer in the world as a whole. The price- reducing effect of the CAP on world market prices is seen as particularly great in the dairy sector. EU regulations of sugar, beef and cereals are also deemed to have a major effect on the world market. Apart from these, there are several products for which the CAPs influence on world market prices is modest. This applies to products such as fruit, vegetables, oilseeds, fodder, wine, processed food, pork and tobacco (SOU 1997:24). Producers in developing countries, where agriculture is seldom supported and may even be taxed, are the group worst affected by the CAP through the resulting low world market prices. The fact that production of agricultural goods in developing countries is low in relation to population is due to a number of factors, but it must be observed that low world market prices stimulate production. Among the EUs industrialised neighbours, producers in Central and Eastern Europe are especially affected. Despite trade agreements with Union, Central and Eastern European exports to Union are made more difficult by the CAP, at the same time as Union can compete on the traditional Central and Eastern European markets because of generous export refunds. Abolition of EU tariffs, export refunds and other production increasing support would raise world market prices for many 50 CAP facing the future Farmers outside and consumers inside Union could be expected to benefit, whereas EU farmers and consumers in the rest of the world might be disadvantaged. In developing countries the majority of the population is involved in agriculture. This group is made larger by those who live in rural areas and are dependent on agriculture. Many of these people are poor. Higher prices for agricultural products would therefore benefit large numbers of people in need in developing countries and provide incentives for higher production and improved supplies of food. However, there are currently major economic, political and social problems in many developing countries which must be improved if the countries are to be capable of development. In this respect the agricultural sector can play a significant role in such development in that the majority of the population of these countries is involved in agriculture. Furthermore, there may be groups of people in developing countries who would be disadvantaged by higher prices and who would not share in the advantages of increased agricultural production. For a beneficial development to take place it is important that each individual nation should contribute to the creation of a favourable climate in society, irrespective of whether the agricultural policy of the industrialised countries is deregulated or not. 3.6 The CAP and WTO agreements 3.6.1 Effects of WTO commitments on agriculture The WTO - - was founded in 1995 and is responsible for three different trade agreements, whereof , the General on Trade and Tariffs, is the agreement which affects trade in goods. The WTO works for free trade, without discriminating trade barriers, to be applied throughout the world. the years a number of agreements have been negotiated within the framework , but it was at the latest round of negotiations, the Round, that the countries managed to come to a general agreement which included agriculture. Via this agreement (the UR Agreement) the 125 Member States of the WTO gave their commitment to increase market access, reduce export subsidies and to reduce certain internal subsidies between 1995-2000, There are also agreements on technical trade barriers and sanitary and phyto-sanitary measures. CAP facing the future 51 The WTO agreements involve a significant change of system, through the of more effective rules for solving disputes and through the first ever comprehensive agreement for trade in the agricultural sector. Where imports are concerned, the UR Agreement means that the flexible EU border protections for agricultural goods have been converted to tariffs with effect from 1 1995. These tariffs are to be reduced by an average of during the agreement period in relation to their levels during the 1986-88 period. Furthermore, the agreement contains commitments that Union will make the same quantity of imports possible as during the base period, and without exception increase access for up to of internal consumption of respective agricultural goods, in the year 2000. For exports the agreement means that EU export refunds must be reduced by during the agreement period and that the quantities exported with the help of refunds shall be reduced by . The UR Agreement also involves commitments for total internal support to be reduced by . However, forms of support which are deemed to have small or insignificant effects on trade and production (green box) and direct payments within the framework for production limitation programmes, i.e. mainly area and headage payments (blue box) are excluded from this demand for reduction. That these forms of direct payments were excluded from the reductions was due to a separate agreement between the and Union, the Agreement, in which the was granted the equivalent exceptions for its deficiency payments. The effects of the UR Agreement on Union are expected to take effect mainly in exports, where the levels of export support, unlike internal support are linked to defined product categories. Currently, Union has already experienced problems in sticking to the permitted export support limits for beef and dairy products. Export of cereals and poultry meat are also expected to run into problems quite soon. According to forecasts of anticipated production within Union up to the year 2000 from the and the FAO, the Union can expect a production surplus higher than permitted export support levels for wheat, sugar, beef, pork and dairy products. The reduction in levels of border protection is not expected to have any major effect on EU imports, mainly due to the fact that the converted tariffs have been set at relatively high levels in many cases. However, effects can be anticipated from the commitments to 52 CAP facing the future facilitate certain levels of imports and certain links between tariffs and administrative prices. The WTO commitments on internal support are not expected to have any major effect on Union since many types of support, such as area and headage payments, are exempt from the reduction requirements. The WTO now comprises a new, more effective set of rules for solving disputes which constitute a binding agreement to solve trade policy disputes within the framework of this system and to accept any WTO decisions. The new dispute solving process is expected to be used to initiate a test of the scientific principles for import restriction which have been used, for example, for consumer reasons. Through the agreement on sanitary and phyto-sanitary measures demands are made where import restriction measures are applied: these measures must be, as far as possible, based on international standards, based on scientific principles, preceded by risk assessment and not be of greater scope than is necessary to achieve the legitimate purpose. The agreement on technical trade barriers stipulates that discrimination on the grounds of origin is prohibited and that unnecessary trade barriers may not be created through technical regulations. Thus, the WTO and relevant agreements mean a change in system, partly because a comprehensive set of regulations for agricultural matters has been drawn up for the first time, and also because of the new regulations for solving disputes. The effects on world agricultural trade in the short term are expected to be limited. However, the WTO is expected to produce more discernible effects for agricultural trade when the next WTO round on agriculture gets underway. 3.6.2Requirements anticipated from the next WTO round The UR Agreement stipulates that new negotiations should be set in motion one year before the end of the current agreement period, i.e. at the end of 1999 at the latest. In the next round of negotiations, Union and other countries with high levels of support and border protection will probably come under increasing pressure from the rest of the world for further reductions in tariffs and agricultural support. Compared to the Round the pressure for liberalisation is expected to weigh heavier, due to the fact that the , via a change in national agricultural policy, is expected to have a greater interest in CAP facing the future 53 pressing for free trade. As previously, demands for increased liberalisation will come from countries in the (, , , and others). How the next WTO round will end up is naturally a question for negotiation, in which Union, the and the group are the major players. There are, however, many indications that the next WTO round will lead to further reductions in border protection and agricultural support, mainly due to the change in direction in the USAs agricultural policy. How great these demands will be is, of course, difficult to predict, but a number of commentators believe that the next agreement will lead to significant reductions in agricultural support linked to production or exports. This is expected to have major impact on Union agricultural sector, and to lead to further reforms of the CAP. 3.6.3The new agricultural policy and the WTO round The is expected to have a major influence in the forthcoming WTO negotiations, due to the fact that the country, as the worlds largest exporter of agricultural goods, is a significant player on the world market. In the period from 1992-94, US exports of agricultural goods were equivalent to approximately of the worlds total exports (SOU 1997:24). Now that the has introduced a new agricultural policy involving several significant system changes, this will also have effects on coming trade negotiations. The new US agricultural policy covers the period from 1996-2000 and is intended to adapt agriculture to the market and to introduce measures of deregulation to the agricultural sector. The most important changes relate to cereals, cotton, rice and oilseeds for which production support, known as deficiency payments, are being replaced by direct payments which is not linked to production. Previous levels of support to the agricultural sector will generally be maintained up until the year 2000, regulations which discourage production are to be removed and export refunds will be maintained in most areas (1997). There are many indications, therefore, that the new policy will stimulate increased agricultural production, and this in turn will lead to an increase in exports. 54 CAP facing the future By way of its new agricultural policy, the will enjoy a strong bargaining position at the next round of WTO negotiations, not least in relation to Union. Even before the new policy started to come into force, the had greatly reduced its support compared to the situation which existed in the middle of the 1980s, whereas support levels in Union have remained largely unchanged since that time. Unless it is altered, the new US agricultural policy will result in the no longer having any interest in maintaining exceptions from reductions in support for compensation payments in line with the Agreement. This will subsequently affect the EUs area and headage payments. In addition, the will probably demand increased liberalisation in trade, chiefly in respect of products in which it has major export interests. 3.7 The CAP and enlargement to the East 3.7.1 The current situation in Central and Eastern Europe In 1993 Union decided that 10 central and eastern European countries, , , , , , , , , the and , can become members of Union. In addition to the central and eastern European countries, may also become a new member. However, negotiations will determine the conditions and timing for membership. An enlargement will take place chiefly to create peace and security in the area. An enlargement is also expected to have a number of other beneficial effects such as increased economic development in both Union and Central and Eastern Europe. In the coming negotiations the agricultural sector will play a major part since current Common Agricultural Policy is an important factor within the Union, with extensive regulations and a large budget, and also because the agricultural sector is of major importance in Central and Eastern Europe. There are major differences between the central and eastern European countries, just as there are significant differences between the existing Member States. Seen from an overall perspective, the agricultural sector in Central and Eastern Europe plays a larger part in the economy compared with Union, for example in terms CAP facing the future 55 of the proportion of total employment, GDP and foreign trade. This is shown in Table 4. Traditionally several of the countries have been significant producers and exporters of a range of agricultural products such as animal products and fruit and vegetables. Certain countries are also major wine producers. , and Rumania are also major producers of cereals.