Opinion on the Commission proposals on the prices for agricultural products and on related measures (1995-1996)

(95/C 155/08)

On 21 February 1995 the Council decided to consult the Economic and Social Committee, under Articles 43 and 198 of the Treaty establishing the European Community, on the abovementioned proposals.

The Section for Agriculture and Fisheries, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 6 April 1995. The Rapporteur was Mr Bastian.

At its 325th Plenary Session (meeting of 27 April 1995) the Committee adopted the following Opinion by a large majority, with 21 votes against and six abstentions.

1. General comments

1.1.

Limited farm-price proposals for 1995/1996

1.1.1. The Committee notes that the Commission's proposed price package for 1995/1996 is relatively modest in scope compared to the price packages of previous years. There are several reasons for this.

1.1.1.1. The decision-making procedure for farm prices and related measures has been radically modified by the CAP reform. In the sectors covered by the reform, the major decisions on farm prices were taken in May 1992 and subsequent price packages have merely served to implement these decisions.

1.1.1.2. Three new Member States (Austria, Finland and Sweden) joined the European Union on 1 January 1995. The farming communities in these three countries will have to make strenuous efforts in 1995 and 1996 to implement the provisions of the CAP reform.

1.1.1.2.1. The 1995/1996 price package should therefore not be used as a way of amending further than is absolutely necessary the already complicated rules henceforth applicable to farmers in Austria, Finland and Sweden.

1.1.1.3. Given that the Council is about to decide on the reform of several common market organizations (sugar, wine, fruit and vegetables), it seems appropriate to submit a price package that does not spark off a lengthy controversy.

1.1.1.4. In the two years following its reform the CAP has produced generally satisfactory results even if the Committee does not underestimate the social and other difficulties experienced in various Member States. For the time being, therefore, there is no need to call for major changes to the rules adopted in May 1992 since under them the objectives of the reform (curbing production, increasing farm incomes, etc.) have by and large been achieved. It should also be noted that general agricultural conditions over the last two years have been satisfactory and this has also helped.

1.2.

Two years of applying the CAP reform - a satisfactory picture overall

1.2.1. The Committee endorses the Commission's view that over the last two years CAP reforms in the sectors concerned have by and large been successful.

1.2.2. The curbing of production appears so far to have been successful, notably in the cereals sector. Thus, it is estimated that the cereal harvest in 1995 will be 162 million tonnes (173 million tonnes for the Union of Fifteen), i.e. 19 million tonnes less than in 1991. The application of the set-aside mechanism has also resulted in the stabilization of the areas sown with cereals at around 32 million ha, i.e. an area noticeably smaller ( P3 million ha) than before the reform.

1.2.3. Similarly, the European Union has so far been successful in reducing public stocks: at the beginning of January 1995 these stood at 10 million tonnes for cereals, nil for rice and sugar, 10,000 tonnes for olive oil, 20,000 tonnes for butter, 80,000 tonnes for beef and veal, nil for pigmeat and 13,000 tonnes for tobacco. Public stocks fell to an historic low in 1994 and in some sectors are continuing to fall.

1.2.3.1. The Committee would nevertheless draw attention to the role played by public stocks in regulating the market and takes the view that they must be kept at a sufficiently high level to be able to continue to function as an authentic Community instrument for managing the market, and particularly for counteracting the vagaries of the climate.

1.3.

Reservations concerning the increase in farm incomes

1.3.1. The Committee notes the average 5.7% increase in Community farm incomes in real terms in 1994 reported by the Commission in the explanatory memorandum accompanying its 1995/1996 price package.

1.3.2. The Committee would nevertheless like to make certain comments on this figure.

1.3.2.1. The increase in farm incomes in 1994 is an average calculated by EUROSTAT for the whole of the European Union. The Committee would point out however that this average conceals significant regional and sectoral variations.

1.3.2.2. Prior to the overall increase in farm incomes in 1994 there had been four years in which incomes had stagnated or even fallen (1992).

1.3.2.3. In certain sectors (fruit and vegetables, wine, olive oil, potatoes) the rise in 1994 prices compared with those of 1993 was due mainly to climatic factors. This pushed up farm incomes in these sectors. In other sectors (cereals, sugar, milk) the improvement was attributable to the rise in world market prices.

1.3.2.4. The Committee notes the cyclical nature of these factors.

1.3.3. The Committee finally hopes that this improvement in farm incomes in 1994 will be put into perspective by taking into account the sharp fall in the size of the agricultural workforce in the Community since 1990.

1.3.3.1. According to Eurostat, the number of full-time jobs in agriculture has fallen by approximately one million in the European Union since 1990. This aspect of the development of European agriculture will shortly be the subject of an ESC Own-initiative Opinion on the impact of the CAP on the employment and social situation of farmers and farmworkers in the European Union. The Committee believes that an effective common agricultural policy must both further the competitiveness of European agricultural enterprises and create favourable job-creating conditions in the agricultural sector of the European Union and in rural and upland areas.

1.4.

A favourable budget context

1.4.1. The Committee would point out that the agricultural guideline laid down at the Edinburgh Summit naturally provides a framework for Community spending on agriculture, but also serves to determine the financial support which European farmers can count on in order to cope with the radical transformations affecting their sectors.

1.4.2. The Committee notes that farm spending in 1995 should remain below the agricultural guideline for the third successive year.

1.4.3. Commission estimates of appropriation requirements for 1995 indicate that spending is likely to be MECU 1,028.5 down on the original budget appropriations (MECU 37,925.5), and MECU 1,070 down on the agricultural guideline (MECU 37,944).

1.4.4. The Committee sees this as further proof of the satisfactory functioning of the CAP reform in a favourable international context.

1.5.

A worrying agrimonetary situation

1.5.1. The Committee is concerned at recent trends in the international monetary environment, with major fluctuations of the dollar and certain European currencies.

1.5.1.1. In the light of the new agrimonetary system in force since 1 February 1995, this turmoil on the currency markets is a potentially heavy drain on the European budget. In accordance with the conclusions of the Edinburgh Summit, the Committee therefore calls upon the Council to take 'appropriate steps' should the monetary reserve prove to be too modest in future to finance the additional budget spending that may be incurred as a result of the revaluation of the green rates of certain currencies.

1.5.1.2. The Committee is also concerned about the adverse repercussions these monetary upheavals might have on the operation of the single market, bringing in their wake distortions of competition and disruptions of trade flows. The Committee is likewise worried about the possible impact monetary disorder might have on consumer prices and farm incomes in certain Member States.

1.6.

General assessment of the price package

1.6.1. For the above reasons the Committee does not wish to challenge the modesty of the 1995/1996 price package.

1.6.2. However, apart from simply making a critical analysis of the Commission proposals, the Committee has thought fit in its comments on individual products to make a number of recommendations intended to facilitate implementation of the CAP reform.

1.6.2.1. The Committee takes the view that European Union producers must be able to avail themselves of all the rights conferred on them by the CAP reform. This is all the more important given the new challenges to be faced as a result of the application from 1 July 1995 of the Uruguay Round agreement on agriculture. Bearing in mind the planned accession of the countries of Central and Eastern Europe, and the stronger partnership sought with countries of the Mediterranean basin, the Committee considers it vital that European farmers should be properly geared up to the reform of the CAP during the 1995/1996 marketing year, when the reform will be implemented in full.

1.6.3. The Committee prefers not to engage in the debate about the impact of farm prices on consumer prices. It considers that this Opinion is not the place to tackle this complex problem since it would also mean having to take into consideration the influence of processing industries and of firms in the distribution sector in the determination of food prices.

1.6.4. However, in order to make a fair evaluation of the CAP reform, the Committee asks the Commission to make impact assessments of this and future price packages on consumer prices, food quality, health, environment and the social situation in rural areas.

2. Comments on individual products

2.1.

Cereals

2.1.1. The Commission proposes to defer the opening of the intervention period for two months and to reduce the number of monthly increments from 7 to 5. The amount of the monthly increment is also to be reduced by 10%.

2.1.2. The Committee cannot accept these proposals since they would reduce overall price support levels by about 2.5%, a figure which the Commission does not dispute. Moreover, expert opinion is divided as to the impact of these proposals on any future cereals market that turns out to be under more pressure than the one at present. The Committee therefore recommends that, for the time being, the Commission and Council should adhere rigorously to the terms of the cereals market reform agreed in 1992. Changes should only be considered after a detailed analysis of the full implementation of the reform and after standing back to bring the whole situation into clear focus.

2.1.3. As far as the postponement of the opening of the intervention period is concerned, the Committee notes that such a measure would leave producers wide open to speculation. The Committee would emphasize the importance of intervention at the beginning of the marketing year, seeing it as an instrument for supporting the prices paid to farmers.

2.1.3.1. The Committee therefore calls for the maintenance of the present period of intervention so as to guarantee the orderly and steady marketing of cereals.

2.1.4. The Committee would like to draw attention to a number of facts regarding the monthly increments.

2.1.4.1. Monthly increments serve in practice to meet storage costs. The Commission proposes to reduce the level to take account of (a) the 7.5% reduction of the intervention price for cereals in the 1995/1996 marketing year, and (b) the drop in interest rates. The Committee doubts, however, whether the recent variations in interest rates can justify such a sharp fall in monthly increments (10%), especially as the Commission recognizes that monthly increments are worked out on a flat-rate basis and not with the aid of precise, irrefutable calculations.

2.1.4.2. The Committee would also point out that the fall in interest rates put forward as an argument by the Commission is valid solely for certain Member States. A reduction in monthly increments would therefore penalize producers in Member States where real interest rates remain high.

2.1.4.3. The Committee therefore calls for the number and amount of the monthly increments to remain unchanged.

2.1.5. The Committee would also stress that the postponement of the opening of the intervention period and the reduction of monthly increments would whittle away Community preference which, as the Commission itself recognizes, has technically been based on these two aspects ever since the signing of the Uruguay Round agriculture agreement.

2.1.6. The Committee likewise wonders whether it is advisable to abolish the target price for cereals 'in the interests of simplification'. The Commission justifies this abolition by announcing the introduction of a fixed, as opposed to a variable, import levy, thereby rendering the target price meaningless.

2.1.6.1. The Committee recognizes that, given the existing common organization of the cereals market, the target price is no longer of any practical use. Under the CAP reform of May 1992, however, the target price has become an indicator of the desired market price. Abandoning the target price would therefore be tantamount to conferring this role on the intervention price.

2.1.6.2. The Committee believes that the target price remains a more reliable indicator for comparing the desired market price with the actual market price for cereals. Since the intervention price is 10% lower than the target price, abolition of the target price might be the first step toward dismantling the cereals support regime. The Committee would point out in this connection that when the CAP reform was carried out, compensatory payments were calculated on the basis of the target price.

2.1.6.3. The Committee therefore calls for retention of the cereals target price as a benchmark for market prices and compensatory payments. Its abolition would be going beyond the strict confines of the CAP reform. The Committee also notes that the Commission is not proposing to abolish target prices in other production sectors.

2.2.

Rice

2.2.1. The Committee notes the explanation provided by the Commission experts regarding the intervention period in the rice sector.

2.2.2. Contrary to what is implied by the assertion in the proposed price package that the planned reduction of the intervention period will necessitate an amendment to the basic Regulation (EEC) No 1418/76, the Commission is not actually proposing that the opening of the intervention period for rice be put back by two months.

2.2.3. The Committee would point out that any changes in the required characteristics of rice need to be envisaged with caution given their possible impact on its price.

2.2.3.1. The Committee would therefore ask the Commission to spell out clearly the implications for prices of its proposed amendments to Annex A to Regulation (EEC) No 1418/76 - amendments laying down the method for grain measurement and the definition of broken grains.

2.2.4. In addition, the Committee rejects the Commission's proposal that the monthly increments in the rice sector be reduced, advancing the same arguments as those already put forward for the cereals sector (cf. point 2.1).

2.2.5. A reduction in monthly increments in the rice sector is particularly unwelcome since consumption is currently at a critical level. A reduction would unduly squeeze rice producers' incomes - something which would be totally unjustified given the modest budget savings to be achieved (ECU 1 million in 1996).

2.2.6. The Committee is most concerned at the delay in publishing proposals on the reform of the rice regime and also by the absence of agreement on how the new Uruguay Round provisions on rice and milled rice imports are to be implemented.

2.3.

Sugar

2.3.1. The Committee approves the freeze on the basic price for beet, the intervention price for white sugar and the manufacturing margin. This is in line with the Council's decision to extend the present market regime until 1 July 1995.

2.3.2. The Committee does not, however, approve the Commission's proposal to reduce the monthly refund on sugar storage costs.

2.3.3. As with cereals and rice, the fall in interest rates is insufficient to explain the substantial reduction proposed by the Commission ( P15%).

2.3.4. To justify this reduction, the Commission uses a weighted average interest rate of all Member States. However, the reduction of aid for storage costs would penalize producers in Member States where real interest rates remain higher than this weighted average. Such Member States would thus be faced with liquidity problems out of all proportion to the relatively modest budget savings the Commission hopes to achieve.

2.3.5. The Committee therefore calls upon the Council not to reduce the amount of the storage costs refund.

2.3.6. The Committee would also urge the Council to adopt as swiftly as possible the detailed provisions implementing the reform of the COM in sugar, so that the reform can come into effect as planned on 1 July 1995.

2.3.7. In this connection, the Committee would refer to the Opinion delivered at its Plenary Session on 22 and 23 February 1995 ().

2.4.

Olive oil

2.4.1. The Committee shares the Commission's view that the olive oil regime, a sector marked since 1991/1992 by a switch from consumer aid to production aid, should be reconsidered with caution. The Committee notes the Commission's proposed freeze on prices and aid for 1995/1996.

2.4.2. The Committee would nevertheless point out that labour costs are very high in the olive oil sector where operations cannot be wholly mechanized even with current state-of-the-art technology. The Committee therefore calls upon the Commission and Council to re-examine the production aid regime as soon as possible to take account of this situation.

2.4.3. Given the delays in paying production aid in the last marketing year, the Committee also asks the Commission to make sure that the advance on this aid is paid as closely as possible to the actual harvest delivery date. This will help to improve producers' liquidity.

2.4.4. The Committee also underlines the need for a serious and sustained campaign to promote olive oil consumption, using all the funds allocated for this purpose.

2.4.5. The Committee calls upon the Commission to launch its sixth olive oil promotion campaign as speedily as possible.

2.5.

Dried fodder

2.5.1. The Committee notes the provisions, recently adopted by the Council, implementing the balanced compromise reached in the dried fodder sector in July 1994.

2.5.2. The Committee agrees with the view expressed by Mr Fischler, Commissioner for Agriculture and Rural Development, in his address to the Section for Agriculture and Fisheries on 2 March 1995 and favours an increase in the advance paid to producers to ease their liquidity problems. The advance should be increased from 50 % to 80 % of the total amount of aid provided.

2.5.3. The Committee also wonders whether there is a case for introducing a minimum-level-of-humidity threshold, whereupon producers become eligible for maximum dehydration aid. The laying down of a minimum-level-of-humidity threshold would make it possible to justify paying different rates of aid, depending on whether products are dried in the sun or are really put through a process of dehydration.

2.6.

Cotton

2.6.1. The Committee broadly endorses the Commission proposal on cotton pending the expected reforms in this sector.

2.6.2. The Committee would reiterate its support for the present system of production aid since cotton growing is an important part of agriculture in some regions of the European Union (Spain and Greece). It nevertheless rejects any system of aid per hectare as this would eventually lead to a deterioration in the quality of cotton.

2.6.3. The Committee also calls for an increase in maximum guaranteed quantities (MGQ) in order to boost cotton growing. The European Union is still far from self-sufficient in cotton which could be grown instead of certain surplus Community products under the production switches envisaged in the CAP reform.

2.7.

Fibre flax

2.7.1. The Committee broadly endorses the Commission proposal on fibre flax.

2.7.2. The Committee notes that an increasing number of Community producers claim fibre flax aid even though their harvesting methods preclude use of the product by the textile industry.

2.7.3. The Committee therefore urges that the total amount of aid should only be paid to producers who process fibre flax for the textile industry. Only producers who use the 'flax pulling' method will henceforth be eligible for 100 % aid.

2.7.4. With regard to other producers who go in for traditional cutting 10cm from the ground, the Committee proposes that an aid abatement coefficient, still to be fixed, should be introduced.

2.7.5. The Committee believes that this will put an end to flax cultivation solely for aid collection purposes.

2.8.

Hemp

2.8.1. The Committee broadly endorses the Commission proposal on hemp.

2.9.

Silkworms

2.9.1. The Committee broadly endorses the Commission proposal on silkworms and calls upon the Commission and Council to promote this sector.

2.10.

Wine

2.10.1. The Committee calls upon the Council to adopt the expected reform of the common market organization for wine by the end of June 1995.

2.10.2. In this connection, the Committee would refer to its Opinion on the Commission proposals () delivered at the Plenary Session of 22 and 23 February 1995. It calls upon the Commission and Council to take maximum account of this Opinion.

2.10.3. Pending the introduction of this reform, the Committee broadly endorses the temporary measures proposed by the Commission.

2.11.

Fruit and vegetables

2.11.1. The Committee broadly endorses the Commission proposal on fruit and vegetables.

2.11.2. It nevertheless urges the Commission to submit proposals on the reform of the common market organization for fruit and vegetables as soon as possible.

2.11.3. In this connection, the Committee would refer to its Opinion on the Commission Communication () adopted at the Plenary Session of 25 and 26 January 1995.

2.12.

Milk and milk products

2.12.1. The Committee approves the extension of the milk marketing year until 30 June 1995.

2.12.2. The Committee cannot, however agree to the proposed butter intervention price cut by 2 % (and the subsequent 1 % reduction in the milk target price) seen by the Commission as a signal to producers rather than as a reaction to difficulties on the butter market.

2.12.3. The Committee considers that this reduction cannot in any way be justified by the current state of the market. The butter market was in equilibrium in 1994. Besides, public stocks are at an extremely low level, with no more than 20,000 tonnes in reserve.

2.12.4. The Commission considers that in the long term prospects for the consumption of butterfat are poor. Consumers now seem to want milk products with a high protein and low fat content. Although it is wary of long-term forecasts, the Committee notes the Commission's analysis of the new consumption patterns in respect of milk products.

2.12.5. Nevertheless the Committee believes that, given the current market situation, a reduction in the price of butter is not the right way to persuade producers to produce milk with a higher protein and lower fat content. It regards the Commission's proposal to set a minimum protein standard for skimmed milk powder intervention as an adequate incentive for the time being.

2.12.5.1. The Committee however calls upon the Commission to carry out a study with professionals and experts in the field to determine the desirable protein content. Given current possibilities of production from both a technical and genetic point of view, the Committee considers that the Commission's proposed level of 35 % is too high. According to experts a rate of 32 % would be more realistic given the climatic differences between Member States.

2.12.6. The Committee thus rejects a reduction in the price of butter on the grounds that it serves no purpose in the current market situation and adversely affects the income of producers offering butter for intervention.

2.12.7. Unlike the Commission, the Committee does not consider this reduction to be a positive 'signal' for producers in a sensitive sector which has already been affected by an 18 % reduction of export refunds since January 1995.

2.12.8. The Committee would point out in this connection that during the first few years GATT restrictions will only apply to cheeses; it thus calls on the Commission to use all the room for manoeuvre in the milk and milk products sector allowed by the Uruguay Round agriculture agreement.

2.12.9. The Committee would also draw attention to the critical situation in the fresh milk market in various Member States currently importing fresh milk. The Committee calls upon the Council and Commission to examine the problems posed by the transport and distribution of fresh milk in these countries.

2.13.

Beef and veal

2.13.1. The Committee broadly endorses the Commission proposal on beef and veal.

2.13.2. At the same time, it regrets the absence in the 1995/1996 price package of proposals to simplify the administrative problems relating to the application of the reform and the administration of the premium system.

2.13.3. The Committee would reiterate that every Member State must be in a position to take advantage of all the rights to which its producers are entitled under the CAP reform.

2.13.4. It therefore recommends that, when discussing the price package, the Council should approve the simplification measures called for by the vast majority of the Member States.

2.13.5. The Committee also believes that the advance on the special premium for male animals be raised from 60% to 80%, with the remainder paid as soon as possible after the end of the year covered by the premium. Such a measure should enable producers to improve their liquidity position.

2.14.

Sheepmeat and goatmeat

2.14.1. The Committee broadly endorses the Commission proposals on sheepmeat and goatmeat.

2.14.2. It nevertheless calls upon the Council to ensure that the administration of the premium system in Greece, Italy, Portugal and Spain be made more flexible so that producers in these Member States are able to avail themselves of all the entitlements conferred on them by the CAP reform.

2.14.3. The Committee is essentially referring here to the choice of the reference period for Greece, Italy and Spain, and to the system of controls applicable to certain mixed breeds in parts of Portugal and Spain.

2.15.

Pigmeat

2.15.1. The Committee broadly endorses the Commission proposals on pigmeat, which reflect the reduction in the price of cereals and increased consumer demand for quality pigmeat.

2.15.2. The Committee would nevertheless stress that the pigmeat sector is only slowly emerging from an extremely serious crisis starting back in October 1992.

2.15.3. The Committee would also remind the Commission and Council of the unfavourable prospects facing producers in this sector under the Uruguay Round agriculture agreement. Whilst subsidized exports of pigmeat amounted to 900,000 tonnes in 1994, GATT will eventually limit such exports to 550,000 tonnes.

2.15.4. The Committee therefore calls upon the Commission to rapidly submit proposals to avoid a new crisis and to help restructure this sector without waiting for the negative effects of the Uruguay Round agriculture agreement to be felt.

2.15.5. As far as the immediate future is concerned, the Committee is surprised at the reduction in the Community's pigmeat budget. This has been set at only MECU 158 in 1995, i.e. MECU 36 less than in 1994.

2.15.6. In particular, the appropriations earmarked in the budget for export refunds will amount to only MECU 97 in 1995, compared with MECU 200 in 1994 and MECU 208 in 1993.

2.15.7. The Commission would thus appear to have given up any intention of using all the room for manoeuvre allowed by GATT, since the pigmeat export refund budget for 1995 amounts to about half of what is allowed under GATT (MECU 172).

2.16.

Tobacco

2.16.1. The Committee notes the recent adoption by the Council of a regulation amending the common organization of the tobacco market.

2.16.2. This amendment allows Member States to pay premiums directly to producers. The quota system, which ensures compliance with guarantee thresholds, has been maintained for 1995, 1996 and 1997. The quota is calculated annually for every Member State on the basis of quantities delivered for processing during the three years preceding the year of the harvest (1992 could not be taken into account). Every producer may now carry over surplus production to the following harvest, provided this remains within 10 % of his quota.

2.16.3. The Committee notes that the Council has partially heeded the concerns voiced by producers, but nevertheless calls upon the Commission and Council to make further changes to the present system, when adopting the price package, so as to streamline the common organization of the tobacco market and avoid an increase in the quantities of tobacco imported by European industry.

2.16.3.1. The Committee also calls upon the Commissioner and Council to re-examine the premiums paid to producers so that rising labour costs in this sector do not put them out of business.

2.16.3.2. To pursue the goals of improving the quality of European production and bolstering producer associations, the Committee proposes that the specific aid corresponding to 10% of the amount of the premium be raised to 15% and that it be paid at the time the tobacco is delivered (without the lodging of a security). The Committee also thinks that the Commission should simultaneously clarify the criteria for recognizing producer groups for the purpose of entitlement to aid.

2.16.3.3. In addition, the Committee would also ask the Commission to see to what extent:

- a declaration about acreage under tobacco can be regarded as equivalent to a sales contract,

- producer associations can be authorized to carry out first-stage processing,

- the specific aid can be used to finance any particular activity or investment.

2.17.

Seeds

2.17.1. The Committee broadly endorses the Commission proposal on seeds.

Done at Brussels, 27 April 1995.

The President

of the Economic and Social Committee

Carlos FERRER

() OJ No C 110, 2. 5. 1995, p. 35.

() OJ No C 110, 2. 5. 1995, p. 30.

() OJ No C 102, 24. 4. 1995.