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Brussels, 23.3.2007

SEC(2007) 365

COMMISSION STAFF WORKING DOCUMENT Accompanying document to the REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT

The agricultural situation in the European Union – 2005 Report {COM(2007) 130 final}

TABLE OF CONTENTS

1. ECONOMIC SITUATION AND FARM INCOME 4

1.1. Overview 4

1.2. Production 8

1.3. Prices 10

1.4. Input prices 12

1.5. Farm income 13

1.6. Farm accountancy data network (FADN) 21

2. POLICY DEVELOPMENTS AND LEGISLATIVE INITIATIVES IN 2005 28

2.1. CAP Reform 28

2.2. Quality policy 29

2.3. Organic farming 33

2.4. Promotional measures 34

2.5. Simplification of agricultural legislation 35

2.6. State aids 36

2.7. Assistance to the needy 44

2.8. The Outermost Regions 44

2.9. Information measures concerning the CAP 46

2.10. Information and communication technology (ICT) 48

2.11. Advisory committees and relations with the other EU institutions 49

3. AGRICULTURAL MARKETS 49

3.1. Market developments – Crop products 49

3.2. Market developments – Animal products 78

4. IMPLEMENTATION OF THE 2003 CAP REFORM 89

5. AGRIMONETARY ARRANGEMENTS 94

6. RURAL DEVELOPMENT IN 2005 94

6.1. Belgium 96

6.2. Czech Republic 98

6.3. Denmark 98

6.4. Germany 99

6.5. Estonia 101

6.6. Greece 101

6.7. Spain 103

6.8. France 105

6.9. Ireland 106

6.10. Italy 107

6.11. Cyprus 109

6.12. Latvia 110

6.13. Lithuania 111

6.14. Luxemburg 112

6.15. Hungary 113

6.16. Malta 114

6.17. The Netherlands 114

6.18. Austria 116

6.19. Poland 117

6.20. Portugal 118

6.21. Slovenia 120

6.22. Slovakia 121

6.23. Finland 122

6.24. Sweden 123

6.25. United Kingdom 124

7. ENVIRONMENT AND FORESTRY 125

7.1. Other environmental measures 125

7.2. Other forestry measures 128

8. PROPOSAL FOR A FINANCING OF THE CAP IN 2005 128

8.1. EAGGF Guarantee Section 129

8.2. EAGGF Guidance Section 132

8.3. Evaluation 139

9. ENLARGEMENT 140

10. INTERNATIONAL RELATIONS 141

10.1. International organisations and agreements 141

10.2. Bilateral and regional trade relations 146

Economic situation and farm income

Overview

1. The 2005 agricultural year was marked by a slight decrease in crop production and production of livestock products, combined with favourable prices for livestock products and lower prices for crops. Input prices were substantially higher in 2005 in most Member States, mainly due to increased prices for energy and fertilisers. However, price developments were highly variable across sectors and countries. The first estimates sent by Member States show a sharp decline in agricultural income of–6.3% in real terms as compared to 2004 in the European Union as a whole.[1] Agricultural income dropped by –6.6% in the old Member States and by –3.8% in the new Member States. The actual range by country varied from –19.3% for Hungary to + 25.9% for Lithuania.

2. As far as the weather is concerned, the autumn 2004 weather conditions had been generally favourable for sowing winter crops. However, a period of substantial rain in the autumn delayed preparation work in Ireland and Germany. Winter was characterised by relatively low seasonal temperatures in the Iberian Peninsula and South West France, with rainfall below the seasonal average. Unexpected frosts in Spain during the winter of 2005 affected vegetable production. During spring 2005 the climatic conditions were satisfactory for crop growth and farming operations but late frosts influenced winter crops in France, Spain, Hungary and Romania. The drought throughout the whole of the Iberian Peninsula produced very high seasonal temperatures. Well below normal rainfall was recorded in South and Eastern France, Greece, Estonia, West Turkey and East Ukraine. In contrast, in Hungary, Romania and Bulgaria rainfall was above or exceptionally above historical averages and disastrous for crops. Summer 2005 was marked by normal and favourable weather conditions for the development of crops in most Member States. A very extensive drought during the summer of 2005 in the Iberian Peninsula, major parts of France and Western Italy, however, influenced the harvest in these regions.

3. In 2005/06, demand for cereals within the European Union is expected to be about 1% higher than the 2004/05 marketing year thanks mainly to increased feed grain demand supported by low cereal prices and increased livestock production. As regards livestock products, meat consumption declined for beef, pork and sheep and goat meat and increased only for poultry meat. The total EU-25 beef consumption displayed an overall decline of 0.9% compared to the previous year, driven by the sharp fall in demand recorded in the new Member States linked to the lower availability and relatively high prices. As prices for pig meat are expected to stay at a relatively high level, a slight reduction in consumption (–0.5%) is expected, mainly due to a 1.3% decline in the new Member States. Increased availability of poultry meat contributed to lower prices and a slight increase in consumption (+2.2%) while sheep meat and goat meat consumption was only slightly down (–0.4%) in 2005. The overall consumption of milk products continued to show a slight upward trend. An increase in demand for cheese was registered while butter consumption remained relatively stable and skimmed milk powder consumption declined in 2005 in both the new and the old EU Member States.

4. Concerning the global economic situation, the world economy is expected to continue to grow at a robust pace (+4.3%), despite the impact of higher energy prices and the negative effects of Hurricane Katrina on the US economy in the second half of 2005. Economic growth was accompanied by somewhat slower expansion of world trade. The surge in economic activity was driven by a number of factors, including supportive financial conditions such as continued low long-term interest rates and low risk premiums on corporate and emerging market debt, and particularly strong growth in emerging economies such as China (+9.3%). Oil prices rose sharply after the first quarter of 2005. They increased further over the summer and early autumn, driven by concerns about supply disruptions and shortage of refining capacities. Oil prices jumped to new record levels at the end of August and the beginning of September in the wake of Hurricane Katrina with prices at around USD 68 per barrel (Brent crude futures). Additional reserves made available to the market from the International Energy Agency (IEA) Members and downward developments on the demand side brought crude oil prices down from their record highs and reduced the pressure on petrol prices. Nevertheless, oil prices remained high. Compared to the end of 2004, the price of oil increased by around 50% in USD terms (or 60% when measured in euro). The persistence of higher oil price volatility weighed on economic growth in 2005 and is currently one of the main sources of uncertainty for the economic outlook of the years ahead.

5. In the European Union economic activity was more subdued and the growth rate is projected to have reached +1.5% in 2005. Besides the robust global environment, the main factors behind this development include accommodative macroeconomic policies, supportive financial conditions, wider profit margins and a weaker nominal effective exchange rate. The euro recorded some highs against the dollar at the beginning of the year (the highest values since the introduction of euro in 1999, standing at over USD 1.35), followed by a gradual reduction and more moderate levels during the rest of 2005 to close the year at USD 1.17.

6. Global meat and dairy product prices were somewhat above the 2004 levels. Whereas the 2004/05 marketing year was marked by record growth in production, low prices and high stocks for most cereals, global cereal production is expected to have declined slightly in 2005. Total cereal utilisation is forecast to have increased thanks mainly to an increase in food use. However, lower feed use led to a more moderate reduction in cereals stocks. International cereal prices (in US dollars) were generally somewhat higher as compared to the 2004 level. At the beginning of 2005 cereal prices were down, but then recovered from August on and were somewhat above the 2004 levels at the end of the year. However, low import demand and large supplies of feed wheat from the Black Sea region limited any further price increase. Prices were significantly above their previous year level in Argentina as a decline in domestic production is expected. The recent strength in the US dollar against the main currencies is expected to intensify export competition with other wheat exporters (all but Argentina) and may weigh on international wheat price developments.

7. International maize prices have benefited from reduced exportable supplies from China and Brazil and from strong demand from several Southern African countries. Prices stayed relatively stable in the US as compared to 2004. By contrast, prices for white and yellow maize from South Africa increased, mainly supported by strong regional demand. Global rice prices were up at the beginning of 2005 and remained relatively stable despite the large harvest until the end of the year.

8. World market prices for soybean strengthened at the beginning of 2005 in the wake of sustained imports from China, but subsequently weakened, and by the end of 2005 were close to their 2004 levels.

9. For meat products, the world market situation in 2004 had been mainly determined by sanitary crises and import restrictions, leading to generally higher prices. Outbreaks of pathogenic avian influenza in Asia and other countries, which progressively moved westward (Russian Federation, Turkey), prompted the imposition of import bans on poultry products from disease-affected countries. The global market impact of these bans over the past year included a gradual shortage of poultry meat supplies, escalating world poultry prices, a sharp drop in global poultry trade (–8%) and trade diversion. The overall price impact on poultry meat was additionally exacerbated by shortages of other meats, particularly beef from North America, which traditionally supplies a quarter of the world’s beef trade and was banned by many countries due to BSE concerns. Restrictions on exports from Asian countries affected by avian influenza outbreaks in 2004 and 2005 contributed to a 30% increase in international poultry prices. These upward world price movements contrasted with dramatically declining prices in disease-affected countries as exportable supplies remained on the domestic markets and domestic demand decreased owing to food safety concerns.

10. On the beef market, the discovery of BSE cases in Canada and the US has led to import restrictions for North American beef to Asia, particularly Japan, since 2004. On the other hand, strong beef demand supported production gains in many Asian countries, including China, Indonesia and Vietnam. Robust export demand pushed up slaughtering and production in the countries of South America, particularly Brazil, further increasing the developing countries’ share of global beef output. The latter exceeded for the first time the share of developed countries. In the EU, previously a large competitor in international markets, policy-induced reforms led to a decline in the inventories and slaughter of beef.

11. Despite relatively strong prices and robust trade prospects, global pig meat production is expected to increase only slightly. In developed countries, output expanded only marginally as production in North America and Europe remained relatively price-unresponsive. Pig meat production increased in South America thanks to export gains while domestic demand induced higher production in Mexico, Vietnam and many other Asian countries.

12. Sheep meat prices remained competitive relative to other meats, prompting higher imports from both Australia and New Zealand. Exports from Argentina and Uruguay and from less traditional exporters, such as China and Pakistan, also increased.

13. After their heavy fall at the beginning of 2002 world milk prices have risen substantially over the last three years and remained relatively stable at a high level in 2005 (reaching a 15-year high in September 2005). Prices were about 10 –12% higher than in 2004 on average, largely as a result of stronger demand in South East Asia and North Africa, but also because of limited supplies in Oceania and reduced export support by the European Union. Enhanced by high prices, world milk production is estimated to grow by 2.4%, thanks mainly to production expansion in Asia and the United States. Substantial price increases were particularly marked for cheese, butter, skimmed milk powder and whole milk powder as dairy markets are very sensitive to supply changes.

14. In the first nine months of 2005 the overall value of Community agricultural exports increased strongly by 8%, with wide divergences across agri-food products. The increase was particularly marked for tobacco (+41%), cereals (+32%), sugar and sugar confectionery (+31%), but also significant for fruit and nuts (+14%), products of animal origin (+14%) and miscellaneous edible preparations (+13%). Exports only fell for some vegetable products (–29%), products of the milling industry(–18%) and cocoa and cocoa products (–5%). The notable increase in cereal exports was mainly due to excellent weather conditions in summer 2004 and subsequent record harvests in most EU countries, which increased availability. In 2005, EU-25 pigmeat exports are expected to decline as a consequence of the reduction in pigmeat production and lower availability in the new Member States. Poultry meat exports are also projected to decrease slightly in 2005. The overall value of imports remained relatively stable in the first nine months of 2005 as compared to the same period of 2004. As regards cereals, increased exports and markedly lower imports helped to reduce significantly the negative cereal trade balance in 2005. The European Union remained a net importer of agricultural products but its agricultural trade balance improved significantly due to much higher exports. The overall trade deficit in agricultural products in the first nine months of 2005 declined to EUR 500 million, as against EUR 3 456 million in 2004.

15. Intervention stocks in dairy sectors fell in 2005, a sign of improved market conditions. In contrast, cereals stocks are expected to decrease only slightly (–1.4 million tonnes), despite increased domestic demand, and to stay at a relatively high level (14.1 million tonnes). This situation resulted from an exceptional harvest in 2004 and low international market prices, which generated a sharp increase in cereal intervention stocks. The public stocks of soft wheat, rye and barley would decline to 7.5, 1.1 and 1.0 million tonnes respectively. On the other hand, maize stocks would increase from 2.8 to 4.5 million tonnes. Rice stocks declined slightly due to reduced imports from third countries to the new Member States and were estimated at 580 000 tonnes at the end of 2005. Compared to the previous year, total wine stocks are estimated to increase by 21 million hectolitres, and to reach very high levels for both table and quality wine. One reason for these high stocks was that a large part of the wine to be distilled under crisis distillation (8 million hectolitres) was not delivered to distillers until the opening of the current campaign and thus was still included in the stocks. Stocks increased mostly in France (6.3 million hectolitres) and Italy (4 million hectolitres). Stocks of wine alcohol in intervention are expected to remain at around 2.5 million hectolitres of pure alcohol at the end of 2005. In 2005, intervention buying-in, hardly ever used for sugar since the introduction of the CMO in 1968, has become an important instrument for regulating the market. Quantities accepted into intervention exceeded 1.2 million tonnes and, as the tenders opened for the resale of the intervention stock attracted rather limited interest, only 142 000 tonnes were sold. 10 of the 21 sugar-producing Member States accepted sugar offered into intervention, nearly half of the total originating from Italy. Intervention stocks of beef had been fully disposed of since the beginning 2004. Intervention (public) stocks of dairy products in EU-25 fell to their lowest levels since the autumn of 2002. Skimmed milk powder stocks dropped significantly over the year, from 65 000 to 5 000 tonnes, while butter stocks fell by 36 000 tonnes to 125 000 tonnes at the end of 2005.

Production

16. According to the latest information, the EU-25 cereal area is estimated to have declined by 1.6% to about 51.2 million ha in 2005. The main reasons for this decrease are the return to 10% mandatory set-aside, less favourable climatic conditions in some EU regions and the first implementation of the single farm payment. Looking at individual cereals, the area of some cereals fell particularly for sorghum (–38%), durum wheat (–16%), maize (–4.3%) and rye (–0.8%). On the other hand, the areas of barley (+7.9%), soft wheat (+4.3%) and oats (+19.4%) increased in 2005. The increase in cereal area (+1.9% or 0.3 million ha) observed in the new Member States did not compensate for the decline in cereal area in the EU-15 (–3.1% or 1.1 million ha).

17. Total cereal production is estimated to stand at 254.9 million tonnes for the 2005/06 marketing campaign, a decrease of 11% (about 32 million tonnes) compared to 2004/05. Cereal production stood at nearly 196 million tonnes in the old Member States (–12% in comparison to 2004/05) and 59 million tonnes in the new Member States (–4%). This is mainly due to the favourable, although not excellent, climatic conditions in Europe over the whole harvest season, and, to a lesser extent, to the increase in the mandatory set-aside rate. The decrease in cereal production ranges from 6% for oats to 38% for durum wheat. Significant decreases are also anticipated for rye (–18%), barley (–15%), triticale (–12%), maize (–11%) and soft wheat (–8.9%).

18. All cereals had lower yields than in 2004. Average cereal yield was about 4.98 t/ha, 10% lower than in 2004. The highest yield declines are estimated for durum wheat (–27%), barley (–16%), rye (–15%) and oats (–12%).

19. France remained the leading cereal producer in the EU, totalling 64 million tonnes (–8%), followed by Germany with 46 million tonnes (–8%) and Poland with 26 million tonnes (–3%). After a record harvest in Hungary in 2004 cereal production decreased only slightly to 15.8 million tonnes in 2005.

20. Rice production was lower in 2005 as compared with the excellent previous year, mainly due to a reduction in the areas sown (–9%), which was noticeable for indica-type rice. The first production estimate for 2005 is about 6% lower at around 1.56 million tonnes (milled equivalent).

21. The total EU-25 oilseed area increased in 2005 (+4% compared to 2004), with rapeseed up by 4.4% to 4.7 million ha, and soybean up by 4.4% to 281 000 ha. In contrast, sunflower seed was down by 7.5% to 2.0 million ha. Rapeseed areas increased due to favourable price prospects during sowing and the prospect of greater use of rapeseed for biodiesel production. The total oilseed area is estimated to be 7.2 million ha, including 870 000 ha of non-food crops (the mandatory set-aside rate was adjusted to 10%). With normal weather conditions, yields were lower than the excellent yields recorded in 2004, by –4.5% for rapeseed, –6% for sunflower seed and –3% for soybean, giving a total production level of 19.6 million tonnes (2.5% lower than in 2004/05). The 2005/06 crop would be made up of 15.2 million tonnes of rape seeds, 3.6 million tonnes of sunflower seeds and 786 000 tonnes of soybeans. Rapeseed made up over 90% of the 2.8 million tonnes of non-food oilseed production.

22. The EU-25 linseed area had settled at a very low level in recent years (114 000 hectares) and 2005 production is expected to have reached 142 000 tonnes.

23. The protein crop area increased slightly to 1.4 million hectares in 2005. A limited decrease in peas yield (2.8 t/ha) combined with yield stability for beans and sweet lupines (2.8 t/ha) led to slightly lower total protein crop production of 3.9 million tonnes than the previous year.

24. EU-25 sugar production is estimated to have reached 19.6 million tonnes (19.3 million tonnes from beet, and 0.3 million tonnes from cane or molasses) in 2005, somewhat below the 19.9 million tonnes of 2004. As in 2004, weather conditions were excellent in most beet-growing regions of the enlarged EU in 2005, which had a positive effect on the sugar content of the beet. The area sown increased slightly to 2.17 million ha (+0.7%). The beet area decreased somewhat in Poland and the Netherlands and remained almost unchanged in most Member States, with the exception of Italy (+35%) and Greece (+29%), which exhibited a strong increase in the area sown as compared to 2004. Sugar production reached 4.1 million tonnes in Germany, close to the outstanding harvest of last year (4.3 million tonnes). Due to a significant increase in beet area, both Italy and Greece managed to meet their sugar quotas, producing 1.6 and 0.3 million tonnes respectively.

25. Olive oil production in 2005 (marketing year 2004/2005) is estimated to have reached 2.3 million tonnes (980 000 tonnes in Spain, 879 000 tonnes in Italy, 435 000 tonnes in Greece, 41 000 tonnes in Portugal and 3 000 tonnes in France). This constitutes a 4% decline as compared to the record harvest of 2004. The high increases in olive oil production recorded in Italy (+28%), Greece (+42%) and Portugal have not compensated for the sharp decline in Spain (–30%).

26. Initial estimates show very different developments in fruit production across the sector. An increase in production was forecast for citrus (+4%), peaches and nectarines. The production of pears was expected to have remained stable, whereas the production of apples is due to fall by 3%. As regards vegetables, only few data were available. Lower production figures were estimated for fresh tomatoes, especially because of the frost in Spain in winter 2005. The production of tomatoes for industrial processing decreased by almost 10% and reached 10.1 million tonnes in 2005 as compared to the record production level in 2004.

27. EU wine production declined by about 12% compared to the previous year to around 173 million hectolitres in 2005; this is about 3% lower than the average production level over the last 5 campaigns. Significant decreases in production occurred in Hungary (–35%), Spain (–20%), Portugal (–11%) and Italy (–10%).

28. EU-25 beef and veal production is estimated to have decreased in 2005 to 7.9 million tonnes, down 1%. Further de-stocking of the breeding herd linked to the CAP reform and the limited impact of the end of the Over Thirty Months Scheme (OTMS) in the UK was not expected to have reversed the downward trend in production in 2005.

29. According to the last estimates, pig meat production was expected to have decreased slightly (–0.5%) to 21.1 million tonnes in 2005. While production was expected to have remained stable (+ 0.1%) at 18.0 million tonnes in EU-15 Member States, it declined in the new Member States (the production level falling by a further 3.6% to 3.1 million tonnes in 2005).

30. Poultry meat production in EU-25 increased slightly (+0.8%) in 2005, as a result of more or less stable production in the EU-15 at around 9.1 million tonnes and growing production levels in the new Member States. National experts in EU-N10 forecast production to have increased by 3.4% to 2 million tonnes, driven mainly by the high growth in Poland linked to strong domestic and export demand.

31. For EU-25, the overall decrease in sheep and goat meat net production was expected to have reached 1.6% in 2005, mainly due to a significant drop in EU-15 imports and a considerable rise in EU-N10 exports of live animals.

32. The downward trend in dairy cow numbers in EU-25 is expected to have continued and to reach 22.9 million heads at the end of the year, a 2.1% fall compared to the end of 2004. The average milk yield, on the other hand, is expected to have increased to 6 128 kg, up 2.3%. This gives a relative stable milk production figure of 142.9 million tonnes, slightly down by 0.6% compared to 2004. Deliveries to dairies in EU-25 are estimated to have increased by almost 1% and to reach 131.2 million tonnes in 2005. While deliveries were projected to have remained at a similar level in EU-15 (+0.3%) they were expected to have increased significantly in the new Member States (+4%) compared to 2004.

33. Butter production is estimated to have increased by 0.6% to slightly below 2.2 million tonnes in 2005. Cheese production continued to increase: this year’s overall increase of 0.25% resulted in cheese production of 8.3 million tonnes. For milk powder an increase of about 1–2% to 1.9 million tonnes in 2005 was expected, mainly due to a rebound in skimmed milk powder production of 2.5% after a drastic decline of 19% in the previous year.

Prices

Producer prices

34. The first estimates available in December 2005 showed different developments in nominal terms in the agricultural producer price index for EU Member States. Producer prices are expected to have increased most in Latvia (+17.5%) and Lithuania (+14.8%), but also in Spain (+5.4%), Germany (+5.3%), Portugal (+4.5%), Greece (+3.9%), Estonia (+3.4%), Belgium (+2.8%), Cyprus (+2.3%), Luxembourg (+1.2%) and Austria (+1.1%), to have remained relatively stable in the Netherlands (+0.8%), Slovakia (+0.6%), Ireland (+0.3%) and Hungary (–0.3%), but to have declined in Slovenia (–11.1%), the Czech Republic (–9.3%), France (–4.7%), Italy(–4.2%), the United Kingdom (–4.0%), Finland (–3.6%), Sweden (–1.8%), Denmark (–1.5%) and Malta (–1%).

35. Prices of cereals continued to fall, following the trend already started in 2004 for most EU Member States. High price drops were expected in the Czech Republic(–32%), Italy (–24%), Cyprus (–16.6%), Lithuania (–15.9%), France (–15.7%), the United Kingdom (–15.6%), Denmark (–14.1%), Estonia (–12.6%), the Netherlands(–11.1%), Latvia (–10.6%), Luxembourg (–10.2%), Slovakia (–9.9%) and Belgium(–9.4%), as, too, in Slovenia (–6%), Finland (–5.4%), Hungary (–4.7%), Greece(–4.6%), Austria (–4.4%), Ireland (–4.3%), Sweden (–2.9%) and Spain (–0.4%). After a recovery in some EU Member States in 2004, sugar beet prices developed positively in the Czech Republic (+39.9%), Lithuania (+27.1%), Latvia (+14.7%), Sweden (+3.2%) and Italy (+1.1%). In contrast, sugar beet prices were estimated to have decreased or remained stable in other Member States. Wine prices decreased in nominal terms in most wine producing countries, except Hungary, where prices increased, and Germany, where they remained stable. In view of these varying developments the overall price index for crop products declined in most EU Member States, except for Lithuania, Denmark, Portugal, France, Belgium, Greece, Spain, Cyprus and Malta, where nominal prices went up.

36. The overall price index for animal products rose in most EU Member States but this masked wide-ranging changes by sector and by Member State. Pig meat prices developed positively in most EU Member States, except for Cyprus (–4.2%), Ireland (–1.9%), Italy (–0.9%), Lithuania (–0.2%) and Belgium (–0.2%), where nominal prices were down. Beef and veal prices increased in most EU countries but declined slightly in Cyprus (–2.5%), the United Kingdom (–0.9%), the Netherlands (–0.3%) and Portugal (–0.1%). Poultry meat prices showed no uniform trend: they declined in most Member States, most notably in Slovenia (–42.9%), but increased again in Belgium, Estonia, the Netherlands, Spain and Cyprus. Sheep and goat meat prices developed somewhat differently across EU Member States: they were up in Greece, Spain, France, Germany, Italy, Cyprus, Luxembourg, Hungary, Austria, Slovakia, Finland and Sweden, but decreased in other Member States. Milk price changes in nominal terms over 2004 varied significantly between countries: while the price of milk declined in some EU Member States, it increased significantly in Latvia (+27.9%) and Lithuania (+18.8%), and was also up in Greece (+4.4%), Belgium (+4.2%), Estonia (+3.6%), Hungary (+1.1%), Spain (+0.8%), Cyprus (+0.6%), the Netherlands (+0.4%) and Portugal (+0.2%). Egg prices dropped significantly in some Member States such as the United Kingdom (–25.8%), Spain (–22.5%), the Czech Republic (–21.9%), Finland (–18.3%), Slovenia (–12.6%), Italy (–10.1%) and Denmark (–9.4%), as, too, in Germany, Ireland, Latvia, Hungary, Luxembourg, Austria, Slovakia and Sweden, while in other Member States the price change was positive.

Market prices

37. In general, cereal prices have remained at a relatively low level since the record crop production in 2004 resulted in large falls in all cereal prices. During the first months of 2005 the price for bread-making common wheat was around EUR 115-116 per tonne, for maize EUR 112-118 per tonne, for feed wheat EUR 100-102 and for malting barley EUR 122-127 as a result of last year’s excellent crop harvest. Prices then increased somewhat in July-September for durum wheat, feed maize and malting barley but went down again and stayed relatively stable until the end of the year for these crops. The price for quality durum wheat declined slightly during 2005 and stayed at EUR 151-152 at the end of the year.

38. Paddy rice prices were steadily high in 2005, largely above the intervention price. Indica-type rice prices ranged between 10% and 30% above the intervention price, while japonica-type rice prices were even higher, ranging between 15% and 40% above the intervention price.

39. In view of the relatively large intervention stocks and low interest observed for the resale of Community sugar, market prices were around the white sugar intervention price of EUR 631.9 per tonne in most Member States.

40. In 2005 olive oil prices increased strongly (+15%) compared to 2004, with the highest increases registered in Spain and Italy.

41. In general, wine prices were slightly down in 2005 but this masks varying movements by wine category, region and country. The prices for table wine decreased in France (–25%) and Italy (–28%) while they stayed relatively stable in Spain.

42. In general, bovine meat prices were at a relatively high level in 2005. For young bulls (category A R3) prices were quite stable until week 42, varying from EUR 283 to EUR 301 per 100 kg and were about 8% higher than in 2004. But then they dropped sharply to EUR 240. The price of cows (category D O3) was about 6% higher than in 2004 and stayed quite stable until the end of September before starting to decline following the seasonal pattern. Steer prices (category C R3) were slightly higher (on average about +2%) compared to 2004 during the first 25 weeks of 2005 but then decreased continuously before recovering again as from week 43.

43. Pig meat continued to develop at a relatively favourable level until week 37. During the first six months of 2005, poultry meat prices improved progressively from EUR 148 per 100 kg up to EUR 160 per 100 kg until week 37 when it dropped to EUR 130 per 100 kg.

44. Due to a lack of availability sheep meat prices stayed at a high and relatively stable level in 2005 for the fifth year in a row. For heavy lamb, prices fluctuated very closely to the levels of 2004, between EUR 375 and EUR 433 per 100 kg following the seasonal pattern. For light lamb, prices were in general lower than in 2004, varying between EUR 505 and EUR 640 per 100 kg.

45. The prices for milk products, which were relatively strong in 2004, remained firm in 2005. As in the previous year, the introduction of the second step of the support price cuts agreed within the 2003 CAP reform had no immediate effect on prices. Towards the end of 2005 domestic prices for butter and skimmed milk powder decreased slowly towards the new buying-in price but still remained at about 5% above that level. A similar trend was observed for whole milk powder prices. In contrast, cheese prices reached very high levels throughout the year. This favourable price environment made for substantial sales out of intervention, in particular for skimmed milk powder. Consequently, aid levels were reduced for most refunds and internal disposal measures, particularly for skimmed milk powder (–80%) and casein (–90%).

Input prices

46. In 2005, the purchase price index for standard consumption goods and services in agriculture rose in most EU Member States in nominal terms over 2004. Prices were higher for energy and fertilisers in particular. Total input prices increased most in Latvia (up 14.8%), Cyprus (up 11.6%), Lithuania (up 7.2%), Malta (up 7%), Greece (up 6.0%) and Belgium (up 5.4%). In other countries the index rose more slowly: by 4.6% in Ireland, 3.1% in Slovakia, 2.9% in Finland, 2.6% in the United Kingdom, 2.4% in France and Slovenia, 2.3% in Luxembourg, 2.1% in Spain, 1.9% in the Netherlands, 1.6% in Denmark, 1.2% in Sweden, 1.1% in Austria, 0.4% in Germany, 0.2% in the Czech Republic and 0.1% in Italy. Only Portugal and Hungary registered a fall in nominal input prices of 4.8% and 3.2% respectively.

Farm income

47. The first estimates of farm income in 2005, provided by Eurostat on the basis of information sent by the Member States in December 2005, show an average decrease of –6.3% in income from agricultural activities (measured, in real terms, as the net value added at factor cost per annual work unit) compared to 2004 for the European Union as a whole. This sharp decline was caused by a marked drop in both the old Member States (–6.6%) and the new Member States (–3.8%). Incomes were up in only nine Member States, the strongest rates observed in some of the new Member States. Agricultural income gained most in Lithuania (+25.9%), Estonia (+23.0%), and also Ireland (+12.8%), the Netherlands (+5.9%) and Latvia (+5.7%). Income was down in fourteen Member States. The largest fall in agricultural income is estimated in Hungary (–19.3%), Slovakia (–14.9%), Spain (–12.0%), Portugal (–11.0%), France (–10.1%) and Italy (–9.5%).

48. The main factors behind these changes are: a sharp decrease in agricultural output quantities as compared to 2004, notably for cereals, (citrus) fruit, wine, potatoes and olive oil, which triggered an overall drop in the total volume of crop production of –5.3%, whereas crop prices fell by –2.9% in real terms. The nominal value of animal production stabilised thanks to strong nominal prices. The continuation of the introduction of the CAP in the new Member States led to a further rise in the levels of subsidies granted to the farm sector to EUR 4.0 billion (including national top-ups), from EUR 1.2 billion in 2003 and EUR 3.8 billion in 2004. The strong rise in oil prices drove up the prices for energy, lubricants, fertilisers and services for agriculture. However, the total input costs decreased on average in real terms(–1.6%), mainly due to a significant fall in feed prices and renewed reduction in the quantity used.

49. Lastly, the structural decline in the agricultural labour force, the final fundamental factor affecting income movement, is assessed at –2.3% in 2005 compared to 2004 for the whole EU. This moderate reduction constitutes a marked slowdown compared to the early 2000s. The highest reduction in agricultural labour was recorded in the Czech Republic (–8.5%), Lithuania (–5%) and Portugal (–4.4%). Agricultural labour increased only in Luxembourg (+0.7%).

Changes in nominal farm-gate prices in 2005 and 2004 (%)

Member States | Crop products | Livestock products | Total |

2005/2004 (p) | 2004/2003 | 2005/2004 (p) | 2004/2003 | 2005/2004 (p) | 2004/2003 |

EU-25 | –6.3 | : | 1.3 | : | –2.6 |

Belgique/België | 3.2 | –4.1 | 1.4 | 0.7 | 2.8 | 2.0 |

Česká Republika | –25.0 | 9.2 | 2.1 | 5.0 | –9.3 | 6.5 |

Danmark | 13.0 | 0.0 | 0.3 | 3.3 | –1.5 | 2.4 |

Deutschland | 2.9 | –7.9 | 6.9 | 2.7 | 5.3 | –1.5 |

Eesti | –3.8 | : | 4.9 | : | 3.4 | : |

Elláda | 3.3 | –4.2 | 5.3 | 2.2 | 3.9 | –2.4 |

España | 7.2 | –0.3 | 2.8 | 2.7 | 5.4 | 1.0 |

France | –10.7 | –3.2 | 0.8 | –0.1 | –4.7 | –1.7 |

Ireland | 7.2 | –11.6 | –0.9 | 4.5 | 0.3 | 2.2 |

Italia | –5.3 | –2.9 | –2.4 | –1.2 | –4.2 | –2.3 |

Kypros/Kıbrıs | 2.5 | : | 2.3 | : | 2.3 | : |

Latvija | –1.3 | 25.1 | 23.4 | 25.9 | 17.5 | 24.3 |

Lietuva | 15.8 | –8.0 | 13.7 | 11.1 | 14.8 | 1.0 |

Luxembourg | –4.7 | 1.2 | 2.5 | 3.8 | 1.2 | 3.4 |

Magyarország | –0.3 | –15.7 | 0.5 | 4.1 | –0.4 | –6.0 |

Malta | 0.3 | –19.7 | –2.0 | 0.9 | –1.0 | –7.3 |

Nederland | 0.0 | –10.0 | 1.7 | 0.0 | 0.8 | –5.1 |

Österreich | –1.6 | –8.2 | 2.6 | 3.1 | 1.1 | –0.6 |

Polska | : | 2.0 | : | 21.2 | : | 15.7 |

Portugal | 9.0 | –12.4 | –0.9 | –2.1 | 4.5 | –7.7 |

Slovenija | –14.8 | –12.1 | –9.4 | 3.4 | –11.1 | –1.3 |

Slovensko | –7.7 | : | 3.8 | : | 0.6 | : |

Suomi/Finland | –7.8 | 3.2 | –1.4 | 2.1 | –3.6 | 2.5 |

Sverige | –5.8 | 2.1 | 0.5 | –3.4 | –1.8 | –1.4 |

United Kingdom | –6.4 | 4.5 | –2.3 | 2.6 | –4.0 | 3.4 |

(p) provisional – Source: Eurostat |

Changes in nominal purchase prices for agricultural inputs in 2005 and 2004 (%)

Member States | Intermediate consumption | Investment | Total |

2005/2004 (p) | 2004/2003 | 2005/2004 (p) | 2004/2003 | 2005/2004 (p) | 2004/2003 |

EU-25 | 4.5 | 2.8 | 3.7 |

Belgique/België | 9.1 | –0.1 | 9.2 | –0.1 | 5.4 | 0.3 |

Česká Republika | –0.3 | 7.5 | 3.4 | 2.1 | 0.2 | 6.6 |

Danmark | 0.9 | 3.0 | 1.2 | 3.9 | 1.6 | 3.1 |

Deutschland | –0.1 | 4.4 | 1.6 | 1.8 | 0.4 | 3.6 |

Eesti | 5.8 |

Elláda | 6.7 | 9.7 | 4.3 | 3.1 | 6.0 | 7.5 |

España | 1.6 | 4.2 | 5.2 | 2.9 | 2.1 | 3.9 |

France | 2.1 | 3.7 | 3.2 | 3.7 | 2.4 | 3.6 |

Ireland | 5.1 | 4.3 | 3.0 | 1.6 | 4.6 | 3.5 |

Italia | –2.5 | 5.2 | 4.0 | 4.7 | 0.1 | 4.8 |

Kypros/Kıbrıs | 12.4 | 3.9 | 11.6 |

Latvija | 12.0 | 8.7 | 24.6 | 6.9 | 14.8 | 8.1 |

Lietuva | 7.2 | –3.1 | 7.2 | –3.2 |

Luxembourg | 3.0 | 0.0 | 0.5 | 0.9 | 2.3 | 0.3 |

Magyarország | –4.6 | 12.4 | 5.4 | 5.9 | –3.2 | 9.8 |

Malta | 7.1 | 1.3 | –2.9 | 1.1 | 7.0 | 1.3 |

Nederland | 0.3 | 2.1 | 2.9 | 1.9 | 1.9 | 1.6 |

Österreich | –0.3 | 4.0 | 3.3 | 2.5 | 1.1 | 3.3 |

Polska | 8.0 | 15.5 | 7.6 |

Portugal | –5.9 | 5.4 | 1.4 | 2.4 | –4.8 | 4.6 |

Slovenija | 1.3 | 10.3 | 4.8 | 9.8 | 2.4 | 8.9 |

Slovensko | 2.7 | 4.0 | 3.1 |

Suomi/Finland | 3.4 | 2.6 | 4.9 | 3.4 | 2.9 | 2.8 |

Sverige | 0.8 | 4.2 | 2.4 | 3.6 | 1.2 | 3.8 |

United Kingdom | 2.3 | 7.6 | 4.4 | 2.9 | 2.6 | 6.6 |

(p) provisional – Source: Eurostat |

Nominal output price indices for agricultural products over the 2001–2005 (p) period (2000 = 100)

Member States | 2001 | 2002 | 2003 | 2004 | 2005 (p) |

EU-25 | 105.2 | 102.0 | 105.4 | 102.8 |

Belgique/België | 104.5 | 94.7 | 97.7 | 99.7 | 102.5 |

Česká Republika | 110.9 | 100.1 | 96.4 | 102.9 | 93.6 |

Danmark | 107.4 | 96.9 | 92.5 | 94.9 | 93.4 |

Deutschland | 107.3 | 100.4 | 101.4 | 99.9 | 105.2 |

Eesti | 127.4 | 130.8 |

Elláda | 106.1 | 113.6 | 123.6 | 121.2 | 125.1 |

España | 103.0 | 100.3 | 105.8 | 106.8 | 112.2 |

France | 103.5 | 99.9 | 103.6 | 101.9 | 97.2 |

Ireland | 104.3 | 100.0 | 99.6 | 101.8 | 102.1 |

Italia | 105.0 | 106.4 | 112.0 | 109.7 | 105.5 |

Kypros/Kıbrıs | 121.0 | 123.3 |

Latvija | 102.7 | 99.9 | 97.1 | 121.4 | 138.9 |

Lietuva | 114.7 | 114.2 | 101.9 | 102.9 | 117.7 |

Luxembourg | 101.8 | 99.5 | 100.5 | 103.9 | 105.1 |

Magyarország | 106.0 | 104.1 | 110.5 | 104.5 | 104.1 |

Malta | 109.4 | 110.3 | 106.1 | 98.8 | 97.8 |

Nederland | 106.1 | 103.7 | 104.9 | 99.8 | 100.6 |

Österreich | 106.7 | 101.7 | 102.1 | 101.5 | 102.6 |

Polska | 104.2 | 94.6 | 95.9 | 111.6 |

Portugal | 106.5 | 101.8 | 105.2 | 97.5 | 102.0 |

Slovenija | 109.0 | 109.9 | 113.5 | 112.2 | 101.1 |

Slovensko | 103.8 | 104.4 |

Suomi/Finland | 105.2 | 103.7 | 99.0 | 101.5 | 97.9 |

Sverige | 105.1 | 102.1 | 100.6 | 99.2 | 97.4 |

United Kingdom | 108.3 | 103.3 | 109.9 | 113.3 | 109.3 |

(p) provisional – Source: Eurostat |

Indices of nominal purchase prices for goods and services currently consumedin agriculture over the 2001–2005 (p) period (2000 = 100)

Member States | 2001 | 2002 | 2003 | 2004 | 2005 (p) |

EU-25 | 105.0 | 104.9 | 106.4 | 110.9 |

Belgique/België | 102.6 | 102.8 | 102.7 | 102.6 | 111.7 |

Česká Republika | 105.1 | 103.4 | 101.3 | 108.8 | 108.5 |

Danmark | 106.6 | 107.7 | 105.5 | 108.5 | 109.4 |

Deutschland | 105.2 | 104.1 | 104.2 | 108.6 | 108.5 |

Eesti | 114.8 | 120.6 |

Elláda | 101.5 | 103.7 | 108.1 | 117.8 | 124.5 |

España | 102.3 | 102.9 | 104.1 | 108.3 | 109.9 |

France | 103.4 | 103.2 | 104.2 | 107.9 | 110.0 |

Ireland | 104.8 | 106.1 | 108.8 | 113.1 | 118.2 |

Italia | 105.3 | 105.5 | 107.4 | 112.6 | 110.1 |

Kypros/Kıbrıs | 144.7 | 157.1 |

Latvija | 101.3 | 102.0 | 106.5 | 115.2 | 127.2 |

Lietuva | 96.4 | 100.4 | 96.0 | 92.9 | 100.1 |

Luxembourg | 104.0 | 104.5 | 105.6 | 105.6 | 108.6 |

Magyarország | 112.1 | 112.3 | 119.1 | 131.5 | 126.9 |

Malta | 100.7 | 101.8 | 101.5 | 102.8 | 109.9 |

Nederland | 107.3 | 107.2 | 109.0 | 111.1 | 111.4 |

Österreich | 102.0 | 100.5 | 102.8 | 106.8 | 106.5 |

Polska | 106.7 | 109.5 | 113.0 | 121.0 |

Portugal | 108.3 | 103.3 | 107.6 | 113.0 | 107.1 |

Slovenija | 114.2 | 116.1 | 121.5 | 131.8 | 133.1 |

Slovensko | 114.7 | 117.4 |

Suomi/Finland | 101.8 | 101.5 | 102.5 | 105.1 | 108.5 |

Sverige | 105.6 | 107.2 | 109.3 | 113.5 | 114.3 |

United Kingdom | 104.3 | 103.7 | 106.5 | 114.1 | 116.4 |

(p) provisional – Source: Eurostat |

Development of agricultural income in the EU-25 over the 1999–2005 (p) period, in terms of annual change (%) and cumulative growth (2000=100)[pic](p) provisional – Source: Eurostat

Development of agricultural income in the EU-15 Member States in 2005 (p) (% change versus 2004)

[pic]

(p) provisional – Source: Eurostat

Development of agricultural income in the new Member States in 2005 (p) (% change versus 2004)

[pic]

(p) provisional – Source: Eurostat

Development of agricultural income in the EU Member Statesover the 2000–2005 (p) period (average 1999–2001 = 100)

Member States | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 (p) |

EU-25 | 99.2 | 104.8 | 99.2 | 103.2 | 110.6 | 103.8 |

Belgique/België | 103.4 | 105.8 | 95.6 | 93.1 | 91.3 | 94.7 |

Česká Republika | 121.1 | 123.2 | 68.3 | 66.4 | 106.3 | 110.5 |

Danmark | 101.5 | 114.2 | 82.8 | 79.1 | 95.6 | 98.6 |

Deutschland | 98.2 | 123.2 | 91.0 | 85.4 | 123.2 | 120.8 |

Eesti | 104.1 | 126.2 | 126.0 | 179.8 | 279.3 | 343.6 |

Elláda | 99.4 | 100.9 | 96.9 | 85.9 | 81.7 | 78.8 |

España | 99.2 | 107.1 | 103.8 | 117.4 | 117.5 | 103.4 |

France | 99.2 | 99.4 | 97.7 | 97.1 | 95.5 | 85.9 |

Ireland | 105.3 | 103.7 | 98.3 | 98.1 | 97.5 | 110.0 |

Italia | 98.7 | 99.1 | 94.9 | 95.8 | 95.0 | 85.9 |

Kypros/Kıbrıs |

Latvija | 97.6 | 116.3 | 120.3 | 121.1 | 216.0 | 228.4 |

Lietuva | 100.1 | 92.9 | 82.0 | 96.6 | 163.4 | 205.6 |

Luxembourg | 98.7 | 97.7 | 100.4 | 95.0 | 90.4 | 89.0 |

Magyarország | 93.8 | 100.2 | 85.2 | 86.0 | 133.2 | 107.5 |

Malta |

Nederland | 101.1 | 98.9 | 85.0 | 90.7 | 82.1 | 86.6 |

Österreich | 96.8 | 111.8 | 105.8 | 105.5 | 103.1 | 96.2 |

Polska | 95.8 | 110.1 | 100.5 | 99.2 | 193.5 | 192.5 |

Portugal | 89.1 | 106.9 | 100.4 | 106.0 | 107.8 | 95.9 |

Slovenija | 107.5 | 92.9 | 126.1 | 96.2 | 144.8 | 129.7 |

Slovensko | 94.5 | 108.3 | 102.3 | 88.3 | 126.1 | 107.3 |

Suomi/Finland | 106.7 | 105.5 | 104.4 | 103.1 | 100.8 | 101.0 |

Sverige | 99.9 | 108.1 | 108.2 | 109.0 | 106.0 | 104.3 |

United Kingdom | 96.9 | 102.9 | 112.6 | 134.2 | 130.1 | 125.9 |

Farm accountancy data network (FADN)

50. The FADN is used to calculate output, costs and incomes of commercial farms in the EU from observed data collected in a survey of harmonised farm accounts. The survey provides valuable information about how farm incomes vary according to type of farming and location, which is not apparent from the global averages in the results for the agricultural sector as a whole. This section presents some information by type of farming and by country.

51. It is important to take into account when studying these tables that FADN uses a threshold and collects information only for commercial farms. This means that they exceed a minimum economic size, measured in European Size Units (ESU), which differs from country to country ranging from 1 ESU to16 ESU for the years 2003 and 2004.

52. Table 1 shows the wide range of economic results among Member States for each type of farming, as measured by the Farm Net Value Added (FNVA).

53. The large differences in average income among Member States are inherent in the structure of their agriculture. Accounting year 2004 is also the first year for which data from the NMS were collected through FADN. The Member States with the highest average incomes are in general those with a large number of large-sized farms specialising. The Member States, with a large number of small farms have average incomes usually below the EU average.

54. Table 2 shows the contribution of the balance of subsidies and taxes to FNVA. In 2003, the proportion of subsidies net of taxes to FNVA for EU-25 was slightly above 36%. However, the differences among Member States and among types of farming were very significant.

55. In 2003, Finland had an average FNVA lower than the balance of subsidies and taxes. This means that revenues from the market were not enough to cover production costs. On the other hand, the share of subsidies in FNVA was the lowest in the Netherlands, Italy, Belgium and Spain.

56. Regarding types of farming the differences are also considerable. Net subsidies in the Drystock, Arable and Mixed types of farm were the highest as a proportion to FNVA. The Horticulture and Vineyards types of farm were by far the least subsidised.

57. In 2004, Finland, Sweden and Slovenia had an average FNVA lower than the balance of subsidies and taxes. The Netherlands is the country with the lowest share of subsidies in FNVA, followed by Italy, Spain and Belgium.

58. FADN data can also be used to analyse the degree of concentration in the agricultural sector. This is reflected in tables 3 and 4 with data for 2004. In order to avoid the problems caused by the presence of some negative values for FNVA, the variable used is total receipts from farming, i.e. receipts from the market and from subsidies.

59. Table 3 shows the share of the 20% of farms with the highest total receipts per type of farming, per country and for the EU as a whole.

60. For the EU and for all types of farming the 20% with the highest receipts account for 72% of the total. Per country, however, the degree of concentration is lower. Luxembourg, Austria, Belgium, France and Finland are the countries with the lowest degree of concentration with 41, 41, 47, 47 and 48 percent respectively. Furthermore, for the above countries the average receipt per farm is usually higher. In the contrary Czech Republic, Hungary, Cyprus and Estonia have the highest degree of concentration with 88, 83, 78 and 78 percent respectively.

61. Per type of farming at the EU level the concentration is the highest for mixed livestock – mainly granivores, various crops and livestock combined and various permanent crops combined. The lowest concentration can be found in specialist cattle-rearing and fattening, sheep-goats and other grazing livestock and specialist dairying.

62. The types of farming in which the concentration is the highest vary substantially from country to country. However, the type of farming specialist cattle-rearing and fattening is one of the least concentrated in practically all the countries with an exception for Latvia, and Italy.

63. Table 4 shows the degree of concentration according to the share of the 50% of farms with the highest total receipts.

64. At the EU level for all the types of farming this share is 92%, while at the country level it ranges between 73% in Luxembourg and Austria and 96% in Czech Republic. Per type of farming field crops-grazing livestock combined and various crops and livestock combined are the most concentrated, followed closely by specialist horticulture and specialist granivores. On the other hand the lowest concentration can be found in specialist olives and sheep-goats and other grazing livestock.

Table 1 – FARM NET VALUE ADDED (in EUR) |

All farms | Arable | Horticulture | Vineyards | Other permanent crops | Dairy | Drystock | Pigs / poultry | Mixed |

Table 2 – BALANCE CURRENT SUBSIDIES AND TAXES AS % OF FARM NET VALUE ADDED |

All farms | Arable | Horticulture | Vineyards | Other permanent crops | Dairy | Drystock | Pigs / poultry | Mixed |

Table 3 – SHARE OF TOTAL RECEIPTS ( OUTPUT + SUBSIDIES) IN 2004 |

20% OF FARMS WITH THE HIGHEST RECEIPTS |

Table 4 – SHARE OF TOTAL RECEIPTS (OUTPUT + SUBSIDIES) IN 2004 |

50% OF FARMS WITH THE HIGHEST RECEIPTS |

Policy developments and legislative initiatives in 2005

CAP Reform

Sugar reform

65. On 22 June 2005, the Commission adopted a package of proposals for reform of the EU sugar sector, re-casting the common organisation of the markets in the sugar sector, amending Regulation (EC) No 1782/2003 and establishing a temporary scheme for restructuring of the sugar industry in the European Community[2].

66. The Commission achieved a key success with the political agreement reached by Agriculture Council on 24 November 2005, which largely reflected the Commission’s original proposal.

67. In bringing a system, which has remained largely unchanged for almost 40 years, into line with the CAP reforms of 2003/04, the sugar reform will boost the sector’s competitiveness, improve its market orientation and attain a sustainable market balance, with respect to the EU’s international commitments.

68. The reform will be achieved by introducing a 36% cut in the guaranteed price for white sugar, compensation for farmers in the form of a decoupled payment, added to the Single Farm Payment, and a voluntary restructuring scheme, providing incentives for less competitive EU sugar factories to leave the sector.

Risk management

69. Ever since 1992, the CAP has been immersed in a fundamental reform process, aimed at moving away from a policy of price and production support to a more comprehensive policy of farmer income aid. However, the CAP reforms also oblige the agricultural sector to take responsibility for managing those business risks that were formerly absorbed by market and price support policies.

70. In response to a request made by the Council at the time of the adoption of the 2003 CAP Reform, on 9 March 2005, the Commission adopted a Communication on risk and crisis management in agriculture[3].

71. Three possible options were identified: (1) financial support to farmers’ insurance premiums against natural disasters, (2) support for the setting-up of mutual funds, (3) providing basic coverage against income crises. The policy options were discussed by the Council, which is awaiting additional analysis by the Commission before proceeding further in the debate.

Financial Perspectives 2007–2013

72. In the political agreement on the Financial Perspectives for period 2007–2013, reached by the EU Heads of Government on 17 December 2005, which still awaits approval by the European Parliament, the CAP was identified as a key element in a wide ranging review, covering all aspects of EU spending and of resources, to take place in 2008/09.

73. Compared to originally proposal by the Commission, the agreement slightly reduced the budget assigned to Pillar I measures of the CAP (i.e. direct aids and market measures) by EUR 8 billion and for Rural Development under Pillar II, the budget allocated was some EUR 19 billion lower.

Biofuels

74. In the later half of 2005, with the call for a renewed political signal on EU energy policy in view of rising oil prices, high energy dependence of our economy and international climate change commitments, the possibility of increasing the production of bio-fuels became a complex, cross-cutting and dynamic issue.

75. On 7 December 2005 the Commission adopted a EU Biomass Action Plan[4], with the main objective of more than doubling biomass use in the EU by 2010 and paving the way for bigger increases by 2020. This preliminary EU initiative will also serve as a basis for the Communication on the EU Strategy for Biofuels, due for adoption in early 2006.

Quality policy

PDO-PGI reform proposal adopted 23 December 2005 – TSG reform proposal adopted 23 December 2005

76. The Commission adopted on 23 December 2005 a proposal for a Council Regulation on the protection of geographical indications and designations of origin for agricultural products and foodstuffs (document COM(2005)698). This proposal is designed to clarify and streamline rules for registration of protected geographical indications (PGI) and protected designations of origin (PDOs) and ensure full compatibility with the findings of two WTO panels (complaints WT/DS174 and WT/DS290 lodged by the United States and Australia).

77. In order to make the registration process more efficient, the Commission is proposing to simplify procedures and clarify the role of Member States and the Commission in approving applications. The centrepiece of these proposals is the definition of a well-defined “single document” for applications containing all the necessary information for registration, information and inspection purposes and which will be published. The proposals also seek to increase use of the official abbreviations (such as “PGI”) and the EU logos with a view to improving consumer recognition.

78. The proposal on protection of geographical indications and designations of origin will bring the scheme into conformity on the two areas that were criticised at WTO level: firstly by formally deleting the requirement for “reciprocity and equivalence” from the regulations and secondly by allowing third country operators to submit applications and objections directly rather than through their governments.

79. The Commission also adopted on 23 December 2005 a proposal for a Council Regulation on agricultural products and foodstuffs as traditional specialities guaranteed. (COM(2005) 694), with similar purposes as for protected geographical indications and protected designations of origin.

80. The Commission proposes that producers in WTO member countries can benefit from registration without conditions of equivalence or reciprocity and that citizens of those countries with a legitimate interest be allowed to object to a registration.Lastly, under the clause on national treatment, producers from WTO members should be able to use the product specifications registered as traditional specialities guaranteed in the same way as producers from Member States.

81. In order to streamline the registration and the objection procedures, the Commission proposes in particular provisions aiming at reducing the material that needs to be translated in all Community languages and the introduction of grounds on which an objection is admissible. The proposal also contains many simplifications and clarifications. Where appropriate, system improvements identical to those proposed for the system to protect geographical indications and designations of origin are proposed.

New products names on the list

82. As provided for in Regulation (EEC) No 2081/92, the Commission has added 24 names (listed in the Annex) to the list of protected designations of origin and protected geographical indications; the list currently comprises a total of 705 denominations. 4 modifications of the specifications of registered PDO/PGI are also listed in the Annex.

International issues

Panel result and implementation time

83. On 20 April 2005 the Dispute Settlement Body adopted the WTO Panel Reports in European Communities – Protection of Trademarks and Geographical Indications for agricultural products and foodstuffs (WT/DS174 and WT/DS290).

84. The main findings were that the EU’s system for protecting Geographical Indications is essentially compatible with WTO rules including the requirement for inspection structures to verify that the conditions for each GI are fulfilled in order to benefit from the high level of protection against unlawful use and on the issue of the relationship between GIs and trademarks, the panel confirmed that the provision of the EU system allowing for the ‘coexistence’ of GIs with prior trademarks under certain circumstances is fully justified under the TRIPS Agreement. The Panel found that any inconsistencies of the Regulation with TRIPS Article 16 are justified under Article 17.

85. However the Panel report recommends that the EU should bring Regulation (EEC) No 2081/92 on the protection of geographical indications and designations of origin into conformity with the TRIPS agreement by clarifying that the equivalency and reciprocity conditions not to apply in respect of WTO members and to allow for direct applications and objections from persons and entities in third countries.

86. On 19 May 2005 the European Communities confirmed its intention to implement the recommendations and rulings and within a reasonable period of time (RPT). On 9 June 2005 the parties concerned agreed that the RPT would run until 3 April 2006.

Codex Alimentarius

87. The Commission assisted at the meeting of Codex Alimentarius Commission (CAC) in Rome on 4–9 July 2005 in relation to a proposal to commence work on a Parmesan cheese standard. The delegation of the EC, supported by many delegations, stated that it could not agree to launching work under the title of “Parmesan” as this could undermine the protected status of the geographical indication in the EC. The EC was willing to work on development of the existing standard for extra hard grating cheese (standard C35) under that or another neutral title. CAC concluded that no consensus could be reached on the proposal which therefore fell.

EC / Switzerland

88. During 2005 the working group on PDO/PGI issues did not meet. In the fifth EC/Switzerland Joint Committee on Agriculture on 25 November 2005 preparatory discussions on protection of geographical indications were held.

Pilot project on Food Quality Assurance and Certification Schemes managed within an Integrated Supply Chain – Phase 1

89. The first phase of the pilot project, undertaken by JRC-IPTS (Seville) was completed in December 2005. The results include national reviews of quality certification and assurance schemes in 7 European countries, conclusions of 5 stakeholder workshops, a policy analysis report, and a project website. These show the wide diversity, and growing number, of certification and assurance schemes in operation in the EC. The results of the project show that some retailers require adherence to schemes as a pre-requisite to acceptance of product. The pilot project was extended under a second Administrative Arrangement with the JRC, signed in October 2005, for the continuation of the work in 2006, focussing on an in-depth economic analysis of selected quality assurance schemes.

New names entered in the Registers of Designations of Origin and Geographical Indications and of Traditional Specialities Guaranteedand amendments since the 2004 Annual Report

Member State | Product | Type of product | PDO/PGI/TSG |

ES | “Queso Ibores" | Cheese | PDO |

ES | "Pera de Jumilla" | Fruits, vegetables and cereals | PDO |

ES | "Aceite de Terra Alta" or "Oli de Terra Alta | Oils and fats | PDO |

ES | "Sierra de Cádiz" | Oils and fats | PDO |

ES | "Mantecadas de Astorga" | Bread, pastry, cakes, confectionery, biscuits and other baker’s wares | PGI |

ES | "Pan de Cea" | Bread, pastry, cakes, confectionery, biscuits and other baker’s wares | PGI |

ES | "Miel de Granada" | Other products of animal origin | PDO |

ES | "Jamón de Trevélez" | Meat products | PGI |

ES | ”Sidra de Asturias” or ”Sidra d’Asturies” | Other Annex I products | PDO |

ES | ”Siurana”* | Oils and fats | PDO |

FR | "Miel d’Alsace" | Other products of animal origin | PGI |

FR | “Chevrotin” | Cheese | PDO |

FR | "Olive de Nice " | Fruits, vegetables and cereals | PDO |

FR | "Miel de Provence | Other products of animal origin | PGI |

FR | "Asperge des Sables des Landes" | Fruits, vegetables and cereals | PGI |

FR | "Pâtes d'Alsace" | Pasta | PGI |

FR | « Miel de sapin des Vosges »* | Other products of animal origin | PDO |

IT | "Zafferano di San Gimignano" | Other Annex I products | PDO |

IT | "Ricotta Romana" | Other products of animal origin | PDO |

IT | "Valdemone" | Oils and fats | PDO |

IT | “Tuscia” | Oils and fats | PDO |

IT | “Basilico Genovese” | Fruits, vegetables and cereals | PDO |

IT | "Oliva Ascolana del Piceno" | Fruits, vegetables and cereals | PDO |

IT | "Mela Alto Adige or Südtiroler Apfel" | Fruits, vegetables and cereals | PGI |

IT | "Zafferano dell’Aquila" | Other Annex I products | PDO |

PT | “Azeites do Norte Alentejano”* | Oils and fats | PDO |

PT | “Mel de Barroso”* | Other products of animal origin | PDO |

PT | "Requeijão Serra da Estrela" | Other products of animal origin | PDO |

* Amendments to the Register made in accordance with Article 9 of Regulation (EEC) No 2081/92. |

Organic farming

New regulations

90. On 21 December, the Commission adopted a proposal for a new Council Regulation on organic production [COM(2005) 671 final]. The proposal is a follow-up of the Communication [COM(2004) 415] on a Community Action Plan for Organic Food and Farming (EAP).

91. The proposal represents a step forward towards ensuring the further development of the organic sector. In fact, the proposal:

92. implements the EAP for organic food and farming;

93. contributes to simplification and better regulation;

94. promotes the “common concept" of organic production;

95. provides for a permanent import regime.

96. It implements the EAP regulatory actions and simplifies the legal framework by defining objectives, principles, production rules and aligning its control system to the common Official Food and Feed Controls system (OFFC)[5]. This renders it more transparent and considerably reduces the level of detail.

97. The organic control system and its supervision by authorities will be reinforced as it is not proposed to derogate from the OFFC.

98. Promotion of the ‘common concept’ of organic production follows from several elements. Firstly, from a clearer communication on objectives and public benefits of organic production. Secondly, from reinforcing common labelling and advertising rules. Thirdly, from making ‘harmonisation at a high level’ the rule. Finally, from a reinforced control system that creates a level playing field for all actors, including control bodies and authorities. Multiple certification and logos will remain, although based on mutual recognition of the underlying standards.

99. The new import regime grants access not only on the basis of equivalency but also of full compliance. As the current import rules run out on 31 December 2006, a second proposal amends the current Regulation to assure that the new import rules apply from 1 January 2007.

100. In terms of development of support for revision of implementing rules, the following activity was carried out:

101. the Council adopted Regulation (EC) No 1567/2005 on 20 September 2005. This Regulation amends Council Regulation (EEC) No 2092/91 on organic farming by extending the deadline for granting import authorisations at national level until 31 December 2006.

102. The following applicatory rules were adopted by Commission Regulations:

103. Regulation (EC) No 1294/2005 amending Annex I of Regulation (EEC) No 2092/91 by laying down stricter rules on the use of conventional feed in organic production;

104. Regulation (EC) No 1318/2005 amending Annex II of Regulation (EEC) No 2092/91 by extending the list of fertilisers and pesticides allowed in organic production;

105. Regulation (EC) No 1336/2005 amending Annex III of Regulation (EEC) No 2092/91 to update the organic control system and to cover adequately all the categories of operators that have to be subject to the control system;

106. Regulation (EC) No 1916/2005 amending Annex II of Regulation (EEC) No 2092/91 in order to allow the use of synthetic vitamins in organic production on a permanent basis;

107. Decision 4/2005 of the Joint Committee on Agriculture on amending Appendix 1 to Annex 9 to the Agreement between the European Community and the Swiss Confederation on trade in agricultural products, updating the state of legislation on the Community and Switzerland.

Further issues

108. Work on the assessment of equivalency under Article 11(1) of Regulation (EEC) No 2092/91 on organic farming continued for several third countries. The assessment of India was concluded and progress was made on the technical assessment of Turkey. New requests were received from Peru and China, while Chile re-activated its request. For Australia progress was made on the assessment of its livestock production rules. The Commission contributed to the development of the Codex Alimentarius guidelines on organic labelling

Promotional measures

109. Council Regulations (EC) No 2702/95[6] and (EC) No 2826/2000[7] define the provisions for Community support for measures to provide information on and to promote agricultural products in third countries and on the internal market. Community promotional policy covers several products, stressing their general characteristics and common themes such as quality, safety, labelling and particular production methods as well as respect for animal welfare and the environment in their production. It aims at adding value to national and private initiatives by reinforcing or stimulating the Member States and private companies in their own promotion measures. Council Regulation (EC) No 2060/2004 introduced simplification on both the above mentioned regulations. The adoption of the Commission regulations (EC) No 1071/2005[8] and No 1346/2005[9], consequently adapt the detailed rules of this regime, including the eligible products and themes and replacing respectively Commission Regulations (EC) No 94/2002 and (EC) No 2879/2000.

110. Programmes are proposed by professional organisations representative of the product sector concerned, and pre-selected by competent authorities of the Member States, who are responsible for the management and control of the approved programmes. The total annual budget for Community co-financing for approved programmes was EUR 48.5 million in 2005.

111. In 2005 the Commission approved for co-financing 25 new programmes operated outside the EU. The main target countries of these programmes include Japan, Russia, USA and non-EU European countries. The products promoted include quality wines, olive oil, cheeses, meat products and fruit and vegetables. Most programmes last for three years. Total EU co-financing for these programmes amounts to EUR 23.4 million.

112. For the EU internal market the commission approved altogether 51 new programmes for a total budget of EUR 51.6 million of Community co-financing. Most programmes last for three years. The promoted products include fruit and vegetables, organic products, products with a PDO or PGI denomination, flowers and plants, milk products, olive oil and to a limited extent beef. In 2005, promotion programmes were also received by the new Member States and many proposals were accepted for co-financing.

113. In addition to co-financing promotional programmes proposed by professional organisations in the Member States, the Commission can carry out high-level promotional missions and organise information campaigns on Community systems for geographical indications (PDO, PGI and TSG) and for organic products. In 2005 the Commission continued a three-year information campaigns in the USA, China and Japan started in 2004.

114. During 2005 the Commission started the implementation of action 1 of the European Action Plan on organic food and farming aiming at a coordinated promotion campaign of organic farming. This campaign will be operational from 2006 to 2008.

Simplification of agricultural legislation

115. Simplification continued to be an important objective in 2005, as Better Regulation continues to increase in political importance within the context of the Lisbon Agenda. In the December 2004 meeting of the Agriculture Council, the Commissioner for Agriculture, Mrs Fischer Boel, undertook to present a reflection paper on the possibilities and limitations of simplification in agriculture during the autumn of 2005. The Commission Communication on “Simplification and Better Regulation for the common agricultural policy” [COM(2005) 509 final] was published on 19 October 2005. It announces in particular the development of a simplification action plan during 2006, the elaboration of a “Single CMO” regulation combining eventually 21 common market organisations into a single regulatory framework and a conference on simplification to be held during the autumn of 2006.

116. In addition, contributions have been made to the Commission-wide simplification and better regulation activities, which resulted in the adoption of the Commission Communication on “Implementing the Community Lisbon programme: a strategy for the simplification of the regulatory environment” [COM(2005) 535 final] which was presented to the Competitiveness Council in the autumn of 2005. The Annex to this Communication now contains a programme of policy reforms which provide simplification opportunities, up to 2008.

State aids

Policy developments and legislative initiatives in 2005

Overall workload

117. The Commission received 261 notifications of state aid draft measures to be granted in the agricultural and agro-industrial sector. The Commission also started the examination of 25 aid measures, which had not been notified before under Article 88(3) of the EC Treaty. No review of existing aid measures pursuant to Article 88(1) of the EC Treaty was commenced or concluded. Overall the Commission raised no objections to 255 measures. Several of these measures were approved after the Member States concerned either amended them or undertook to amend them in order to bring them in line with Community state aids rules. The Commission started the procedure envisaged by Article 88(2) of the EC Treaty in respect of 11 cases, where the measures concerned raised serious doubts of incompatibility with the common market. The Commission closed the procedure envisaged by Article 88(2) of the EC Treaty in respect of 273 cases, by taking in 3 of them a final negative decision.

118. The procedure laid down in Articles 3 and 19 of Regulation (EC) No 1/2004 is granting exemption for certain types of state aid accorded to small and medium-sized agricultural enterprises[10]. In 2005 Member States have already communicated to the Commission services the summaries of 8 787different measures. The Commission has published these summaries on the Internet at the following address: http://europa.eu.int/comm/agriculture/stateaid/exemption/index_en.htm.

New yearly state aid reports

119. A new era of reporting state aid expenditure was launched on 1 March 2005. From now Member States will have to report their annual expenditure on state aids relating to the agricultural sector in a new, simplified and unified electronic format (excel) facilitating comparison between Member States, calculation of total expenditure, identification of types of expenditure, etc. The unified format will increase overall transparency significantly. In the past, reporting discipline varied greatly between Member States. Despite the launch of infringement procedures, some never or only partially submitted annual reports of very variable quality, making analysis and in particular comparison very difficult.

120. The new reports are a further example of the substantial efforts towards simplification being made in the area of state aid. The result of this is that, apart from Luxemburg and Portugal, all Member States communicated their national expenditure on state aid for 2004.

Transparency

121. The Accession Treaty obliged the Member States to communicate to the Commission an overview of all state aid existing before membership. Only such measures are accepted as “existing”. And even these measures have to be abolished at the end of three years following accession (or re-notified, so that they become new aid following a Commission decision).

122. The Accession Treaty obliges the Commission to publish this overview, without specifying how this should be done. The Commission has therefore put the full text of all existing state aid measures of the ten new Member States on-line. A total of 451 measures have been made accessible. This is a big step towards creating more transparency in the field of state aid. Nothing similar has been done for previous enlargements. Since existing state aid measures are not subject to a Commission decision, it would otherwise be difficult for the public to know the substance of the state aid measures that are in place in the new Member States. This transparency notably improves legal certainty for the farmers in the new Member States in the sense that they (and farmer representatives) can now easily check whether state aid they receive is covered by an existing aid regime.

123. The number of measures submitted per new Member State is:

Czech Republic | 63 |

Lithuania | 30 |

Latvia | 33 |

Slovakia | 32 |

Estonia | 23 |

Malta | 19 |

Hungary | 108 |

Cyprus | 70 |

Poland | 51 |

Slovenia | 22. |

124. The Commission has published the full texts of these existing measures on the Internet at the following address: http://europa.eu.int/comm/agriculture/stateaid

State aid – type of aid measure use

125. Below is an overview of the types of aid (investment aid, crisis management etc) used by the various Member States in the agricultural sector.

126. This is a result of a search of 1 277 decisions taken between 1 June 2000 and 1 October 2005, relating to notifications made from 1 June 2000 onwards. These decisions comprise 1 717 different new aid measures introduced by EU-15 over these 5 years and 4 months. This count necessarily combines aid regimes and (rather rare) one-off support measures for individual companies. Notifications frequently cover more than one type of aid. For example, investment aid may be combined with aid for consultancy costs. Not all of these 1 717 measures are still in force. Also, Member States may still apply measures introduced before June 2000. Available data do not allow attributing expenditure in Euro to the various types of aid. However the tables would still provide an interesting overview of which measures are used.

127. Of the total of 1 717 aid measures, 523 or 30% were notified by Italy, compared against an average of 115 new aid measures per Member State. Also Germany (246), Spain (287) and France (288) were clearly above the average.

The most important types of aid measures introduced overall in EU 15 concerned:

Type of aid | Number of new aid measures in EU-15 June 2000 – Sept 2005 | % of total 1 717 measures |

On-farm investment | 186 | 10,8% |

Processing & market investment | 125 | 7,28% |

Producer group start up | 58 | 3,38% |

Technical support¹ | 366 | 21,3% |

Crisis management² | 494 | 29% |

Research & development | 78 | 4,54% |

Promotion & advertising | 100 | 5,82% |

¹ Technical support consists of quality products: technical aid, quality products: control and soft aid. ² Crisis management consists of natural disaster, adverse weather, animal diseases, TSE, BSE, plant disease, insurance premia, closing of production and rescue & restructuring. |

The types of measures used can differ significantly between Member States. (Figures in bold indicate a figure above EU-15 average.)

Type of aid in % of all measures / Measures introduced per Member State | Investment (farm + non-farm) | Technical support | Crisis management | Promotion & advertising |

EU – 1 717 | 18,1% | 21,3% | 29% | 5,82% |

AT – 52 | 11,5% | 9,6% | 57,7% | 3,8% |

BE – 47 | 10,6% | 12,8% | 59,6% | 0 |

DE – 246 | 8,9% | 18,7% | 23% | 3,65% |

DK – 21 | 9,5% | 19% | 42,8% | 9,5% |

EL – 17 | 0 | 0 | 100% | 0 |

ES – 287 | 20,9% | 22,6% | 24,7% | 2% |

FI – 14 | 42,8% | 0 | 7,1% | 7,1% |

FR – 288 | 25,3% | 31,9% | 11,45% | 6,25% |

IE – 13 | 15,4% | 23% | 30,7% | 7,7% |

IT – 523 | 21,4% | 16,2% | 29% | 7% |

LU – 14 | 14,2% | 21,4% | 35,7% | 7,1% |

NL – 82 | 10,9% | 23,1% | 21,9% | 18,3% |

PT – 6 | 0 | 16,7% | 83,3% | 0 |

SE – 5 | 0 | 40% | 0 | 0 |

UK – 102 | 11,8% | 34,3% | 12,7% | 7,8% |

Overview of cases

128. The overview of cases which follows includes a selection of some of the cases which raise the most interesting issues of state aids policy in the agricultural and agro-industrial sector in 2005.

Denmark

Tax on mineral phosphorous in feed phosphates

129. On 19 January 2005, the Commission has decided not to raise objections to Denmark’s proposed new tax on phosphorous in feed, which aims at reducing the use of phosphorous in agriculture[11]. In order not to increase the overall tax level in the Danish agriculture sector, the tax on agricultural land will be lowered in return. The scheme is considered not to constitute state aid in favour of farmers. A general reduction of the land tax for agriculture is considered the administratively most efficient way of redistributing the revenue from phosphorous tax to the agricultural sector. The land tax will be decreased for all agricultural sectors, not only those using animal feed and paying the phosphorous tax, which, at least in theory, could lead to an advantage for plant producers. However, based on the environmental logic of the scheme and the fact that the relevant state aid rules expressly refer to property tax as one way to counterbalance new environmental taxes, the Commission has decided not to raise objections even if the scheme were to lead to such an advantage. The average amount of the tax reduction per farmer is also very low (approximately 700 DKK (€95) per year).

Finland

National LFA aid scheme

130. On 16 March 2005, the Commission approved new state aid[12] that would be combined with existing support for less favoured areas co-financed by the Community in the framework of the Finnish rural development program. The aid consists of a basic payment of €20 per hectare in support areas A, B and C1 and €25 per hectare in support areas C2-C4. This basic payment is granted for all areas eligible for a co-financed allowance. In addition, areas situated in animal husbandry farms receive an additional payment of €80 per hectare.

131. The Commission has ensured that the combined sum (existing co-financed support, new basic payment and new additional payment) does not exceed €250 per hectare on average. The amount of the new basic payment and additional payment will be controlled annually. If necessary, they will be reduced proportionally in the whole of the country so that the maximum average payment of 250 per hectare is not exceeded. The Commission concluded that the combined payments to less favoured areas in Finland comply with Community legislation, in particular with point 6 of the Community Guidelines for State aid in the agriculture sector and Articles 14 and 15 of Regulation (EC) No 1257/1999, for the following reasons:

132. the payments are distributed geographically in such a way that areas with lowest yields benefit the most;

133. the sectors facing particular structural problems due to natural handicaps receive more aid;

134. there is no overcompensation when the payment levels are compared with those in comparable regions in the Community.

France

Plan Rivesaltes

135. On 19 January 2005, a partially negative, partially positive decision has been adopted by the Commission concerning aid illegally granted for dealing with a sales crisis of wines like “Rivesaltes”[13]. An aid paid per hectare of wine sold as table wine instead of selling it under the “Rivesaltes” denomination is found incompatible both with the wine market organisation and with state aid rules and will have to be recovered (amount to be recovered not known). Aid towards reconverting vineyards is found compatible, except for individual payments above an intensity of 30% and/or a ceiling of €5 030,82 per hectare. Aid granted in favour of promotion of “Rivesaltes” is found compatible with state aid rules.

Plans de campagne

136. On 20 July 2005, the Commission opened a formal investigation into potentially illegal state aid granted by France between 1991 and 2002 in the fruit and vegetable sector[14]. The aid was granted by means of yearly “contingency plans” (plans de campagne). It included measures designed to counter the oversupply of French fruit and vegetables on the internal market by means of price support, support for temporary stocking, destruction of products or support for processing. Subsidies may also have been paid to favour sales of French products outside the EU at times of crisis. Support would seem to have been as high as €50 million per year.

137. The Commission doubts that such measures may be considered compatible with competition rules, as they would seem to interfere with the good functioning of the common market organisation for fruit and vegetables. The Commission is in possession of documents showing that there was awareness that the support measures violated market rules, and that the aid should be kept confidential. A final decision is expected in 2006.

Italy

Toscana – Aid for the protection of livestock against the attacks of predators

138. On 6 September 2005, the Commission has approved for the first time state aid towards the cost of insurance premiums for the damage incurred by stock breeders as a result of the attacks of the predators like wolves or bears[15]. These measures aim to protect the livestock (cattle, sheep, goats and horses), bred in proximity of natural parks, that can be object of predation. The losses concerned are only the death of the animals and the abortions due to the attack of predators. In addition, the Commission concluded that state aid consisting in the financing of prevention and protection investments such as the construction/restructuring of the cattle sheds; the systems of photographic alert and the construction of enclosures for the animals are compatible with the guidelines for state aid in the agricultural sector. Aid was approved in order to combine the safeguarding of protected species with the reduction of risks of damages to the stock breeders.

Bad weather solidarity fund

139. On 7 June 2005, the Commission has adopted a decision not to raise objections to a new framework law for state aid of approximately €100 million per year towards the compensation of farmers for various losses due to bad weather[16]. The new law will establish a coherent legal basis for future bad weather compensation financed by the central government. A notable change in comparison with the past will be that farmers who could take out (subsidised) insurance will not get compensation any more. That way, farmers shall be encouraged to get insurance, making forward planning of public expenditure much easier. The government foresees to spend approximately €100 million a year on direct compensation, and another €100 million as a subsidy to insurance contracts.

The Netherlands & Spain

Holland Malt & Maltacarrión

140. On the 3rd of May 2005, the Commission has decided to open the formal investigation procedure in case C 14/2005[17]. The planned intervention in the Dutch malt sector consists of a subsidy for an investment project of Holland Malt BV (a collaboration between Bavaria NV and Agrifirm, a cooperation of cereal farmers) relating to the establishment of a production plant. The whole chain of storage and processing of malting barley and the production of and trade in malt would be integrated.

141. The Commission decided to open the formal investigation procedure as it doubts whether the planned assistance is compatible with the common market for the following reasons:

142. on the basis of the information available to the Commission, it can not be excluded that the malt market shows overcapacity;

143. Holland Malt claims to provide ‘Premium malt’ of high quality for the production of ‘Premium beer’ and that the market for this kind of malt and beer is still growing.

144. However it is not clear whether ‘Premium malt’ and ‘Premium beer are not simply marketing concepts, and do not correspond to a specific separate product market for which overcapacity could be excluded.

145. For the same reasons, the Commission opened a formal investigation, concerning an investment aid of ca €10.5 million for a new malt production plant, Maltacarrión in Spain[18]. Meanwhile the Spanish authorities have withdrawn this notification. The aid will therefore not be granted.

United Kingdom

Climate change levy

146. On 20 July 2005, the Commission has authorised an aid scheme to grant the agriculture sector a tax rebate of €687 million over a period of 10 years[19]. The rebate of the climate change levy of 50% for horticulture and 80% for agriculture sectors covered by Integrated Pollution Prevention and Control (IPPC) agreements allows the United Kingdom agriculture to accommodate to higher energy prices caused by the levy while helping to meet the CO2 reduction targets for the United Kingdom and also for Europe.

147. The climate change levy on the non-domestic use of energy was introduced by the United Kingdom in 2001 in order to meet the Kyoto targets. Energy intensive industries were offered a significant rebate of 80% for a period of 10 years in order to adapt to the new environment and improve energy efficiency and cut carbon dioxide emissions. The agricultural sectors concerned by this decision (pig and poultry, food and drink) have entered into IPPC agreements and have committed themselves to emission reduction targets and energy efficiency targets. The United Kingdom ensures strict monitoring of the commitments.

148. The loss of levy reduction for the future while the company has at the same time to catch up on the targets is an efficient mechanism for keeping companies in the agreement and for achieving the targets. The recovery mechanism, which is proportional to non-achieved targets at the end of the agreement period, is accompanied by a penalty mechanism. The agreements are reviewed on a regular basis. When assessing multi sectoral state aid in the context of energy taxes, the Commission accepted equal treatment for agriculture with other sectors subject to the Community guidelines on State aid for environmental purposes. The IPPC agreements were approved under point 51(1)(a) of the Environmental Guidelines.

149. A separate special measure of a 5-year rebate of 50% allows the horticulture sector to offset the loss of international competitiveness resulting from the introduction of the climate change levy. As legal basis point 5.5.4 of the Agriculture Guidelines was used.

Types of aid measures by Member State, period June 2000 – October 2005 (in detail) |

cereals | rice (paddy rice) | butter | milk powder |

Belgium | 3 047 791 | 6 000 | 3 500 | 318 | 410 |

Greece | 5 704 637 | 6 972 | 4 346 | 2 087 |

Spain | 42 544 686 | 38 721 | 29 452 | 9 547 |

France | 48 620 337 | 60 905 | 31 412 | 18 143 |

Italy | 60 294 489 | 98 153 | 22 575 | 14 446 |

Luxembourg | 68 537 | 33 |

Malta | 347 642 | 1 383 | 553 | 55 |

Poland | 35 504 167 | 17 758 | 26 835 | 6 772 | 3 749 |

Portugal | 12 527 718 | 8 588 | 14 708 | 2 594 | 480 |

Finland | 2 825 645 | 15 000 | 600 |

Total EU[21] | 211 485 650 | 283 480 | 133 381 | 33 677 | 25 469 |

The Outermost Regions

Reform of the POSEI arrangements (agricultural — POSEI)

150. Following detailed discussions over the course of 2005, Member States agreed unanimously in a working party on the outermost regions on 2 December 2005 that the Commission’s proposal for a Council Regulation for a reform of the POSEI[22] arrangements (which had first been presented in October 2004) should be put forward for adoption as an I/A-point by Coreper and Council. The new Council Regulation should therefore be adopted and published in early 2006.

151. The reform will change the approach to providing assistance to the outermost regions by encouraging participation in decision making and speeding up the response to their specific needs. The Regulation provides for the submission of programmes by the Member States, which should then be approved by the Commission and implemented in the course of 2006. These programmes will include a section on the specific supply arrangements for those agricultural products which are essential in the outermost regions for human consumption, as agricultural inputs or for processing, and another section on support for local production.

152. The Regulation does not affect the sources of financing or the intensity of Community support. The Community will finance the programme under the EAGGF Guarantee Section at 100% up to an annual ceiling established in the Council Regulation. Part of this aid will have to be reserved for local agricultural production. The amounts have been calculated on the basis of the average expenditure on financing the specific supply arrangements during the reference period 2001–03 and on the basis of expenditure ceilings applicable to support for local production.

Aid to the meat sector in the outermost regions

153. Commission Regulation (EC) No 188/2005[23] established detailed rules for the application of the aid programmes for the traditional activities connected with beef and veal as well as sheep and goat production and measures to improve product quality in the French overseas departments, in the Azores and Madeira and in the Canary Islands, within the limits of the consumption needs of these regions other than the Azores. These programmes are provided for by Article 9(1) of Regulation (EC) No 1452/2001, Articles 13(1) and 22(2) of Regulation (EC) No 1453/2001 and Article 5(1) of Regulation (EC) No 1454/2001.

154. The detailed rules refer in particular to the establishment, content and the transmission of the programmes, the Community financing for the year 2005, the indicator of the development of the local production, controls and payments as well as the annual report on the implementation of the programmes.

155. In addition, the Regulation maintains detailed rules of the aid for disposal of young bovine animals born in the Azores set out in Article 22(9) of Regulation (EC) No 1453/2001, as previously laid down so far in Regulation (EC) No 170/2002.

156. Programmes were presented by the Member States concerned and subsequently approved by the Commission in July (for the Canary Islands) and December (for the Azores and Madeira, and for the French overseas departments).

Aid for the local production of crop products

157. Commission Regulation (EC) No 261/2005[24] simplified the reporting requirements placed by Regulation (EC) No 43/2003[25] by establishing that Member States must submit only two reports to the Commission each year. The Regulation sets out the content of the reports and the deadlines for their submission (30 June and 30 November).

Specific supply arrangements (SSA)

158. Two regulations were adopted in 2005 to amend, as regards certain products, the supply balances set out in Commission Regulation (EC) No 14/2004[26]: these were Commission Regulations (EC) No 936/2005 of 20 June (OJ L 158, 21.6.2005, p. 6) and (EC) No 2022/2005 of 12 December (OJ L 326, 13.12.2005, p. 3).

Use of the outermost regions graphic symbol

159. A list was published on 8 June 2005 (OJ C 139, p. 30) of Canary Island producers and products which use the outermost regions graphic symbol.

Information measures concerning the CAP

160. Council Regulation (EC) No 814/2000[27] provides for information measures relating to the common agricultural policy, intended for both Member States and the outside world. Commission Regulation (EC) No 2208/2002[28] (which replaced Commission Regulation (EC) No 1557/2001[29] and was modified by Commission Regulation (EC) No 1820/2004[30] lays down detailed rules for applying Regulation (EC) No 814/2000 and introduces significant improvements to the scheme: simplification, transparency, better evaluation of the information actions proposed, better definition of the messages to communicate and means of distribution.

161. The purpose of the policy is to explain the issues surrounding the CAP, promote the European model of agriculture, keep farmers and other rural interests informed and raise public awareness of the implications and goals of the CAP.

Grants

162. The number of applications for grants received from Member States under the 2005 exercise – for CAP information measures taking place between 1 July 2005 and 30 June 2006 – was again at a high level. A total of 117 applications was received, 45 of which were for annual programmes and 72 for specific measures.

163. In the budgetary year 2005, grants were awarded to 20 beneficiaries for a total of 31 specific measures, 17 of which were part of 6 annual programmes. Co-financed measures included seminars, conferences, printed publications and audiovisual media productions. Main topics were CAP and CAP reform in general; quality, food safety and consumer protection aspects of the CAP; opportunities for the competitiveness of agriculture; rural development; cross compliance and environmental questions; biological agriculture; and the WTO negotiations. A high proportion of the financed measures were organised by beneficiaries from Italy. This reflects the fact that a big proportion of the applications received were from Italy, while again there were very few demands from the Scandinavian countries. Some applications were also received from the 10 new Member States, 2005 being the first exercise in which organisations from these countries could apply for a grant.

164. Individual organisations which in the budgetary year 2005 were successful in obtaining co-financing of their information programmes included NGOs on a European, national and regional level, representing the farming sector, or active in consumer protection, rural development, or environment protection. In addition, beneficiaries included public authorities on a regional level as well as media.

Conferences, events and fairs

165. During 2005 the Commission organised events covering a range of themes. In January there was a meeting with young farmers held jointly with the European Parliament looking at the CAP -new prospects for young farmers Europe and beyond. Support was also given to the EP for its conference on the EU Rural Development Policy, organised by the European Parliament through its Committee on Agriculture and Rural Development. In June there was a hearing on veal.

166. The Commission was represented at various agricultural fairs during the year, as for example in the Grüne Woche in Berlin, Salon de l’Agriculture in Paris, Royal Agricultural Show, in the UK. At both SIA and the Royal Show the Commission was present with the 10 new Member States which gave them the opportunity to present their countries to the visitors to the stand. In 2005 DG Agriculture was also present for the first time at a fair in a new Member State; the pancypriot agricultural fair in Nikosia, Cyprus.

Publications

167. The regular publications programme was maintained with the cooperation of OPOCE and an external contractor . A number of specific Fact Sheets, reports, leaflets, bookmarks, postcards, posters, conference proceedings and newsletters on international and rural issues were published. Special publications were produced in order to explain the 2003 CAP reform.

Access to documents

168. In 2005, the interest manifested by EU citizens in receiving internal documents from DG Agriculture and Rural Development continued to rise, although not as significantly as in 2004. Compared to 2004, the number of requests introduced by EU citizens in application of Regulation (EC) No 1049/2001 on access to Council, European Parliament and Commission documents in the area of Agriculture and Rural Development rose by +/– 25%. This brought the number of requests in that area in 2005 to +/– 185.

Missions

169. Various missions were carried out during 2004, following requests from regional and/or specialised organisations (cooperatives, farmers, various intermediary bodies) in order to explain the new regulations of the CAP, the consequences of the enlargement or the evolution of the WTO negotiations. In most cases, roundtables followed with national heads of the organisations, euroMP’s, journalists and the public itself. Most areas, productions and countries are concerned by theses actions, sometimes prepared or followed by visits to Brussels in order to complete discussion and information.

Information and communication technology (ICT)

170. The use of up-to-date information and communication technologies (ICT) in DG AGRI aims to support the DG’s administrative and operational needs and to improve and reinforce the exchange and processing of data and information in order to enhance CAP management and facilitate the sharing of information between the Member States and European Administrations.

171. In this context in 2005 investments to maintain and further develop DG Agriculture’s services and information systems have been made, keeping apace of the CAP reform and the new Commission accounting. The development of three major new information systems has been started (AGREX 3, ISAMM, and Ange Bleu, see below ), as well as a study (SESAD) for possible additional security layers for transmission of data between DG AGRI and its Member State partners. Other activities which may be highlighted were the progress made concerning Disaster Recovery for DG Agriculture’s major information systems and ICT Governance.

Information Systems

172. The year 2005 saw the beginning of renewal of: the main financial management information system (AGREX 3 for the guarantee funds), ISAMM for market mechanism management, and Ange Bleu for a consolidated agriculture legislation database. In addition the new rural development programme requires an information system for its management in DG AGRI – a major analysis and development contract has been signed (the RDIS project). For AGREX 3, ISAMM and RDIS the first crucial milestone is the completion of a business process analysis in order to align these new systems to user requirements in terms of their business and to the DIGIT methodology for development. Further developments have been made for the DG AGRI data warehouse for analysis (Agriview), and in various other information system areas (CATS for clearance of accounts data, APA for the publication of the periodical acts, etc.).

Infrastructure and DRP (Disaster Recovery Plan)

173. In 2005 the DG AGRI main information system servers have been aligned to the DIGIT/Data Centre infrastructure and a Service Level Agreement with DIGIT relating to our disaster recovery procedures has been signed.

ICT Governance in DG AGRI

174. Work has been carried out to ally the DG’s ICT to DIGIT standards, internal control requirements such as the Commission’s 24 Internal Control Standards and recommendations following audit recommendations. In line with Commission Communications on ICT Governance and Int