Opinion of the Economic and Social Committee on the 'Proposal for a Council Regulation (EC) on support for rural development from the European Agricultural Guidance and Guarantee Fund (EAGGF)` () (98/C 407/35)

On 4 June 1998 the Council, acting in accordance with Articles 43 and 198 of the Treaty establishing the European Community, asked the Economic and Social Committee for an Opinion on the above-mentioned proposal.

The Section for Agriculture and Fisheries, which was instructed to prepare the Committee's work on this matter, adopted its opinion on 9 July 1998 (rapporteur: Mr Kienle).

The Economic and Social Committee adopted the opinion set out below at its 357th plenary session (meeting of 9 September 1998) by 72 votes to one with five abstentions.

1. Rural areas as agricultural arenas

1.1. On the basis of a definition of 'rural areas` as areas with a population density of less than 100 inhabitants per square kilometre, 17,5 % of the current EU population live in rural areas, which make up some 80 % of the overall surface area of the EU (data provided by the European Commission).

1.2. Agriculture still provides approximately 5 % of total jobs in the EU. There are 7 million agricultural enterprises in the EU and 14 million people work in agriculture, on either a full-time or part-time basis. Agricultural enterprises are frequently located in regions afflicted by relatively high unemployment and underemployment.

1.3. Agriculture itself no longer constitutes the main source of income in all rural areas, as was the case in the past. Nevertheless, in most rural areas, agriculture continues to provide the focal point for added value and employment in the following areas: agricultural holdings, farming families and their employees; upstream activities which provide farms with their equipment and inputs; and downstream activities in the processing and marketing sectors. Finally, a large number of jobs in rural service industries are fundamentally dependent upon the survival of agricultural activities. It is estimated that one job in agriculture generates a further four jobs in up- and down-stream sectors of the economy, most of them located in rural areas.

1.4. Agriculture in the EU-15 is one of the main sources of food in the world and is also the world's leading food importer and exporter. Despite structural change which, over a period of years, has increased the average size of agricultural holdings throughout the EU by some 3 % per year and has recently speeded up significantly, the average size of holdings in the EU - 17,5 hectares - is very much smaller than holdings in the EU's competitors, such as North and South America and Australia; the size of holdings in the EU does, however, vary enormously. Agriculture in the EU does have the advantage of having arable land with excellent soil quality and very good climatological conditions. Nonetheless, more than half of all arable land in the EU is classified as 'disadvantaged`, i.e. it suffers from ongoing natural disadvantages.

2. The 'European model` for agriculture

2.1. Agriculture in the 15 EU Member States presents an extraordinary geographical, cultural, historical and culinary diversity and is the guardian of many traditions. In none of the Member States does agriculture therefore solely play the role of a 'production industry` and 'economic factor`. Throughout the EU, agriculture performs broad 'multi-functional` role in respect of the economy, the environment and society and, in particular, in maintaining a minimum population density in rural areas.

2.2. The EU has endeavoured to accommodate this role in the common agricultural policy. In the past the emphasis was placed on market- and price-support and Community preference. This approach was later backed up by measures to secure structural improvement in agriculture; compensatory payments for naturally disadvantaged areas, and supporting measures. Following the agricultural reform in 1992, greater use has been made of direct payments, whilst EU-preference (external protection) has been significantly scaled down (cf. the decisions taken in the Uruguay-Round of the GATT negotiations).

2.3. Agriculture's multi-functional role in the EU has recently been the subject of particularly intensive discussion within the Council of Ministers, the European Parliament and the Economic and Social Committee, as well as in economic organizations. This debate has been prompted by the following challenges, some of which are partially contradictory:

- sustained pressure at world-wide level to step up the liberalization of trade, including trade in agricultural products;

- mounting social concern in the EU about food safety and quality, protection of animals and the environment, care of the countryside and rural and social cohesion;

- on top of this there are the recently-initiated negotiations with the former communist states of central and eastern Europe; these states have tremendous agricultural potential but their agricultural and social structures are generally totally different from those in the 15 EU Member States;

- a debate is also taking place on the role of craft industries and SMEs and the impact of this policy on rural areas.

2.4. The Luxembourg Summit of Heads of State and Government (December 1997) highlighted the need for agriculture in the EU to be versatile and confirmed that the declaration issued after the agriculture council in November 1997 provided a clear mandate for the further development of the CAP within the framework of Agenda 2000. In the post-summit declaration, the Council pointed out, inter alia, that:

'European agriculture must, as an economic sector, be versatile, sustainable, competitive and spread throughout European territory, including regions with specific problems. ....

The reform should lead to economically sound, viable solutions which are socially acceptable and make it possible to ensure fair income, to strike a fair balance between production sectors, producers and regions and to avoid distortion of competition.`

2.5. In its earlier declaration the Agriculture Council outlined the requirements to be met by a versatile EU agricultural industry in the following terms:

'It must be capable of maintaining the countryside, conserving nature and making a key contribution to the vitality of rural life, and must be able to respond to consumer concerns and demands regarding food quality and safety, environmental protection and the safeguarding of animal welfare.`

This shopping-list of requirements undoubtedly also includes, in particular, the need to create and maintain stable, lasting jobs in all economic sectors and all areas of activity in rural areas.

3. Rural development as part of Agenda 2000

3.1. In view of the above factors, the Commission identifies, as one of the six objectives of the new agricultural policy, the need to maintain the man-made landscape and the viability of rural areas. The Commission also points out that 'rural development policy should aim at restoring and enhancing the competitiveness of rural areas and therefore contribute to the maintenance and creation of employment in these areas`.

3.2. The draft Council regulation forms part of the overall package of agricultural measures set out in Agenda 2000 and is designed to bolster and complement the proposed reform of marketing and price policy. In Agenda 2000, the Commission expressly states that further reform of structural policy and the common agricultural policy make it ever more necessary for the EU to develop agriculture and rural areas.

3.3. The draft regulation - which for purposes of simplicity will henceforth be referred to in this opinion as the 'rural development regulation` - has a number of overlaps with the general regulation covering the Structural Funds. The two regulations however differ fundamentally in their approach to aid and funding. The rural development regulation generally adopts a broad-brush approach, whereas the Structural Funds regulation targets particular objectives and areas. Measures under the rural development regulation are funded exclusively from the EAGGF, and in particular from the Fund's guarantee section.

3.4. The new rural development regulation is intended to consolidate or replace nine existing regulations, namely:

- the regulation on implementing the Structural Fund regulation in respect of the EAGGF,

- five regulations concerning the promotion of agriculture and forestry,

- the three 1992 regulations, together with accompanying measures on the reform of agriculture in the EU.

In the Commission's opinion, consolidation of the above regulations into a single legal instrument represents an important contribution towards simplifying EU law and reducing bureaucracy.

3.5. The regulation also includes measures which are, in the Commission's view, at the heart of future rural development policy, many of which do, however, benefit agriculture only indirectly. These measures are set out in Article 31 of the regulation entitled 'Promoting the adaptation and the development of rural areas`. They include land improvement and reparcelling, the marketing of quality products, the diversification of economic activities to provide additional employment opportunities and alternative sources of income, improvement of living conditions, development and improvement of rural infrastructure, renovation of villages; protection of rural heritage; the retention and development of craft industries; the promotion of tourism; the preservation of the environment and management of rural areas.

3.6. At the beginning of the support period in the year 2000, as far as the guarantee section of the EAGGF is concerned, the sum of ECU 4,7 billion is to be earmarked for the rural development regulation. ECU 1,9 billion will go to measures hitherto funded under the Agricultural Structural Fund (guidance section of the EAGGF).

3.6.1. Funding for the rural development regulation under the Agricultural Structural Fund is, in principle, confined to Objective 1 areas. By way of exception, accompanying measures and compensatory payments for disadvantaged areas are funded under the Guarantee Fund, as are all other measures implemented outside the Objective 1 areas.

3.7. The joint financing rates set out in the general Structural Funds regulation are in principle to be applied to the support measures contained in the rural development regulation.

3.8. In future, structural support measures for agriculture will be implemented under 'operational programmes`, i.e. each Member State will draw up a multi-annual programme and will establish its own support priorities as part of the Member State's room for manoeuvre under the subsidiarity principle and in the light of the available funding.

3.9. A cross-reference based on the rural development regulation points to the fact that the Leader Community initiative is to be continued.

4. General observations

4.1. The Committee warmly welcomes the fact that at the Luxembourg Summit, the Heads of State and Government categorically expressed their support for a 'versatile, sustainable, competitive` agricultural industry in the EU and thus affirmed their belief in an individual, specific identity for European agriculture. It is also probably the first time ever that politicians anywhere in the world have made such a forthright declaration in respect of agriculture in an entire area, i.e. one that includes regions affected by special problems.

4.2. The Committee believes that espousing the ideology of total economic liberalization is certainly not the way to achieve a successful implementation and lasting affirmation of the 'philosophy` defined at the Luxembourg summit, either within the framework of the Community's single market or, on a world-wide level, with a view to the next round of WTO negotiations.

4.3. The Committee believes that, as a general rule, the production and marketing of agricultural products constitutes the most effective way to tap into the benefits of economic activity and employment in rural areas. The Committee is, therefore, extremely concerned about a number of reforms proposed under Agenda 2000 with regard to specific products, which in the final analysis would make it impossible fully to exploit the potential of agriculture in the EU (e.g. with regard to oilseeds and renewable raw materials).

4.4. The Committee fundamentally welcomes the fact that the new rural development regulation consolidates a number of existing individual measures, provides for the measures to be implemented more flexibly and pays greater heed to subsidiarity aspects. These include the promotion of investment in individual agricultural enterprises, the establishment of young farmers' compensatory payments in respect of areas suffering from natural disadvantages, promotion of training and further training and, in particular, in respect of the existing accompanying measures (relating to the agricultural environment, early retirement and forestry). Tightening up the existing legislation may help to simplify them.

4.4.1. The Commission must, however, first provide a convincing explanation of how the actual simplification and improvement in transparency is to be achieved if issues formerly dealt with by the Council are to become the legal responsibility of the Commission and only at a later stage to come under the remit of administrative committees. The Member States can surely not be expected to renounce powers and then be obliged to buy a 'pig in a poke`, whilst being kept in the dark about details and implications.

4.5. Against the background of continuous pressure for change - which is being exacerbated by the Agenda 2000 proposals, as a whole - the Committee believes that it is both essential and appropriate that the regulation under review be implemented throughout the EU, as proposed. The funds earmarked for this purpose are, however, totally inadequate. Although the proposed regulation technically complies with the approach advocated at the Cork conference on rural development - namely that all rural areas should qualify for aid - the proposed provisions and level of funding fall short of what is required. The Committee takes the view that, in addition to agriculture, other important sectors of the economy, such as craft industries and SMEs, should be assisted through the introduction of appropriate measures.

4.6. The Committee also considers that structural policy instruments should be funded from structural policy resources. The Committee is therefore critical of the proposal that rural development measures and, in particular, measures which are only of indirect benefit to agriculture, be funded under the guarantee section of the EAGGF, i.e. from funds previously earmarked for marketing and price-policy measures and which continue to have an important role to play, even after the reform. There should be no question of indulging in competition over funding between measures to promote structural improvement and measures to assist the marketing of agricultural products.

4.7. Above all, the Committee is extremely concerned about the fact that the sweeping extension of measures taken under Article 3, will mean that too little funding will ultimately be left in the kitty for 'conventional` agricultural structural policy measures. More funding needs to be provided to meet this objective and the aid eligibility conditions need to be improved, in order to (a) make EU agriculture more competitive - inter alia in the light of the accession of the eastern European countries and the WTO negotiating round - and (b), above all, to safeguard and promote employment.

4.8. The Committee categorically rejects the proposals that the compensatory allowances - which have always previously been seen as providing payments to offset natural disadvantages - are to be linked to extensification conditions or designed to provide payment for meeting environmental requirements. The Committee takes the view that special efforts in the environmental area must be covered by separate payments.

4.9. The Committee welcomes the proposal to lift the existing restrictions on the promotion of agricultural investment. The restrictions concern, for example: the distinction between full-time farmers and those for whom farming represents a secondary occupation; the upper limit of ECU 90 000 in respect of each full-time farmer; and the restrictions on livestock farming. The Committee also approves the measures to improve assistance for young farmers. It likewise endorses the proposal that in future, it shall only be necessary to prove that an investment is of economic value, rather than having to provide the expensive business improvement plans hitherto required.

4.9.1. The Committee goes along with the argument that support should in future continue to be withheld from investment projects designed to boost production 'for which no normal market outlets can be found` (Article 6). On this point, too, the Committee is critical of the proposal to transfer responsibility for decision-making from the Council to the Commission.

4.10. The Committee believes that there is a need for increased flexibility in shaping the provisions and funding arrangements for early retirement. The Committee invites the Commission to ensure that early retirement provisions are implemented in all Member States.

4.11. The Committee strongly endorses the Commission's intention to continue the Community initiative for the development of rural areas (Leader). This Community initiative should in future be implemented less bureaucratically and more flexibly with direct participation of all the relevant economic and social partners.

4.12. The Committee stresses the advantages of basing support for the forestry sector, meanwhile, not only on forest protection initiatives but also on action to promote the sustainable long-term use of forestry resources, echoing the Committee's opinion of 24 April 1997 ().

5. Summary

5.1. The Committee believes that the Commission's goal of turning sustainable rural development into the 'second pillar` of the common agricultural policy has good prospects of success. Agriculture is a pre-requisite for environmental protection and rural development. Successful rural development does, however, also hinge on craft industries, SMEs, commerce and a large number of professional services. Implementation of the European agricultural model and also the European model for rural areas are therefore matters of concern to everyone involved in political, business and social circles. Pipe dreams would be of no help to agriculture or rural development. The Committee believes that the proposed level of funding for the rural development regulation is inadequate to meet the goals of (a) effectively countering the marginalization of rural areas and (b) of making agriculture competitive and thereby enabling it to rise to the new challenges. Therefore, in accordance with its opinion on common agricultural policy funding, the Committee calls for the reform of that funding to take account of the introduction of a rural development policy and to ensure that the financial planning of the activities included in the rural development regulation are clear, transparent and appropriate.

5.2. Furthermore, despite a number of sound initial steps to simplify rural development and rural structural policies and to make them more flexible, the Committee fears that they will continue to be highly complicated and therefore difficult for interested citizens and other parties to understand. The Committee urges that appropriate attention be paid to the need for simplification, not least during the preparation of the regulation's implementation arrangements. In view of the need for a balanced approach, the Committee also deplores the absence of measures to help the other economic players.

5.3. It is therefore all the more to be hoped that the EU institutions will tap the considerable experience of the full range of economic and social partners who act as a mouthpiece for all rural players, particularly as represented on the Economic and Social Committee, in order to engage in a constructive dialogue designed to secure real success in the area of rural development. The Committee urges that all these players be consulted on all measures for helping rural development at European, national and local level.

Brussels, 9 September 1998.

The President of the Economic and Social Committee

Tom JENKINS

() OJ C 170, 4.6.1998, p. 67.

() OJ C 206, 6.7.1997, p. 128.