Opinion on the Commission proposals on the prices for agricultural products and on related measures (1994/1995) (1) (94/C 148/11)

On 16 February 1994 the Council decided to consult the Economic and Social Committee, under Articles 43 and 198 of the Treaty establishing the European Community, on the abovementioned proposals.

The Section for Agriculture and Fisheries, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 10 March 1994. The Rapporteur was Mr Pricolo.

At its 314th Plenary Session (meeting of 24 March 1994), the Economic and Social Committee adopted the following Opinion by a large majority, with 20 dissenting votes and six abstentions.

1. Introductory comments on the general economic situation

1.1. Two major economic and political factors will have a significant impact on the agri-food sector in the farm years 1994 and 1995.

1.1.1. Firstly, the entry into force of the CAP reform decisions adopted in 1992; and secondly, the outcome of the recent GATT negotiations, whose effects on Community agriculture could significantly exacerbate the present difficulties.

1.2. The combined effect of these two factors and the proposed price freeze for the marketing year 1994/1995 are bound to aggravate the negative situation with respect to farm incomes, and create the conditions for a substantial further drop in 1994. Those wishing to leave farming are impeded by the limited or non-existent employment opportunities in other sectors. Unemployment is forecast to rise in 1994, and could exceed 12 % in the EU as a whole.

1.3. The general cost of agricultural inputs rose in nominal terms by around 3 % in 1993, despite the drop registered for certain production factors such as animals for breeding and animal feedingstuffs. Rising energy costs (up by over 4 % for the EU as a whole) reduce the attractiveness of the incentives for diversification and reinvigoration envisaged in the CAP reforms.

1.4. Farmers are being hit by the increasing divergence of the trends in farm prices and factor prices. A substantive reduction of the gap between farm and non-farm incomes has not been achieved.

1.5. There are income disparities both within the Community and within the Member States, owing to the diversity of farm structures and the different types of production and to currency fluctuations, but this is not the place to analyze them in detail.

1.5.1. Suffice it to say that notwithstanding these differing situations, overall average farm incomes have fallen appreciably in the last three years.

1.6. The compensatory aid provided under the CAP reform is undoubtedly an important, and in some cases vital, contribution to farm income. However, in some Member States, administrative delays in the granting of the aid weaken its desired effect. The Committee considers that the Commission should establish new, simpler procedures to avoid delays, and, at the same time, take steps to ensure that Member States grant the various financial incentives promptly and in compliance with the Regulations.

1.7. The freeze on farm prices will mean a further cut in farm incomes and an even sharper contraction of investment and employment in farming (among both farmers and farmworkers) and to some extent in the agri-food industry.

1.7.1. This deterioration in the situation will have extensive spin-off both upstream and downstream, and is bound to affect the consumption and purchasing power of a large band of society.

2. Preliminary comments

2.1. Given the general economic situation described above, the implementation of the CAP reform must more closely reflect the objectives which underpinned it. The various measures must all follow converging objectives, to ensure that they do not prove mutually contradictory. Furthermore, the decisions adopted under the CAP reform must not suddenly be amended in ways detrimental to farmers.

2.2. The Commission's proposals appear to be dictated by the need to curb farm spending at all costs, regardless of any concern to safeguard incomes (Article 39 of the Treaty) and employment, either in the agriculture or food processing sectors.

2.3. The rationale behind the proposals for the products covered by the CAP reform, for which the decisions taken in May 1992 operate automatically, is clear enough. The aim is a gradual reduction in Community prices with a view to their alignment on world prices, coupled with the granting of compensatory aid per hectare. However, as stated below, some aspects of the proposals are questionable.

2.4. On the other hand, the total generalized price freeze for products not covered by the CAP reform is unjustified and untenable, not only because no compensatory aid is proposed for these products, but also because prices in some of these sectors fell more steeply in 1993 in real terms: a 9 % drop in the case of fruit and vegetables, and 9,2 % for wine.

2.4.1. The proposals would seriously aggravate the production and market difficulties facing these products. This is the third year that prices in these sectors have been frozen.

2.5. In short, the Commission's proposals, which are extremely tough on Community farmers, are not even partially offset by concrete incentives for individual and/or joint initiatives to switch to other products. The Committee would like to see more resources earmarked for new or revitalized production sectors (e.g. mulberry growing and silkworm rearing; development of agricultural raw materials for non-food purposes, such as medicinal plants; farming of rare animal breeds).

2.6. An increase in the use of agricultural products for energy purposes would also help to alleviate the sector's problems. A cut in duties on fuels derived from agricultural products and products of agricultural origin could be an effective way to encourage wider use of these products.

2.7. Robust support should also be given to specific programmes for the development of new technologies to help exploit renewable energy sources and materials of agricultural origin for use in bio-industry.

2.7.1. In this connection, the Committee feels that close coordination is needed between the Commission Directorates-General responsible for agriculture, energy and taxation.

2.8. The Committee regrets that the Commission has not issued proposals to take account of the effects of exchange-rate fluctuations, as these can have a major impact on farm incomes and may undermine the unity of the agricultural market.

3. Comments on individual products

3.1. Cereals

3.1.1. The price reductions are as scheduled in the CAP reform, subject to adjustments deriving from currency realignments, and hence need no comment.

3.1.2. However, the Commission also proposes to reduce the monthly increments, justifying this by the drop in guaranteed prices and interest rates.

3.1.2.1. The Committee considers that the monthly increments must remain at their present level, so as to ensure the orderly marketing of cereal production throughout the marketing year.

3.1.3. The Committee calls for the price relation between durum wheat and other cereals to be revised. The alignment of the price of durum wheat on that of other cereals has, despite aid per hectare, led farmers to cease production in some regions, so that this high-quality product is disappearing.

3.2. Rice

3.2.1. The Committee feels that the Commission should focus its action on the reduction in the area devoted to rice-growing, rather than on prices (which have been frozen for several years, despite rising production costs), and that it should establish a maximum number of hectares corresponding to the average levels over a historically representative period.

3.2.2. The Committee's comments on the reduction in the monthly increments for cereals also apply to rice.

3.2.3. The Committee stresses the importance of maintaining special aid for indica rice production, which encourages farmers to switch to that variety.

3.3. Potato starch

3.3.1. The Committee endorses the Commission's proposal to introduce a maximum guaranteed production threshold (1,5 million tonnes), on the understanding that the threshold may be reviewed in the light of trends on the overall starch-products market. However, it calls for a degree of flexibility in the administration of this measure: it should be possible to carry over more than 5 % of the reference quantity production to the next farm year, as production could drop naturally the following year.

3.4. Sugar

3.4.1. The Committee considers that the price freeze for the sugar beet sector is in line with the Council's decision to extend the present market regime until 1 July 1995.

3.4.2. The Committee notes the Commission's intention to submit proposals for the reform of the common market organization, and trusts that beet growers will be informed in good time of the EU's proposed medium and/or long term policy for the sugar beet sector.

3.4.3. As with cereals and rice, the Committee opposes the proposal to reduce the monthly refund on sugar storage costs.

3.5. Olive oil

3.5.1. The move to transfer the residual amount of consumption aid to production aid will make the mechanism easier to manage and will facilitate controls.

3.5.2. The gradual switch from consumption aid to production aid began in 1991/92 and meets a need that has been widely felt by olive growers and consumers.

3.5.3. However, the Committee has misgivings about the cut in the intervention price. It considers that as the last part of consumption aid is eliminated, there should be no reduction in protection - as represented by the intervention price - in 1994/95, given the effects which the change in the aid system may have on market price.

3.5.4. A serious, effective and sustained campaign is needed to promote olive oil consumption, and this will not be possible with a budget of only ECU 10 million. The Committee therefore asks the Commission to reconsider this important matter.

3.5.5. The Committee would remind the Commission that the deferment of payments to olive-oil producers is unacceptable. The Committee views it as a clear-cut reduction in the income of a large number of producers.

3.6. Dried fodder

3.6.1. The Committee endorses the Commission's objectives for this sector, in particular that of boosting quality by raising the minimum protein content conferring eligibility for aid. The Committee feels that the simplified aid scheme should enter into force at once. However, although the Committee supports the proposal to simplify the system, it considers that the reductions in the flat rate aid for dried fodder are excessive.

3.7. Fibre plants

3.7.1. Cotton

3.7.1.1. The Committee reiterates its previously expressed view that, as cotton is a deficit product in the Community, steps are needed to boost cotton growing. Cotton could replace certain surplus products under the production switches envisaged in the CAP reform.

3.7.1.2. The Committee considers that retaining the 1993/1994 price levels and keeping the maximum guaranteed quantity at 701 000 tonnes in effect reduces incentives for cotton production. This clearly runs counter to the objectives of the new CAP.

3.7.1.3. Where the maximum guaranteed quantity cannot be increased, the Committee thinks that the penalty for overshoots (i.e. 15 % + 5 %, in accordance with the Council Decisions for the 1993/1994 marketing year) should remain unaltered.

3.7.1.4. The Committee welcomes the Commission's proposal to tighten up controls throughout the sector. However, it cannot accept a drop in the standard quality as presently defined.

3.7.2. Silkworms

3.7.2.1. Especially in traditional silkworm breeding regions, this sector is fundamental for giving a new slant to the farm economy and has a significant impact on industry and employment. From this viewpoint, the current aid of ECU 110,41 per box is too restrictive.

3.7.2.2. Silk and silkworm production has good prospects for returning to profitability, although the GATT agreements do not offer practical protection for European silk, which is nevertheless considered to offer the highest quality on the world market.

3.7.2.3. This important sector can be given a concrete boost by specifically including aid for the growing of mulberry trees for silkworm rearing as part of the aid for the planting of trees on former arable land.

3.8. Wine

3.8.1. The failure to present proposals in the wake of the discussion paper on the development and future of wine sector policy is creating a climate of uncertainty which cannot be allowed to continue.

3.8.2. The Committee would here refer back to its Opinion of 24 February 1994 (Doc. CES 231/94) on the Commission Communication.

3.9. Fruit and vegetables

3.9.1. The Committee cannot support the proposal to freeze basic and buying-in prices for fruit and vegetables, which have remained unchanged for several years.

3.9.1.1. A price increase, even if only a modest one, seems vital pending the reform of the present common market organization and in order to safeguard the competitive position of Community production, which has been seriously weakened by the concessions granted to third countries both under bilateral agreements and in the context of the recent GATT agreements.

3.9.2. The Committee asks the Commission, when it draws up its future proposals, to include structural measures designed to improve product quality, introduce new technologies, extend the role of producers' associations, and conduct appropriate information and market research campaigns.

3.10. Milk and milk products

3.10.1. The Committee considers that the move to reduce the intervention price of butter by an overall 5 % is unduly harsh, coming as it does in the wake of a 3 % reduction in the 1993/1994 farm year. At all events, it thinks that any decision on this should take account of the Commission report on the situation on the market for milk and milk products, which is due out at the end of March.

3.10.2. The present situation on the butter market and the low level of stocks do not justify such a draconian reduction.

3.10.3. Furthermore, the reduction in the butter price must be appraised in the light of the Commission's proposal for a 1 % cut in milk quotas.

3.10.3.1. It is clearly not right to penalize milk producers twice by imposing a 5 % cut in the intervention price of butter on top of a 1 % reduction in quotas.

3.10.4. The abolition of intervention for cheese further penalizes milk products, and the Committee cannot accept this.

3.11. Beef and veal

3.11.1. The Commission's proposal not to allow Member States to use 1992 as a regional reference year for the allocation of the special premium for male cattle appears signally at odds with the CAP reform decisions.

3.11.1.1. The Committee cannot endorse this technical adjustment, which undermines the Council's undertaking to allow Member States to choose either 1990, 1991 or 1992 as the reference year.

3.11.2. The Committee would draw the attention of Council and Commission to the severe loss of income which would arise in 1994 in certain regions as a result of switching the special premiums for male cattle from a slaughter to an on-farm basis.

3.11.3. The Committee considers that, in the interests of administrative simplification, the special premium for male cattle provided for under Article 4b(2) of Council Regulation 805/68 should be granted only once in the life of the animal. This should be at the time of slaughter, whatever the age of the animal, subject of course to it meeting the minimum age requirement for qualification for the premium. The abolition of the second premium for uncastrated male cattle which have reached the age of 22 months must be offset by a corresponding increase in the amount of the first premium.

3.12. Pigmeat

3.12.1. The Committee feels that the proposed reduction in the basic price is excessive.

4. The GATT Agreement

4.1. Lastly, the Committee would draw the Commission's and Council's attention to the need to ensure that the recent GATT agreements are implemented in a manner which is consistent with the CAP reform and does not impose further sacrifices and burdens on Community farmers.

4.1.1. In particular, it should be borne in mind that the GATT agreements will enter into force on 1 July 1995, before the end of the marketing year for some products.

Done at Brussels, 24 March 1994.

The Chairman

of the Economic and Social Committee

Susanne TIEMANN

(1) OJ No C 83, 19. 3. 1994, p. 1-55.

APPENDIX to the Opinion of the Economic and Social Committee

The following amendments were defeated during the discussion:

Point 3.4.3

Delete.

Reasons

There is a large excess of sugar and there is therefore no need for paying storage refund. This refund is extremely expensive and costs ECU 35/tonne. Last year it was paid on 4 100 000 tonnes of excess quota sugar, some of which was carried over, i.e. ECU 143 million.

Voting

For: 30, against: 70, abstentions: 7.

Points 3.9.1 and 3.9.1.1

Delete and replace by the following:

'The Committee supports the proposal to freeze basic and buying-in prices for fruit and vegetables, in view of consumer disquiet at the withdrawal and destruction of surpluses.'

Voting

For: 28, against: 67, abstentions: 11.

Points 3.10.1 to 3.10.4

Delete and substitute:

'Given the continuing problems of butter fat disposal, the Committee agrees with the proposal. Price reductions send the right signal to the farmer, benefit the consumer and should raise consumption. They are therefore much preferred to quota reductions and are also better for the EU budget.'

Reasons

Points 3.10.1 to 3.10.3.1

Each 1 % cut in the butter intervention price saves EU 34 million per year. Owing to the interplay with the beef regime, a quota cut would actually increase subsidy expenditure by 1995. A reduction in consumer price should also stimulate demand.

Point 3.10.4

The cheese subsidy is only given on two brands of Italian cheese. The words 'penalizes milk products' gives the wrong impression in general for a change in subsidy and does so particularly in this context.

Voting

For: 30, against: 63, abstentions: 7.

3.1

3. (new) Tobacco

'The Committee objects to the further increase in the tobacco subsidy (to ECU 1 290 000 000) and calls for this to be reduced instead. The Court of Auditors' report (OJ No C 65, 2. 3. 1994) shows that the Community could save over ECU 500 000 000 by giving the same farmers an equivalent subsidy for not growing tobacco.

The Commission should therefore phase out tobacco subsidies rapidly and should provide environmental direct support payments to farmers whose land will not grow alternative crops. Apart from saving the tax payer's money, this would make for a consistent EU tobacco policy, particularly avoiding the health problems caused by EU tobacco dumped in foreign markets.'

Reasons

Self evident. In its reply the Commission did not dispute the Court's figures but said it has not 'opted for a completely different approach based on economic criteria alone'. It is high time that it changed to a policy which is both cost effective and in line with the overall tobacco policy of the EU while providing adequate subsidy for those farmers that have no alternative.

Voting

For: 32, against: 65, abstentions: 3.