Opinion of the Economic and Social Committee on the "Proposal for a Council Regulation amending Regulation (EC) No 2200/96 on the common organisation of the market in fruit and vegetables, Regulation (EC) No 2201/96 on the common organisation of the market in processed fruit and vegetables and Regulation (EC) No 2202/96 introducing a Community aid scheme for producers of certain citrus fruits"

(2001/C 14/28)

On 17 July 2000 the Commission decided to consult the Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on the above-mentioned proposal.

The Section for Agriculture, Rural Development and the Environment, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 6 October 2000. The rapporteur was Mr de las Heras Cabañas.

At its 376th plenary session (meeting of 19 October 2000), the Economic and Social Committee adopted the following opinion by 36 votes to three, with four abstentions.

1. Introduction

1.1. The Commission proposal

The Commission proposes the following amendments to the regulations governing the common market organisation for fruit and vegetables:

- ending of the current system for processed tomatoes, peaches and pears, which is based on compensatory aid for the processor in return for the payment of a minimum price to the producer. This is to be replaced by direct aid to the producer, via producer organisations, for the quantity of raw material delivered to the processor;

- establishment of thresholds instead of production quotas for processed tomatoes;

- subdivision of the Community thresholds into national thresholds for processed peaches, pears and citrus fruit;

- fixing of aid by the Council on a permanent basis. For tomatoes, the various current forms of aid will be rationalised into a single amount, irrespective of final destination;

- increase in the thresholds for processed tomatoes, pears and certain citrus fruits, and corresponding decrease in aid for tomatoes and pears;

- reduction in the maximum quantity of each citrus fruit that can be withdrawn from the market. For the 2001/2002 marketing year the limit will be 10 % of the marketed production, falling to 5 % for subsequent marketing years;

- elimination of the ceiling on financial aid for the operational funds of producer organisations, which limits the total amount of assistance to a maximum of 2,5 % of the total value of marketed production of all producer organisations;

- lowering of the ceiling on the maximum aid for the operational fund of each producer organisation, from 4,5 % of the value of marketed production to 3 %;

- introduction of a tendering system to supplement the current systems for managing export refunds for fresh produce.

1.2. General situation in the fruit and vegetable sector

1.2.1. There are 2.2 million farms producing fruit and vegetables in the EU, 750000 of which specialise in these crops. These farms account for 10 % of all farms in the Community. Most of them are small, averaging less than 5 ha. Together they occupy 4,8 million ha, less than 3 % of the Union's UAA.

1.2.2. Fruit and vegetable growing is extremely labour intensive and thus generates employment. Specialist fruit and vegetable growers account for almost 500000 AWU and 12,5 % of the Union's total AWU. It is estimated that the sector provides direct employment for two million people throughout the EU. In some Member States it accounts for 50 % of employment in the agricultural sector.

1.2.3. Employment

1.2.3.1. Employment is a key aspect of production because of its impact on production costs. Although the value added per unit of area is high, income per work unit is lower than for extensive crops. Large numbers of seasonal workers have to be taken on, and the sector provides work both for the EU's unemployed and for immigrant workers. Other policies are needed to improve reception conditions for immigrants, backed by support for measures to improve the mobility of seasonal workers in the sector so that they can remain fully employed throughout the year.

1.2.3.2. The sector also provides a large number of ancillary jobs, both in the agrifood chain (packaging, storage and processing, all of which are labour intensive) and in production and marketing-related activities. Packaging and processing centres generate income, added value, employment and a technological culture in rural areas. In the processed tomato sector, there is close interdependence between grower and industry as this is a specialist annual crop grown exclusively for processing.

1.2.4. Environment

1.2.4.1. In environmental terms, some crops in this sector (e.g. shell fruits and carobs) occupy large areas of marginal land in arid regions where they perform a vital role in preventing erosion and where no other form of agriculture is viable. Moreover, the common market organisation for fruit and vegetables was the first strand of the CAP to include the promotion of environmentally friendly techniques among its objectives. Considerable progress has been made on this front, and is still being made today. Nevertheless, environmental problems remain, so this action within the common market organisation must be continued and stepped up.

1.2.5. Consumers

1.2.5.1. Consumption of fresh fruit and vegetables is beneficial on health grounds and should be encouraged. However, consumption in the EU is virtually stable, with consumption of some products increasing slightly at the expense of others. Domestic production and imports are increasing at a faster rate, so markets are becoming increasingly saturated and there is a growing risk of market distortion. It must be remembered that the EU is not self-sufficient in some fruit and vegetables and that its high purchasing power and relatively low protection against imports makes it a target market for certain third countries. It should be stressed that consumption of some processed fruit and vegetables, notably processed tomatoes, fruit juices and citrus fruit, is increasing significantly (in the case of tomatoes, by around 3 % per year).

1.2.5.2. Consumers are becoming increasingly concerned about food safety. They want a wide range of healthy fruit and vegetables to be available in all types of retail outlet. They also want products that are grown in a more environmentally friendly manner.

1.2.5.3. There are also calls for improvements in the quality of fruit and vegetables sold, with more information about their organoleptic qualities, nutritional value, use of "green" production methods etc. so that the consumer can make a more informed choice. Here it is particularly important that legislation on food labelling and novel foods be in line with the quality standards for fruit and vegetables.

2. General comments

2.1. The Commission has announced that its report on the operation on Regulation (EC) No 2200/96 will be published at the end of this year. The Committee urges the Commission to draw up additional proposals on fundamental aspects which are not addressed in the present proposals, in the light of experience and together with an overall analysis of the operation of all the common market instruments.

2.2. In this connection, the Committee considers that the proposals are partial and inadequate in view of the importance of employment in this sector, the continual crises facing it, and the loss of Community preference caused by bilateral and free trade agreements entered into by the EU. A number of important aspects are left unaddressed: these are referred to in the conclusions of the present opinion. The proposal thus needs to be improved.

2.3. Nonetheless, the Committee agrees with the Commission that some aspects of the common market organisation for fruit and vegetables need urgent revision so that the new arrangements can come into force in the next marketing year, as foreseen in the present proposals.

2.4. The Committee is also concerned that the support systems for processed products are threatened by the expiry of the peace clause in 2003. It calls on the Commission and the Council to press for retention of these systems at the WTO negotiations. This support is necessary in order to ensure the long-term viability of the processing industry. Processors need a secure supply of sufficient, high-quality raw materials at the right time and under economic conditions which enable the processed product to compete on the markets and which provide a sufficient income for growers, as well as keeping over 140000 jobs.

2.5. Community preference has seriously weakened in recent years as fruit and vegetables - and processed products in particular - have been used as a bargaining counter in the EU's negotiating strategy for bilateral and multilateral agreements designed to establish a free trade area with the EU. This has aggravated competition from third countries where prices and costs are lower, placing EU production in an increasingly competitive market. The reciprocal concessions granted under these agreements also create an imbalance between economic sectors which should be corrected by the CAP.

2.6. The Committee considers that it is increasingly vital to concentrate supply via producer organisations. Producers are weakened by the fact that supply is fragmented, in the face of the growing concentration of the retail sector. This problem was discussed in the ESC opinion on the Role of middlemen - from production to consumption - in the setting of food prices (see points 3.1.1, 3.1.2, 3.1.3, 3.1.4 and 3.2.1(1)). Its analysis shows that the producer's share of the consumer price of fresh fruit and vegetables has fallen markedly, and that added value is now more concentrated in the distribution sector. This also has a significant effect on the processing industry's relations with the distribution sector. The Committee also points out that the growing concentration of the main retailers could reduce the range of fruit and vegetables on offer, to the detriment of both producers and consumers.

2.7. Application of the common market organisation for fruit and vegetables

2.7.1. During the three years since the 1996 reform, the new system has failed to achieve the desired economic and organisational objectives. The poor results are mainly due to insufficient financing and the inflexibility of some of the mechanisms.

2.7.2. The aid for producer organisations' operational funds has not proved very effective because of budgetary restrictions, lack of information, and the web of red tape surrounding the management, implementation and monitoring of the operational programmes.

2.7.3. The measures for encouraging the establishment of producer organisations have been insufficient to substantially increase the concentration of supply, which is still well below the targets set by the reform. The recognition criteria and the "pre-recognition" of producer organisations have had particular effects which need to be remedied (e.g. a proliferation of unviably small producer organisations, or the appearance of others promoted by interests outside the sector). At all events the measures have clearly not proved attractive or worthwhile for a large percentage of fruit and vegetable growers.

2.7.4. Nonetheless, the Committee recognises that some measures have helped to encourage concentration of the supply of processed products; producer organisations now play a much greater role in negotiations for the supply of raw materials to the processing industry.

2.7.5. Market support has fallen significantly, mainly because of the restrictive and dissuasive measures introduced under the last market reforms. Although intervention should under no circumstances be used as an ordinary alternative to the market, it has become clear that the withdrawal mechanisms are unsuited to deal with certain serious crises.

2.7.6. The insufficiency of the thresholds and the complexity of the quotas for processed products have made it difficult to adjust to demand, and in some cases - e.g. tomatoes - Community production has lost some of its market share. This is borne out by the fact that the guaranteed quantities for certain citrus fruits, pears and tomatoes have been consistently exceeded in recent years.

2.7.7. The Committee would also highlight the sensitive position of certain products which are of great social and environmental importance for particular regions, such as some processed fruits and vegetables, nuts and carob beans. There may be a case here for specific support measures.

2.7.8. Border protection mechanisms do not operate effectively for most products. There is no guarantee that entry prices and checks on import quantities are implemented properly, and the special safeguard clause has not been applied sufficiently. Current provisions do not ensure that imports comply with the same labour and plant/animal health regulations as EU products.

2.8. The budget of the common market organisation

2.8.1. The Commission proposal involves real financial reforms. The proposed measures affect budget headings which in the 2000 common market organisation budget account for 65 % of expenditure in the sector.

2.8.2. The Committee points out that the market organisation accounts for only a small proportion of the EAGGF budget, and that this share has fallen steadily since the reform (from 5 % in 1995 to 3,2 % in 2000, for a final production value of 16 % of total Community production).

2.8.3. The Committee draws attention to the need to rectify the imbalance in support for different economic sectors within the CAP by remedying the discriminatory treatment of some sectors (e.g. fruit and vegetables) and providing the firm support required.

2.8.4. The Committee rejects the Commission's interpretation of budget neutrality in its proposal, which uses expenditure in the 2000/2001 marketing year as the reference year. Because of various cyclical factors and the insufficient development of the common market organisation, this figure is unusually low. The concept of budget neutrality should be based on the whole budget established in the reform of the common market organisation and in the Agenda 2000 financial perspectives.

2.8.5. The common market organisation for fruit and vegetables cannot be reformed on the basis of a budget cut and the limited action proposed. The sector needs sufficient appropriations to make the measures effective.

2.8.6. To safeguard budget stability in the fruit and vegetable sector, the Committee considers that the measures covering the market organisation and those covering bananas should be divided into two separate budget headings, as the two regimes are quite separate.

3. Specific comments

3.1. Proposal for a Council Regulation amending Regulation (EC) No 2200/96 on the common organisation of the market in fruit and vegetables

3.1.1. The Committee agrees that there is an urgent need to remove the 2,5 % ceiling on the total amount of Community assistance for all producer organisations. The ceiling makes it more difficult for producer organisations to draw up and implement operational programmes, and also makes aid levels unpredictable.

3.1.2. The Committee thinks that the ceiling on aid for operational funds should remain at 4,5 % of the production marketed by each individual producer organisation. In tandem with this, the case should be considered for (a) encouraging the establishment of new producer organisations in areas where they are not found, and (b) increasing the Community contribution to operational funds for producer organisations which meet certain criteria (joint action by associations of producer organisations, merging of organisations, cooperation between organisations from different Member States, organisations with a large number of producers in regions where a greater organisational drive is needed. This should all help to improve the organisation of supply.

3.1.2.1. The Committee also notes that there are imbalances in the operation of producer organisations in some regions of the EU. A specific Community programme to iron out the imbalances in the development of these organisations is thus absolutely vital. This programme, which would be geared to the particular needs of the regions concerned, would promote the launch or merger of producer organisations, and joint activities by different producer organisations, as well as bolstering the Community contribution to the operational funds, on the basis of objective Community criteria, including economic ones.

3.1.3. The Committee cannot accept the proposal to lower the abovementioned ceiling to 3 % of the value of the marketed production of each producer organisation. Such a move would make the instrument ineffective both for organising supply in the face of the concentration of distribution and for adjusting supply to demand.

3.1.4. The Committee cannot endorse the proposal to reduce the maximum quantities for citrus fruits on financial grounds. Instead, it recommends retaining the current limits, given the unpredictable nature of fruit production for which intervention provides an effective safety net for producer incomes. It must be remembered that the saving achieved vis-à-vis the financial perspectives was caused by a reduction in the quantities withdrawn and the fact that the refund management systems did not allow the available budget to be used.

3.1.5. The Committee has serious doubts about the proposal to alter the management system for export refunds on fresh products by introducing a tendering procedure. It considers that a proliferation of management mechanisms is not desirable, and prefers the A1 and B systems; at all events, there should be a single system for each product.

3.1.6. The Committee acknowledges the need to simplify the management of export refunds for fresh fruit and vegetables, and calls on the Commission to optimise management so that full advantage can be taken of the available funding, within the limits established under the WTO agreements.

3.2. Proposal for a Council Regulation amending Regulation (EC) No 2201/96 on the common organisation of the market in processed fruit and vegetables

3.2.1. The Committee notes the proposed amendments to the processing regimes for tomatoes, peaches and pears which will end the current system of granting compensatory aid for the processor in return for the payment of a minimum price to the producer.

3.2.2. The Committee draws attention to the important role which the minimum price has played in providing producers with a reference for their negotiations with the processing industry and guaranteeing them a minimum income.

3.2.3. The proposed measures pose a very real threat to the areas specialising in these crops. It must be remembered that these sectors support a whole agro-industrial system which is vital for keeping people and jobs in the regions concerned.

3.2.4. The Committee stresses that the reduction in aid for tomatoes, peaches and pears in the last few marketing years was the result of cyclical factors such as the euro/dollar exchange rate and the rising price of the raw material in competitor third countries. Discretionary decisions were also taken by the Commission, such as the cut in minimum prices which was designed to prevent destabilisation of the market.

3.2.5. The Commission proposal overlooks some important measures which could improve it and help to stabilise production and farm incomes, and guarantee a sufficient regular supply to the processing industry and the market. Such measures would include limiting penalties to 20 % of aid and encouraging multi-year contracts for tomatoes, peaches and pears.

3.2.6. The Committee welcomes the proposal to replace the quota system for processed tomatoes by a threshold system. It also agrees that it was necessary to revise the system in order to make it more flexible and achieve more balanced relations between processors and producers.

3.2.7. The Committee agrees with the Commission on the need to increase the maximum guaranteed quantities for tomatoes in order to adjust them to market trends, although it considers that the 10 % increase far too modest, bearing in mind that processed production has increased by more than this in recent years in order to meet market trends and the increase in consumption.

3.2.8. The Committee is afraid that unless the Community threshold for fresh tomatoes is increased to a figure which reflects the actual quantities processed in the last few marketing years, the outlook for the next few years is very bleak as the guaranteed quantity is insufficient to meet market demand. The threshold is likely to be significantly exceeded, and the resulting penalties will mean a sharp drop in aid. The threshold should be revised at regular intervals to adjust it to market trends.

3.2.9. The Committee has serious doubts about the need to reduce aid for tomatoes in order to achieve budget neutrality. The increase in the guaranteed quantity would not entail exceeding the budget estimates for this measure which were approved when the common market organisation for fruit and vegetables was reformed.

3.2.10. The Committee thinks that reducing the categories of processed tomato to one single category is excessive. A distinction should continue to be made for whole peeled tomatoes, using a separate threshold, in order to safeguard production of this type of tomato in the areas where it is traditionally grown.

3.2.11. The Committee calls on the Council and the Commission to take steps to ensure that the relevant management committee periodically updates the list of processed tomato products eligible for aid, so that the industry can respond swiftly and flexibly to changes in demand and the marketing of new products. The Committee suggests that the Commission consider simplifying monitoring procedures for the raw material and the finished products. This should make it easier to check that aid is used properly, and cut red tape and expenditure, while safeguarding legal certainty for interested parties and the quality of the products marketed.

3.2.12. The Committee considers that in order to safeguard producer incomes, the current system for processed peaches and pears needs to be altered. If the fall in aid continues, processors might prefer to negotiate a price directly rather than having to have recourse to aid and respect the minimum price. This would spell the end of the system, and would leave producers unprotected.

3.2.13. The Committee is pleased that the threshold for pears is to be increased, but thinks that the increase is insufficient. Current processing levels are 30 % above the Community threshold, in response to increased demand.

3.2.14. The Committee points out that the threshold for pears is bound to be exceeded right from the first marketing year. This could also happen, albeit less dramatically, in the case of peaches, given the sharp rise in the quantity processed in the last marketing year compared with the two previous years when adverse weather conditions reduced Community production.

3.2.15. The Committee warns that the proposed levels of processing aid for peaches and pears are too low and will place producers in a delicate situation. Aid for peaches in 2000/2001 is already 50 % down on the 1997/1998 figure, for cyclical reasons. For the same reasons and in the same period, aid for pears has been reduced by 27 %. The Committee therefore does not consider that the 10 % additional cut on budgetary grounds is justified.

3.2.16. In view of the system for calculating aid, it seems illogical to take the 2000/2001 marketing year as the reference year. The Committee proposes that 1996/1997 be used as the reference year for tomatoes, peaches and pears.

3.3. Proposal for a Council Regulation (EC) No 2202/96 introducing a Community aid scheme for producers of certain citrus fruits

3.3.1. The Committee considers that now that the new system has been in force for three marketing years it has proved its validity, especially in regions where production is the best organised. It has been less satisfactory in other regions where supply is not concentrated or there are few producer organisations. The situation should be scrutinised and appropriate steps taken to encourage the concentration of supply and improve the effectiveness of producer organisations in all citrus-growing regions. Despite the uneven picture, processed quantities have remained stable or risen in all producer regions, and the industrial fabric has been maintained.

3.3.2. The Committee notes that thresholds have been greatly overshot in recent years, particularly for oranges and lemons and to a lesser extent for small citrus fruits, because the thresholds are not in tune with market trends. The Committee also regrets the adverse impact which aid penalties have had on producer incomes, and thinks that such a situation must be avoided in future.

3.3.3. The Committee agrees that the thresholds for certain processed citrus fruits should be increased. However, it considers that the proposed quantities are insufficient to meet the increased demands of the processing industry and to help fill the EU's supply shortfall, currently being met by an increase in imports. Given current processing levels, a 35 % increase in the current thresholds is needed. The new measure should also cover grapefruit, so as to meet current market needs and help the Community industry to become more competitive.

3.3.4. In order to help processors of fruit segments remain in activity, there should continue to be two separate thresholds for small citrus fruits processed for segments and juice respectively.

4. Conclusions

4.1. Regarding the proposals

4.1.1. The Committee would have preferred the Commission to submit the proposals alongside its report to the Council on the operation of Regulation (EC) No 2200/96. The Committee considers that the proposals are partial and inadequate, although it accepts that certain measures are needed urgently.

4.1.2. The Committee rejects the Commission's narrow interpretation of the concept of budget neutrality, and considers that the sector must have sufficient funding to ensure that the measures are effective. It calls for a restoration of financial balance between the sectors covered by the CAP, to reflect the special situation of the fruit and vegetable sector in the face of market globalisation and its importance in generating employment.

4.1.3. Bearing in mind that the cut in aid for tomatoes, peaches and pears in recent marketing years was caused by cyclical factors, discretionary decisions on the part of the Commission, market trends for the products concerned, the competitive position of the EU processing industry and trends in CAP expenditure for these sectors, the Committee argues that:

- the Commission is right to replace the quota system for processed tomatoes by a threshold system;

- the reference year for calculating aid for tomatoes, peaches and pears should be 1996/1997;

- the proposal to reduce aid for tomatoes and pears in order to achieve budgetary neutrality is unjustified;

- the guaranteed quantity for processing tomatoes should be raised to a level which reflects the actual quantities processed, and a distinction should continue to be made for whole peeled tomatoes;

- the threshold for pears should be increased by 30 %, and for peaches by 10 %;

- penalties should be limited to 20 % of aid, and multi-year contracts should be encouraged.

4.1.4. Action is needed to meet increased demand in the citrus fruit sector, help fill the EU's supply shortfall (which is currently being met by an increase in imports), and keep the Community's processing industry in activity. At present, producers are seriously penalised for increases in processing volumes. The Committee argues that:

- there should be a 35 % increase in the current thresholds for citrus fruit for processing;

- there should continue to be two separate thresholds for small citrus fruits processed for segments and juice respectively;

- when thresholds are overshot, the cut in aid should not exceed 20 % of the value of that aid;

- the current limits on quantities of citrus fruits withdrawn from the market should be retained.

4.1.5. The Committee agrees with the Commission that there is an urgent need to remove the 2,5 % ceiling on the total amount of Community assistance for all producer organisations, and calls for retention of the 4,5 % ceiling for production marketed by each individual producer organisation. It cannot accept the proposal to set this ceiling at 3 %, as such a move would make the instrument ineffective.

4.1.6. The Committee draws the Commission's attention to the absence of measures to encourage the setting-up of schemes to insure fruit and vegetable growers against weather-related losses, while respecting the systems which already exist in some Member States.

4.1.7. The Committee stresses the usefulness of schemes to promote fruit and vegetable consumption, given their health benefits for consumers.

4.2. Regarding the Commission report on the common market organisation for fruit and vegetables

4.2.1. In the light of experience in applying the common market organisation, the Committee suggests that the following points, amongst others, be looked into:

a) the need to improve knowledge of production and markets. The establishment of a market observatory could be very useful here;

b) improvement of quality standards for fruit and vegetables, and monitoring to ensure compliance with them throughout the marketing chain;

c) development of producer organisations (nature, size, concentration of supply, regional development, sectoral). Obstacles to this development and to improvements in their effectiveness. Recognition of other facilitating organisations and organisations without a production base. Pre-recognition of producer groups. Need to encourage producer organisations to merge and form associations;

d) operation of producer organisations' operational funds and programmes, and dovetailing of these with rural development measures; assessment of the extent to which the aims of improving quality, respect for the environment and food safety have been achieved;

e) possibility of harmonising the elegibility criteria for environmental measures under the operational programmes;

f) operation of the intervention system and assessment of the need to reinstate the concept of "serious crisis";

g) trade and respect for Community preference: entry price mechanism (evaluation of the application of tariff equivalents), checks on quantity and quality, respect for plant health rules, special safeguard clause, non-tariff barriers to Community exports;

h) specific measures needed for products facing stiff international competition. Long-term solution of the problem of shell fruits and carob beans;

i) support for certain processed fruit and vegetables (tinned asparagus, apricots and cherries);

j) delimitation of responsibilities and possible consequences when one party fails to comply with processing contracts between producer organisations and processors, and for failure to comply with agreements between individual producers and the producer organisation to which they are to deliver produce for processing that is eligible for aid.

Brussels, 19 October 2000.

The President

of the Economic and Social Committee

Göke Frerichs

(1) OJ C 95, 30.3.1998, p. 36.