Proposal for a COUNCIL REGULATION on the common organisation of the market in dried fodder for the marketing years 2004/05 to 2007/08

(presented by the Commission)

EXPLANATORY MEMORANDUM

A LONG-TERM POLICY PERSPECTIVE FOR SUSTAINABLE AGRICULTURE

1. TOWARDS SUSTAINABLE AGRICULTURE

In 1999 the European Council in Berlin agreed the Agenda 2000 reform of the common agricultural policy (CAP), a new and important step in the agricultural reform process. Agenda 2000 gives concrete form to a European Model of Agriculture with the aim of preserving the diversity of farming systems spread throughout Europe, including regions with specific problems, in the years ahead. Its objectives involve more market orientation and increased competitiveness, food safety and quality, stabilisation of agricultural incomes, integration of environmental concerns into agricultural policy, developing the vitality of rural areas, simplification and strengthened decentralisation.

These objectives are in line with the Sustainable Development Strategy agreed by the European Council in Göteborg in 2001, which requires that economic, social and environmental effects of all policies are examined in a co-ordinated way and taken into account in decision-making.

The Commission adopted the Communication on the Mid-Term Review: Towards Sustainable Farming [1] in July 2002. The Communication provided an assessment of the evolution of the CAP reform process since 1992. It concluded that much has been achieved. Market balances have improved and agricultural incomes have developed favourably. A sound basis for enlargement and the current WTO negotiations has been established. Yet in many areas, gaps remain between the objectives set for the CAP, and its capacity to deliver the outcomes expected by society. The Commission has therefore proposed a number of adjustments to the CAP.

[1] COM(2002) 394 final.

In bringing forward its legislative proposals the Commission has taken account of the conclusions of the Brussels European Council in October 2002, and of the intense debate that has followed the publication of the Communication in July 2002 within the Council, the European Parliament, the European Economic and Social Committee, the Committee of Regions and other Consultative Committees, as well as civil society. The debate has been enriched by contacts in the member states with farmers' representatives, industry, consumers, environmental groups and NGOs. These have revealed a broad consensus about the direction of further CAP reform. But have also highlighted concerns and uncertainties. In bringing forward its proposals the Commission has sought to take into account these concerns and uncertainties, as well as the impact analyses and the new budgetary constraints arising from the Brussels Agreement.

The agreement between the Heads of State and Government in Brussels to endorse the Commission's proposals on the introduction of direct aids in the new member states marked a major step forward in the process of enlargement. This paved the way for the successful conclusions of negotiations with ten candidate countries in Copenhagen in December 2002. This agreement set a ceiling for market and direct aids expenditure in an enlarged EU, which will rise more slowly than the rate of inflation. It also recalled the importance of less-favoured regions and the multifunctional nature of agriculture, confirming the importance of the second pillar.

In addition to the request by the European Council in Berlin to carry out a mid-term review of the CAP, further steps are needed to meet the new tasks and challenges established in Göteborg and Brussels. The new long-term framework for agricultural expenditure in the form of the ceiling calls for a clear perspective for the future development of the Common Agricultural Policy. Without such certainty, the sector cannot plan for the future. A further reform step is therefore necessary as indicated in the Communication on the Mid-Term Review:

- To enhance the competitiveness of EU agriculture by setting intervention as a real safety net measure, allowing EU producers to respond to market signals while protecting them from extreme price fluctuations.

- To promote a more market oriented, sustainable agriculture by completing the shift from product to producer support with the introduction of a decoupled single farm payment, based on historical references and subject to compliance with environmental, food safety and animal welfare requirements. This will improve the efficiency of income payments to farmers.

- To provide a better balance of support and strengthen rural development by transferring funds from the first to the second pillar of the CAP via the introduction of an EU-wide system of modulation and expanding the scope of currently available instruments for rural development to promote food quality, meet higher standards and foster animal welfare.

Providing a clear policy perspective for the CAP

Further reform needs will in all likelihood lead to additional expenditure, since farmers' income will need to be stabilised in an appropriate manner. Following the budgetary decisions in the Brussels Summit, this can only be achieved by increasing the resources available through savings elsewhere in the first pillar. Additional reform efforts will therefore require savings from existing direct payments and market expenditure.

There is a real risk, that if budget savings are not generated in a fair, transparent and predictable manner, the EU could face stalemate on further agricultural decisions. It would be necessary to negotiate reductions and reallocations of expenditure at the same time on a case-by-case basis. It would be almost impossible to ensure the balance and fairness of the contribution of individual farmers. This would make it very difficult for farmers to plan, since in addition to further reform efforts, they would not be able to anticipate how such efforts would be financed.

But the absence of certainty would not only be damaging for farmers' interests, it could also undermine decisions to move the CAP more into line with society's expectations. Indeed, a piecemeal approach in the CAP reform process could exacerbate many existing problems, bringing real risks to sustainable agriculture. The Commission has therefore proposed a mechanism for generating savings, which ensures that new financial needs can be met in a balanced manner across the farming sector.

Enhancing the competitiveness of EU agriculture

The impact analysis undertaken supports the necessity of making adjustments proposed by the Commission in July 2002. Following the broad debate on the options for the dairy quota system, it is the Commission's view that the Agenda 2000 reform should be extended to better reflect price realities and the need to further differentiate the levels of support for butter and skimmed milk powder. It is also proposed to modify the quality premia for durum wheat in order to encourage further quality production in a simpler manner.

Promoting a more market oriented, sustainable agriculture

The debate on the introduction of the decoupled single farm payment has highlighted a number of concerns that the Commission has addressed in its proposals.

- In order to avoid land abandonment as a result of decoupling, the Commission has clarified that farmers will have to meet stringent land management obligations as part of the new cross-compliance requirements. By providing greater farming flexibility, decoupling will improve the income situation of many farmers in marginal areas.

- In order to ensure that the interests of tenant farmers and landowners are balanced, the proposals establish a system of transfers of payment entitlements. Payments will only be made to farmers actively producing or maintaining land in good agronomic condition, maintaining the link to land. Specific arrangements are established for livestock production taking place without a corresponding land basis.

As regards WTO aspects, the new single farm payment will be green box compatible. Decoupling will allow the European Union to maximise its negotiating capital in order to achieve its WTO objectives such as non-trade concerns. Hence the proposals for decoupling could be crucial in getting the best deal for the European Model of Agriculture.

In order to maximise the benefits, particularly in administrative terms, the single farm payment will cover the widest possible range of sectors: all products included in the COP regime as well as grain legumes, seeds, starch potatoes, beef and sheep; the revised payments for rice, durum wheat and dried fodder; the milk sector on implementation of dairy payments. Proposals for other sectors scheduled for reform (sugar, olive oil, tobacco, cotton and possibly fruit and vegetables, and wine) will follow in the course of 2003.

Strengthening rural development

The proposals to extend the scope of currently available instruments for rural development to promote food quality, meet higher standards and foster animal welfare have been universally welcomed.

The Commission has taken careful note of the repeated calls of Member States for a simplification of Community rural development policy under the second pillar. The Commission agrees with Member States on the importance of efficient management of the second pillar. It has already demonstrated its willingness to engage actively and constructively with Member States in such a simplification exercise and is fully committed to achieving concrete results. The Commission tabled at the end of December 2002 important proposals to facilitate management of rural development programming at the level of the Commission implementing rules. Simplification gains additional importance in the context of the current proposals to expand the scope and coverage of rural development.

A better balance of support

The fixing of a ceiling for agricultural market expenditure in Brussels implies that the mechanism for shifting between budget headings cannot be implemented before the start of the next financial perspective. The Commission therefore proposes introducing a system of modulation from the start of the next financial perspective to improve the balance of support between market expenditure and rural development.

The Commission stresses, particularly in the light of the conclusions of the Brussels European Council, the necessity to further strengthen the second pillar. In this respect, the transfer from the first to the second pillar should be seen as a first step in the necessary reinforcement of rural development, without prejudice to future discussions.

This shift to the second pillar as well as new financing needs arising from new market reforms will be achieved through a new system of degression. This system introduces the principle of progressive contributions according to the overall amount of direct payments received by a farm in order to ensure that reductions in direct payments are balanced and simple to apply.

2. THE IMPACT OF THE PROPOSED REFORMS

The proposed adjustments in CAP policy measures allow maximum flexibility in production decisions and significantly simplify the manner by which support is provided to producers while guaranteeing their income stability. Their implementation would remove a large part of the environmentally negative incentives within the current system of support, improve implementation of legislation and provide encouragement for more sustainable farming practices. They also promote a substantial simplification in the CAP, facilitate the enlargement process and help to better defend the CAP in the WTO.

The adjustments proposed will complement the EU's international objective of ensuring that developing countries fully benefit from the expansion of world trade, while maintaining food security. As the impact analysis show, by reorienting support towards more extensive agricultural practices and less trade-distorting domestic support, the proposals are expected to reduce export availability, thereby contributing to stronger world market prices, which is in the interest of the agricultural sector in developing countries.

These adjustments are necessary to ensure that the EU is able to provide a sustainable and predictable policy framework for the European Model of Agriculture over the coming years. Such changes are made even more urgent by the new budgetary framework. This will enable the EU to preserve a stable farm policy for the future, to ensure a transparent and more equitable distribution of income support for farmers, and to better respond to what our consumers and taxpayers want.

2.1. The economic impact

The Commission has published an in-depth impact analysis of the adjustments proposed in the Mid-Term Review [2]. The broad conclusions of this analysis are that in spite of modest changes in the total level of support, the MTR proposals would entail an improved allocation of resources between commodities and greater income transfer efficiency.

[2] Further details are available at http://europa.eu.int/comm/agriculture/ publi/reports/mtrimpact/index_en.htm.

EU cereal production is foreseen to slightly decline in all analyses owing mainly to the implementation of the decoupling of direct payments, the carbon credit proposal and the cut in support price level. These developments would mainly result from lower cereal area as average yields are expected to increase in most analyses. Wheat would appear to be less affected than coarse grains as it should benefit from better world market price prospects than most coarse grains.

The effects of the MTR proposals on oilseed production are more mixed although most analyses would tend to show a small decline in "food" oilseed production. According to Commission analysis, the carbon credit payments would lead to an increase in the production of energy crops, particularly of oilseeds, mainly at the expense of cereal production.

The implementation of the decoupling of direct payments in the livestock sector would entail some decline in beef and sheep production as it would favour the extensification of production systems, generating an increase in market prices, with positive income effects for the livestock farms concerned.

The effects of the MTR proposals on agricultural income are generally found to be rather limited for the EU agricultural sector as a whole, with nevertheless potentially diverging impacts across the various commodity sectors and regions.

While the implementation of the decoupling of direct payments would entail an income increase in the livestock sector (through higher market prices), this increase would be broadly offset at the sector level by the negative income impact of the decline in coarse grains market prices due to the abolition of rye intervention.

2.2. The budgetary impact

For EU-15, the proposed measures involve a saving which is estimated at 337 Mio EUR for the financial year 2006 and of about 186 Mio EUR as from 2010. This impact results from the fact that the savings under the proposals for market measures are greater than the effect of the proposals concerning direct aids estimated at + 729 Mio EUR in 2006 and around + 1 610 Mio EUR as from 2010.

However, for the new accession countries, the financial impact in 2010 is for an additional expenditure of around 88 Mio EUR which increases annually to reach 241 Mio EUR in 2013, as a result of the increasing share of direct aids in their total expenditures.

In order that total expenditures remain within the new ceiling decided at Brussels for the financing of market measures and direct aids for an enlarged Europe of 25 Member States, a reduction in the direct aids for EU-15 is proposed, as from the financial year 2007. This is presented in the following table:

EU-25: Expenditure forecasts for heading 1a - Reform proposals

>TABLE POSITION>

3. MID-TERM-REVIEW AND ACCEDING STATES

In accordance with the Internal arrangements to implement the information and consultation procedure for the adoption of certain decisions and other measures to be taken during the period preceding accession the Commission will transmit the attached proposals on the Mid-Term-Review to the acceding states after their transmission to the Council. Each acceding state may request a discussion on these proposals according to the terms of the above arrangements. [3]

[3] THE INTERNAL ARRANGEMENTS TO IMPLEMENT THE INFORMATION AND CONSULTATION PROCEDURE FOR THE ADOPTION OF CERTAIN DECISIONS AND OTHER MEASURES TO BE TAKEN DURING THE PERIOD PRECEDING ACCESSION HAVE NOT YET BEEN ADOPTED BY THE COMMISSION.

4. DESCRIPTION OF PROPOSALS

4.1. Stabilising markets and improving common market organisations

Arable sector

Cereals

A final 5% reduction (of the 20% proposed in Agenda 2000) is proposed to bring the cereals intervention price down to EUR 95.35/t from 2004/05 to ensure that intervention is a real safety net. To avoid a further accumulation of intervention stocks, rye shall be excluded from the intervention system.

With the diminishing role of intervention, a seasonal correction for intervention price will no longer be justified. It is therefore proposed to abolish the monthly increment system. Production refunds for starches and certain derived products will no longer be applied.

As a consequence of the cut in cereal intervention price, area payments for cereals and other relevant arable crops will be increased from EUR 63 to EUR 66/t. These will be included in the single farm payment.

Protein crops

The current supplement for protein crops (EUR 9.5/t) will be maintained and converted into a crop specific area payment of EUR 55.57/ha. It will be paid within the limits of a new Maximum Guaranteed Area set at 1.4 million ha.

Durum wheat

The supplement for durum wheat in traditional production zones will be brought from EUR 344.5/ha to EUR 250/ha and included in the single farm payment. The specific aid for other regions where durum wheat is supported, currently set at EUR 139.5/ha, will be phased out. The cuts will be implemented over three years, starting in 2004.

A new premium will be introduced to improve the quality of durum wheat with regard to uses for semolina and pasta production. The premium will be paid in traditional production zones to farmers who are using a certain quantity of certified seeds of selected varieties. Varieties will be selected to meet quality requirements for semolina and pasta production. The premium amounts to EUR 40/ha and is paid within the limits of Maximum Guaranteed Areas that are currently applying in traditional production zones.

Starch potatoes

Regulation (EEC) No 1766/92 provides for a direct payment for producers of starch potatoes. Its amount was fixed at EUR 110.54 per tonne of starch in the framework of Agenda 2000. 50% of this payment will be included into the single farm payment, on the basis of the historical deliveries to the industry. The remainder will be maintained as crop specific payment for starch potatoes. The minimum price is abolished.

Dried fodder

Support in the dried fodder will be redistributed between growers and the processing industry. Direct support to growers will be integrated into the single farm payment, based on their historical deliveries to the industry. National ceilings will apply to take into account current National Guaranteed Quantities.

During a transitional period of 4 years, a simplified single support scheme for the dehydrated and sun-dried fodder industry will apply with a degressive aid, starting from EUR 33/t in 2004/05. The respective National Guaranteed Quantities will be merged.

Seeds

Regulation (EC) No 2358/71 established an aid for the production of selected seed species. The aid, currently paid per tonne of produced seeds, will be integrated into the single farm payment. It will be calculated by multiplying the number of aided tons by the amount established in application of Article 3 of the above-mentioned Regulation.

Rice

In order to stabilise market balances due notably to the impact of the Everything but Arms (EBA) initiative, the Commission proposes a one step reduction of the intervention price by 50% to an effective support price of EUR 150/t in line with world prices. To stabilise producers' revenues, the current direct aid will be increased from EUR 52/t to EUR 177/t, a rate equivalent to the total cereals compensation over the 1992 and Agenda 2000 reforms. Of this, EUR 102/t will become part of the single farm payment and paid on the basis of historical rights limited by the current maximum guaranteed area (MGA). The remaining EUR 75/t multiplied by the 1995 reform yield will be paid as a crop specific aid. The MGA will be set at the 1999-2001 average or the current MGA, whichever is lower. A private storage scheme will be introduced to be triggered when the market price falls below the effective support price. In addition, special measures will be triggered when market prices fall below EUR 120/t.

Nuts

The current system will be replaced by an annual flat rate payment of EUR 100/ha granted for a maximum guaranteed area of 800 000 ha divided into national guaranteed areas. This can be topped up by an annual maximum amount of EUR 109 per hectare by Member States.

Dairy

In order to provide a stable perspective for dairy farmers, the Commission proposes the prolongation of a reformed dairy quota system until the 2014/15 campaign.

In Berlin in March 1999 the European Council decided to delay the entry into force of reform in the dairy sector due to budgetary considerations. Since unanticipated budgetary resources have become available in the current financial perspective, the Commission strongly believes the dairy reform agreed in Berlin should be advanced by one year in order to achieve the objectives and benefits of the reform at the earliest possible date. Furthermore, it is necessary to reduce the support price for milk with a corresponding quota increase of 1% per year in 2007 and 2008 based on reference quantities after the full implementation of Agenda 2000.

The foreseen uniform reduction of 5% per year will be replaced by asymmetric intervention price cuts of 3.5%/year for skimmed milk powder and 7% per year for butter over the five year period. On the whole this 35% reduction in butter prices and 17.5% reduction in skimmed milk powder prices correspond to a global reduction of 28% for EU milk target prices over 5 years. Intervention purchases of butter will be suspended above a limit of 30 000 tonnes per year. Above that limit, it is proposed that purchases may be carried out under a tender procedure.

Additional compensation in 2007 and 2008 through direct payments will be made, using the same method of calculation as in Agenda 2000. All dairy payments will be integrated into the single farm payment.

4.2. Decoupling of direct aids - establishment of a single farm payment

A single farm payment will replace most of the premia under different Common Market Organisations. Farmers will receive a single farm payment based on a reference amount covering payments for arable crops, beef and veal (including POSEI and Aegean Islands), milk and dairy, sheep and goats, starch potatoes, grain legumes, rice, seeds, dried fodder in a reference period of 2000 to 2002.

This single farm payment will be broken down into payment entitlements in order to facilitate their transfer. Each entitlement will be calculated by dividing the reference amount by the number of hectares, which gave rise to this amount (including forage area) in the reference years.

A claim for payment under entitlement must be accompanied by an eligible hectare defined as any agricultural area of the holding. Eligible hectares will not include area under permanent crops, forests and area used for non-agricultural purposes on 31 December 2002. For livestock production without an equivalent land base or where the entitlement is above EUR 10 000 a special payment entitlement will apply with corresponding conditions. National ceilings for the single farm payment and the special payment will be established. 1% of this amount at member state level will be reserved for hardship cases.

Entitlements may be transferred, with or without land, between farmers within the same Member State. A Member State may define regions within which transfers are limited. Moreover, it will be open to Member States to adjust entitlements with respect to regional averages.

Farmers may use this land for any agricultural activity except permanent crops. Any entitlement which has not been used in a period of a maximum of 5 years, apart from force majeure and exceptional circumstances shall be allocated to a national reserve.

Reinforcement of environmental, food safety, animal health and welfare and occupational safety standards

Compulsory cross-compliance will apply to statutory European standards in the field of environment, food safety, animal health and welfare and occupational safety related to the farm level. As a necessary complement to decoupling in order to avoid land abandonment and subsequent environmental problems, beneficiaries of direct payments will also be obliged to maintain all agricultural land in good agricultural condition.

This will be applied as a whole-farm approach, and sanctions will be applicable to any case of non-compliance on a beneficiary's farm. It will apply to all sectors and apply to used as well as unused agricultural land.

Farmers receiving the single farm payment or other direct payments under the CAP who do not comply with these statutory standards will be subject to a system of sanctions. The penalty will take the form of a partial or full reduction of the aid (depending on the severity of the case).

Farm Advisory System

The farm advisory system will be mandatory as a part of cross-compliance requirements. Its introduction, in the first instance, will be limited to producers receiving more than EUR 15 000 per year in direct payments or with a turnover of more than EUR 100 000 per year. Other farmers will be able to enter the system on a voluntary basis. This service will provide advice through feedback to farmers on how standards and good practices are applied in the production process. Farm audits will involve structured and regular stocktaking and accounting of material flows and processes at enterprise level defined as relevant for a certain target issue (environment, food safety, and animal welfare). Support for farm audits will be available under rural development.

Long-term environmental set-aside

Producers currently subject to the set-aside obligation will be obliged to continue set-aside on an area equivalent to 10% of their current COP area as a condition for receipt of the single farm payment. Organic farming will not be subject to this obligation for the area concerned. Set-aside will be non-rotational and should not be used for agricultural purposes nor produce crops for commercial purposes. However, member states will be able to allow rotational set-aside where this was necessary for environmental reasons. In the case of transfers of land, it shall continue to be set-aside.

Support for energy crops - a carbon credit

The Commission proposes an aid of EUR 45/ha for energy crops. This will apply for an EU MGA of 1 500 000 ha. The aid will only be granted in respect of areas whose production is covered by a contract between the farmer and the processing industry except where the processing is undertaken by the farmer on the holding. Within five years of the application of the energy crops scheme, the Commission will submit a report to the Council on its implementation, with proposals if appropriate.

Integrated administration and control system (I.A.C.S.)

The integrated administration and control system will have to be adapted on the basis of the new provisions relating to direct aids. In particular, the introduction of the single farm payment will lead to a simplification of a key component of the present IACS, since the identification of COP and livestock production will no longer condition the new single farm payment, except for those products continuing to benefit from a crop-specific payment such as rice or durum wheat. The current monitoring and control system for payments will be used to facilitate cross checks between payment entitlements and the surfaces needed to activate them. The system for identifying agricultural parcels therefore remains fundamental to the new IACS.

Aid applications will need to be subject to administrative controls relating to the eligibility of surfaces and the existence of the corresponding payment entitlements. These administrative controls will have to be complemented by on-the-spot checks, made on a sample basis, which could employ teledetection methods to control surfaces. Together these controls and checks, which will have to be co-ordinated by a designated competent authority, will give rise to aid reductions or exclusions where it is found that the eligibility conditions have not been met.

It should be noted that controls relating to cross compliance will also be covered by the new IACS, which therefore will not be limited to eligibility conditions. In this way, the proposal represents a fully integrated administration and control system. It is foreseen in this respect that the control systems already existing in the Member States to verify respect of statutory management requirements and good agricultural conditions may be used in the framework of IACS, with which they will also have to be compatible. This concerns inter alia the identification and registration system for animals pursuant to Directive 92/102/EEC and Regulation (EC) No 1760/2000. The system for administering and controlling those aid schemes laid down in Annex IV of the proposal for the horizontal Regulation will also have to be compatible with IACS.

4.3. Degression

In order to ensure a better balance of support and to provide a predictable and transparent framework to meet future financing needs, a system of degression is proposed for the period 2006-2012.

The payments granted to a farmer in a given year will be reduced in the following manner:

>TABLE POSITION>

Within the system outlined above the modulation part resulting from degression, starting at 1% in 2006 rising to 6% in 2011, shall be made available to the Member States as additional Community support for measures to be included in the their rural development programming. These amounts will be allocated between member states according to criteria of agricultural area, agricultural employment and GDP per capita in purchasing power. The remaining amounts will be available for additional financing needs for new market reforms. Degression and modulation would not apply in the new Member States until the phasing-in of direct payments reaches the normal EU level.

4.4. Consolidating and strengthening Rural Development

The Commission proposes to widen the scope of Community rural development support by introducing new measures, without prejudice to the upcoming debate on the reshaping of rural development policy.. These additions will be made to the 'menu' of measures available under the second pillar without changing the basic framework under which rural development support is implemented, which the Commission considers would be counter-productive at this mid-way stage in the current 2000-2006 programming period.

The new measures proposed are all accompanying measures and will be financed by the EAGGF-Guarantee Section throughout the EU territory. They are all targeted primarily at farmer beneficiaries. It will be for Member States and regions to decide if they wish to take up these measures within their rural development programmes. The new measures will comprise:

First, introduction of a new Chapter in Regulation (EC) No 1257/1999 entitled 'Food Quality' comprising two measures:

- Incentive payments will be permitted for farmers who on a voluntary basis participate in Community or recognised national schemes designed to improve the quality of agricultural products and the production process used, and give assurances to consumers on these issues. Such support will be payable annually for a maximum 5-year period, and up to a maximum of EUR 1 500 per holding in a given year.

- Support for producer groups for activities intended to inform consumers about and promote the products produced under quality schemes supported under the above measure. Public support will be permitted up to a maximum of 70% of eligible project costs.

Secondly, introduction of a new Chapter entitled 'Meeting Standards', comprising two measures:

- Possibility for Member States to offer temporary and degressive support to help their farmers to adapt to the introduction of demanding standards based on Community legislation concerning the environment, public, animal and plant health, animal welfare and occupational safety. Aid levels must be modulated to take account of the level of additional obligations and operating costs for farmers associated with the introduction of a particular standard. Aid will be payable on a flat-rate basis, and degressive for a maximum period of 5 years. Aid will be subject to a ceiling of maximum EUR 10 000 per holding in a given year. In no case will aid be payable where the non-application of standards is due to the non-respect by an individual farmer of standards already included in national legislation.

- Support for farmers to help them with the costs of using farm advisory services. Farmers may benefit from public support of up to a maximum of 95% of the cost of such services the first time they are used, subject to a ceiling of EUR 1 500.

Thirdly, introduction within the current agri-environment Chapter of Regulation (EC) No 1257/1999 the possibility to pay support for farmers who enter into commitments for at least 5 years to improve the welfare of their farm animals and which go beyond usual good animal husbandry practice. Support will be payable annually on the basis of the additional costs and income foregone arising from such commitments, with annual payment levels of maximum EUR 500 per livestock unit.

In addition to a further series of technical modifications arising from the introduction of new measures, the Commission proposes to use the opportunity of the amendment of Regulation (CE) No 1257/1999 in the context of the current proposals to also simplify and clarify certain provisions at the level of the Council regulation. These amendments concern a clarification of the scope of the Forestry and Training Chapters and the adding within the Chapter on the adaptation and development of rural areas (the so-called Article 33 measures) a new indent to cover the management costs associated with local partnership groups.

In 2004, the Commission shall review the extent to which rural development is contributing to these objectives of sustainable development in particular in relation to bio-diversity and the implementation of Directive 92/43/EC (i.e. the Habitats Directive). Moreover, the same review will consider the possibility of extending the support provided to farmers to meet newly enacted Community food quality standards also to small, traditional food producers. If necessary, the Commission will make proposals to enhance the contribution of the Common Agriculture Policy to these objectives.

2003/0010 (CNS)

Proposal for a COUNCIL REGULATION on the common organisation of the market in dried fodder for the marketing years 2004/05 to 2007/08

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Articles 36 and the third subparagraph of Article 37(2) thereof,

Having regard to the proposal from the Commission [4],

[4] OJ C ..., ..., p. ...

Having regard to the opinion of the European Parliament [5],

[5] OJ C ..., ..., p. ...

Having regard to the opinion of the European Economic and Social Committee [6],

[6] OJ C ..., ..., p. ...

Having regard to the opinion of the Committee of the Regions [7],

[7] OJ C ..., ..., p. ...

Whereas:

(1) Council Regulation (EC) No 603/95 of 21 February 1995 of the common organisation of the market in dried fodder [8] establishes a common organisation of that market with aid granted at two flat rates, one for dehydrated fodder and one for sun-dried fodder.

[8] OJ L 63, 21.3.1995, p. 1.Regulation as last amended by Regulation (EC) No 1347/95 (OJ L 131, 15.6.1995, p. 1).

(2) The main part of fodder production under the scheme established by Regulation (EC) No 603/95 relies on the use of fossil fuel for dehydrating and, in some Member States, on the use of irrigation. Due to concerns about its effects on the environment, the scheme should be discontinued; In order to ensure a transition to the industry that scheme should be maintained until the 2007/08 marketing year.

(3) Regulation (EC) No 603/95 has been substantially amended several times. Since further amendments are to be made, in the interest of clarity that Regulation should be replaced. Regulation (EC) No 603/95 should therefore be repealed.

(4) Council Regulation (EC) No .../2003 of ... on ... [9] establishes the single aid system. Accordingly, the two aid rates set by Regulation (EC) No 603/95 should be reduced to a single rate applicable to both dehydrated and sun-dried fodder and decreased by steps for the three last marketing years.

[9] See p. ... of this Official Journal.

(5) Since production in southern countries begins in April, the marketing year for dried fodder on which aid is granted should be 1 April to 31 March.

(6) To guarantee budget neutrality for dried fodder there should be a ceiling on the volume of Community production. To that end a maximum guaranteed quantity should be set covering both dehydrated and sun-dried fodder.

(7) That quantity should be divided among the Member States on the basis of the historical quantities recognised for the purposes of Regulation (EC) No 603/95.

(8) To secure respect for the guaranteed maximum quantity and discourage excess production throughout the Community, the aid should be reduced if that quantity is exceeded. That reduction should be applied in each Member State in excess of its guaranteed national quantity being proportionate to the overshoot recorded for it.

(9) The aid amount finally due cannot be paid until it is known whether the guaranteed maximum quantity has been exceeded. An advance on the aid should therefore be paid once the dried fodder has left the processor.

(10) Minimum quality requirements for entitlement to the aid should be set.

(11) To encourage a steady flow of green fodder to processors, eligibility for the aid should in certain cases require conclusion of a contract between producers and processing undertakings.

(12) To aid transparency of the production chain and facilitate essential checking, certain particulars in contracts should be compulsory.

(13) To receive the aid, processors should therefore be required to keep stock records providing necessary information for checking entitlement and to furnish any other supporting document needed.

(14) Where there is no contract between the producers and the processing undertakings, the latter should have to provide other information allowing entitlement to be checked.

(15) It should be ensured that where a contract is a special-order one for processing of fodder delivered by the grower the aid is passed back to him.

(16) The proper working of a single market in dried fodder would be jeopardised by the granting of national aid. Therefore, the provisions of the Treaty governing State aid should apply to the products covered by this common market organisation.

(17) The measures necessary for the implementation of this Regulation should be adopted in accordance with Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission [10].

[10] OJ L 184, 17.7.1999, p. 23.

(18) The internal market and the custom duties could, in exceptional circumstances, prove inadequate, In such cases, so as not to leave the Community market without defence against disturbances that might ensue, the Community should be able to take all necessary measures without delay. All such measures should be in conformity with the Community's international obligations,

HAS ADOPTED THIS REGULATION:

Chapter I Introductory provisions

Article 1

The common organisation of the market in dried fodder shall be established for the 2004/05 to 2007/08 marketing years, and cover the following products:

CN code // Description

(a) ex 1214 10 00 // - Meal and pellets of lucerne artificially heat-dried

// - Meal and pellets of lucerne otherwise dried and ground

ex 1214 90 91 and ex 1214 90 99 // - Lucerne, sainfoin, clover, lupins, vetches and similar fodder products, artificially heat-dried, except hay and fodder kale and products containing hay

// - Lucerne, sainfoin, clover, lupins, vetches, honey lotus, chickling pea and birdsfoot, otherwise dried and ground

(b) ex 2309 90 98 // - Protein concentrates obtained from lucerne juice and grass juice

// - Dehydrated products obtained exclusively from solid residues and juice resulting from preparation of the concentrates in the first indent

Article 2

The marketing year for the products listed in Article 1 shall begin on 1 April and end on 31 March of the following year.

Article 3

This Regulation shall apply without prejudice to the measures provided for by Council Regulation (EC) No .../2003 of ... 2003 establishing common rules for direct support schemes under common agricultural policy and support schemes for producers of certain crops (horizontal Regulation).

Chapter II Aid

Article 4

1. Aid shall be granted for the products listed in Article 1.

2. Without prejudice to Article 5, the aid shall be:

(a) EUR 33 per tonne for the 2004/05 marketing year,

(b) EUR 24.75 per tonne for the 2005/06 marketing year,

(c) EUR 16.50 per tonne for the 2006/07 marketing year,

(d) EUR 8.25 per tonne for the 2007/08 marketing year.

Article 5

1. A maximum guaranteed quantity (MGQ) per marketing year of 4 855 900 tonnes of dehydrated and/or sun-dried fodder for which the aid provided for in Article 4(2) may be granted is hereby established.

2. The guaranteed maximum quantity provided for in paragraph 1 shall be divided among the Member States as follows:

Guaranteed national quantity (tonnes)

BLEU // 8 000

Denmark // 334 000

Germany // 421 000

Greece // 37 500

Spain // 1 325 000

France // 1 605 000

Ireland // 5 000

Italy // 685 000

Netherlands // 285 000

Austria // 4 400

Portugal // 30 000

Finland // 3 000

Sweden // 11 000

United Kingdom // 102 000

Article 6

Where during a marketing year the volume of dried fodder for which aid as provided for in Article 4(2) is claimed exceeds the guaranteed maximum quantity set out in Article 5(1), the aid to be paid in that marketing year shall be reduced in each Member State in which production exceeds the guaranteed national quantity by a percentage proportionate to that excess.

The reduction shall be set, in accordance with the procedure referred to in Article 18(2), at a level ensuring that budget expenditure expressed in euros does not exceed that what would been attained if the guaranteed maximum quantity had not been exceeded.

Article 7

1. Processing undertakings who apply for aid under this Regulation shall be entitled to an advance payment as follows:

(a) for the 2004/05 marketing year: EUR 19,80 per tonne, or EUR 26,40 per tonne if they have lodged a security of EUR 6,60 per tonne;

(b) for the 2005/06 marketing year: EUR 14,85 per tonne, or EUR 19,80 per tonne if they have lodged a security of EUR 4,95 per tonne;

(c) for the 2006/07 marketing year: EUR 9,90 per tonne, or EUR 13,20 per tonne if they have lodged a security of EUR 3,30 per tonne;

(d) for the 2007/08 marketing year: EUR 4,95 per tonne, or EUR 6,60 per tonne if they have lodged a security of EUR 1,65 per tonne.

Member States shall make the necessary checks to verify entitlement to the aid. Once entitlement has been established the advance shall be paid.

However, the advance may be paid before entitlement has been established provided the processor lodges a security equal to the amount of the advance plus 10%. This security shall also serve as security for the purposes of the first subparagraph. It shall be reduced to the level specified in the first subparagraph as soon as entitlement to aid has been established and shall be released in full when the balance of the aid is paid.

2. Before an advance can be paid the dried fodder must have left the processing undertaking.

3. Where an advance has been paid, the balance amounting to the difference between the amount of the advance and the total aid due to the processing undertaking shall be paid subject to application of Article 6.

4. Where the advance exceeds the total to which the processing undertaking is entitled following the application of Article 6, the processor shall reimburse the excess to the competent authority of the Member State on request.

Article 8

By 31 May of each year Member States shall notify the Commission of the quantities of dried fodder that were eligible for aid as provided for in Article 4(2) in the previous marketing year.

Article 9

The aid provided for in Article 4(2) shall be paid on application from the party concerned, in respect of dried fodder that has left the processing plant and meets the following requirements:

(a) a maximum moisture content of 11% to 14% that may vary depending on the presentation of the product;

(b) a minimum total crude protein content in the dry matter not less than:

(i) 15% for the products referred to in point (a) and the second indent of point (b) in Article 1,

(ii) 45% for the products referred to in the first indent of point (b) in Article 1;

(c) it is of sound and fair merchantable quality.

Further requirements, in particular on carotene and fibre content, may be adopted in accordance with the procedure referred to in Article 18(2).

Article 10

Aid as provided for in Article 4(2) shall only be granted to undertakings processing the products listed in Article 1 which comply with the following conditions:

(a) keep stock records containing at least the following information:

(i) the quantities of green fodder and, where applicable, sun-dried fodder processed; however, where the particular circumstances of the undertaking so require, quantities may be estimated on the basis of areas sown;

(ii) the quantities of dried fodder produced and the quantities, with their quality, that leave the processor;

(b) provide any other supporting documents needed for verifying entitlement to the aid;

(c) fall into at least one of the following categories:

(i) a processor who has concluded contracts with producers of fodder for drying;

(ii) an undertaking that has processed its own crop or, in the case of a group, that of its members;

(iii) undertakings which have obtained their supplies from natural or legal persons providing certain guarantees to be determined who have concluded contracts with producers of fodder for drying; such persons must be buyers approved, on terms defined in accordance with the procedure referred to in Article 18(2), by the competent authority of the Member State in which the fodder is harvested.

Article 11

Undertakings processing their own crops or those of their members shall each year submit to the competent body of their Member State, before a date to be set, a declaration of the areas from which the fodder crop is to be processed.

Article 12

1. A contract as referred to in point (c) of Article 10 shall state not only the price to be paid to the grower of the green fodder or, if appropriate, sun-dried fodder but also at least the following:

(a) the area from which the crop is to go to the processor,

(b) the delivery and payment terms.

2. Where a contract as referred to in point (c) (i) of Article 10 is a special-order contract for processing of fodder delivered by a producer, it shall specify at least the area from which the crop is to be delivered and include a clause containing an obligation for the processing undertakings to pay the producer the aid as provided for in Article 4 that is received for the quantity processed under the contract.

Article 13

1. Member States shall introduce inspection systems for verifying that each processing undertaking has complied with the following:

(a) the conditions laid down in Articles 1 to 12;

(b) the quantities covered by aid applications correspond to the quantities of dried fodder meeting the minimum quality that leave the processing undertakings.

2. Dried fodder shall be weighed on leaving the processing plant and samples taken.

3. Before adopting provisions for the application of paragraph 1, Member States shall notify such provisions to the Commission.

CHAPTER III Trade with third countries

Article 14

Unless this Regulation provides otherwise, the Common Customs Tariff duty rates shall apply to the products listed in Article 1.

Article 15

1. The general rules for the interpretation of the Combined Nomenclature and the detailed rules for its application shall apply to the tariff classification of products listed in Article 1. The tariff nomenclature resulting from the application of this Regulation shall be incorporated in the Common Customs Tariff.

2. Save as otherwise provided for in this Regulation or in provisions adopted pursuant thereto, the following shall be prohibited in trade with third countries:

(a) the levying of any charge having equivalent effect to a customs duty;

(b) the application of any quantitative restriction or measure having equivalent effect.

Article 16

1. If by reason of imports or exports the Community market in one or more of the products listed in Article 1 is affected by or threatened with serious disturbance likely to jeopardise achievement of the objectives set out Article 33 of the Treaty, appropriate measures may be applied to trade with non-WTO member countries until the disturbance or threat of it ceases.

2. If the situation referred to in paragraph 1 arises, the Commission shall at a request of a Member State or on its own initiative decide upon the necessary measures. The Member States shall be notified of such measures which shall be immediately applicable. If the Commission receives a request from a Member State, it shall take a decision thereon within three working days following receipt of the request.

3. Measures decided by the Commission may be referred to the Council by any Member State within three working days of the day on which they were notified. The Council shall meet without delay. It may, acting by qualified majority, amend or repeal the measure in question within one month from the date on which it was referred to the Council.

4. Provisions adopted under this Article shall be applied having regard to the obligations arising from agreements concluded in accordance with Article 300(2) of the Treaty.

Chapter IV General provisions

Article 17

Unless this Regulation provides otherwise, Articles 87, 88 and 89 of the Treaty shall apply to production of and trade in the products listed in Article 1.

Article 18

1. The Commission shall be assisted by the Management Committee for Dried Fodder, hereinafter referred to as "the Committee".

2. Where reference is made to this paragraph, Articles 4 and 7 of Decision 1999/468/EC shall apply.

The period laid down in Article 4(3) of Decision 1999/468/EC shall be one month.

3. The Committee shall adopt its rules of procedure.

Article 19

The Committee may consider any other question raised by its chairman, either on his own initiative or at the request of a representative of a Member State.

Article 20

Detailed rules for the application for this Regulation shall be adopted in accordance with the procedure referred to in Article 18(2), in particular on:

(a) granting of the aid provided for in Article 4 and the advance provided for in Article 7;

(b) verification and establishment of entitlement to the aid, including any necessary controls, all of which may make use of certain elements of the integrated system;

(c) release of the securities indicated in Article 7(1);

(d) criteria for determining the quality standards referred to in Article 9;

(e) conditions to be fulfilled by the undertakings as set out in point (c)(ii) in Article 10 and Article 11;

(f) control measure to be carried out referred to in Article 13(2);

(g) criteria to be fulfilled for the conclusion of contracts as referred to in Article 10 and information which they must contain, in addition to the criteria laid down in Article 12;

(h) application of the maximum guaranteed quantity (MGQ) as referred to in Article 5(1).

Article 21

Transitional measures may be adopted in accordance with the procedure referred to in Article 18(2).

Article 22

Member States shall notify the Commission of the measures they take in order to apply this Regulation.

Article 23

Regulation (EC) No 603/95 is repealed.

References made to the repealed Regulation shall be construed as references to this Regulation and shall be read in accordance with the correlation table in the Annex.

Article 24

This Regulation shall enter into force on the seventh day following that of its publication in the Official Journal of the European Communities.

It shall apply from 1 April 2004.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Brussels,

For the Council

The President

ANNEX CORRELATION TABLE

Regulation (EC) No 603/95 // This Regulation

Article 1 // Article 1

Article 2 // Article 2

- // Article 3

Article 3 // Article 4

Article 4 // Article 5

Article 5 // Article 6

Article 6 // Article 7

Article 7 // Article 8

Article 8 // Article 9

Article 9 // Article 10

Article 10 // Article 11

Article 11 // Article 12

Article 12 // Article 13

Article 13 // Article 14

Article 14 // Article 15

Article 15 // Article 16

Article 16 // Article 17

Article 17(1)-(4) // Article 18

Article 17(5) // Article 19

Article 18(a) // Article 20

Article 18(b) // Article 21

Article 19 // Article 22

Article 20 // Article 23

Article 21 // Article 24