Opinion of the Economic and Social Committee on the 'Commission proposals on the prices for agricultural products and on related measures (1996/1997)`

(96/C 204/16)

On 27 March 1996, the Council decided to consult the Economic and Social Committee, under Articles 43 and 198 of the Treaty establishing the European Community, on the above-mentioned proposals.

The Section for Agriculture and Fisheries, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 11 April 1996. The Rapporteur was Mr Pricolo.

At its 335th Plenary Session (meeting of 24 April 1996), the Economic and Social Committee adopted the following Opinion by 79 votes to six, with nine abstentions.

1. The situation of the farm economy

1.1. The farm economy in 1995 was influenced by trends in the wider economy whose growth rate, estimated at 2,6 %, was slacker than the 2,8 % of 1994.

1.2. Despite the unsatisfactory general economic climate (e.g. 10,7 % unemployment; 3 % inflation; moderate real wage increases), the farm economy as a whole registered a slight improvement.

1.2.1. Provisional Eurostat figures indicate that farm incomes (value-added at factor cost per annual work unit) increased by 2,6 % in the EU as a whole in 1995 (compared to 7,4 % in 1994).

1.3. However, it is important to note that this increase did not occur throughout the EU; incomes fell in six Member States, sometimes significantly (e.g. by 9,8 % in Belgium and by 4,8 % in Spain).

1.3.1. These differences are partly due to the fluctuations in some currencies in 1995 which, of course, increase or decrease farm incomes.

1.3.2. It must also be remembered that the improvement is partly due to the compensatory aid introduced under the CAP reform to offset the reduction in institutional prices (GATT agreements).

1.4. Except in certain regions of Spain and Portugal which were again hit by drought, conditions for crop production were favourable, thanks mainly to the rise in world cereal prices and the significant reduction in stocks, the overall fall in oilseed production, and the low level of wine production.

1.4.1. Producer prices in real terms are estimated to have risen by 2,7 % in 1995. Here too, the increase is not universal, and five Member States saw a fall (Belgium 6,1 %; Netherlands 5 %; Austria 20,2 %; Finland 33 %). The figures for Austria and Finland are of course somewhat anomalous, as they are heavily influenced by the impact of accession.

1.5. The livestock sector as a whole saw no improvements in either prices or consumption. Producer prices in real terms fell by an average of 2,8 %, with falls of 11 % for eggs, 8,8 % for beef and 4,3 % for sheepmeat. The 3,5 % increase for pigmeat is consistent with the normal price cycle in the sector, where periods of surplus supply and low prices are followed by periods of reduced supply and higher prices.

1.6. Overall, real producer prices fell by 0,2 % in 1995 for EUR-15, and by 0,9 % for EUR-12. These figures do not include the compensatory aid in the cereals sector and the beef premiums, as these are included in farm income calculations.

1.7. Increases in input prices appear to have kept below the average inflation level and, in real terms, are estimated to have fallen by an albeit modest 0,9 %. Essentially, they remain stable.

1.8. The abovementioned macroeconomic data prompt the following conclusions:

- the disparity (disadvantageous to agriculture) between farm price trends and input price trends remains virtually unchanged;

- the GATT agreements are starting to have an adverse impact on European agriculture, particularly farm enterprises for which no compensatory measures were provided;

- the agrimonetary situation continues to cause fears because of the exchange-rate volatility of some currencies;

- the CAP reform measures adopted for the arable sector in 1992 have successfully controlled production and stabilized the markets.

1.8.1. Cereal stocks have fallen from 33 million tonnes in 1992/93 to 4,7 million in January 1996. Beef stocks have fallen from over a million tonnes to 15 000 tonnes. Butter stocks have disappeared altogether.

1.8.2. The grubbing-up of vineyards and the drought in some EU wine-growing regions have brought the wine market into relative balance, and there will be no compulsory distillation in 1995/1996.

1.8.3. Some 14 million hectares were taken out of production (set-aside) in the two year period 1994/1995 and a million hectares were used for afforestation.

2. The 1996/1997 price package

2.1. The Commission's farm price package for 1996/1997 contains no major innovations.

2.1.1. The proposals freeze prices and aid at their 1995/1996 levels and, at least in the cereals and oilseed sectors, are undoubtedly consistent with the CAP reform whereby institutional prices are to be brought closer to international prices.

2.2. The sole purpose of retaining the status quo for the products not covered by the 1992 reform is to reduce spending on agriculture. This consideration is underscored by the Commission's justification for continuing the old price system: namely, that pending the reform of the common market organizations for wine, fruit and vegetables and olive oil, it is unwise to alter the level of market support.

2.3. At least in the arable and beef sectors, the 'related measures` merely simplify the existing direct support mechanisms. For cereals and oilseeds, the Commission proposes to merge rotational and non-rotational set-aside into a single system.

2.3.1. In the beef sector too, the Commission proposes a single premium to replace the two currently granted for young bulls at 10 and 22 months.

2.4. In the olive oil sector, two significant innovations are proposed:

a) suspension, at the initiative of the Commission, of the Common Customs Tariff when the market price exceeds the intervention price;

b) lifting of the requirement that olive oil benefiting from consumption aid must be produced in the Community.

2.5. Lastly, for the wine sector, the Commission proposes to continue the present grubbing-up measures and the ban on new planting, and to retain the existing rules for calculating the quantities to be distilled for each production region. The Commission also proposes to extend the deadline for establishment of the Community vineyard register from 31 December 1996 to 31 December 1998.

3. General comments

3.1. The Committee thinks that although the Commission proposals are influenced by the recent development of the CAP, they are chiefly designed to ensure that the package is financially neutral. This explains why the Commission is not proposing a more radical simplification of Community legislation in the sectors covered by the 1992 reform, or 'stimuli` for individual and/or group initiatives to switch production in the sectors not covered by the reform.

3.1.1. In short, the proposals do not provide a full, practical response to the problems faced by farmers and they therefore need to be fleshed out.

3.2. The freeze on prices and aid in the reformed sectors will certainly enable the EU to fulfil the commitments imposed on it under the GATT agreement.

3.3. However, as world cereal prices rose sharply in 1995 and Community stocks are at an all-time low, the Committee advises great caution in the management of mechanisms which directly affect domestic production levels. The aim must be to fix a balanced annual set-aside percentage that ensures a sufficient build-up of stocks to meet both domestic needs and increased foreign demand. The EU's export capacity should be fully exploited, obviously within the limits allowed under the GATT agreement.

3.3.1. At all events, when considering possible corrections of fine-tuning, it must be remembered that international markets are subject to unpredictable trends which could radically alter the situation.

3.4. Here it is worth mentioning the warning issued a few days ago by the FAO Director-General about the worsening world food situation: stocks are 4 % below the safety level, while 830 million people - including 200 million children - are undernourished.

3.4.1. To meet this need and prevent a further depletion of stocks in 1996, the FAO calls for a 5 % increase in wheat production; to bring stocks up to the safety level, a further 3-4 % increase would be needed.

3.5. The farm enterprises unaffected by the reform are particularly vulnerable to the reductions in domestic support triggered by the 1993 GATT agreements. The Committee is concerned that the proposals seem to overlook the weakened position of crops such as olive oil, fruit and vegetables, wine and tobacco, which are grown principally in the southern regions of the EU.

3.6. Community expenditure on these products has fallen steadily (from MECU 6 523 in 1994 to MECU 4 980 in 1995, or from 17,89 % to 13,51 % of total farm spending), while total spending on the other sectors is rising.

3.7. The position of the above-mentioned products has been further weakened by the recent increase in Moroccan access to the market and the plan for a more liberal GSP. The problems raised by these bilateral and multilateral agreements, coming on top of the reductions provided for in the GATT agreements, must be resolved as a matter of urgency.

3.8. The Committee can accept the freezing of prices and aid for these products in 1996/1997 on condition that the anticipated reform of the common market organizations for wine, fruit and vegetables, olive oil and tobacco alters the financial balance in their favour, in order to ensure equal, consistent treatment of all farm enterprises and EU regions.

3.9. The Committee is aware that the generalized price freeze is designed both to stabilize support levels for the reformed products and with a view to completing the reform for the products mentioned in point 3.5. At the same time, however, it is obliged to note that the Commission has missed an opportunity, offered by the important annual price-setting exercise, to sketch out a framework - even if only an indicative one - for the future path of EU agriculture.

3.10. The chapter entitled 'Medium-term outlook for certain commodities` does not consider certain developments that are liable to expose Community production to increasingly cut-throat competition from third countries and irreversibly weaken the principle of Community preference.

3.11. These are:

a) the new US Farm Bill, which ties the gradual dismantling of farm subsidies over a seven year period not to objective criteria (such as quantities produced) but to political/economic discretion;

b) the European Council decision of December 1995, to establish a free trade area with non-member Mediterranean countries by the year 2010;

c) the EU's decision to negotiate a preferential agreement with South Africa;

d) the prospect - not very distant - of special agreements with Mexico and Latin American countries (Mercosur);

e) the Commission's draft regulation extending the Generalized Scheme of Preferences (GSP) so as to reduce by between 15 % and 100 % the customs duties currently levied on food imports from the developing nations.

3.12. All these events should already have prompted an urgent and detailed consideration of the potential impact on EU agriculture.

3.13. However, the price package lacks even those few measures which could have helped farmers through the difficult transitional stage which they now face. The Committee thinks that the situation would have been improved by:

- a more effective policy on non-food uses of agricultural commodities;

- a reduction in the red tape facing farmers (simplification of procedures and shorter waiting times for receipt of CAP support);

- strict respect of dates laid down for payments and advances;

- faster pace of the legal harmonization, particularly of VAT, required for completion of the single market.

3.14. Lastly, the Committee:

a) considers that the proposals for the beef sector are insufficient. The crisis in this sector has reached dramatic proportions because of the widespread, virulent epidemic of Bovine Spongiform Encephalopathy (BSE) in the United Kingdom.

The public attention focused on this problem has inter alia triggered an excessive and indiscriminate sapping of consumer confidence in the whole beef and veal sector, with no consideration for the production areas which are untouched by the disease.

Alongside the serious losses suffered by British farmers - for whom the Agriculture Council of 1 and 2 April adopted compensation measures - there are the losses which farmers in other Member States are also suffering and will suffer still more if appropriate provisions are not adopted with due urgency.

The Committee considers that the decision to open intervention buying for 50 000 tonnes of beef is a mere palliative that is not commensurate with the gravity of a situation calling for emergency measures outside the normal market-support mechanisms.

The sudden widespread slump in beef and veal consumption makes the need for such measures painfully clear.

Lastly, in endorsing the principle of financial solidarity with the UK as regards BSE, the Committee emphasizes that the resources needed to meet the cost of this operation - given its exceptionally vast scale - should come from the general budget, without drawing on the funds earmarked for CAP management and other measures.

b) cannot endorse the proposals for olive oil, which are designed to encourage imports from third countries by empowering the Commission to suspend the Common Customs Tariff and extending consumption aid to imports.

In the Committee's view, inclusion in the customs tariff of a sum equal to that of the security which the importer must lodge does not offer an equivalent security to that provided under the present system.

c) cannot accept the proposals to reduce the monthly increases for cereals and rice and the refunds of sugar storage costs, as these measures would reduce farm incomes.

3.15. The Committee reiterates the request which it made at the time of the 1995/1996 price proposals, namely that the Commission examine the impact of present and future price packages on consumer prices, food quality, health, the environment and the social situation in rural areas.

3.16. The Committee would also ask the Commission to explore the possibility of carrying out a campaign to promote EU agricultural products on third-country markets.

4. Comments on individual products

4.1. Arable crops

4.1.1. The Committee welcomes the Commission's move to abolish the distinction between rotational and non-rotational set-aside.

4.1.1.1. Having a single set-aside system would simplify the mechanism - a need widely felt by both farmers and public authorities.

4.1.2. Regulation 1765/92 sets the rate for compulsory set-aside of land on which crops are rotated at 15 %; the rate for non-rotational set-aside is 20 % (15+5), except in the UK and Denmark where it is 18 %.

4.1.2.1. The Committee thinks that the proposed single rate of 18 % is too high. For the reasons given in 3.3, a single rate of 15 % would be more sensible and realistic.

4.1.3. The Committee supports annual decisions on the percentage of farmland to be set-aside, given the need to respond to possible sudden changes in the market situation.

4.1.3.1. The Committee points out that the decision should be taken by the end of June so that farmers can make their sowing plans in good time.

4.1.4. Also, it seems inconsistent to levy an export tax on the grounds that the product is in short supply while at the same time keeping a high rate of compulsory set-aside.

4.1.4.1. The Commission should therefore propose that the Council markedly reduce the set-aside percentage so as to build up a minimum stock and also meet the increased demand from third countries.

4.1.5. Here the Committee thinks that the set-aside percentage could be fixed annually on the basis solely of the previous year's rate and of the effect it has had.

4.2. Cereals

4.2.1. In view of the present market situation and the cost of money (which varies from one Member State to the next), the Committee cannot support the reduction in the monthly increases.

4.2.2. The Committee points out that the monthly increase, by covering storage costs, allows holders of cereals to keep produce off the market in periods of surplus.

4.2.2.1. The system thus helps to regularize the market, and should not be jeopardized.

4.3. Rice

4.3.1. The comments made in 4.2 apply equally to the monthly increases in the rice sector.

4.3.2. The intervention period - which is being reduced to just four months, starting on 1 April - should start on 1 January.

4.4. Oilseeds

4.4.1. The Committee thinks that the 50 % advance currently granted on aid per hectare should be raised to 80 %. This would improve farmers' liquidity and provide them with part of their income more quickly, remembering that the sector has been seriously hit by the restrictions imposed under the Blair House agreement.

4.5. Sugar

4.5.1. The Committee cannot accept the reduction in the monthly refund of storage costs. The interest rate used by the Commission in its proposal is significantly lower than the average rate currently applied for sugar storage.

4.6. Olive oil

4.6.1. The Committee considers that total or partial suspension of customs duties in the event of a significant rise in prices on the Community market (market price higher than the intervention price) is a political decision which falls to the Council; it cannot be treated as merely a market management measure (Commission/Management Committee procedure). At all events, such a provision is a matter for the proposal reforming the market organization.

4.6.2. The Committee also opposes the proposal to extend consumption aid to imported oil, both because of its impact on Community finances and because such a step would conflict with the manifest need for reliable checks on Community spending.

4.6.3. Similarly, the Committee considers that lifting the requirement that oil be produced in the Community will lead to a tangible deterioration in the quality of oil marketed. This clearly runs counter to the new CAP's declared emphasis on quality.

4.7. Fruit and vegetables

4.7.1. The Committee draws the Council's attention to the need to adopt the market reform without delay, in order to provide clear guidance and effective support for this important sector.

4.7.2. The Committee would here refer to the conclusions of its Opinion of 20 December 1995 ().

4.7.3. The Committee calls on the Commission to examine the problem of large-scale imports of hazelnuts from Turkey following the devaluation of the Turkish lira, which are making it very difficult to find outlets for the Community crop.

4.8. Wine

4.8.1. The Committee would first point out that the grubbing-up programme and the scheme for definitive abandonment of vineyards have reduced production capacity and secured a satisfactory, if relative, market balance. Indeed, compulsory distillation should not be necessary this year.

4.8.2. Market reform is undoubtedly desirable but, pending a final decision, it would be helpful to have up-to-date quantitative and qualitative data on the vineyards grubbed up and on the actual acreage of existing vineyards.

4.8.3. Here the Committee would refer back to the comments made in its Opinion of 26 February 1995 () on the reform of the market organization. At the present juncture the Committee would favour the suspension of grubbing-up.

4.8.4. The Committee endorses the proposal to set back the deadline for completion of the simplified vineyard register to 31 December 1998, as this will allow time for more detailed checks in this complex field.

4.9. Silkworms

4.9.1. The Community silkworm industry is finding development a struggle, even though, thanks to the traditional skills which have developed in some Member States, it is a world leader in terms of technologies used and quality of silks produced. Silkworm breeding undoubtedly offers a viable alternative to other farm sectors which are in surplus, as well as providing jobs in allied sectors and considerable added value.

4.9.2. The Committee thus thinks that the proposal to keep aid at the 1995/1996 level is unhelpful. It asks that aid be increased, and calls on the Commission to put forward detailed structural measures to revitalize production.

4.10. Beef and veal

4.10.1. The Committee notes the report which the Commission has appended to the price proposals, and endorses the analysis of market trends in the sector.

4.10.2. The Committee also endorses the proposals to change the starting date of the marketing year and to merge the premiums currently granted for young bulls at 10 and 22 months.

4.10.3. However, it considers that the proposed 14 % increase in the rate of the single premium is inadequate, and that the figure should be higher. Furthermore, the advance on the premium should be set at 80 %.

4.10.4. To cater for the diversity of farm structures in different production regions, the Committee also advocates the raising of the 90-animal ceiling per farm for eligibility for the premium, and calls for a differentiation of stocking density (currently 2 LU per hectare) according to the rearing system and type of pasturage.

4.10.5. Lastly, in order to safeguard the incomes of suckler-cow farmers, the Committee thinks that the premium could be increased. The Committee also considers that the derogations currently granted to the new German Laender should be extended.

4.10.6. The Committee calls for an urgent information and promotion campaign at EU level to restore consumer confidence in Community beef and veal in the wake of the BSE cases in the United Kingdom.

4.11. Milk and milk products

4.11.1. In order to make the best use of the milk quotas available in the EU and avoid any form of regional imbalance, it would be desirable, at the end of each marketing year, to operate a Community clearing system between national quotas.

4.12. Cotton

4.12.1. The Committee considers that the system for establishing the advances should be changed.

4.12.1.1. The advances should be based on the average production for the previous three years, and not on a production forecast inflated by 15 %.

4.13. Non-Annex II products

4.13.1. These are foods made using EU agricultural products as raw materials. To allow EU products to compete in third markets, export refunds have to be given to compensate for the higher cost of EU raw materials.

4.13.2. The Commission needs to develop a more efficient and particularly a more transparent method of applying these refunds within the GATT/WTO criteria so as to maximize the export possibilities for EU foods.

4.14. Other products

4.14.1. The Committee has no specific comments concerning other products.

Done at Brussels, 24 April 1996.

The President

of the Economic and Social Committee

Carlos FERRER

() OJ No C 82, 19. 3. 1996.

() OJ No C 110, 2. 5. 1995.