Opinion of the Economic and Social Committee on the 'Commission proposals on the prices for agricultural products and related measures (1997/1998)` () (97/C 287/14)

On 26 March 1997, 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 6 May 1997. The rapporteur was Mr Nilsson.

At its 346th plenary session on 28 and 29 May 1997 (meeting of 29 May 1997), the Economic and Social Committee adopted the following opinion by 79 votes to nine, with 16 abstentions.

1. Gist of the Commission proposal

1.1. The Commission states that the proposal has been adapted to the budgetary context, and continues the process of the 1992 reform which seeks to stabilize and simplify the Common Agricultural Policy.

1.2. The Commission proposes to leave prices unchanged for those sectors covered by the 1992 reform.

1.3. For cereals, the Commission once again proposes to fund measures in the beef sector in the wake of the BSE crisis, by reducing compensatory 'per hectare` and set-aside payments. The overall reduction in compensation averages 7,3 %, while the reduction in compensation for set-aside is 26,8 %.

1.4. The Commission also recommends that the monthly increase for the cereal intervention price should be reduced from ECU 1,1 to ECU 1,0 per month (10 %) for the marketing year 1997/1998, following a fall in interest rates.

1.5. For rice, the Commission suggests that the monthly increase should be reduced from ECU 2,28 to ECU 2,0 per tonne (12,3 %). Here too, the Commission cites lower interest rates as the reason for the reduction.

1.6. For sugar, the Commission suggests that the monthly increase for storage costs should be reduced from ECU 0,42/100 kg to ECU 0,35/100 kg (16,7 %).

1.7. For flax, the Commission proposes to set the reduction for market promotion at ECU 0 for the marketing year 1997/1998. It follows that the Commission is suggesting that the compensation received by the producer be reduced from ECU 865,48/ha to ECU 815,86/ha. As the current rate for market promotion is ECU 49,62, the Commission considers that the proposal does not affect aid to the producer.

1.8. The Commission proposes a reduction in the subsidy for hemp to ECU 716,63/ha (7,5 %), on the grounds that the flax/hemp subsidy ratio should not be altered. Hemp subsidies remained unchanged in the 1996/97 marketing year, whilst those for flax decreased.

1.9. For silkworms, considering the trend in national subsidies, the Commission proposes to keep aid at ECU 133,26 per box.

1.10. The Commission estimates that the proposed measures will reduce overall expenditure by ECU 82 million in 1998. The separate proposal on reduced compensation for 'per hectare` and set-aside payments is not included in this figure; it comes to ECU 1,4 billion.

1.11. The proposal does not affect tobacco, olive oil, durum wheat, honey or linseed, since the Commission has already put forward proposals for the common organization of these markets, and a decision is expected as soon as possible in 1997. Despite intensive discussions in both the Council and the Parliament, no decisions have been taken on the Commission's proposals for reform of the wine sector, adaptations of the bananas regime, measures in the potatoes sector, and compensatory payments for certain arable crops.

1.12. In short, the Commission feels that the proposal provides a very simple price package with prices remaining unchanged, but a reduction in 'per hectare` and set-aside payments.

1.13. The Commission points out that the absence of adjustments to the price package must not be taken to mean that reform is not necessary. The Common Agricultural Policy affects many people, and cannot be left unchanged, particularly in the light of expected changes such as EU enlargement and the outcome of the next WTO round.

Furthermore, it is emphasized that these changes must take place after analysis and debate, rather than in connection with a price package. It has also been announced that proposals are expected for milk, meat, cereals and future regional policy before the end of the year. The Commission also stresses that the Member States must continue to exercise budgetary discipline in 1998.

2. Agricultural production and the agricultural economy in 1996

The Commission proposal sums up agricultural production and the agricultural economy in 1996 as follows:

- a large cereal harvest of 202 million tonnes - an increase of 27 million tonnes over 1995;

- a reduction in oilseed production;

- no change in sugar production;

- an increase in wine production after a three-year fall;

- serious problems in the beef market, due to the BSE crisis, reduced production, and a fall in market prices;

- milk production unchanged at 121,3 million tonnes;

- EU economic growth of 1,6 %, a slowdown compared to the 2,4 % achieved in 1995;

- preliminary statistics for farm incomes show that the agricultural price spread (producer price/production cost ratio) has deteriorated in most countries;

- a fall in support prices and an increase in direct compensatory payments, following the 1992 reform;

- wide variation in the price index in the various Member States, with an average drop of 0,6 % for the EU 15, a 14,7 % drop in Finland, and an increase of 2,5 % in Belgium.

3. Basic comments on the Commission proposals

3.1. This opinion focuses on the Commission's price proposals for 1997/1998, and the statements made by the Commission. By way of introduction, the Committee wishes to make some basic comments concerning key issues. The Committee realizes that agricultural expenditure must remain within the limits set for the 1998 budgetary context, as outlined in Volume II (IVb) of the Commission proposal. The following comments should also be seen in this context.

3.2. The Committee notes that on several occasions it has not been consulted on communications and other proposals concerning agricultural issues. The Committee would emphasize the need to consult it on all future communications and proposals for the agricultural sector.

3.3. In earlier opinions, the Committee expressed its view of the extension and assessment of the 1992 agricultural reform. The Committee is fully aware that agricultural policy still requires further adjustment. The EU should not sign up to new bilateral free trade agreements before carrying out a careful analysis of their likely impact.

3.4. It is vital that agriculture and agricultural policy continue the drive to be more market- and consumer-oriented. Consumers give producers direct pointers as to their requirements when they choose one product rather than another.

3.5. The Committee would renew its support for the call - already made in connection with the price fixing for 1995/1996, and reiterated in the opinion on prices for 1996/1997 () - for closer analysis of the impact of current and future price packages on consumer prices, food quality, health, the environment and rural communities. The Commission should in particular carry out a comprehensive analysis of the effects of the CAP as well as the intermediary phases of food production and distribution on household expenditure.

3.6. The Committee considers it vital that the CAP should continue to be reformed in accordance with the objectives of the Treaty, the reasons behind the 1992 reform, and its relation with the forthcoming IGC decisions. Another important contribution could come from a policy such as that put forward in the Cork Declaration on the development of rural areas.

3.7. An unavoidable issue is the question of how farm income trends affect agricultural employment, both directly and indirectly. In view of the EU ambition to reduce the blight of unemployment, the proposals should also be considered from the point of view of their impact on the labour market as a whole.

3.8. It is also important for European farmers - i.e. the people most directly concerned - to feel that there is reason to be confident about future developments. Only then will they be stimulated to continue to invest in the farm undertaking. It makes a great difference whether the forthcoming reforms are motivated by the need to develop a sustainable, strong and dynamic agricultural sector, or whether they are informed by ignorance and a lack of understanding of, and interest in, the future of agriculture.

3.9. As a final basic comment, the Committee would point out that 1996 saw a sharp upturn in cereal yield. A good harvest not only benefits the farmer; it also provides security for society as a whole. In this respect, it should also be noted that in the autumn of 1996, the FAO held its world conference under the banner of 'food for all`. The conference was called chiefly because of concern over the world's depleted cereal stocks. This was also pointed out in an ESC opinion ().

3.10. At the conference, the EU Member States also committed themselves to national action programmes to guarantee long-term food supplies. A good harvest in any one year should also be seen in this light. The uncertainty of supply is also behind the concern that the current drought might substantially reduce this year's harvest.

3.11. The Committee, recalling its opinion on the subject of 10 September 1992 (), which followed on the specific recommendation made by the ESC in its opinion on the development and future of the CAP (), calls on the Commission to draw up a proposal for a Community Agricultural Insurance Scheme. This seems particularly appropriate in the current marketing year, with farmers facing such adverse weather conditions that the harvest is at considerable risk in virtually the whole EU.

3.12. Whilst reiterating its proposal, the Committee would draw the Commission's attention to the possibility of funding the Community insurance scheme without burdening the Community budget by using funds originally earmarked for withdrawing products from the market, but left unused following a reduction in supply caused by adverse weather conditions.

4. General comments on the Commission proposal

4.1. The Commission published its price proposals for 1997/1998 well behind schedule. The Committee can in no way concur with the Commission view that it is a 'simple` price package, given the proposals for substantial reductions and the fact that the Commission suggests that these reductions are needed for some sort of legal reason.

4.2. The Committee cannot accept the Commission's proposed reductions. It notes particularly that the reduction in support which the Council rejected on an earlier occasion, is once again being put forward. The initial reasoning was that it would release funding for changes in the beef sector made necessary by the BSE crisis. The Committee cannot accept that these proposals be put forward again.

4.3. The BSE crisis which hit the EU's beef farmers is a European catastrophe. Management shortcomings have been revealed in the authorities of the countries concerned, as have substantial failings at EU level. The situation is catastrophic for the farmers concerned, and compensatory measures are insufficient.

4.4. The Committee feels very strongly that the initiatives required to deal with the BSE disaster cannot be funded by simply dipping into the Guarantee Fund.

4.5. It should also be emphasized that the price proposals under discussion for 1997/1998 apply to the compensatory payments due in autumn 1997. The delay in presenting the proposal means that farmers have no knowledge of the economic conditions for the year's production and harvest. The Committee stresses the need for a swift decision, so that the sector can be aware of the economic conditions it will have to work under. This is particularly important from the point of view of banks and credit institutions. Spring sowings have had to be completed before decisions on prices and compensatory payments have been taken. July is perhaps the earliest date we can expect a decision. This is most unsatisfactory, and makes the proposed reductions unreasonable.

4.6. The Commission needs to look into how the support measures should be administered and the costs involved. The CAP reform imposes considerable constraints on the liquid assets of all agricultural holdings. Accordingly, the Commission must explore ways of improving the payment systems by improving the way payments are shared out. Both the Commission and the Member States must show greater respect for the deadlines for payments and advances. Proposals for simplification should be put forward.

5. Specific comments

5.1. The Commission's proposal to reduce per hectare and set-aside payments for cereals and oilseed have already been rejected in the comments above. The main objection is that the Commission is resubmitting its proposals for reductions, but this time on the grounds that the arable sector must pay for BSE crisis measures in the beef sector. This is not an example of European solidarity; rather, it is an example of faulty distribution within the agricultural sector. The Committee rejects the proposal in the strongest terms.

5.2. The Committee also rejects the reduction in the monthly increases in the intervention price for cereals and rice and in the refund of the storage costs for sugar. This is not the first time the Commission has proposed such reductions, but its recommendations have not always been adopted by the Council. The increase was, however, reduced from ECU 1,3/tonne/month in last year's price package, once again on the grounds that there was a need to encourage early deliveries, and that interest rates had fallen. The Committee feels that there is no foundation for a further reduction for 1997/1998.

The Committee also suggests that the ceiling for total solids in crops bought in under the intervention system should, in some cases, be set at 15 %, in consideration of the harsher weather and colder storage conditions of northern countries.

5.3. The Committee would remind the Community institutions of the serious crisis currently paralysing the rice sector due to large imports of extremely cheap rice from third countries. Despite the fact that the market price for Community production has fallen by 30 %, the market for rice is still not there.

5.4. The Committee calls for a freeze on the monthly increases until the existing common organization of the rice market has been reformed; this reform should be able to provide reasonable market guarantees for Community output.

5.5. The flax regime was altered in 1996 in the hope of improving market stability, and in consideration of the areas sown. The proposals to reduce aid for flax and hemp for 1997/1998 actually mean that there will be no change in direct aid to producers. The reason given for the decrease is that every year, the amount of the reduction is greater than support payments for promoting the use of flax fibre. Nonetheless, the decrease means that flax production is deprived of aid which should fully benefit the sector, and which has in fact been used for flax, but for marketing rather than production.

The Committee opposes the reduction, since it means a drop in support for new outlets for the sector. The Committee also opposes the Commission's proposed reduction for hemp; here, the reasoning is flawed since production is carried out in different areas than for flax, and thus the sectors cannot be considered so interchangeable.

5.6. The Committee notes that the Commission proposes to extend the exemption allowing Spain and Portugal to produce certain special products in the wine sector. The grubbing-up programme has been extended; the Committee has already endorsed this on an earlier occasion (). The Committee would also question the logic of once again postponing the report on sulphur dioxide in wine, sparkling wine and liqueur wines.

5.7. In its 1996 opinion on last year's prices, the Committee pointed out the difficulties experienced in the silkworm industry, and emphasized that this is a top-quality sector. The Committee would reiterate its view that aid to this sector is insufficient. Silkworm production offers a worthwhile alternative to other agricultural sectors, and it also provides employment on the industrial side. Accordingly, the Committee again calls on the Commission to put forward detailed measures for this sector.

5.8. The BSE crisis has caused enormous problems for the EU's beef and veal farmers. The drop in consumption has led to a huge market imbalance and a fall in prices. The Committee calls on the Commission to provide further measures to limit the damage caused to those concerned.

5.9. The Committee does not wish to make any specific or critical comments on the Commission proposals for the milk sector. It would, however, emphasize the importance of the Council's expression of concern (meeting of 28 and 30 October 1996) at the existing difficulties in the EU market for milk and dairy products, where many dairy farmers are under considerable pressure. The Council therefore urged the Commission to combat any further weakening of the market, and to stabilize dairy farmers' incomes.

6. Summary and conclusions

The Committee:

- calls for the monthly increases under the intervention system to be frozen at current levels, rather than decreased;

- rejects the proposal to finance BSE crisis measures by redistributing the farming sector's share of the Guarantee Fund;

- considers the reasoning behind the reductions in the flax and hemp sector to be irrelevant, and thus rejects the reductions;

- highlights the serious crisis in the rice sector, and calls for the monthly increases to be left unchanged;

- calls for an analysis of the impact of current and future price packages on consumer prices, household expenditure, food quality, health, the environment and rural communities;

- calls for an analysis of the employment implications of income trends and of future proposals;

- looks forward to receiving the documents on the different agricultural sectors which the Commission intends to issue in 1997. The Committee expects to be consulted on these, and will express its views in future opinions.

Brussels, 29 May 1997.

The President of the Economic and Social Committee

Tom JENKINS

() OJ C 101, 27. 3. 1997, p. 1-25.

() OJ C 204, 15. 7. 1996, p. 57.

() OJ C 295, 7. 10. 1996, p. 78.

() OJ C 313, 30. 11. 1992, p. 25.

() OJ C 40, 17. 2. 1992, p. 63, point 6.6.4.

() OJ C 133, 28. 4. 1997.

APPENDIX to the opinion of the Economic and Social Committee

Amendments defeated

The following amendments were defeated during the debate:

1. After 3.6, insert the following new point 3.7: and renumber accordingly:

'For some time now world cereal prices have been so high that they have tended to exceed the EU price ceiling. Thus, export tariffs have to be applied to production so that it is not more profitable to export rather than sell on the EU market. Consequently, the intervention price is of little relevance. It now seems appropriate to readdress the question of whether to abolish export support for cereals, and allow prices to be fixed freely. However, an import tariff linked to the cost of production to keep particularly low-price cereal imports out of the EU market is needed.

In the short term, this would mean that cereal producers could expect somewhat higher prices. In the long term, it would provide price and volume market adjustment, with large savings for the EU budget; most of the money thus saved would not have gone to cereal producers, anyway, but to cereal wholesalers, stock-keepers and other middlemen.`

Result of the vote

For: 27, against: 53, abstentions: 7.

2. Points 4.1-4.5

Delete and replace by:

'The Committee supports the main components of the price package proposed by the Commission, particularly to support other sectors through cuts in compensation to cereals, noting that this sector has been overcompensated over the last years and bearing in mind that agricultural expenditure should not be increased.`

Result of the vote

For: 31, against: 60, abstentions: 9.

3. Insert new 4.7

'The Committee wishes that the Commission together with the Member States make an assessment of the administrative costs of the CAP both on national and on community level.`

Result of the vote

For: 32, against: 48, abstentions: 9.

4. Point 5.1

Delete and substitute:

'The proposal to reduce the compensatory and set-aside payments for cereals and oil seed are too severe and should be recast. Bearing in mind the need for European farmers to be able to export, and that a further round of trade liberalization negotiations is due in 1998 any reductions should focus on price and set aside payments rather than compensation payments which are more secure since they qualify for the "Green Box". Moreover such an approach would maintain a better balance between the different producers and regions.`

Result of the vote

For: 24, against: 60, abstentions: 14.