Opinion of the Economic and Social Committee on:

- the 'Proposal for a Council Regulation (EC) amending Regulation (EEC) No 1766/92 on the common organization of the market in cereals and repealing Regulation (EEC) No 2731/75 fixing standard qualities for common wheat, rye, barley, maize and durum wheat`, and - the 'Proposal for a Council Regulation (EC) establishing a support system for producers of certain arable crops` () (98/C 284/11)

On 4 June 1998 the Council decided to consult the Economic and Social Committee, in accordance with 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 matter, adopted its opinion on 16 June 1998. The rapporteur was Mr Bastian.

At its 356th plenary session of 1 and 2 July 1998 (meeting of 1 July) the Economic and Social Committee adopted the following opinion by 98 votes to 33 with 15 abstentions.

1. General comments

1.1. The Committee would underline the strategic nature and importance of arable crops (cereals, oilseeds and protein crops) for the European Union. The figures given in Appendix I are a clear illustration of this.

1.2. The Committee considers that the Union must press on with efforts to win back its internal market in this sector (particularly for the purposes of animal feed); it must also build up its food reserves and devise a strategic plan so that it can take advantage of the opportunities presented by international markets, viz.:

- world population growth,

- an increase in purchasing power (including purchasing power in the developing countries),

- an increase in world demand for meat (particularly in south-east Asia), which should trigger a rise in demand for cereals, oilseeds and protein crops.

1.2.1. The Committee is nevertheless well aware of the constraints placed upon Europe's arable crop sector, and particularly the Community's cereal exports, by the agricultural agreement of the Uruguay Round signed in Marrakesh in 1994. It is also aware that the forthcoming multilateral negotiations on agriculture in the World Trade Organization (WTO) might tighten these constraints even further (continuing fall in the level of customs duties and/or the expansion of tariff quotas; the reduction of subsidized exports; the decline in domestic, production-related support, etc.) These negotiations will take place at a crucial time for Community agriculture which is already having to adjust to the consequences of the Marrakesh agreement and prepare for eastward enlargement.

1.3. The Committee therefore generally considers that a further reform of the common organization of the cereals market, and a change in systems of support for producers of certain arable crops, are necessary so that the producers concerned can adapt to their new economic and international environment.

1.3.1. The Committee nevertheless reiterates the view expressed in its opinion on the agricultural aspects of Agenda 2000 () (point 3.1.3) that the Union must promote its own model of agricultural development and defend it during forthcoming international trade negotiations. The Committee accordingly considers that the forthcoming reform of the CAP must be regarded by the Union as an opportunity to reaffirm its determination to adhere to its international commitments whilst at the same time preserving its own specific types of agricultural production and its own agricultural policy instruments.

1.4. The Committee would underline that the forthcoming WTO negotiations will not be the last. It should not be forgotten that although the creation of the WTO put an end to 'rounds` of negotiations, international trade negotiations have now been put on a permanent footing. There is also no doubt that expansion of the Union to include the CEEC will cause the Union to review its international commitments.

1.4.1. The forthcoming reform of the CAP must therefore be tackled first and foremost with the interests and time schedules of the Union itself in mind for the period 2000-2006. The Union is, for example, justified in defending its own line on the decoupling of aid and right in rejecting the total dismantlement of export refunds, as underlined in the Committee's opinion on the agricultural aspects of Agenda 2000 (point 3.1.4).

1.4.2. The Union will have to negotiate its international commitments for the years 2000-2006 on the basis of the reform to be adopted in the year 2000 so as not to find itself in a situation where it has to pay a second time. In the view of the Committee the Union should adopt an active strategy at forthcoming negotiations not only in respect of cereals, oilseeds and protein crops but also in respect of other production sectors in the Union, and particularly beef/veal and milk.

1.5. In the arable crop sector the Committee considers that a resolute determination to defend the European agricultural model is essentially based on the following principles:

- the maintenance of active common market régimes which protect the interests of the farmers concerned, guarantee balanced markets, stable prices and the regularity of supplies to the internal market (both quantitatively and qualitatively) - the latter point being particularly important for agri-food industries downstream of production - and finally ensure the presence of the Union on international markets,

- the maintenance of balance between different types of crop production, which presupposes appropriate support for deficit crops,

- respect for the environment,

- the preservation of producers' incomes.

1.5.1. With regard to this last point the Committee fears the cumulative effect of the Commission proposals, viz.: the fall in official prices, partial compensation, ceilings, differentiated support from Member States, and the linking of aid to the need for progress on the employment and environmental fronts. Under these circumstances the Committee does not share the Commission's fear of 'overcompensation` in favour of cereal, oilseed and protein crop producers and calls for the reduction in official prices to be compensated in full.

1.5.2. The Committee believes instead that the Union must carry further the logic of compensatory payments established in 1992 and must fully compensate for the further fall in prices to be agreed in the arable crop sector.

1.5.3. The Committee also warns the Commission of the risk that new differentiated Member State support, along with the linking of aid to progress on the employment and environment fronts, might lead to a renationalization of the CAP.

2. Comments on individual sectors

2.1. Cereals

2.1.1. The Committee shares the Commission's eagerness to guarantee the competitiveness of European cereals, particularly through prices, including those on international markets. The Committee also considers that the Union must seek to supply its own domestic market whilst remaining a major player on the expanding international cereals market.

2.1.2. The Committee believes that in a context of falling export refunds the gap between official European prices (which frequently act as a benchmark for prices on the internal market) and international market prices cannot be allowed to remain too wide for too long.

2.1.3. The Committee nevertheless considers that the common market régime (COM) in the cereals sector should not exclusively seek to play the role of an 'export machine` for the Union. Apart from its function as a market regulator, the COM also has other objectives, namely protecting producers against fluctuations in world prices (extremely volatile in the case of cereals), and guaranteeing stability of incomes. The Committee would finally point out that a strong and active COM is yet another way of preserving the existence of what are after all only average-sized European cereal-producing holdings.

2.1.4. The Committee endorses the view expressed in point 3.1.3 of its opinion on the agricultural aspects of Agenda 2000, namely that the Union does not need to lower the cereals intervention price by 20 % to make cereals more competitive on international markets and to enable it to limit payments of export refunds. The Union must however also continue to protect producers against the volatility of world prices.

2.1.5. The Committee is of the view that the reduction should be limited to what is strictly necessary to bring the European intervention price down to world market levels as observed over the last few years (world market trends illustrated in Appendix II).

2.1.6. With specific regard to maize, the Committee cannot accept the Commission's proposal to no longer apply the differentiation method ('maize base`) for working out regional yields as a basis for calculating compensatory payments (). The Committee regrets that the Commission has not taken into consideration the specific characteristics of maize and calls upon the Member States to remain flexible when setting maize yields so as to maintain equilibrium between crops and ensure that processing factories (particularly starch factories) continue to receive their raw materials.

2.1.7. The Committee notes furthermore that the Commission advocates the maintenance of export levies to ensure that the domestic market is supplied under more advantageous price conditions for European users whenever world prices are higher than those on the domestic market. The decision on whether or not to impose an export levy would be left to the discretion of the Commission. The Committee considers that, if we are to be consistent with the Commission's proposed market liberalization, (aimed notably at encouraging producers to seize the opportunities offered by international markets), the use of export levies should be limited to cases where world prices climb sharply. The Committee accordingly proposes that a threshold be fixed for the triggering of export levies. The lower the proposed 'safety net` under the reformed COM, the higher the threshold.

2.1.8. The Committee likewise considers that the new more liberal philosophy underlying the COM should mean that export licences are granted automatically when no export refunds are involved.

2.2. Oilseeds

2.2.1. The Commission proposes that aid for oilseeds be the same as that for cereals, with a compensatory payment of ECU 66 per tonne (i.e. a 30 % fall compared with current levels of support). By abolishing specific aid for oilseeds the Commission hopes first and foremost to free the Union from the constraints (in terms of production and sown area) imposed under the Blair House agreement.

2.2.2. In its opinion on the agricultural aspects of Agenda 2000 the Committee said that it expected a sharp decline in the European area under oilseeds, and hence a considerable decline in the Union's ability to keep itself supplied in vegetable oils and plant protein crops. The Committee feels that such a situation would be unacceptable given that the Union today is only 25 % self-sufficient in plant protein from protein crops and oilseeds.

2.2.3. The Committee disapproves the Commission proposal which would automatically mean, despite the same premium, that it would be more advantageous to grow wheat than oilseeds. The Committee therefore considers that if priority were given to the production of plant proteins in the Union, this would force improvements in their competitiveness vis-à-vis other arable crops.

2.2.4. The Committee also believes that the praiseworthy desire to break free of the Blair House constraint would paradoxically result in European oilseed acreage shrinking to below the area ceilings negotiated with the United States in 1993. European producers would have been deceived and the situation would be all the more unacceptable since the United States has, with the Fair Act, maintained price guarantees for oilseeds, besides introducing, via a 'flexibility contract`, a specific support mechanism for this crop where there was none before. In the view of the Committee the Union would be committing a strategic error by dismantling its own system of support for oilseeds when the decoupling called for by the United States would in reality result in an increase in US subsidization.

2.2.5. The Committee would point out that the prices of oilseeds are already at world market levels (there is no intervention price) so that this particular product should not be a target for criticism at the forthcoming international negotiations. According to the Committee there is no valid nor urgent reason why this sector should be reformed before the year 2006.

2.2.6. The real challenge for this sector lies in the enlargement of the Union to the countries of central and eastern Europe which are potentially major producers of oilseeds.

2.2.7. The Committee therefore recommends that the Union should only align support for oilseeds on support for cereals after a transitional period. During the forthcoming international negotiations it can then inform the United States of its intention to be exempted from the Blair House Agreement and obtain a guarantee from the Americans that the US will not challenge the new Community régime should this lead to an increase in areas under production. The Committee considers that this approach is legally more certain than the Commission's current approach which seeks to make the Blair House agreement null and void through a unilateral European decision.

2.2.8. The Committee realizes that the Union will have to press on with the task of decoupling its production aid with a view to the forthcoming international negotiations. It therefore proposes that when a cereal price reduction has been agreed and the non crop specific payment is known (currently standing at ECU 66 in the Commission proposal), a supplementary payment for oilseeds should be made. This supplement should be equal to the difference between current support (ECU 94,24 per tonne) and future non crop specific aid ().

2.2.9. The Committee declares its readiness to study any alternative solution the Commission might propose to free the Union from the Blair House constraint from the year 2000 whilst guaranteeing the maintenance of areas under oilseeds (crop-rotation premium within the framework of agri-environmental programmes, premium for crops in short supply...)

2.3. Protein crops

2.3.1. For the sake of consistency between the approaches to all European protein crops, the Committee proposes that the protein supplement be calculated according to the same method it advocates for oilseeds. The Commission's proposed supplement of ECU 6,5 per tonne (i.e. equivalent to a fall of ECU 6 compared with current aid of ECU 78,49 per tonne) seems, in the view of the Committee, to be inadequate to maintain the competitiveness of protein crops vis-à-vis cereals.

2.3.2. The Committee would also ask the Commission to submit proposals on the establishment of a new 'protein plan` in the Union, in order to safeguard the survival of a crop which plays a positive role in environmental protection.

2.4. Durum wheat

2.4.1. The Commission proposes continuation of the present system which stems from the reform of the COM in 'durum wheat` of October 1997: the 20 % reduction in the intervention price would apply to durum wheat which, in addition to undifferentiated aid of ECU 66 per tonne, would continue to receive a per hectare supplement of ECU 344.5 within maximum guaranteed areas (or possibly special aid of ECU 138,9 per hectare, depending on the production zone in question).

2.4.2. The Committee is opposed to a reduction in the intervention price for durum wheat.

2.4.3. Such action would weaken border protection () and would encourage imports of quality wheats from third countries which are more competitive in this line (Canada, United States ...) to the detriment of the production of quality wheats in Europe. Lowering the intervention price of durum wheat does not mean that the Union will automatically increase its exports to international markets. Under these conditions the Committee sees no reason to reduce the intervention price of durum wheat.

2.5. Potato starch

2.5.1. The potato starch régime is mechanically linked to the COM in the cereals sector. The Commission proposes to adjust the minimum price for potatoes intended for the manufacture of potato starch in line with the reduction of the price for cereals.

2.5.2. The Committee considers that this proposal is technically justified. Nevertheless it would draw attention to the specific characteristics of the potato starch régime, with production subject to quota restrictions. This means that in the event of a fall in price and mere partial compensation, producers cannot stabilize their incomes by increasing their output. The Committee therefore considers that full compensation should be paid in the event of a fall in prices.

3. Other comments

3.1. Set-aside3.1.1. The Committee approves the Commission proposal to reduce the obligatory set-aside rate to 0 % where price reductions make it possible to bring the cereals intervention price into line with international market prices. Like the Commission, the Committee considers that the Union must not deprive itself of the opportunity to engage in obligatory set-aside, which is an effective mechanism for production and market management ().

3.1.2. As far as voluntary set aside is concerned, the Committee is in favour of the introduction of a minimum rate and the possibility of multiannual set-aside for a period not exceeding five years. The 10 % rate proposed by the Commission appears however to be too high. The Committee feels that on the basis of the subsidiarity principle, minimum rates should be fixed at a national level, just as the Member States alone fix the maximum voluntary set-aside rate.

3.2. Abolition of monthly increments and the postponement of payment periods

3.2.1. The Committee considers that the abolition of monthly increments, combined with a postponement of the date for making compensatory payments, will lead to a price reduction of the order of 6 to 7 points - more than that announced by the Commission. Moreover the level of compensatory payments is not linked to inflation. Producers' incomes are likely to be under particular threat since the Commission has failed to take into account the impact of these two proposals in calculating its proposed partial compensation.

3.2.2. The Committee is strongly opposed to these two proposals.

3.2.3. Monthly increments comprise additional sums paid to producers or stockists (cooperatives or private organizations) prior to the placing of the product on the market. The Committee considers that the system facilitates regulation of the internal market by leading to more regular deliveries. Monthly increments constitute a useful mechanism for stabilizing prices throughout the marketing year, and so help to protect producers' incomes. Because of this the Committee calls for the maintenance of monthly increments.

3.2.4. The Committee also considers that it is not appropriate to postpone the payment of compensatory amounts to producers. The Commission proposes to postpone the current dates (15 October - 31 December) to 1 January - 31 March, on the grounds that paying out too early does not encourage farmers to market their harvest at the beginning of the marketing year. The Committee does not share this analysis and considers that postponing the payment of direct aid would merely undermine the cash-flow position of many producers.

3.2.5. Before the 1992 reform, producers were able to cash in in full when their harvests were sold around the month of July. The CAP reform of 1992 set in motion delays by postponing the payment of compensatory amounts until October. The Committee therefore feels that the Union cannot expect producers to make further financial sacrifices.

3.2.6. Mindful of the Commission's argument that payments in October disrupt cereal deliveries, the Committee proposes a neutral cash-flow solution: whilst making sure that the procedure does not become complicated, this would consist of paying the producer a 50 % down payment when his 'dossier on the declaration of area under production` is validated (in July), with the balance being paid only from the following January onwards.

3.3. Crops not intended for food purposes

3.3.1. In 1995/1996 more than a million hectares of industrial set-aside land were used in the European Union to produce renewable raw materials for non-food purposes (notably oilseeds and cereals). In 1997/1998 the acreage given over to such crops came to no more than 470 000 hectares, of which approximately 385 000 hectares were used to grow colza and sunflowers.

3.3.2. To ensure competitiveness, such crop production relies heavily at present on producers being able to leave land fallow for industrial purposes, in accordance with Regulation (EC) No 334/93, i.e. to use land set aside to cultivate this type of industrial crop.

3.3.3. According to the Committee this balance would be undoubtedly called in question with an obligatory land set-aside rate of 0 %. The Committee is surprised that the Commission makes no proposals on developing the non-food uses of agricultural products as part and parcel of the forthcoming reform.

3.3.4. The Committee would emphasize the need to guarantee the supply of industrial materials needed to develop these crops (diesters, chemicals ...) It therefore calls for the drawing up of a specific plan for crops intended for non-food uses. This plan could take the form of specific or direct aid until such time as the Union has put in place the fiscal measures necessary to ensure the future of this sector.

3.3.5. Without prejudice to the specific plan to be adopted in the immediate future under Agenda 2000, the Committee recommends the adoption without delay of measures designed to promote the production of crops for non-food purposes so as to put a stop to the worrying shrinkage in the acreage used for such crops and restore security of supplies for industry.

Brussels, 1 July 1998.

The President of the Economic and Social Committee

Tom JENKINS

() OJ C 170, 4.6.1998, p. 1-4.

() OJ C 73, 9.3.1998, p. 71.

() The area payment is calculated by multiplying the planned compensatory payment (for example, ECU 66 per tonne) by the average yield in cereals for the region in question (by region we mean a Member State or a region within the Member State, at the option of the Member State concerned).

() This oilseed supplement will have to be eased downwards to take into account the partial compensation cereal producers will receive when prices go down (so that the differential between support for cereals and support for oilseeds remains proportionately unchanged from what it is at present).

() Pursuant to the rule laid down under the agricultural agreement of Marrakesh whereby the maximum customs tariff chargeable on imported cereals is not allowed to exceed 155 % of the intervention price.

() Obligatory set-aside also makes producers eligible for compensatory payments in the event of a fall in institutional prices in the arable culture sector.

APPENDIX I to the opinion of the Economic and Social Committee

Statistical overview of the Community production of cereals, oilseeds and protein crops

Cereals, oilseeds and protein crops account for approximately 30 % of the Union's utilized agricultural area. During the 1980s and 1990s, the sharp rise in European crop farming was largely due to an improvement in productivity per hectare (in the case of cereals this rose on average to 54 quintals in 1996).

Over the last ten years the most striking phenomenon in arable farming has been the doubling of the Union's area under oilseeds (compulsorily stabilized at 5,482 million hectares under the Blair House Agreement) even though the Union today is still far from being self-sufficient in such crops.

With production running at 87,7 million tonnes in 1995, the Union is the world's top wheat-producing area ahead of the United States (The Union and the United States account, respectively, for 16 % and 11 % of world production). In 1995 the European Union produced 89.9 million tonnes of secondary cereals, not including rice, accounting for 11 % of world production. This puts it in second place behind the United States which, with 209 million tonnes, accounts for 26 % of the world's production of secondary cereals.

With a level of self-sufficiency of more than 140 %, the European Union is a major player on the world's wheat market, with exports totalling 12,6 million tonnes in 1995/1996, i.e. 14 % of world exports. The United States accounts for 37 % of the world's wheat trade, Canada 19 %, Australia 13 % and Argentina 5 %. Where secondary cereals are concerned, the Union is a net importer if we take into account cereal substitutes. The United States towers over the world market in secondary cereals (70 %) with its major exports of maize. The Union is largely represented on this market by barley exports, coming third in the list of world exporters in 1995/1996, and accounting for 5 % of total world exports behind Argentine (7 %), but level with Canada and beating Australia (4 %).

Source: Eurostat - 1995 and 1997 European Commission reports on the 'general situation of agriculture in the European Union`.

APPENDIX II to the opinion of the Economic and Social Committee

World wheat prices (SRW fob GULF)