Opinion of the Economic and Social Committee on the 'Note to the Council of Ministers and to the European Parliament on the olive and olive oil sector (including economic, cultural, regional, social and environmental aspects), the current common market organization, the need for a reform and the alternatives envisaged` (97/C 287/13)

On 20 March 1997 the Economic and Social Committee, acting under the third paragraph of Rule 23 of its Rules of Procedure, decided to draw up an Opinion on the 'Note to the Council of Ministers and to the European Parliament on the olive and olive oil sector (including economic, cultural, regional, social and environmental aspects), the current common market organization, the need for a reform and the alternatives envisaged`.

The Section for Agriculture and Fisheries, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 7 May 1997. The rapporteur was Mr Quevedo Rojo.

At its 346th plenary session, held on 28 and 29 May 1997 (meeting of 29 May 1997), the Economic and Social Committee adopted the following opinion by 52 votes to five with four abstentions.

1. Introduction

1.1. The common market organization for the olive sector was set up in 1966 by Regulation No 136/66/EEC.

1.2. This CMO has basically functioned well for 31 years, constituting a valuable instrument in the modernization of the olive growing and processing sectors. Large areas have been kept under cultivation, with the resulting beneficial effects on employment and the preservation of an agricultural system, the abandonment of which would have entailed significant social and environmental costs. It would appear indisputable that a CMO which has lasted so long and which has successfully absorbed the world's first and third largest olive-producing countries must necessarily be highly effective in a number of respects at achieving its objectives. However, it has to be accepted that substantial changes have to be made to the present CMO.

2. CMO aims

The Note mentions the following aims:

a) Maintenance of the sector and support for regional economies

b) Market balance in harmony with international trade

c) Sound management of the sector

d) Budget neutrality

e) A simple, transparent and easy to control regime in all Member States

f) Taking account of different types of production systems and performance

g) Taking account of environmental considerations

h) Promotion of quality.

Consideration will be given below to each of these aims, the possible repercussions of maintaining the current CMO and the options proposed, i.e. either to improve the existing system or to replace it with tree aid.

2.1. Maintenance of the sector and support for regional economies

2.1.1. This is indisputably the primary objective of any CMO. Olives have been and remain a basic element in the economic and social life of the producer regions. Their location and concentration in some of the Union's most depressed regions, their vital employment role in many regions (accounting for 90 % of farm employment in some), the high number of farms depending on the crop, the associated processing industry etc. place olives at the heart of the economic and social life of such areas.

2.1.2. The current CMO has revitalized the economy of these regions. By improving producers' incomes, added value has been generated and reinvested in the sector, modernizing olive groves and mills, preserving an agricultural system, the abandonment of which would have had a harmful socio-economic and ecological impact, and giving an impetus to rural development in the regions in question.

2.1.3. Olive production represents a stable source of employment, supported by the current CMO. Countless olive-producing farms provide income both for workers and small producers in areas with no alternative employment. Modifying the current CMO could have a negative impact on employment, with an ensuing loss of population and territorial imbalance.

2.1.4. No amendment of the CMO can be made without research quantifying its effect on employment: this has not been done in the Note. In many olive-growing regions of the EU, the olive and olive oil sectors account for more than 80 % of agricultural employment and underpin their economies. Most of these are part of Objective 1 regions with high levels of unemployment. Clearly, any disincentive to production would trigger job losses which the Commission's Note does not attempt to quantify.

2.1.5. In brief, it is certain that, with respect to maintaining the sector and supporting regional economies, the CMO:

- has improved producers' incomes;

- has modernized the olive and olive oil sectors;

- is producing a new, more dynamic business approach;

- has stabilized the rural population as a result of the direct and indirect employment generated;

- has preserved an agricultural system the loss of which would be damaging to the environment.

It is surprising that these positive aspects are not brought out more clearly in the Note. Aid not linked to production might replace the current dynamism with a passivity similar to that affecting cereal, oleaginous and protein crops in Mediterranean agriculture. In any case, the Commission document fails to quantify the effects that amendment of the existing CMO would have on economic activity, regional employment and environmental conservation, although the fundamental and positive effects outlined above arise from the long-standing nature of the current arrangements.

2.2. Market balance

2.2.1. The Commission document does not forecast the emergence of surpluses: olive oil represents approximately 3,6 % of world production and consumption of vegetable oils, and for many years the world olive oil market has been balanced. Moreover, world consumption trends would suggest that the potential for export and for increased consumption within the European Union is much greater than forecast. As the Commission's Note acknowledges, the association of olive oil consumption with prevention of heart disease and other vascular disorders, combined with an intelligent promotion policy on the part of the IOOC, has raised EU exports from 40 000 to 126 000 tonnes in ten years. Neither would the reduction in refunds, in both quantity and value terms, demanded by the GATT appear critical as long as the current trend to higher exports to third countries is maintained. However, changes to the refund system and to export policy are needed to make the most of this potential in EU and third country markets.

2.2.2. One of the International Olive Oil Council's greatest concerns has been to guarantee buffer stocks to carry over from one year to another, given the tendency of olive trees to be productive in alternate years, scientific control of which still appears a distant prospect. Intervention has undoubtedly been a key element in dealing with the problems caused by cyclical yield. Although there is no real difference, in terms of supporting olive producers' incomes, between intervention and tree aid systems, from the market regulation point of view an intervention system associated with adjustment storage is the only one so far to have guaranteed market supply in non-productive years and a minimum price level for producers in productive years. What is more, the cost of the intervention system to the Community budget has been negligible.

2.2.3. One of the objectives of the current CMO is to boost retail sales of olive oil by means of the consumption aid system; this is now so limited that it no longer has any effect on prices, and its use is declining. The system should, therefore, be replaced by new financial measures which use funding previously earmarked for the aid system, but with a greater emphasis on marketing the finished product.

2.2.4. In other words, from the point of view of market balance and compatibility with the international market:

- the data do not point to likely structural olive oil surpluses

- the continuation of intervention and adjustment storage has acted as a guarantee for market supply and producer income for a crop whose cyclical nature is far from being brought under control

- the costs of the intervention system have thus far been negligible in terms of the Community budget for the CMO.

2.3. Sound management

2.3.1. The European Union is the world's leading olive oil producer. It is also the main consumer, and there is scope for boosting demand further in the many European countries with no tradition of using olive oil. None of the Commission's proposals should lose sight of existing relations with the countries of the Mediterranean region. Attempts should be made to preserve and expand the special position enjoyed by the Mediterranean, since real opportunities exist to extend consumption to other countries.

2.3.2. One positive effect of the current CMO has been to develop sustainable olive production in the Union's main producer countries.

2.3.3. Movement towards this type of olive production, for which an expanding scientific and technological base is necessary, should be a Union aim encouraged by the CMO, if the current leading position is to be maintained. To this end, Community funds must be specifically earmarked for public invitations to tender for R& D initiatives, with the usual EU guarantees governing the award procedure.

2.3.4. The example of another Mediterranean tree crop, the almond, points to what may happen if the need for modernization of European production is not acted upon. Spain and Italy were the world leaders in almond production during the 1950s, using traditional methods. On the back of expanding production however, world leadership passed to California in the 1970s, a position which still holds today.

2.3.5. To sum up, sound management of the sector involves responding to the needs of olive production today, without however prejudicing the sector's future.

2.4. Budget neutrality

2.4.1. Maintaining budget neutrality means that the cost to the Union of the CMO for olives cannot rise. Nevertheless, the guaranteed maximum quantity (GMQ) should keep pace with real consumption levels.

2.5. A simple, transparent and easy to control regime in all Member States

2.5.1. The Commission document draws attention to the problem of fraud. The Committee would argue however that this is at present a minor phenomenon, owing to the establishment of a register of olive cultivation in some countries and the efficient working of the control agencies. The Committee agrees with the proposal to step up controls to prevent any action which might interfere with the EAGGF-Guarantee section. In any case, it would be necessary to specify which countries are most affected by fraud and to quantify its impact on each type of aid.

2.5.2. The document provides no remedy for fraud, especially if reform were to take place before completion of the register of olive cultivation. The Commission's Note however opts for tree aid based on the current figures for trees per country, even though only Italy has completed its register (and even this is awaiting updating). Under these conditions, the estimated figures are clearly open to doubt. The figures (number of trees and potential production) can hardly be guaranteed to be fraud-proof when the register of olive cultivation is incomplete. It might be better to await completion of the register before carrying out any reforms.

2.5.3. There is in fact a real opportunity for exhaustive control of aid, based on physical checks on actual olive oil production and on simpler aid management. These production control mechanisms offer the valuable additional benefit of ordering production and the market.

2.5.4. The use of a dual system of accounting has distorted both production and market. Abolition of this system is inevitable, if what is considered to be the cause of market disruption is to be ended. This shortcoming is partly due to the difficulty of quantifying the amount of olive oil which goes to own consumption.

2.6. Taking account of different types of production systems and performance

2.6.1. The Note does not give detailed consideration to the highly complex and diverse picture presented by olive cultivation. The wide range of olive production approaches is reduced to three simplistic stereotypes. Groundless allegations are made about one of these types. The Committee cannot agree with the association made between sustainable new planting and environmental damage.

2.7. Taking account of environmental considerations

2.7.1. Olive cultivation is now an agricultural system, the abandonment of which would bring serious environmental damage in its wake. Historically, olive growing has occupied progressively more fragile soils in order to meet the demand for oil. This has given rise to grave erosion problems, caused by run-off water. Abandonment would bring new causes of environmental deterioration (increased erosion due to the disappearance of soil loss reduction techniques, greater fire risk, etc.).

2.7.2. The historical trend to occupy more fragile soils has been broken with the new plantings of olive trees. In general, they involve less risk of erosion.

2.7.3. Traditional olive plantations currently represent genuinely productive woodland on the Union's southern flank, and fulfil an environmental role of primary importance by providing a home for countless birds from central and northern Europe during their winter migration.

2.8. Promoting quality

2.8.1. One obvious benefit of the existing CMO has been to involve producers in processing and marketing. Since it has been in force, the marketing of virgin olive oil has increased. The Commission document appears to ignore this fact, placing the emphasis on the supposedly negative impact of the two-stage system on quality. The Note claims that this procedure involves marketing olive pomace oil as olive oil: this is wrong. It also fails to mention that as a result of the two-stage system, vegetable water - a highly polluting effluent - has virtually disappeared.

3. Specific comments

3.1. The Commission Note is an inadequate basis for amending the CMO for olive oil. The description given of the sector (claiming to cover economic, cultural, regional, social and environmental aspects) completely fails to reflect what is a plural and diverse picture in either its production and processing aspects, or in the most important aspect of all: its cultural, social and economic impact on the areas in question.

3.2. The Note does not improve upon the existing CMO for the reasons set out below.

3.2.1. From the political point of view, it does not promote the development of the traditional olive-growing regions of the Community.

3.2.2. From the economic point of view, it provides no incentive for competitiveness in the European olive oil sector. In practice, the tree aid option entails giving up future sustainable olive cultivation, which is essential if Europe's leading position is to be maintained.

3.2.3. From the environmental point of view, the abandonment of cultivation which tree aid would bring about would increase the danger of environmental damage.

3.2.4. From the social point of view, production aid guarantees current levels of employment and protects against rural exodus. If the tree aid option were to be adopted, a number of different olive cultivation systems would virtually disappear, although some of them are of crucial importance to both small producers and workers.

3.2.5. From the market point of view, the Commission document confirms the non-existence of structural surpluses. It is however necessary to be able to establish buffer stocks, in order to preclude excessive price volatility, which has an adverse effect on consumption levels.

3.2.6. From the consumption point of view, the promotion campaigns designed to boost demand on the internal and external markets should be funded by the CMO budget. The Committee would also propose that such campaigns be sustained over time and tailored to the local conditions of each country.

3.2.7. From the development point of view, it is also clear that the current CMO has underpinned levels of activity, investment and innovation: whether they would continue if changes are made is doubtful.

3.2.8. From the point of view of producer income, it is essential to maintain intervention and lengthen the intervention storage period, making use of private storage if necessary. Moreover, in order to avoid excessive price fluctuation, which also has a negative impact on consumption levels, the option to set up buffer stocks should be provided for.

3.2.9. From the fraud point of view, effective instruments to control the phenomenon should be built into the present CMO.

3.2.10. From the quality point of view, the Commission should take the initiative and put forward rules to the Council to guarantee olive oil authenticity with a labelling system which would inform consumers and guard against possible confusion arising from blends.

3.3. The purpose of the considerations set out above is to ensure that a unique, healthy and essentially European product, is available to consumers, accompanied by the information necessary to guarantee its authenticity. Similarly, the level of producers' incomes should be maintained, the environment protected and social development in olive-producing areas encouraged.

3.4. Each country's register of olive cultivation must be completed at the latest by the end of 1999.

4. Table olives

The Commission should examine the table olive sub-sector, which stands apart in terms of its social and economic importance. The alternative offered should not, under any circumstances, interfere with the rules for olive oil. The specific aspects of this sub-sector should be approached on a non-discriminatory basis. No proposals should be made which would discourage cultivation of a product in respect of which the European Union leads the world.

5. Conclusions

5.1. The Committee therefore considers an exhaustive and detailed analysis of olive producers' new requirements to be essential before going ahead with reform of the current CMO. This CMO, which has shown its worth over 31 years, should not be modified without prior assessment of the effects of such changes.

5.2. The Committee urges the Commission to provide further detail on the positive and negative data described in the options it is proposing (production aid and tree aid), taking into account the comments made in this opinion, with a view to possibly coming up with an alternative proposal covering the maximum possible number of positive aspects, including the fight against fraud and preparing the sector for greater compatibility with GATT, which has imposed a number of restrictions on EU agricultural subsidies, all of which suggests that the next round of WTO negotiations will worsen the situation of the CAP, including the olive oil sector.

5.3. The Committee trusts that it will be asked to draw up an opinion on the specific proposals to be prepared by the Commission.

Brussels, 29 May 1997.

The President of the Economic and Social Committee

Tom JENKINS

APPENDIX to the opinion of the Economic and Social Committee

Rejected amendment

The following amendment was rejected in the course of the discussion:

New point 5.2.1

'The Commission should consider two new approaches in its proposal, independently of the option to be proposed:

a) To require all producers (large and small) to present to the payment body a certificate of delivery of harvested olives, compulsorily issued by the receiving body.

b) To examine the possibility of granting supplementary aid to producers' organizations, cooperatives and cooperative unions as bodies recognized as instruments under the Common Agricultural Policy (CAP) and therefore open to control by the appropriate anti-fraud authorities of either the EU or the Member States.

This could be extended to the sector's private processing industry, provided that companies declare to the appropriate payment authorities of each Member State their prior consent to accounting inspections by the above-mentioned anti-fraud authorities, to be as extensive as those for producers' organizations, cooperative and cooperative unions`.

Result of the vote

For: 16, against: 30, abstentions: 5.