Opinion of the Economic and Social Committee on:

- the "Proposal for a Council Regulation on the common organisation of the market in rice", and

- the "Proposal for a Council Regulation amending Regulation (EC) No 1251/1999 establishing a support system for producers of certain arable crops, in order to include rice"

(2001/C 14/27)

On 19 June 2000, the Council decided to consult the Economic and Social Committee, under Articles 36 and 37 of the Treaty establishing the European Community, on the above-mentioned proposals.

The Section for Agriculture, Rural Development and the Environment, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 6 October 2000. The rapporteur was Mrs Santiago.

At its 376th meeting on 19 October 2000, the Economic and Social Committee adopted the following opinion by 42 votes to 12 with 8 abstentions.

1. Introduction

1.1. There is a major imbalance in the European rice market according to the Commission, as set out in its proposed regulation on this sector. It attributes the causes of this imbalance to increases in imports and production and the limitation of subsidised exports under the GATT agreement. The Commission also notes that a solution to this problem must be found quickly by revising the common market organisation for rice and at the same time reducing production.

1.2. Thus the Commission is proposing to:

- integrate rice into the arable crop system;

- abolish the intervention mechanism and the intervention price for rice;

- resume, if possible, the system of fixed import tariffs granted under the Uruguay Round;

- compensate producers for the drop in prices with an increased area payment of 63 EUR/t instead of the current 52,65 EUR/t;

- establish a set-aside scheme identical to that for cereals;

- make the use of certified seed mandatory.

1.3. The Commission intends to use these measures to re-establish a balance in the market, make Europe competitive on the world market and plug the financial gap caused by the significant build-up of rice intervention stocks over the last few years.

2. General comments

2.1. Rice crops are irrigated by flooding, requiring an abundance of water; the water plays a key thermo-regulatory role in the development of the plant which has to remain submerged throughout its growing cycle. It is best for just a shallow layer of water to cover the plant so that sunlight can get through, and for the layer to be as even as possible. This entails controlling water levels to within a millimetre, achieved using precise laser-aided levelling techniques before the seeds are sown. Regulating water levels within the paddies is vital for good plant growth and pest control; this involves good networks of irrigation canals, drainage ditches, bunds (earthen levees) between paddies, and dikes (tracks) for access to these paddies.

2.1.1. The rice paddies are levelled off at zero depth point so that as little water is lost as possible. Redeploying the land for other crops involves building up the land surface to create a gentle slope or ridges and furrows so as to ensure a certain amount of surface drainage. Such conversion work, which is always costly because of the amount of earth which needs to be moved, is only an option in areas which are not traditional rice-growing areas.

2.1.2. Most of the traditional rice-growing areas are either to be found in shallow marshland with insufficient internal and surface drainage or in alluvial zones on the banks of rivers where the soil is made up of marine sediment and where the groundwater has a high salinity level. The soil saturation problems associated with marshland and salinity in the groundwater means that no crops other than rice can be grown. Moreover, flooding is vital to prevent groundwater levels rising, thus preventing sodium from being adsorbed into the molecular structure of the clay, which would lead to its disagglomeration, i.e. the soil would lose its texture and integrity, making it unsuitable for any type of crop.

2.1.3. The Commission's concern about an increase in the area used for rice production is unwarranted, since the very conditions required for this kind of crop practically limit the surface area thus employed, as does the specialised mechanisation, as in many regions this cannot easily be transferred to other crops.

2.2. Rice cultivation plays a key role in preserving the environment of the areas where rice is produced. This type of farming is suited to very specific soil and climatic conditions, providing a perfect image of harmony with nature and environmental values. The rich rice-paddy ecosystem is of undeniable value in terms of both landscape and wildlife, creating a suitable habitat for aquatic birdlife. Rice paddies constitute specific ecosystems which no other type of crop creates. Flooding with fresh water allows small species to develop, including the freshwater crayfish, attracting a wealth of wildlife, in particular migratory birds such as ducks, swans, storks and snipes.

2.3. Although rice cultivation is nowadays almost fully mechanised, it is more labour-intensive per hectare than other types of cereal because of the specialisation involved and the work entailed in moving water around the paddies.

2.4. Rice cultivation is of key importance in some areas of southern Europe in terms of population and land-use planning and the social balance of rural areas. In one Communication(1), the Commission states that "in Italy and in France 33,8 % and 47,8 % [...] of farmers possess more than 30 hectares of rice land. In Spain, Portugal and Greece only 6,9 %, 9,9 % and 1 % of farmers have respectively more than 30 hectares. In these Member States, rice cultivation is small scale with around 77 % to 85 % of the farmers having less than ten hectares. Rice farmers tend to be very specialised, since about 65 % of rice growers have more than 50 % of their land in rice cultivation. These growers account for more than 78 % of the total rice area. This means that a significant number of small rice growers depend almost exclusively on rice for their agricultural incomes".

2.4.1. More recent data (from Eurostat 1997) show that for example, in Greece and Portugal more than 50 % of farms comprise less than 5 hectares and in Spain more than 50 % of farms comprise less than 10 hectares.

2.5. Community rice production is mainly of the Japonica subspecies (medium grain), mostly consumed in the Member States of southern Europe, which are also the producer countries: Spain, Italy, France, Greece and Portugal.

2.5.1. Northern Member States mainly consume the Indica subspecies (long grain) imported from third countries and also in recent years produced within the EU. Its production rose from 27000 tonnes in 1988/1989 to 120000 tonnes in 1999/2000, representing about 55 % of Community consumption of this type of rice(2).

2.5.2. As a foodstuff, rice is very healthy, being a source of complex carbohydrates: starch, to be more precise. It is also rich in protein and is considered to be the cereal with the highest quality protein, containing eight essential amino acids. Rice contains practically no fat, cholesterol or gluten.

2.5.3. The key difference between the different types of rice consumed within the EU - Indica and Japonica - relates to the type of starch they contain. In Indica rice, the starch is made up of amylose, a polysaccharide in which the macromolecules exhibit a linear structure; this means that it does not easily retain water. This type of rice is easy to cook: its grains do not normally stick together, but it does not easily absorb the taste of the food with which it is being cooked. Japonica rice is essentially made up of amylopectin, a polysaccharide in which the macromolecules have a branched structure; it is susceptible to excess absorption of water, but does absorb well the taste of the food with which it is being cooked. Its forms of preparation are more sophisticated, allowing a considerable variety of dishes which are more in keeping with the Mediterranean diet. This type of rice requires more sophisticated forms of preparation, allowing a considerable variety of dishes, where the rice is cooked together with meat, fish, vegetables or shellfish or sometimes a mixture of these ingredients. There is a great variety, all of which are delicious, nutritionally balanced, healthy and perfectly suited to present-day consumer quality and safety requirements.

2.6. Until 1996 the rice market in the Community was stable, without any need for recourse to intervention and with market prices which were very close to intervention prices.

2.6.1. The surplus in Japonica rice was exported to third countries, under a system of export refunds. Indica rice, mainly imported into northern Member States, was subject to variable import duties calculated on the basis of the value of the rice in the husk.

2.7. The 1993/1994 Uruguay Round negotiations had the effect of penalising the sector, not so much because of concessions to the inevitable pressures for liberalisation, but because of the way that the EU agreed to set up its barriers.

2.8. The variable levies were converted into fixed tariffs and were to be reduced by 36 % overall by the year 2000. European farmers have been given area aid which has only partly compensated them for the drop in market prices.

2.8.1. In the GATT negotiations, the negotiators' indifference vis-à-vis rice had serious consequences, since they placed rice alongside the other cereals for the purposes of customs tariffs, forgetting that rice, unlike other cereals, undergoes prior industrial processing, namely husking and milling.

2.8.2. This oversight in negotiations was immediately used by the United States, who called for the introduction of a special import clause, headnote 7, which consists of a pricing system calculated in such a way that the price of imported rice, after payment of duties, would never be higher than a given percentage over the intervention price of Community rice. This means:

- for Japonica rice: 188 % of the intervention price for paddy rice;

- for Indica rice: 180 % of the intervention price for paddy rice,

irrespective of the price/quality of the rice concerned.

2.8.3. This agreement subsequently entailed a special abatement being granted for basmati rice, the price of which was on average 250 EUR/t higher than the world market reference prices. This rice is currently entering the Community at zero duty or virtually zero duty, and of course imports increased from 40000 tonnes in 1994/1995 to 100000 tonnes in 1998/1999.

2.8.4. Also to be noted is the fact that rice imported under preferential conditions - 160000 tonnes of husked rice from ACP and OCT countries at reduced duties for ACP countries and zero duties for OCT countries.

2.8.5. With the accession of the new Member States, new tariff rate quotas had to be opened for 63000 tonnes per annum of milled rice at zero duty and 20000 tonnes per annum of husked rice at a duty of 88 EUR/t.

2.8.6. In summary, under the preferential conditions 200000 tonnes of rice, i.e. 40 % of all current imports, are imported at zero or much reduced duty. The remaining 60 % pay only around 200 EUR/t, instead of the 264 EUR/t initially agreed upon, and if Basmati rice and ACP and OCT imports are included in the calculation, the average duty applying at the moment falls to 110 EUR/t.

2.9. This situation, together with the reduction of refunds on exports, limiting exports of Japonica rice, threw the Community rice market out of balance, pushing up imports sharply and pushing down internal prices below the intervention price. It was therefore a logical consequence to make use of intervention, and this reached proportions which had hitherto not been seen in the sector, making a revision of the CMO in rice inevitable. It is quite fair to affirm that only Europe has lost out and only non-European exporters have emerged better off.

2.10. It is important to highlight that although European rice production is insignificant on a worldwide scale (0,4 % of total world rice production), the European market is much sought-after by international producers.

2.11. On the other hand the United States, which is essentially an exporting country, has been implementing a policy of subsidising production to compensate producers for the fall in world market prices, and this has led to an expansion in rice-producing areas and productivity.

2.12. The United States plays a predominant role in setting prices and influencing their trends. Rice is one of the products traded on the Chicago commodities exchange and international price fluctuations in rice are subject to heavy speculation which may bear absolutely no relation to the rice situation in Europe.

2.13. The modest profile of rice compared to other cereals means that it is frequently used as a pawn in international trade negotiations in order to achieve agreements which are more advantageous for cereals - which are politically and socially more important in the European Union.

3. Specific comments

3.1. The particular nature of the rice market was recognised by Community legislators as early as the 1960s when the common market organisations were set up and it was for this reason that in 1967 a regulation was passed establishing the single market in rice. It is clear that the creation of a common market organisation (CMO) in rice, as distinct from a CMO in cereals, matched the need to take into account the specific features of the rice sector, both in terms of cultivation practices and production and consumption. These specific features still remain and there is no sense in trying to ignore them.

3.2. Both the CMOs comply with the same basic principles which should not be forgotten (intervention price, external trade regime, single market and freedom of transaction, Community preference and the pursuit of an adequate standard of living for producers). The incorporation of rice into the "arable crops" system would logically presuppose that intervention will be maintained and not abolished as the Commission is proposing.

3.3. Rice is not a crop which can be compared to other cereals, since although productivity may be greater, production costs are substantially higher. Integrating it into the general scheme for arable crops, particularly given the discriminatory way in which it is treated, is turning out to be extremely disadvantageous for this sector.

3.4. Abolition of the intervention mechanism (which has been maintained for other cereals) makes farmers totally dependent on the prices and criteria set by the industry, not least because the intervention price has always functioned as an indicator for the market price. In its earlier Communication(3), the Commission itself recognised that "although intervention is hardly used it plays a significant role in determining market prices". This role in regulating market prices has not changed and the use of intervention over the last few years is the result of a badly negotiated trade policy inappropriate for producers, the costs of which they will now unjustly have to bear.

3.5. Withdrawal of intervention will, according to the Commission, trigger a 10 % to 11 % fall in production prices. However a market study(4) carried out by experts in this area foresees a 25 % to 30 % collapse in Community rice prices. Thus the EUR 10,35 per hectare increase in area aid proposed by the Commission corresponds to around 12 % compensation. This contrasts with the 50 % compensation given for the price falls under Agenda 2000 for the other cereals.

3.6. As regards the aid to be allocated to rice production, which is the same as that provided for in Agenda 2000 for other cereal crops, the Commission proposal is not clear as to the productivity to be attributed to rice, since 1(5) of the new proposal (amending Article 4(2)) clearly states that where maize is treated separately, as occurs in rice-producing Member States, "the 'maize' yield shall be used for maize, and the 'cereals other than maize' yield shall be used for cereals, oilseeds, rice, linseed and flax and hemp grown for fibre"(5).

3.6.1. However, Commission representatives have given assurances that the Commission's intention is not this but is rather to maintain rice-growing productivity levels and areas in each country. It is therefore proving vital to provide preliminary clarification of how this document is to be read, since the document does not correctly reflect the Commission's position.

3.7. It should be pointed out that the special treatment given to maize, as an irrigated crop, should also a fortiori, be given to rice, since its production costs are higher, and the social, environmental and land conservation role it plays is both important and irreplaceable.

3.8. Rice is treated like any other arable crop, with mandatory set-aside. The Commission did not take account of the difficulties involved in reconciling rice cultivation techniques with the withdrawal of land from use (maintaining the water flow and the costs involved, organising the way that the land plots are grouped together, etc.). In addition, compensation allocated for set-aside under the current proposal, which is the same as for other cereals, does not even cover the costs of either the water or the earth removal between fields necessary for implementing the set-aside.

3.9. The mandatory requirement to use certified seed involves an unnecessary increase in costs, the sole beneficiaries of which will be the seed suppliers. Farmers always use some certified seed and some seed which they themselves have produced and selected. The amount of seed to be used in each growing season varies, since the density of sowing depends on the temperature at the start of, and during, the seed planting.

3.10. The idea of private storage aid representing an alternative to abolishing the intervention regime is quite unrealistic, besides which this is a vague and very general non-obligatory provision which could come under the title on General Provisions, but never under the title on the Internal Market, as is the case for the other CMOs. Moreover, the Commission does not provide for any budget for private storage in the financial statement.

4. Conclusions

4.1. The Committee agrees with the Commission that the rice market is out of balance and that intervention stocks entail excessive costs; it does not, however, consider that the proposed measures will re-establish a balance in the market but believes they will rather make rice production in the European Union impracticable.

4.2. The whole thinking behind the proposal depends on the success of trade negotiations of which the results are uncertain. The Commission is going ahead with proposed amendments which are extremely detrimental to the sector, without any guarantee that the prerequisites on which the whole logic behind the proposed measures is based, will actually materialise.

4.3. The Committee does not agree with the withdrawal of intervention and wonders whether the Commission is intending to try this measure out on a less vociferous sector and then, having established the precedent, extend the measure to the other cereal sectors.

4.4. The Committee urges the Commission to clarify and quantify what it means by private storage aid in case there should be a crisis in the sector. This provision is optional and extremely vague and no budget has been provided for it in the proposal's financial statement.

4.5. The Committee would point out that even if the negotiations with the rice-exporting countries turn out to be successful, these only cover 60 % of current imports. The remainder is subject to pre-set quotas with zero or almost zero duty; for this reason the Committee questions whether it is opportune to carry out such drastic and disadvantageous reform before the WTO negotiations. It would be more logical to restore customs duties in their proper form, analyse the market and only then, if necessary, contemplate a balanced and fair reform in the sector.

4.6. The Committee suggests that the Commission look into the possibility of direct aid to producers more closely, taking into consideration the social and environmental aspects characteristic of rice farming in the EU.

4.7. The Committee draws the Commission's attention to the important, irreplaceable role that rice plays in preserving the ecosystems of wetlands and nature parks in southern Europe, in land use and in preserving the flora and fauna specific to paddy fields.

4.8. The Commission cannot change the basic principles governing all the CMOs without creating considerable inequality between producers. Budget constraints must not affect only a few parties, since all parties contribute to maintaining the fabric of rural society and each one constitutes an integral part of the European agricultural model.

Brussels, 19 October 2000.

The President

of the Economic and Social Committee

Göke Frerichs

(1) COM(95) 331 final, p. 10.

(2) COM(2000) 278 final.

(3) COM(95) 331 final.

(4) Briefing note "EU rice policy reform proposals: budgetary and policy implications" by Graham Brookes - 29.8.2000 (only in English).

(5) Regulation (EC) No 1251/99.

APPENDIX

to the Opinion of the Economic and Social Committee

Proposed amendments rejected

In the discussions, the following proposals for amendments were rejected; at least one quarter of the votes cast were in favour of the proposed amendments.

Point 4.2

New second sentence:

"The Committee recognises the serious consequences for developing countries, particularly relating to the crucial Indian and Pakistani basmati trade. Increased barriers against them in the context of discussions for a new WTO Agriculture Agreement are difficult to justify."

Result of the vote

For: 20, against: 33, abstentions: 5.

Point 4.5

Delete last sentence.

Reason

It proposes significant increases in duties and prices to the consumer.

A potential trade dispute could instead be avoided by reforming the rice market through reducing the intervention price by around 25 % (and tightening intervention criteria). This will bring down the price so that surplus japonica can be exported without the need for export refunds. By keeping intervention, and the safety net for farmers, the proposal is WTO consistent and does not require the offering of compensation to third countries.

Result of the vote

For: 19, against: 41, abstentions: 2.