EN Official Journal of the European Union C 44/60

Opinion of the European Economic and Social Committee on ‘Health check of the CAP and its future after 2013’

(2008/C 44/17)

On 10 May 2007 the European Commission wrote to the president of the European Economic and Social Committee, Mr Dimitriadis, under Article 262 of the Treaty establishing the European Community, to request an opinion on Health check of the CAP and its future after 2013.

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 1 October 2007. The rapporteur was Mr Kienle.

At its 439th plenary session, held on 24 and 25 October 2007 (meeting of 25 October), the European Economic and Social Committee adopted the following opinion by 116 votes to two with six abstentions.

1. Summary and conclusions

1.1 The European Economic and Social Committee welcomes the fact that the European Commission has at an early stage asked it to draft an exploratory opinion on the health check of the Common Agricultural Policy and its future after 2013.

1.2 The 2003 reform of the CAP was a major paradigm shift. Regulation of agricultural markets through intervention was greatly reduced, the linkage of direct payments to production is now the exception, and, despite the enlargement of the EU, financial expenditure on the CAP has fallen. The EU has thus done more for the further liberalisation of international agricultural trade than any of its competitors.

1.3 Not only farmers, but also food processing businesses are currently going through a tough period of transition. The EESC believes that there is a great deal of willingness to respond in an entrepreneurial and market-oriented manner to the new conditions, provided that the promises made during the reforms are kept and sufficient legal and planning certainty is provided. This is all the more true at a time when there is strong worldwide demand for foodstuffs and renewable energy sources and the importance of food security is being reassessed.

1.4 The EESC considers it right that the simplification of the administrative rules applying to subsidies and the implementation of the cross-compliance requirements, along with a review of the need to adapt existing provisions to future requirements (see point 6.3), are seen as the main priority for the health check.

1.5 In connection with the debate about the future of the CAP after 2013, the EESC considers an adaptation of its aims (Article 33 of the EC Treaty) to today's circumstances and challenges to be necessary.

1.6 The EU is committed to the European agricultural model and to multifunctionality. The EESC points out that this cannot easily be squared with ever greater liberalisation, especially since European society's expectations of agriculture remain high.

1.7 The liberalisation of agricultural trade is likely to cause considerable volatility and instability in agricultural markets. Climate change is having a similar effect. Therefore, the EU will continue in the future to need instruments for stabilising agricultural markets. However, the EESC also calls for alternative systems to be discussed and developed.

1.8 It is generally expected that the quota arrangements for milk will expire on 31 March 2015. However, the EESC points out that many naturally disadvantaged regions rely on milk production. Timely proposals for safeguarding production in these areas therefore need to be drawn up.

1.9 The EESC would also draw attention to its current opinion on Compensation payments for disadvantaged areas beyond 2010 (1), which deals with the need for targeted support for naturally disadvantaged regions.

1.10 The EESC is convinced that direct farm payments will continue to be essential in the future. If direct payments are to receive and maintain public acceptance, the EU must be able to explain their purpose.

1.11 The second pillar (rural development policy) is even more significant for ensuring the multifunctionality of agriculture. The EESC therefore advocates more substantial funding for the second pillar. Examples demonstrate that targeted support can lead to the creation or the protection of jobs in agriculture and rural areas.

2. Introduction

2.1 In 2007 the EU can proudly look back on 50 years of successful European integration. Since the entry into force of the Rome Treaty on 1 January 1958 the Common Agricultural Policy (CAP) has been an important part of this unprecedented development. Agriculture is still the only fully harmonised Community policy area.

2.2 It is therefore encouraging that a majority of EU citizens feel positive about agriculture and the CAP, as a representative poll clearly shows (2). Advantage should be taken of this prevailing favourable mood to convince the public that the resources provided by the CAP are invested well for the benefit of society. Politicians should deliver not just the relevant measures and programmes, but good arguments to go with them.

2.3 The agricultural reform of 2003 (which has since been complemented by reforms in other markets) transformed the CAP to a much greater extent than any preceding reforms.

2.3.1 The rationale for the reform was that it would make agriculture more market-oriented and competitive. It was also intended to make the CAP more easily defensible in WTO negotiations, while better responding to changes in public expectations of agricultural production.

2.4 A point frequently made by policy-makers was that once completed, the agricultural reforms would restore planning certainty regarding CAP instruments for farmers and downstream businesses (processing and distribution). The EESC has repeatedly drawn attention to the importance of this requirement.

2.5 In December 2005, when the EU budget for 2007-2013 was agreed on, the European Council tasked the European Commission with conducting a review in 2008/09 of expenditure and revenue covering all aspects of Community policies.

2.5.1 Even before this, a ‘health check’ of CAP reform measures has been envisaged. According to the Commission, the aim is not to launch a new reform process, but to consider to what extent the objectives of the CAP have been met, and to what extend adjustments are needed.

2.6 A broad-based debate is already to be launched in autumn 2007. The Commission plans to issue a communication containing specific proposals on 20 November. The relevant legislative proposals are planned for the first half of 2008 (3). Separate from the health check, a discussion is envisaged on the direction which development of the CAP should take post-2013.

3. The 2003 CAP reform: a radical change

3.1 Following the changes to the CAP which had already been decided as part of Agenda 2000, the agricultural reform of June 2003 brought about a radical change.

3.1.1 Single farm payments are being decoupled from production. ‘Decoupling’ is the heart of the reform. So far, 85 % of payments have been decoupled.

3.1.2 Direct payments (‘single farm payments’) have been tied to compliance with particular environmental, food safety, animal health, plant health and animal welfare standards (‘cross-compliance’).

3.1.3 Regulation of agricultural markets in the form of market intervention, storage and export subsidies has been greatly reduced.

3.1.4 The remaining quantity guidance measures, such as production quotas, are to be gradually phased out.

3.1.5 In spite of enlargement and a wider remit, CAP expenditure for the 2007-2013 period will be down by 7.8 % compared to 2006.

3.2 As a result, the EESC notes that at 43.6 % in 2008 the share of the CAP in the EU's total budget (the Commission's preliminary draft budget) will, for the first time, no longer be the largest budget heading. It should also be remembered that in 1997 market support measures still amounted to EUR 35 billion, or 85 % of funding for agriculture. In 2007, only EUR 5,7 billion (13 %) has been allocated. A ceiling of EUR 1 billion has been set for export subsidies, compared with EUR 6 billion in 1997 (4).

3.3 Cuts in CAP expenditure at the same time as an increase in the number of beneficiaries (mainly due to enlargement) mean that various measures may experience cutbacks.

3.4 The need for the EU to strengthen its position in defending the European agricultural model in WTO negotiations was an important consideration for the Commission in reforming the CAP. The reform of the CAP was a huge first step for the EU. The Commission emphasises that the offers which have been tabled so far in the WTO Doha Round are consistent with the 2003 CAP reform. However, there are differing views on this point.

3.5 The EESC is concerned to note that the CAP is increasingly drifting apart. Differences in national implementation of the CAP have grown considerably as a result of the 2003 reform. However, this also affects competition in the internal market.

4. European agriculture is adapting to changed circumstances

4.1 Under the decisions taken by the European Council on the EU budget in 2003 and 2005, the CAP has been incorporated into the EU's overall financial framework. There are clear political objectives, which will apply until 2013. Farmers now need time to adjust to the changes.

4.2 As a result of cuts in institutional prices and market-support measures, and also of the further opening-up of markets to imports, production prices in the EU-15 fell in real terms over the 2000-2005 period (5).

4.3 The Commission has linked decoupling to expectations not only of achieving more stable incomes (6) but also of an improvement in farmers' income situation (7). However, income trends in 2005 and 2006 do not yet bear out such expectations. That said, incomes can be expected to increase in 2007, not least due to the current increase in world market prices for agricultural raw materials.

4.4 In its opinion on the 2003 CAP review (8), the EESC pointed out that proving adherence to cross-compliance standards would mean a sharp rise in farms' own expenditure, including on documentation. Costly investments are also often necessary, for example in livestock farming. Experience already suggests that some farmers with smaller and economically weaker farms are unwilling or feel unable to take on the necessary commitments, and are therefore obliged to give up farming.

4.5 Decoupled direct payments should enable farmers to make the best use of market opportunities. In many cases, adapting to markets requires investments, sometimes of large amounts of capital, or, in some cases, very little financial investment, but a lot of advisory support. Subsidies are available for restructuring and investments under the second pillar. The willingness of agriculture, and above all of those taking on farms in the future, to adapt to altered conditions and to make the necessary investments depends in large part on the reliability of policies.

5. European agriculture must make good use of its potential

5.1 Over the last few months, there have been major changes in global agricultural markets as a result of strong global demand for foodstuffs as well as for regrowing raw materials (produced in the agricultural and forestry sectors) and renewable energies. This should open up more opportunities for farmers to cultivate and sell their crops. European agriculture, as well as agriculture in developing countries, will benefit significantly from this. However, the EESC considers it particularly important that the increased use of production potential in agriculture and forestry should take account of sustainability and environmental considerations. The EESC also points out that there are considerable risks associated with the much greater market volatility that is to be expected.

5.2 Tapping into existing potential means less dependence as regards supplies of everyday necessities. It can also significantly help to boost value added in rural areas and create employment in all stages of production, processing and distribution.

5.3 For many years, the availability of cheap fossil fuel supplies was seen as an advantage. Since then, heavy dependence and steep price rises have led to critical reflection on the possible implications for major products used in people's daily lives. There is a new awareness of the importance of secure supplies, of both energy and food. This will become greater as it becomes clear that these cannot be guaranteed by imports alone.

5.4 The UN's global climate report confirms what scientists have already warned of, in terms of the consequences of global warming. Even if global warming can be somewhat slowed down, serious consequences such as increasingly extreme weather conditions, droughts and water shortages are to be expected. Agriculture and forestry in many countries will be particularly hard hit.

5.5 The EESC welcomes stronger awareness of the problem in the EU, reflected e.g. in the Berlin Declaration on the 50th anniversary of the signing of the Rome Treaties. In the EESC's view, the heads of states' or governments' avowed intention to play a ‘leading role’ in combating poverty and hunger, and ‘jointly to lead the way in … climate protection’ is to be supported by all possible means. Agriculture in the EU-15 has reduced its share of greenhouse gas emissions by 16 % over the 1990-2004 period (9), but pressures remain for further cuts.

5.6 The need to achieve massive cuts in CO2 emissions must also bring about a rethink of how goods such as agricultural products are supplied. Strong transport growth is one of the main reasons for rising CO2 emissions. Even with energy prices rising considerably, environmentally questionable imports (e.g. apples and asparagus flown in from South America) will only come under limited economic pressure. More attention must be urgently paid to improving supplies of foodstuffs and energy which do not involve long journeys. There are many successful examples which show that this can be done, to the benefit both of the environment and employment in rural areas.

5.7 The decision taken in Brussels in March 2007 by the heads of state or government to require that 20 % of EU energy come from renewable sources by 2020 is an important step towards cutting CO2 emissions. This objective can only be achieved if greater use is made of biomass. On many occasions, the EESC has made it clear that farmers and forest owners are willing and able to supply significantly greater quantities of biomass raw materials. Various studies show that increased productivity and use of uncultivated land would have significant potential (10).

5.7.1 Set-aside has proved valuable as an instrument for relieving the pressure on cereals markets. However, circumstances have changed due to the 2003 reform and the need for agricultural raw materials for biofuel production. The EESC therefore supports the plans to do away with set-aside. However, it must be ensured that there are no environmentally adverse effects or that these are offset. The Commission should submit studies and proposals on this as soon as possible.

6. Health check

6.1 The decisions on CAP reform and the agreement on the EU budget for 2007-2013 (Financial Perspectives) also laid down requirements for the review of the policy. The planned review of CAP reform was dubbed a ‘health check’. The communication on this subject is expected to be published on 20 November 2007, and the relevant legislative proposals in Spring 2008. The EESC will be consulted.

6.2 The EESC points out that the European Council, both in December 2002 and in the decisions on the 2005 Financial Perspectives, set objectives whereby the EU agricultural budget is valid until 2013, as are the agricultural policy measures. This was certainly a response to the fact that the way the previous mid-term review was handled was widely seen as a breach of trust — whilst what was announced was a review, what was actually adopted was the most sweeping reform in the history of the CAP.

6.3 The health check should be a review of the extent to which the aims of the CAP reform are being achieved. The main concern should be to identify needs for adaptation of existing legislation, enabling — easier and more straightforward implementation, and — removal of obstacles to targeted implementation of reform measures which have already been agreed on. The EESC feels that the entire value added chain should be taken into account, including production, processing and distribution.

6.4 In the EESC's view, the priorities for the health check should be a thorough review of the administrative rules for farm subsidies and the implementation of cross-compliance. The signs that the Commission has thus far given point towards such tangible simplifications. However, if cross-compliance is not to remain a constant bone of contention, it is important to secure farmers' support for it.

6.5 Doubts are expressed among farmers as to whether the health check will include attempts at substantial reforms, for example in the system of decoupled direct payments or market organisation arrangements which have already been reformed. The EESC can only suggest that such doubts be removed by clear statements from the Commission.

6.6 At the time of the 2003 CAP reform, farmers were reassured that they could rely on the new conditions arising from the reform staying in place up to and including 2013. In principle, this should apply to all reform measures.

6.7 However, the EESC supports the Commission's concern to arrive in good time at a comprehensive position on the measures needed for the CAP's future post-2013. For example, this applies to both expiry of the milk quota system on 31 March 2015 and dealing with the consequences of scrapping export subsidies. It is equally necessary to set out in a credible manner, before the discussions on the next Financial Perspectives begin, why a functioning, properly-funded CAP will still be necessary, in the interests of the EU as a whole, even after 2013.

6.8 The EESC also draws attention to the expectations of the new Member States that the instruments of the CAP will fully apply there after 2013. The health check provides an opportunity to examine whether more needs to be done about this.

7. Comments on the future of the CAP

7.1 The CAP is based on the objectives set out in Article 33 of the EC Treaty: to ensure a fair standard of living for the agricultural community, to stabilise markets, to assure the availability of supplies, to ensure that supplies reach consumers at reasonable prices, and to increase agricultural productivity.

7.1.1 Subsequent Treaty provisions on environmental protection, consumer protection and cohesion have also played a key role in shaping the CAP.

7.1.2 The EESC advocates adapting the aims of the CAP set out in the EC Treaty to today's changed realities. It is of key importance that the aims of the CAP tie in with the multifunctional role of European agriculture, while meeting the new challenges.

7.1.3 Up till now, the CAP has played an essential and decisive role in the successful European integration process. Moves towards renationalisation of key CAP elements are not a helpful response to the new challenges facing European agriculture. Increasing globalisation and the likely consequences of climate change call for even more joint action.

7.1.4 The ongoing conflict between objectives which European agriculture is experiencing (see EESC opinion on The Future of the CAP (11)) will intensify: on the one hand, production has to meet high standards, and on the other, farms are expected to be internationally competitive.

7.1.5 Further liberalisation of agricultural markets (WTO, bilateral agreements) means even stronger competition. The rise in extreme weather conditions exposes agricultural production to greater uncertainty. However, society still expects to enjoy secure supplies of high-quality and safe food, while calling for careful management of natural resources, a sensitive approach to animals and the preservation of beautiful countryside. Meeting all of these requirements is a constant challenge for the CAP, as they are only partially addressed by the market, if at all.

7.2 The European agricultural model — commitment and reality

7.2.1 The European agricultural model is part of Europe's independent approach to social and economic policy. Even if economic conditions are changing, farmers should be in a position to sustainably fulfil the multifunctional tasks which society expects of them.

7.2.2 In its opinion on A policy to consolidate the European agricultural model (12), the EESC emphasised that there was no contradiction between preserving the European agricultural model and the need to adapt European agriculture to changing economic conditions. It also emphasised that the EU must continue to have the necessary room for manoeuvre in agricultural policy, even after the WTO trade negotiations.

7.2.3 The commitment to the European agricultural model remains in place. The unanimous Declaration of Intent made by agricultural ministers in Luxembourg in 1997 is particularly impressive. According to this, European agriculture should be: — sustainable and competitive; — capable of maintaining the countryside and conserving nature; — capable of making a key contribution to the vitality of rural life; — able to respond to consumer concerns and demands regarding food quality and safety, environmental protection and animal welfare. It is equally important to refer to the Luxembourg European Council that took place the same year, which stated that ‘European agriculture must, as an economic sector, be versatile, sustainable, competitive and spread throughout European territory, including regions with specific problems’.

7.2.4 However, the EESC is concerned to note a widening discrepancy between, on the one hand, commitments to the European agricultural model or to the multifunctionality of European agriculture, and, on the other, the day-to-day reality of European farming.

7.2.5 The enlargements in 2004 and 2007 further diversified the range of farm structures and production conditions There is even greater diversity, and even less of uniformity in agriculture. In the EESC's view this is not a threat to the European agricultural model as the necessary basis for ensuring the multifunctional nature of European farming.

7.2.6 In the EESC's view, the European agricultural model's future prospects will be good only if a balance can be struck between economic, social and environmental concerns. As the EESC opinion on The future of the CAP has already noted, it is illusory to want to have an agricultural sector which: — can produce under (often distorted) world market conditions (as far as possible without financial support); — and at the same time meets all the production expectations (in terms of quality, safety, protection of natural resources, animal welfare, etc.) while coping with European costs; — and also secures a modern and attractive labour market that helps protect employees and is marked by high standards of employment, safety, and basic and further training.

7.2.7 For the EESC it is clear that wide-ranging liberalisation measures resulting from WTO and bilateral trade agreements are stepping up competitive pressure. Stringent EU rules and standards usually entail agricultural production and processing costs from which third-country competitors are exempt, besides the cost advantages which they enjoy. These circumstances are clearly at odds with the multifunctional role of European agriculture and are issues of crucial relevance when setting the future course of the CAP or endowing it with instruments.

7.3 Key CAP instruments will still be needed in future

7.3.1 The objectives set out in Article 33 of the EC Treaty impose an obligation to act. As the past few years have shown, we can expect weather conditions to become increasingly extreme throughout the world. This development strongly influences agricultural production and is likely to cause increased market volatility. It is therefore all the more important to consider which instruments should be kept and/or developed further.

7.3.2 The EESC would emphasise that CAP reforms in 2003 did not by any means envisage doing away with key elements of the CAP over the next few years. It is unlikely that competition in the European agricultural sector or society's expectations of agriculture will change over the next five years to such an extent that the reasons behind the CAP and its instruments cease to be relevant. On the contrary, the CAP will face new challenges.

7.3.3 This is particularly true of rural development policy (second pillar). The EESC has repeatedly called for this to be adequately funded. However, the measures under the second pillar cannot replace the first pillar measures for market stabilisation and the direct payments. The latter will continue to have an important role in the CAP beyond 2013. Similarly, the EESC would be against using rural development funds (second pillar) for measures relating to risk and crisis management (see COM(2005) 74 final).

7.3.4 The EESC reiterates its position that the necessary financial resources must be made available for the performance of Community tasks. It is therefore all the more important, in preparation for the debate to be held in 2009 on the future EU budget, to ensure that the public understands the future demands that will be placed on an effective Common Agricultural Policy.

7.3.5 The EESC has repeatedly called for a well-functioning CAP. Calls for the abolition of the CAP will remain confined to a few outsiders. However, it is important to counter moves towards renationalisation of key CAP elements, which are rightly perceived as exclusive Community responsibilities.

7.4 Common market organisations

7.4.1 Experience shows that agricultural markets are particularly vulnerable to price fluctuations. Large fluctuations often send the wrong signals, resulting in huge losses which are not in the long-term interests of consumers either.

7.4.2 The EESC feels that the arguments for stabilising agricultural markets presented by distinguished agricultural economists in the 1997 study commissioned by the European Commission (‘Towards a common agricultural and rural policy for Europe’ (13)) will be all the more pertinent in future: — a high degree of risk given the dependence of agriculture on weather; — a spatially-diffused, atomistic structure of many small businesses, which have a high proportion of immobile assets and land, which restricts freedom of manoeuvre; — fairly rigid dependence on seasonally and biologically determined development and growth processes; — the responsibility to regularly supply products consumed every day.

7.4.3 These reasons for market stabilisation measures have not become obsolete as a result of developments on international agricultural markets since then. On the contrary, we can expect new challenges. The EESC therefore recommends that in future all steps towards liberalisation or removal of existing market stabilisation instruments be closely considered, with sufficiently in-depth analysis of possible repercussions.

7.4.4 The agricultural reforms of 1999 and 2003 represented significant steps towards liberalisation of the common market organisations: institutional prices (e.g. intervention and target prices) were cut, intervention rules were done away with, warehousing surcharges were reduced and production-linked direct payments were decoupled. This reform process was continued in 2004 with tobacco, olives, cotton, hops, in 2005 with sugar, and in 2007 with fruit and vegetables. Market organisation arrangements for wine are currently being discussed.

7.4.5 If the WTO Doha Round were concluded, a new situation for EU agricultural markets would arise. This would apply even if the agreement was based on the concessions which have already been made, e.g. abolition of export subsidies by 2013, and cuts of between 35 % and 60 % to remaining tariffs. According to the Commission's calculation, these concessions would cost European agriculture about EUR 20 billion.

7.4.6 In future, the commitment to multifunctionality and the obligations arising from Article 33 of the EC Treaty will, the EESC believes, continue to require measures which can: — counter the risks of increasing instability on agricultural markets; — guarantee that setting high standards for production is not rendered meaningless by allowing imports which do not comply with EU requirements; — and help to ensure that a wide range of foodstuffs continues to be available in the future.

7.4.7 The EESC would point out that for many years, EU markets have been some of the most open in the world. The EU is also by far the most open market for imports from developing and emerging countries. These countries export more agricultural products to the EU at either low or zero tariffs than to the USA, Canada, Japan, Australia and New Zealand combined. Discussion is needed of agricultural and food imports produced and processed under conditions which would be unacceptable in European society.

7.4.8 In the EESC's opinion, Community preference and effective instruments for market-relief measures, for example in the form of warehousing, should still be available in future, if market developments so require. Warehousing also helps to prepare for crises. No convincing alternatives enabling farmers to protect themselves against volatile agricultural markets have yet been found. The EESC calls for possible models, based on experiences in certain countries such as the USA and Canada and tailored to European circumstances, to be discussed. We must ensure that the EU continues to produce high quality safe food and this will only be possible if farmers receive an income that enables them and encourages them to stay farming.

7.4.9 The EU has not yet succeeded in including the negotiation of ‘non-trade concerns’ (environmental and social standards, animal welfare) in the WTO Doha Round. The EESC expects the Commission to exert greater pressure for this to happen in the current WTO talks. Direct payments alone will not suffice to guarantee high standards of production in the long term. So long as major differences in production conditions and standards remain in international competition, an adequate degree of external protection is indispensable. Such protection must not be undermined by short-term policies; for example, there is a danger of this happening with the EU's latest offer to ACP countries (zero tariffs on imports). In future, the EU should make further trade concessions for agricultural products — particularly under bilateral agreements — conditional on those products complying with minimum standards.

7.4.10 Recent restrictive use of the ‘export subsidy’ market instrument shows clearly what the proposals to scrap such subsidies could mean in future critical market situations. The EESC expects the Commission to finally conduct a comprehensive analysis of the potential repercussions of scrapping export subsidies on the EU agricultural system.

7.4.11 Greater awareness of rigorous standards at all stages of the food production process could help to boost sales revenue. In future, this factor will become increasingly important for European agriculture. The EESC is in favour of making effective use of EU funding to support information and advertising campaigns. It is equally vital for the Commission to adopt a strong position in WTO talks on adequate protection of geographical indications in product labelling.

7.4.12 In its opinion on The future of the CAP, the EESC discussed the subject of controlling supply in detail. It noted that quantity-regulation measures can play an important role. However, there is no doubt that milk quotas have been increasingly undermined over the last few years.

7.4.13 In 2002 a Commission study (14) pointed out that the phasing out of milk quotas in the EU-15 would cut farmers' incomes by more than EUR 7 billion. The amount of milk would increase by 12 % and prices would fall by 35 %. There would be substantial shifts within the industry and regionally in milk production. Until it is clear how these changes can be compensated for, no final decisions should be taken on milk production quotas.

7.4.14 According to the decision of the Agricultural Council of the EU on CAP reform, milk quotas will expire in 2015. The Commission is opposed to any backtracking on this decision; nor is there any likelihood of a qualified majority in favour of extension in the Agricultural Council. Given the importance of milk production, including for the maintenance of agricultural activity in numerous disadvantaged areas, a clear picture of the implications and inevitable consequences of an end to the quota system is needed. The EESC therefore feels that there is an urgent need to draw up a programme for regions which would be especially hard-hit by an end to the milk quota system in order to ensure continued production there.

7.4.15 In general terms, without farm and livestock production, many naturally disadvantaged regions run the risk of losing their economic viability. The EESC therefore feels that an in-depth study should be carried out, by region and by sector, of the future of farming after 2013, so that the challenges and changes that the sector will face can be addressed with a degree of certainty.

7.5 Direct farm payments

7.5.1 Since the 1992 CAP reform, direct payments have become a central and indispensable instrument of the policy, not least since market revenues alone are in many cases not enough to ensure an acceptable standard of living and continued farming. In doing so, they have taken account of the fact that farms — no longer cover their costs for sales of many products as a result of falling prices; — by cultivating farmland in compliance with strict production requirements, often work with much higher costs than in equivalent production outside the EU, and provide services in the public interest, in line with society's expectations; — are compensated for natural handicaps in disadvantaged regions.

7.5.2 The EESC considers a function-oriented approach to direct payments and long-term protection for these CAP instruments to be indispensable for the future. In order to secure general acceptance, any type of direct payment must be sufficiently justified.

7.5.3 The EESC would therefore like a clear distinction to be made between the various types of direct payment. The direct payments introduced in 1992 as a result of price cuts will in future have a function as a payment for services which are not covered by market prices. They have a different function to those paid under specific environmental programmes, which are to continue in future to reward special environmental services via the second pillar, or to those which are intended to offset natural handicaps (compensatory allowances).

7.5.4 These direct payments, which have to a large extent been decoupled since the 2003 CAP reform, currently play a key role in ensuring the multifunctionality of European agriculture, and the EESC sees the importance of this role increasing in the future. Compliance with strict production requirements, e.g. due to environmental, animal welfare or food safety considerations, results in costs which many competitors from third countries are exempt from. Society expects such standards to be met; however, under the existing competition conditions, these tasks are insufficiently rewarded by the market. In the EESC's view, providing compensation through appropriate direct payments, currently in the form of the single farm payment, must remain a clear task of the first pillar.

7.5.5 Previous production-linked subsidies have already been 85 % decoupled, in the form of the ‘single farm payment’, which is conditional on meeting with cross-compliance requirements. The EESC is pleased that the Commission has put forward proposals to overcome the difficulties which have occurred in practice.

7.5.6 For the future, it is vital that neither the basic idea of these payments nor their amount are questioned and that an adequate financial basis remains in place. It is important to be able to provide society with good and sufficient justification of such payments. Only in this way can agricultural payments be maintained at their present level after 2013.

7.6 Rural development policy

7.6.1 90 % of the EU's land area is countryside, with most land being used for agriculture and forestry. According to Eurostat, the food production chain accounts for just 15 % of value added in the EU, but is the third largest source of employment.

7.6.2 The Commission's newsletter on ‘Putting rural development to work for jobs and growth’ (March 2006) noted that without the CAP, many rural areas of Europe would face major economic, social and environmental problems. It emphasised that rural development measures, in particular, can play a significant role in fostering and maintaining prosperity in rural areas. The EESC would refer to its opinion on ‘Rural Development/EAFRD’ (15) which, among other things, makes the following point: ‘to ensure the economic and social sustainability of these areas, it is necessary to take into account the contribution of the Common Agricultural Policy's two pillars to the maintenance and creation of employment in all the EU's regions, particularly through the development of competitive agricultural or non-agricultural activity, based on innovation’.

7.6.3 The EESC finds the results of the ‘Study on Employment in Rural Areas’ carried out at the Commission's request (May 2006) alarming. The study assumes that the number of people working in agriculture will drop over the 2000-2014 period by about 4-5 million in the EU-15, and by an additional 3-6 million in the new Member States (including Romania and Bulgaria).

7.6.4 The EESC would emphasise that developing a comprehensive rural development policy requires a cross-sectoral approach. In view of its theme-based programming, second pillar promotion of rural development has its own role to play and thus cannot be a substitute for other instruments to develop and strengthen rural areas. The EU's employment strategy is indivisible and must encompass job retention and creation in agriculture and forestry.

7.6.5 The EESC calls attention to a new study by the environmental foundation Euronatur entitled Work and income in and from agriculture. Using the Hohenlohe region as an example, evidence is produced that, despite internationalised agricultural markets, increased competition and concentrated processing, it is possible not only to preserve jobs in agriculture, but also to create new ones through diversification in production and marketing. The targeted use of subsidies can have a significant economic and structural impact on employment in rural areas.

7.6.6 The EU's rural development policy is directly linked to the CAP and can be seen as an instrument for supporting agriculture and forestry. The EESC feels that the sustainability of this approach and consistent implementation of both pillars of the CAP are important objectives. Strengthening competitiveness, recognising the environmental achievements of agriculture and forestry, and serving as a bridge to improved rural structures are strategic elements which are indispensable in complementing first-pillar CAP instruments.

7.6.7 In formal terms, rural development funding is distinct from the first pillar in that it has its own fund, thus emphasising the importance of the policy, which has been revamped as part of the reform. The results of negotiations on the 2007-2013 financial perspective have led to inadequate funding of the second pillar, something which the EESC has criticised in several opinions. The EESC takes the view that the different functions of the CAP must be preserved. Any further modulation of first pillar direct payments must respect this requirement. If this entails the transfer of funds from the first to the second pillar, it should be a condition that these funds support measures to ensure the multifunctionality of agriculture. This will do a great deal to help employment in rural areas.

7.6.8 The EESC advocates a substantial increase in funding for measures under the second pillar after 2013. It is also in favour of making targeted use right now of current savings on export subsidies and other market-relief measures generated by the market situation for projects to support rural areas.

7.6.9 The EESC calls on the Commission to clarify the exact distinction between the European Agricultural Fund for Rural Development (EAFRD) and the European Regional Development Fund (ERDF). The EESC is concerned that the second pillar is increasingly used to fund every imaginable type of investment.

7.6.10 The EESC is very pleased that Axis 3 of the EAFRD Regulation can also be used to finance measures from non-agricultural and forestry sectors, but feels that these should have an identifiable — and not merely theoretical — connection to primary production. The EESC does not endorse proposals to finance e.g. the installation of cabling for broadband services or the GALILEO Project, which could be covered using conventional regional development funds.

7.6.11 The EESC feels that the following consideration should be taken into account when implementing rural development measures: in view of differing requirements in each Member State, there should be a certain degree of flexibility, in keeping with the subsidiarity principle. The related national co-financing of the programmes is a key element of the shared responsibility for appropriate implementation of the individual measures.

Brussels, 25 October 2007. The President of the European Economic and Social Committee Dimitris DIMITRIADIS

(1) NAT/356.

(2) Eurobarometer 276, ‘Europeans, Agriculture and the Common Agricultural Policy — 2006’

(http://ec.europa.eu/agriculture/survey/index_en.htm).

88 % of those surveyed agreed that agriculture and rural areas are important for the future of Europe, 49 % were in favour of decoupling, and a higher percentage (45 %) felt that the budget share of the CAP was at the right level than that it was too high (16 %) or not high enough (15 %). 58 % of those surveyed felt that funding for agriculture should remain at the same level (32 %) or increase (26 %).

(3) Speech by Commissioner Fischler Boel on 7 May 2007 in the European Parliament (SPEECH/07/288).

(4) Source: European Commission, budget plans.

(5) EuroStat ‘producer price indices’: plant products — 9,3 %, animal products — 15,8 %.

(6) DG AGRI, Memo/03/10.

(7) Mid-Term Review of the Common Agricultural Policy, COM(2002) 394.

(8) OJ C 208, 3.9.2003, p. 64 — NAT/178.

(9) EEA Report No 9/2006 ‘Greenhouse gas emission trends and projections in Europe 2006’.

(10) Communication from the Commission — An EU Strategy for Biofuels; SEC(2006) 142

Nachhaltige Biomassenutzungsstrategien im europäischen Kontext (Strategies for sustainable use of biomass in a European context) (Institut für Energetik und Umwelt, Leipzig)

How much bionergy can Europe produce without harming the environment? (European Environment Agency, EEA Report No 7/2006).

(11) OJ C 125, 27.5.2002, pp. 87-99 — NAT/122.

(12) OJ C 368, 20.12.1999, pp. 76-86 — NAT/028.

(13) European Economy No 5/97.

(14) SEC(2002) 789, Commission working document ‘Report on milk quotas’.

(15) OJ C 234, 22.9.2005, pp. 32-40 — NAT/256.