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'
Date: 1998-07-01
Institutions: European Economic and Social Committee
Subjects: EU agricultural market, World Trade Organisation, crop production, production aid, reform of the CAP

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relatively simple. The split of appropriations for expen-
diture not related to posts could be based on the results
of the analytical bookkeeping system that has been
developed as foreseen by article 22 of the financial
regulations.

3.5.
The ESC welcomes the Commission’s proposal
of creating separate budget sections for both consultative
bodies. This presentation will create an independent
budgetary framework for each committee within which

either committee can define its own priorities and may
show its autonomous responsibility.

3.6.
Given its past experience and in particular the
economies of scale achieved by the joint organisational
structure, the ESC realises and accepts that from an
economic point it is useful to continue co-operation, on
a voluntary basis, on the production chain and, should
the committees be housed near to each other, on
premises-related functions.

Brussels, 1 July 1998.

The President

of the Economic and Social Committee

Tom JENKINS

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’ (1)

(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.

The Committee considers that the Union must
1.2.
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

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

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 purchas-

ing 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

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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 con-
straints 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 nego-
tiations 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 (1) (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 determi-
nation 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 forth-
coming 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 inter-
national 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 nego-

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

tiations 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 Com-
mission’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.

The Committee also warns the Commission of
1.5.3.
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

The Committee shares

the Commission’s
2.1.1.
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.

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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.

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.

2.1.3.
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.

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

2.2. Oilseeds

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.

2.2.1.
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.

2.1.5.
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 (1). 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 inter-
national markets), the use of export levies should be

(1) 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).

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.

The Committee disapproves the Commission
2.2.3.
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 improve-
ments in their competitiveness vis-à-vis other arable
crops.

2.2.4.
The Committee also believes that the praise-
worthy 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.

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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 inter-
national 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 (1).

The Committee declares its readiness to study
2.2.9.
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, pre-
mium 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

(1) 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).

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 Com-
mission 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 intervention price for durum wheat.

The Committee is opposed to a reduction in

Such action would weaken border protection (2)
2.4.3.
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 Com-
mittee sees no reason to reduce the intervention price of
durum wheat.

2.5. Potato starch

The potato starch régime is mechanically linked
2.5.1.
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 restric-
tions. 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.

(2) 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.

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3. Other comments

3.1. Set-aside

3.1.1.
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 (1).

As far as voluntary set aside is concerned, the
3.1.2.
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 post-

ponement 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.
two proposals.

The Committee is strongly opposed to these

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

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

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 declar-
ation of area under production’ is validated (in July),
with the balance being paid only from the following Janu-
ary 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 pro-
duction 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.

According to the Committee this balance would
3.3.3.
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.

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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

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’.

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APPENDIX II

to the opinion of the Economic and Social Committee

World wheat prices (SRW fob GULF)