The agricultural Situation in the European Union - 1997 Report
Date: 1998-12-08
Institutions: European Commission
Subjects: agricultural market, agricultural situation, agricultural statistics, common agricultural policy, rural development

COMMISSION  OF THE  EUROPEAN  COMMUNITIES 

*r 

it 

Brussels,  08.12.1998 
COM(1998)611 final 

The  Agricultural  Situation 
in  the  European  Union 

1997  Report 

(presented by the Commission) 

Foreword 

This report,  which is  the 23rd annual  agricultural  situation  report,  is published  in conjunction 
with the 1997 General Report on the Activities of the European Union. It is presented in accordance 
with the procedure laid down in the declaration on the system for fixing Community farm prices 
contained in the Accession Documents of 22 January 1972. It was completed in December 1997. 
However, the section entitled 'New reforms' (Chapter I, points 30 to 59) deals with the proposals 
which the Commission  adopted on  18 March  1998 as part of  the Agenda 2000 package. These 
supersede  the  proposals  announced  in July  1997,  which  had  undergone  various  amendments 
meanwhile. 

As in previous years, the report falls into two parts. The first presents the agricultural situation 
and the year's out-turn. The economic situation, the trends on principal markets, issues affecting 
rural development, financing of the common agricultural policy  and external trade relations are 
then discussed. 

The second part of the report provides the main statistics on European Union agriculture and gives, 
in a form that has now become standard, updates of the tables produced in previous reports. 

The  statistics  are  based  mainly  on  data  supplied  by  the  Statistical  Office  of  the  European 
Communities (Eurostat). The Directorate-General for Agriculture has updated some of the figures 
and has sometimes added estimates when final figures were unavailable because of the report's 
publication date. 

As  in  earlier  years,  certain  subjects  covered  by  the report  have  also  been  dealt  with  in other 
Commission  documents. The reader will  thus find references  to various publications  available 
from  either the Commission, the Office  for Official  Publications of the European Communities 
or Eurostat. 

Contents 

I  —  The agricultural  year 

The assessment  of  the  reform process 
Long-term outlook 
Policy  objectives  for  the CAP 
New  reforms 
Agrimonetary  measures 
Promotional  measures 
Consumer  protection  and products  quality 
Assistance  to  the  needy 
Harmonisation  of  legislation 
State aid 

li  —  Economic  situation  and  (arm  incomes 

General overview 
Production  levels  and price  trends 
Trends  in farm  incomes 

-. 

III  —  Agricultural  markets 

Cereals 
Oilseeds 
Peas,  field beans  and  sweet  lupins 
Linseed 
Rice  . 
Sugar 
Olive  oil 
Dried  fodder 
Gram legumes 
Fruit  and vegetables 
Wine 
Cotton 
Silkworms 
Fibre  flax  and  hemp 
Tobacco 
Hops 
Seeds 
Flowers and  live  plants 
Animal  feedingstuffs 
Milk and  milk  products 
Beef  and veal 
Sheepmeat  and  goatmeat 
Pigmea! 
Poultrymeat 
Eggs 
Potatoes 
Honey 
•Non-food'  set-aside 
Starch production 

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109 
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110 

6  CONTENTS 

IV  —  Rural development 

The challenges facing rural society 
Horizontal measures 
Regional measures 
Supporting measures 
Agricultural research 

V 

- 

Financing  of the CAP In 1997 

The  EAGGF Guarantee  Section 
The  EAGGF Guidance  Section 
Agricultural own resources 

VI 

- 

External relations 

Relations with the United States 
Relations with Canada 
Relations with Mexico 
Relations with Mercosur and Chile 
Relations with Japan and the Republic of Korea 
Relations with New Zealand 
Relations with the Republic of South Africa 
Relations with central and eastern European countries 
Relations with Mediterranean countries 
Relations with EFTA countries 
Multilateral cooperation and international organisations 
Food aid 

PRINCIPAL  ABBREVIATIONS  USED 

113 

113 
116 
118 
147 
150 

153 

153 
162 
165 

167 

167 
167 
168 
168 
169 
169 
169 
170 
171 
171 
172 
175 

=  African,  Caribbean  and  Pacific  countries 
ACP 
=  Annual  work  unit 
AWU 
=  Common  agricultural  policy 
CAP 
CEECs  =  Central  and  east  European  countries 
COM 
=  Common  organisation  of  the  market 
EAGGF  =  European  Agricultural  Guidance  and  Guarantee  Fund 
EFTA 
EMS 
FADN 
GATT 
MCA 
MGQ 
NVA 
UAA 
USDA  =  United  States  Department  of  Agriculture 
W TO 

=  European  Free  Trade  Association 
=  European  Monetary  System 
=  Farm  accountancy  data  network 
=  General  Agreement  on  Tariffs  and  Trade 
=  Monetary  compensatory  amount 
=  Maximum  guaranteed  quantity 
=  Net  value-added 
=  Utilised  agricultural  area 

=  World  Trade  Organisation 

I. The agricultural year 

J.  In December  1995, the Commission presented its Agricultural Strategy Paper to the Madrid 
European Council. This stressed the importance of improving the competitiveness of the European 
agricultural and agri-food sectors on internal and world markets, in the context of trade liberalisation 
and an expected growing world food demand. It highlighted the need for a further evolution of 
the CAP, by developing the approach successfully  started by the  1992 reform. The Paper also 
outlined  the need  for  an integrated  rural policy  which  would accompany  the reform process. 
Moreover, it called for a radical simplification  of legislation at Union level and for a substantial 
decentralisation of policy implementation. 

2.  Later on, in November  1996, the First Cohesion Report argued in particular in favour of a 
more rational development  of agricultural  production, through a greater market orientation of 
prices and continuing structural adjustment. The Union should, the report said, make a parallel 
effort  to enhance the economic potential  and the environmental  value of rural areas and their 
capacity to provide sustainable jobs. 

3.  On 16 July  1997, the Commission presented its communication  'Agenda 2000'. In a single 
framework, the Commission outlines the broad outlook for the development of the European Union 
and its policies beyond the turn of the century, the impact of enlargement on the Union as a whole 
and the future financial  framework  beyond 2000, taking account of the prospect of an enlarged 
Union. The Commission sets out its analysis and policy guidelines for agriculture as follows.1 

1  As background information  for the Agenda 2000 proposals, the Directorate-General  for Agriculture published 

in  1997  a series of  working  documents  under the  heading  CAP  2000: 
-  Long-term  prospects: grains,  milk  and  meat  products; 
- 
- 
- 
-  Rural  developments. 

Situation  and outlook:  beef; 
Situation  and outlook:  dairy  sector; 
Situation  and outlook:  cereals,  oilseeds  and protein  crops; 

8  THE AGRICULTURAL  YEAR 

Assessment  of the reform process 

Agricultural  market  policy 

4.  Since  the  1992 reform,  there has been a considerable  improvement  of market balances and 
a decrease of  public  stocks in most of the reformed  sectors. In the case of cereals, set-aside has 
helped  to keep production  under control, while the increased price competitiveness  has allowed 
significant  additional  quantities  to be used on the domestic  market, mainly  for  animal  feed.  In 
the beef sector, the market situation evolved favourably  and intervention stocks were diminishing 
rapidly  until  the outbreak  of  the BSE crisis in March  1996. 

5.  The  general  evolution  of agricultural income per capita has been  positive since the  reform 
was implemented,  growing by 4.5 % yearly on average between  1992 and  1996, with a diversity 
of situations  according  to Member  State and  type of  farming.  The  improvement  of  the  market 
situation, the strong adaptation capacity of farmers and the agri-monetary context are among the 
factors  which  have contributed  to this result. In  the case of cereals  the market  prices  improved 
much  more  than  originally  expected. This has led to an over-compensation  of  producers  in the 
last few years. In the case of oilseeds, too, the observed market prices have most of the time been 
significantly  higher than  the reference  price so that producers have benefited  from  the  franchise 
in four  years out  of  five. 

6.  • The reform  effects  on the environment are mixed. Some positive elements can be  identified: 
the  more  rational  use  of  fertilisers  and  pesticides  resulting  from  price  decreases,  the  possible 
environmental  benefits  of set-aside (if  well  managed), incentives  for  a long-term  improvement 
in  the  territorial  distribution  of  livestock  rearing.  But  there  are  also  negative  elements,  mainly 
the  encouragement  given  to  irrigated  crops  through  the  régionalisation  of  direct  payments  for 
cereals, oilseeds and protein crops, as well as the relative advantage given to intensive  livestock 
farming  through  lower  feed  prices and by subsidising  silage. 

7.  The  reduction  of  price  support  and  the  introduction  of  direct  payments  have  benefited 
consumers  as part  of  the burden  of agricultural  support  has shifted  away  from  them. Budgetary 
expenditure is therefore higher in the sectors concerned. It is also under better control since factors 
of uncertainty (world prices, dollar exchange rate, level of intervention stoeks) that strongly  affected 
its past evolution  have  become  less determining. At  the same  time the shift  to direct  payments 
has made  the  support  for  farmers  more transparent. 

Rural  development  policy 

8.  For almost  two decades, attempts have been made to integrate agricultural  structural  policy 
into  the  wider  economic  and  social  context  of  rural  areas.  Experience  gained  shows how  rural 

THE AGRICULTURAL  YEAR 

9 

diversification  can be exploited in a flexible way as a necessary complement to farming. Activities 
which  had  hitherto  been  marginal  -  the development  and  marketing  of  quality  produce,  rural 
tourism, investment projects linked with the environment or the region's culture, small and medium-
sized  enterprises -  have  been  developed  and have opened  up new perspectives. 

9.  The  1992 CAP reform stressed the environmental dimension of agriculture as the largest land 
user.  Among  the  accompanying  measures  of  the  reform,  the  agri-environmental  measures  are 
of key importance and have in general been welcomed by the public and well received by farmers. 
However, the scale of support still provided through prices and crop-specific payments (e.g. silage 
maize and flax) may discourage farmers from committing themselves to more extensive practices 
or dedicating  land  to environmental  purposes. 

10.  On the whole, as a result of these various developments, rural policy in the Union still appears 
as a juxtaposition of agricultural market policy, structural policy and environmental policy, with 
rather complex  instruments  and  lacking  much  overallcoherence. 

Long-term  outlook 

11.  According to the major  forecasting institutes world-wide, the long-term outlook for the main 
agricultural  markets  is  favourable  for  exporting  countries.  Prospects  for  increased  food 
consumption,  mainly  in  developing  countries,  combined  with  the  limited  possibility  of  a 
proportionate growth in domestic production, are expected to boost world trade and sustain world 
prices over  the next  decade. 

12.  Two key factors  influence food  demand:  population  growth and rising incomes. The  world 
population  is expected  to increase by more than 85 million people a year between  1995 and 2005. 
Moreover, growing urbanisation will influence the pattern of food consumption. The second  factor 
determining increasing food  demand is the favourable  prospect for world incomes and economic 
growth, particularly  in developing  countries. 

13.  An increase in world agricultural production is expected over the next decade, but at a lower 
rate  than  in  the past.  In  particular  in many  developing  countries,  the increase  will  be less  than 
the growth in demand. This is firstly due to the limited availability of land, because of urbanisation 
and  environmental  constraints  and,  secondly,  to  a  slowdown  in  the  growth  of  yields.  The 
development of genetic engineering, if well controlled, could enhance production  but may raise 
questions  of  acceptability  to consumers. 

14.  Almost all analysts expect generally strong prices for  agricultural commodities up to 2006 
and even  beyond. Prices  are projected  to strengthen  or remain  strong for cereals, oilseeds, beef, 

10  THE AGRICULTURAL  YEAR 

poultrymeat, cheese  and milk powder,  but may weaken  for  pigmeat.  However, price  variability 
could  increase  in  the  future,  as  world  stocks  are expected  to be  relatively  low  compared  with 
the past. 

15.  Despite  this  favourable  world  context,  the  agricultural  commodities  outlook  is  not  very 
promising  at  European  level.  Supposing  that  present  policies continue,  over  the coming  years 
a gap between Union and world prices will remain for many sectors. Taking into account current 
commitments  under  the  Uruguay  Round  Agreement,  in  particular  on  export  subsidies,  non-
exportable surpluses are likely to emerge after 2000, for the existing Union. A structural  surplus 
was already projected  for beef before  it was made worse by the BSE crisis. Increasing problems 
may also appear  for cereals, sugar,  wine, olive oil, skimmed-milk powder and  some other milk 
products, and  the Union  risks  losing more and more of its share  in expanding  world markets. 

16.  New multilateral trade negotiations will start in 1999 as a follow-up to the Uruguay Round. 
It remains to be seen whether the European Union will be capable of going into the negotiations 
on  the  offensive,  defending  the  specific  characteristics  of  a  European  model  of  mixed  and 
multifunctional  farming well integrated into the countryside. Another, increasingly sensitive, issue 
is the need to introduce environmental  and social standards at international  level and to take into 
account consumer  concerns. 

17.  Eastward  enlargement  will  add over a  100 million  consumers, whose average  purchasing 
power would, however,  be only roughly one third of that of the current consumers in the Union. 
Agricultural area would be expanded by half and the agricultural labour force would at least double. 
The central  and  eastern  European  countries  have  a serious  need  for  structural  improvement  in 
their  agriculture  and  up- and  downstream  sectors. Restructuring  can  be expected  to reduce  the 
labour  absorption  capacity  of  agriculture,  implying  a  need  for  diversification  of  their  rural 
economies. If the CAP instruments, mainly  support prices and direct  payments, were applied  at 
their present level by the central and eastern European countries, particular problems would arise. 
Inordinate  cash  injections  through  direct  payments  would  risk  creating  income  disparities  and 
social distortions  in  the  rural  areas  of  these countries. In addition,  surpluses  would  increase, in 
particular  for  sugar,  milk  and  meat,  reinforcing  the growing  market  imbalances  predicted  after 
2000. 

18.  Consumer  requirements  from  agriculture and  the food  industry  are also evolving.  Health, 
notably  food  safety,  is the main  one. Convenience  (fast-food,  ready-made  meals and snacks) is 
becoming  more  and  more  important  in the context  of changing  lifestyles. But  at the same time, 
typical, well-identified  products, linked to specific areas or cultural values (traditional production 
methods, animal  welfare,  etc.) are  increasingly  sought  after. 

19.  Rural  trends  in  the  Union  show  a  sharp  decline  in  the  number  of  people  employed  in 
agriculture and in the number of farms. In terms of regional income and employment, agriculture 

THE AGRICULTURAL YEAR 

11 

(and  forestry)  no  longer  forms  the mainstay  of  the  rural  economy.  It  represents  only  5.5 % of 
total employment on average, and in very few regions is its share higher than 20%. The long-term 
trend  is a further  drop  in  the  number  of  farmers,  at a rate of  2-3 % per  year. 

20.  New activities and new sources of income are emerging on, around and off the farm. Among 
those, the production of renewable raw materials, for non-food  purposes in niche markets or the 
energy sector, can represent  a new opportunity for agriculture and forestry  and contribute to job 
creation  in rural  areas. 

21.  Society  is increasingly  conscious of the importance  of the natural environment and of the 
environmental effects -  both positive and negative -  of human activity. Rural areas are in a unique 
position to respond to these concerns by maintaining and creating environmentally attractive living, 
working and recreational spaces. In this context, the concept of public payment for the protection 
of natural  resources  and  the enhancement  of  the countryside  is increasingly  gaining  acceptance 
and  offers  agriculture  and  forestry,  as  the  main  land  users,  both  new  challenges  and  fresh 
opportunities. 

22.  While  the successive  reforms  have  improved  transparency  and effectiveness,  a number of 
inconsistencies and overlaps  between different  policies have developed. Too many programmes 
and measures can apply simultaneously in the same area under different  policy headings,  affecting 
consistency.  There  is  an  urgent  need  for  a  radical  simplification  of  rules  and  a  greater 
decentralisation of policy implementation,  with more discretion being left to Member States and 
regions. More  decentralisation  should  not, however,  lead  to any renationalisation  of policies. 

23.  The CAP absorbs  around  0.6 % of  the Community's  GDP. Considering  both  the declining 
share of agriculture in the economy and the increasing budgetary constraints many Member States 
are  facing,  this  public  support  has  to  be  fully  justified.  This  means  that  the  crucial  role  that 
agriculture plays, in producing high-quality food, in maintaining a living countryside, in protecting 
landscapes and preserving cultural values, has to be clearly demonstrated. While the generalisation 
of direct payments  to farmers  after  the  1992 CAP reform  made financial  support  for  agriculture 
more transparent, it also increased the need for it to be economically sound and socially acceptable. 

Policy objectives for the CAP 

24.  In order to help European  agriculture take advantage of the expected positive world market 
developments, further  reform  of the CAP must improve the competitiveness ofUnion  agriculture 
on both domestic and external markets. Lower guaranteed prices will benefit consumers and leave 
more room for price differentiation  in favour  of high-quality speciality products. Greater market 
orientation will facilitate  the progressive integration of new Member States and will help prepare 

12  THE AGRICULTURAL  YEAR 

the Union for the next WTO Round. It will also help the Union to reinforce  its position as a major 
world  exporter. 

25.  Prices are, however,  only one aspect of competitiveness. Food safety and food  quality are 
at least as important. It is a fundamental  obligation  to guarantee the safety  of food  to consumers 
both within  and outside  the Union, and this must therefore  be a top priority  for  the CAP. As far 
as  possible  it  will  continue  to  support  quality  products,  which  are  often  linked  to  specific 
geographical origins or specific production methods identifiable by consumers. Complete reliability 
from the point of view of food safety, and continuous efforts to improve quality, will also determine 
the image of European  products on domestic and international  markets. Of growing  importance 
in this area too are questions of the environmental  soundness of production  methods, and animal 
welfare  considerations. In all these respects, European  fanners  are able to offer  quality products 
deserving  to be known  worldwide. 

26.  Ensuring  a fair  standard  of  living  for  the  agricultural  community  and  contributing  to the 
stability  of farm  incomes  remain  key  objectives  of  the  CAP. In  this  context  the  questions  of 
modulation, redistribution  of income support among farmers and the preservation  of sustainable 
farming  are gaining  importance, not  least  from  the point  of  view  of  social  cohesion. 

27.  The integration of environmental goals into the CAP and the development of the role farmers 
can  and  should  play  in  terms  of  management  of  natural  resources  and  landscape  conservation 
are another  increasingly  important  objective  for  the CAP. 

28.  The  creation  of  complementary  or  alternative  income and  employment  opportunities  for 
farmers and their families, on-farm and off-farm,  remains a major aim for the future, as employment 
possibilities  in  agriculture  itself  fall  away.  Rural  areas  are  multifunctional,  and  farmers  should 
be encouraged  to exploit  all opportunities  for  rural  entrepreneurs. 

29.  Last  but  not  least,  while  recognising  the need  of  all rural  areas  for  improving  agricultural 
competitiveness  and  enhancing  economic diversification,  agricultural  and rural  policies have to 
contribute  to  economic  cohesion  within  the Union. 

New  reforms 

30.  The Commission  confirms  the policy choice expressed in the  'Agricultural  Strategy Paper' 
of December  1995. It proposes deepening  and extending  the  1992 reform  through  further  shifts 
from price support to direct payments, and developing a coherent rural policy to accompany this 
process. Direct payments will be set at an appropriate level while avoiding any overcompensation. 

THE AGRICULTURAL YEAR 

13 

31.  The  Commission  aims  to  rectify  a number  of  adverse effects  damaging  the  image  of  the 
CAP. For that  reason: 

- 

- 

- 

it proposes  introducing  a ceiling,  on  a degressive  basis, on  the total  amount  of  direct  aid  a 
farm  may receive under the market organisations so that certain agricultural holdings cannot 
obtain  excessive  subsidies; 

the Member  States will  in  future  have the legal means to confine  payment of direct  aids  to 
those farmers  who can show that they are actually engaged in the activities for which the aids 
are  designed; 

the Member States will have the option of modulating, i.e. reducing, direct aids to farms, on 
the basis of criteria to be defined by the Member State, in connection with the labour employed 
on the holding. The proceeds of this modulation will be kept by the Member State for allocation 
to agri-environmental  measures; 

- 

lastly, the Member  States will have to take appropriate measures to tackle the environmental 
problems  connected  with  agricultural  production. 

Crop sector:  cereals, oilseeds and protein  crops 

32.  Over the coming  years, the areas devoted  to the cultivation  of these crops and  to set-aside 
are expected  to stabilise at about 53.5 million hectares. In the present policy framework,  without 
an  appropriate  reform  of  the  common  agricultural  policy  and  supposing  that  the set-aside  rate 
returns  to its reference  level  of  17.5 %, the areas devoted  to each of the three crops  would  also 
be likely  to remain  relatively  stable  over time. 

33.  Cereals yields are forecast to continue their upward trend, which would mean that production 
would rise  from  201  million  tonnes  in  1996 to 214 million  tonnes  by 2005. Total  consumption 
of  cereals  is  also  likely  to  increase  further,  though  at  a  slower  rhythm,  as  a  result  of  the 
development  of  white  meat  production.  Up to 2000, the situation  is likely  to remain  relatively 
balanced, in particular for wheat. But from 2001 onwards, the GATT commitments on subsidising 
exports  are  to  become  more  of  a constraint  on  both  wheat  and  coarse  grains,  which  would  be 
liable to lead to a rapid increase in intervention stocks (which could total some 58 million tonnes 
by 2005). 

34.  Oilseed  yields are expected  to increase only  very slightly and the area cultivated  would  be 
strictly limited by the Uruguay Round Agreement. Production is likely to increase slightly,  from 
12.2 million tonnes in  1996 to  12.8 million tonnes in 2005. Trade deficits  in oilseeds and oilseed 
meals would  remain  very  substantial. 

14  THE AGRICULTURAL  YEAR 

35.  In theory, it should be possible to react to new cereals surpluses by increasing the compulsory 
set-aside rate. But this could then risk gradually increasing to over 20%. Furthermore, the Union 
could  well  fail  to benefit  from  the positive  developments  expected  on  the world  market,  since 
internal prices could be expected to remain above world prices. A more offensive  strategy could 
simultaneously avoid the routine use of export subsidies, reinforce  the competitiveness of cereals 
on the  internal  market, overcome  the Uruguay  Round  constraints  for  oilseeds  and, last  but  not 
least,  bring  a good  deal  of  simplification. 

36.  The Commission  therefore  proposes  the  following  measures: 

- 

a one-off  20 % intervention  price cut applicable  from  the marketing year 2000/01 ; 

-  partially  compensating  for  the  20 %  cut  in  the  intervention  price  by  increasing  the  direct 

payment  for  cereals  (from  ECU 54.34/t  to ECU 66/t); 

-  harmonising  direct payments  for cereals, non-fibre  flax  and oilseeds (same direct payment), 
keeping a differentiation  for protein plants. The 'oilseeds' payment would thus be non-specific 
and enable all the special oilseed provisions, including those in connection with the Blair House 
Agreement,  to be  abolished; 

-  maintaining  the principle of compulsory  set-aside  as a means of controlling production,  the 

rate being  set at 0 % instead  of  17.5 %; 

-  maintaining the principle of voluntary set-aside, with compensation equal to the cereals payment 

(ECU 66/t); 

-  keeping  the  special  arrangements  to  assist  durum  wheat  (higher  specific  payment  in  the 
traditional areas), with the rules introduced in 1997 (maximum guaranteed areas and extension 
of  the  non-traditional  areas qualifying  for  reduced  specific  aids); 

-  keeping the list of products qualifying  for arable crop aids unchanged, including silage cereals 

(contrary  to what  was proposed  in the original  Agenda  2000 document); 

-  only the special case of  irrigated  crops  is to be taken  into account for  fixing  a specific  yield. 
Eligibility  for this special  irrigated crops aid will remain  limited to the historical  area, which 
implies  the determination  of  a  base area  for  irrigated  land. The ceiling on irrigated  areas  is 
abolished,  having  become  obsolete; 

- 

- 

setting  yields  for  oilseeds  will  no longer  be  necessary,  since direct payments  will  be  based 
on cereals; 

setting  the  rate  of  compulsory  set-aside  at  zero  means  that  all  the  provisions  in  relation  to 
this obligation introduced under the  1992 reform, such as transferring and taking into account 
set-aside  for  environmental  purposes  (Regulation  (EEC)  No  2078/92)  or  forestry  purposes 
(Regulation  (EEC)  No 2080/92)  can  be  abolished; 

-  where,  for  a  given  marketing  year,  the  rate  of  compulsory  set-aside  is  higher  than  zero, 
producers producing less than 92 tonnes of cereals equivalent will be exempt from the obligation 
(this  is the only  provision  relating  to small  producers). 

THE AGRICULTURAL YEAR 

15 

37.  Practical  experience  with  the  implementation  of  the  1992 reform  has  shown  the need  for 
certain  additional  measures: 

-  postponement  of  the  sowing date  from  15 May  to  31  May,  while retaining  the principle of 

certain  exceptions  on  the grounds of the  weather; 

-  postponement  of  the  per-hectare  payment  period  from  '16  October  to  31 December'  to  '1 
January  to 31 March'  to take account  of  the difficulties  encountered  by the Member  States 
in carrying  out checks  and  to increase market  fluidity,  by deterring  producers  from  holding 
on to their  production; 

-  putting a single committee in charge of all arable crops (Management Committee for Cereals); 

- 

the payments per hectare and the rates of set-aside may be adjusted  in the future  in the light 
of developments with regard to production  and markets (as provided  for in the current rules). 

Simplification of rules and  management 

38.  The changes  set  out  above  permit  simplification  of  the existing  support  arrangements  for 
producers of certain  arable crops while retaining the basic elements of this system, in particular 
the base areas, the régionalisation scheme, observance of historical yields and the set-aside scheme: 

- 

- 

- 

- 

the possibility  of  applying  an  individual  base area  is abolished  (none  of  the Member  States 
have taken  up this option  since it was introduced); 

if a base area is exceeded, only the financial  penalty  will  be applied  (extraordinary  set-aside 
abolished); 

the option  of concentrating  the penalties  for  exceeding  the  base  area  on  those  subdivisions 
of the  base area responsible  for  the overrun  is abolished  because  of  its  complexity; 

the possibility  of  making  a distinction  between  maize  and  the other  arable  crops  by  fixing 
a specific  yield is abolished, as is, consequently, the setting of a specific  base area for maize. 

Beef and  veal 

39.  - Over the coming years, beef production will be influenced, on the one hand, by the short-term 
measures adopted  in  1996 (i.e. the calf  processing  and early  marketing  of  veal calves  schemes) 
and, on the other, by the elimination  of adult cattle over 30 months in the UK from  the food  and 
feed  chain. The first will  be felt  mainly  in  1998 and  1999, whereas consequences of the second 
will continue until 2001. Beef consumption  is expected to recover gradually from the 1996 shock 
and return  to its long-term  (declining)  trend. 

16  THE AGRICULTURAL  YEAR 

40.  These  factors  add to a cyclical  downswing of production  until  2000 and should  lead  to a 
substantial  reduction  in stocks over the next few years, from  the levels built up during  1996 and 
1997. After  2001, however,  if the market policy  remains  unchanged,  production  would  return 
to its full potential, whereas consumption would continue its long-term decline. Intervention stocks 
would  tend  to accumulate  again  (given  the GATT limited  export  possibilities)  and could  reach 
some  1.5 million  tonnes by 2005. 

41.  It is not acceptable  in the long run to solve the problem  of over-production  in this  sector 
by  slaughtering  young  calves  a few  days  after  birth.  Nor can  the  surplus  problem  be  solved 
efficiently  by pure supply management (quotas on animal numbers or on production), as this would 
present  major  administrative  complications. 

42.  A  strategy  which  is more on the offensive,  on the other hand,  could, at one and the same 
time, substantially reduce refunds on exports to traditional destinations, help develop new export 
outlets without subsidies and rebalance internal meat consumption to the benefit of beef. Moreover, 
it would  reduce  the incentive  for higher carcass  weights. 

43.  The Commission  therefore  proposes: 

-  a 30 % cut in  institutional  prices  in three  annual  stages  ( 3 x 1 0%  starting  on  1 July  2000) 
with the aim of exporting  without refunds  to our traditional  markets or, in the case of prime 
cuts, to new markets such as South-East  Asia. This price cut should  also restore the balance 
in internal  meat  consumption  in favour  of beef; 

- 

the markets should resume their principal role, i.e. regulating the balance between  production 
and  consumption.  It is therefore  proposed  to abolish  public  intervention,  which  has proved 
very  costly,  and replace  it with private storage measures; 

-  direct  aid to beef  farmers  will be increased to cushion the effect  of the price cut provided for 
in the first  indent. This direct aid may not exceed the financial  envelope set for the  beef/veal 
and dairy  sectors, so that the aid for arable crops, including silage maize, can continue to be 
financed.  In this context,  the premiums  for bull  calves  have  been  adjusted  to take  account 
of the fact  that some  35 % of silage maize has been used to fatten  them. In order to maintain 
some  flexibility  in the premium  schemes, it is proposed  that  half  the increase  in premiums 
resulting  from  Agenda 2000 be reserved and allocated in the form  of a national envelope for 
each  Member  State. The total  amount thus reserved  will be allocated  to the Member  States 
according  to their  respective  production  levels. This  financial  envelope  will  be  subdivided 
into: 

•  an amount corresponding to the payment of premiums as provided for in the 1992 reform 

plus  half  of the Agenda 2000 increase and 

• 

the second  half  of  the Agenda  2000  increase  allocated  on the basis  of Member  States' 
production.  These payments may be made  in the form  of additional  premiums  for adult 
bovines (males and females, including heifers) or in the form of area aid payments (grazing). 

The Community rules will set limits (in terms of amount and number) for these additional 
payments; 

the calf  processing  premium  will  be  abolished. 

THE AGRICULTURAL  YEAR 

17 

Simplification of rules and  management 

44.  The current dual intervention system (i.e. standard plus safety net) is abolished. In addition: 

-  a single general Regulation  will simplify  and consolidate two Council Regulations in a single 
basic Regulation. The new Regulation is thus far more succinct and the transitional measures 
will be abolished  systematically; 

- 

- 

support prices are programmed in advance for three years, which makes the annual price fixing 
for  the sector  obsolete; 

the requisite  powers  are  invested  in the Commission  for  implementing  the non-WTO  tariff 
quota. 

Flexibility and  decentralisation 

45.  Other changes  are  introduced  in connection  with  this  reform: 

- 

- 

- 

the deseasonalisation  premium  is confined  to those  Member  States  which  really  need  it  (to 
safeguard  beef market  stability) This means that Denmark, Germany  and Sweden  (which  all 
produce  relatively  few  cattle)  are  excluded  and  Ireland  and  Northern  Ireland,  where  the 
traditional  production  system  leads  to an  accumulation  of  slaughterings  in the autumn,  will 
keep the  premium; 

the extensification  premium, which was calculated on a notional basis (essentially the number 
of  animals  for  which  a premium  was requested)  is reformed  to focus  on  genuine  extensive 
production.  It  is proposed  that  account  be taken  of  the  number  of  animals  actually  present 
on the farm during the grazing season. The amount of the premium has been increased to ECU 
100; 

the suckler cow premium  is extended, subject to individual ceilings, to include heifers  (which 
may  account  for  up  to 20 % of  the  total  number). The  quota  for  this premium  (some  10 % 
of which has been  unused  so far)  is reduced  to the level  of payments of the highest  number 
in  1995 or  1996 plus  3 % (in  order  to constitute  the  national  reserve). This  corresponds  to 
a cut of about  10% in the ceilings for dairy cows. The two measures together (i.e. lower ceiling 
and  inclusion  of up to 20 % heifers)  should curb or even cut production  potential  in the EU. 
The  possibility  of  granting  additional  amounts  for  the  suckler  cow  premium,  part-financed 

18  THE AGRICULTURAL YEAR 

by the EAGGF in Objective  1  regions (and also Belgium) has been abolished  in view of the 
possibility  created  by the additional  payment  for Member States; 

the regional  ceiling  on  the male bovine premium  is set  at the  level  adopted  in  the decision 
of November  1996, with the minor adjustment  for Spain and Portugal proposed in the 1989/99 
prices package. This  represents  a decrease  of  some 20 % compared  with  1996. 

Milk and milk  products 

46.  If  milk  quotas  remain  unchanged  over  the coming  years, total  milk  production  is  forecast 
to decline  slightly  from  121.6  million  tonnes  in  1996  to  118.1 million  tonnes  in  2005, due  to 
a small increase in milk fat content and adjustment  of production to the quota level. Global milk 
demand  (in whole milk equivalent) is expected  to decline  from  112.2 million  tonnes in  1995 to 
108.7  million  tonnes  in  2005. This  is  the  net  result  of  decreasing  consumption  of  some  dairy 
products,  notably  butter,  and  increasing  demand  for  other  products,  such  as  cheese  and  fresh 
products. On-farm  consumption  (animal feed) should  also drop in line with the expected decline 
in cattle  numbers. The  net surplus  is likely  to vary  between  9.0 and  9.5  million  tonnes of  milk 
equivalent  in the  1996-2005 period, with  a tendency  to increase  by the end of  the period. 

47.  Turning  to the different  milk products, which  are all covered  by GATT commitments, and 
supposing  no policy  changes, it appears that: 

- 

- 

- 

further  export  growth  in  the  cheese  sector  would  be  constrained  by  GATT  limitations  on 
subsidised  exports; 

intervention  stocks  of  skimmed-milk powder  will  tend  to increase  from  1998 onwards  and 
reach  some  200  000  tonnes  in  the  first  half  of  the  next  decade,  as  the  GATT  export 
commitments  become binding; 

for  butter, GATT export commitments give sufficient  margin  for  subsidised  exports, so that 
no  accumulation  of  intervention  stocks  would  necessarily  be  expected;  it  is,  however, 
questionable whether real outlets exist on world markets for a quantity as large as the expected 
surplus  of  around  300 000 tonnes. 

48.  After  an  in-depth  examination  of  the  different  options,  the  Commission  discards  radical 
solutions,  such  as drastic  price  cuts  and rapid  abolition  of  the  quota  system.  Expected  market 
developments  do not justify  such extreme measures. The Commission  sees no strong reason  for 
introducing fresh quota cuts either, since no major deterioration of the market balance is expected. 
Finally,  the Commission  also discards  a double price-double quota system,  which  would  raise 
serious questions of WTO compatibility, could cause distortions, depending on how it were shaped 
and implemented,  and would  add to current  administrative  complexity  and control  problems. 

THE AGRICULTURAL  YEAR 

19 

49.  However,  dairy  farmers  should  not  be given  the  impression  that  the present  system,  with 
its intrinsic  rigidities, can  last for  ever. The recent  debate on  long-term  prospects  has  revealed 
factors of uncertainty; in particular, the results of the next WTO Round could also affect  the dairy 
sector. 

50.  The  Commission  therefore  recommends  a cautious  approach  at this stage. It proposes  the 
following  measures: 

-  prolonging the milk quota system six times for a period of  12 months from  1  April 2000, with 
a  2 % increase  in the guaranteed  quantity  (1 % for  all  Member  States, priority  being given 
to young  farmers,  and  1  % for  producers  in mountain  areas); 

- 

- 

- 

cutting  the  intervention  prices  for  butter  and  skimmed-milk  powder by  15 % in  four  stages 
between  1 July  2000 and  1 July  2003 (this corresponds  to a cut  in the guide price of  some 
17%). This change to the proposal contained in the original Agenda has been made  following 
analyses  showing  very  favourable  developments  on  the  milk  market.  The  competitiveness 
of Community exports of milk products will be substantially reinforced, internal consumption 
will  be  increased  and  some  flexibility  in  adjusting  the  milk  quota  will  be  possible.  This 
operation  will  also help to finance  the additional  cost  for  silage maize; 

introducing an annual aid of ECU  145 per premium unit in four stages, taking account of the 
level of milk quotas before  the reform.  In the final phase, this aid will be made up of a fixed 
component  (ECU  100) and an additional payment payable either per head or on the basis of 
area  (at  the discretion  of  the Member  States); 

the  'dairy  cow'  payment  under  the beef  regime  may  vary  in the same way from  ECU 50 to 
ECU  70 (Community  average). 

Simplification  of rules and  management 

51.  The proposal for a new single general Regulation  on the organisation  of the market in milk 
combines six Council Regulations in one text. The new Regulation  is thus far more succinct and 
the obsolete  transitional  measures  are systematically  abolished; 

-  prices  are set  in advance  for  four  years, which  renders annual  fixing  obsolete; 

- 

- 

the Commission  is given  the necessary  powers  to implement  the non-WTO tariff  quota; 

the  Commission  is also given  the requisite  powers  to  be  able  to introduce  penalties  for  the 
use of  hormones  (particularly  BST); 

- 

steps are to be taken to ensure that only butter of Community origin is bought into intervention. 

20  THE AGRICULTURAL  YEAR 

Flexibility and  decentralisation 

52.  Additional  payments can be introduced by the Member States  in accordance  with agreed 
rules (non-discrimination,  national  envelope,  absolute  limit on  the combination  of premiums). 
An additional  milk quota is also set for young farmers (1 %), producers in mountain areas and 
in the northernmost  areas of the Union (1 %  according to their share of production). 

Mediterranean  products 

53.  As a continuation of the 1992 reform process, in December 1996 the Commission presented 
a report on the tobacco  regime to the Council and the Parliament. This report gives a positive 
assessment of the 1992 tobacco reform and proposes further strengthening the market orientation 
of  the  sector,  while  recognising  the  important economic  role  it  plays  in  some  rural  areas. In 
February 1997, the Commission presented a report on the olive oil regime. It suggests as a possible 
option a further shift  from price support to direct payments and a radical  simplification  of these 
payments. The Commission  now proposes that production aid be maintained until  the 2000/01 
marketing year inclusive,  that the rules be greatly simplified  and that the maximum guaranteed 
quantity be increased  and allocated among the Member States. 

54.  For fruit and vegetables, a major reform was adopted by the Council in July 1996: budgetary 
efforts  were shifted  from supporting prices to strengthening producer organisations and making 
them, more competitive,  and emphasis was placed on the structural adjustment of the sector and 
on its environmental  dimension.  The Commission  will  closely  monitor  the implementation  of 
this reform. 

55.  For wine, a reform  proposal  has been pending at Council  level  since  1994. In view of the 
latest developments, and in particular the new context created in this sector by the Uruguay Round 
Agreement,  the Commission  intends to review the pending proposal  and to table a fresh one as 
soon as the  1997  situation  has been fully  analysed. The new proposal  would  take into account 
the guidelines which have in the meantime been defined in the 1995 'Agricultural Strategy Paper'. 

Rural  policy 

56.  Over the coming decade, agriculture will have to adapt to further changes in market evolution, 
market policy  and trade rules. These changes will  not only affect  agricultural  markets, but also 
local economies in rural areas in general. Many of them are already confronted with acute economic 
development  problems.  Moreover,  rural areas have  increasingly  important  environmental  and 
recreational functions to fulfil, and requirements linked to these functions may well imply additional 
adjustments  for agriculture,  as the main land user. At the same time the increasing  importance 

THE AGRICULTURAL  YEAR 

21 

of environmental and recreational needs will also offer new development opportunities from which 
farmers  and their families  should  be able to  benefit. 

57.  The  Commission  suggests  that  these  developments  should  be  encouraged  and  supported 
by a reorganisation  of  the existing  rural  policy  instruments  (see also points 483 to 488). 

Simplification of  rules 

58.  The proposal for a Regulation provides for a reorganisation of all the rural policy instruments 
currently  in  force: 

- 

- 

- 

the new Regulation incorporates  into a single text nine Council regulations, and in particular 
the current EAGGF Guidance Section implementing measures, the three regulations on CAP 
accompanying measures and the various forestry measures. This reorganisation is accompanied 
by a major  simplification  of  the eligibility  conditions: 

for  the sake of clarity,  the  measures  relating  to producer  organisations  are to be  transferred 
to market  policy; 

in accordance  with  the  guidelines  laid  down  in Agenda  2000, the  following  administrative 
and financial measures  concerning  rural development  are to apply: 

•  Community  support  for  rural  development  is  to  form  part  of  the  programming  of  the 

Structural  Funds  in  Objective  1 and Objective  2 areas, 

•  Community  assistance  will be financed by either the EAGGF Guidance or the Guarantee 

Section  depending  on  the  measure  and  the region  concerned; 

- 

there are two distinct  groups of  measures  to assist  rural  development: 

•  1992 accompanying  measures (agri-environment scheme, afforestation,  early  retirement) 

and compensatory  allowances  in  less-favoured  areas, 

•  measures concerning  modernisation  and diversification  (aid  for  farm  investment,  aid  for 

investment  in  the processing  sector, programme  fur  young  farmers, etc.). 

The components of the  reform 

59.  As  far  as  rural  areas  in  regions  eligible  under  Objective  1 of  the  Structural  Funds  are 
concerned, the current  approach  of integrated  development  programmes  is maintained  with  the 
exception  of  the scheme  for  less-favoured  areas, for  which  the EAGGF Guarantee  Section  will 
provide assistance on the same basis as for the accompanying measures (agri-environment scheme, 
afforestation,  early retirement). In Objective  1  areas rural development measures will be financed 
by the EAGGF Guidance  Section. 

22  THE AGRICULTURAL YEAR 

60.  In rural areas eligible under the new Objective 2 measures (former Objectives 5(a) and 5(b)) 
will be financed by the EAGGF Guarantee Section as accompanying measures. These measures 
will stand alongside those financed  by the ERDF and the ESF, in the same programme, for the 
Objective 2 eligible region. 

61.  In all rural  areas not covered  by Objective  1  or the new Objective  2, rural development 
measures designed to accompany and complement the market policies will be part-financed by 
the  EAGGF  Guarantee  Section.  Integrated  into  the  same  legal  framework  as  me  current 
accompanying measures, these measures will apply horizontally  and will be implemented  in a 
decentralised manner, at the appropriate level, on the initiative of the Member States. 

62.  The environmental  aspects of rural development  policy  are reinforced  by the criteria on 
eligibility  for  classification  as less-favoured  areas. The  agri-environmental  measures are also 
oriented towards the objectives of safeguarding the countryside and maintaining natural resources. 

63.  The proposal for a Regulation also gives more prominence than in the original Agenda 2000 
proposals to forestry  measures. This is in response to Parliament's call for a European  forestry 
strategy (resolution A4-0414/96 of 30 January  1997). 

64.  The reference  for the rate of part-financing  is the Structural Funds framework  regulation. 

65.  Given the importance attached to environmental  aspects, the Member States are asked to 
take the environmental measures they consider appropriate in the light of their specific situation 
as regards use of  farmland. 

66.  The Member States should fix appropriate penalties for ecological damage caused by failure 
to comply with these measures. The penalties could include a reduction or, if necessary, cancellation 
of benefit from  the support schemes concerned. 

67.  It is proposed that a ceiling per holding be fixed as follows for aid under the support system: 

- 

full payment for aids totalling not more than ECU  100 000; 

-  a 20 % reduction for aids between ECU  100 000 and 200 000; 

-  a 25 % reduction for aids exceeding ECU 200 000. 

68.  The Member States may decide to modulate these amounts according to the number of annual 
work.units (AWU) present on the holding during the calendar year. 

Main  institutional  prices and  aids applicable  for the  1996/97 and  1997/98 marketing years 

THE AGRICULTURAL  YEAR 

23 

(ECUA) 

1996/97 

1997/98 

Peas, fieldbeans  and sweet  lupins' 

Arable crops 
Compensatory  payment 
-  Cereals1 
-  Rapeseed. sunflower and soya (reference  amounts in ECU/ha)2 
- 
-  Non-fibre  flax  seed' 
- 
Additional compensatory  payment for durum wheat (ECU/ha) 
-  Traditional  zones 
-  Non-traditional  zones 

Set aside1 

Cereals 
- 

Intervention price 

Rice 
Intervention price 
- 
-  Compensatory payment 

Potato starch 
-  Minimum price 
-  Compensatory  payment 
Industry premium 
- 

Sugar 
-  Basic price for sugar beet 
- 

Intervention price for white  sugar (ECU/q) 

' 

Production target price 
Intervention  price * 

Olive oil 
- 
- 
-  Representative market price 
- 
Production  aid 
-  Consumption aid 

Dried/odder 
- 

Fixed aid5 

Lentils, chick peas,  vetches 
Fixed aid (ECU/ha) * 
- 

Fibre flax 
- 

Fixed aid (ECU/ha) 

Hemp 
-  Fixed aid (ECU/ha) 

Silkworms 
-  Aid per box 

Cotton 
-  Guide price 
-  Minimum price 

54.34 
433.50 
78.49 
105.10 
68.83 

358.60 
138.90 

54.34 
433.50 
78.49 
105.10 
68.83 

358.60 
138.90 

119.19 

119.19 

351.00 

333.45 

209.78 
86.94 
22.25 

47.67 
63.19 

3 837.70 
1805.80 
2 295.00 
1422.00 
120.70 

209.78 
86.94 
22.25 

47.67 
63.19 

3 837.70 
1751.60 
2 295.00 
1422.00 
120.70 

68.83 

68.83 

131.69 

146.51 

865.48 

815.86 

774.74 

716.63 

133.26 

133.26 

1  063.00 
1 009.90 

1  063.00 
1  009.90 

24  THE AGRICULTURAL  YEAR 

Milk products 
(a)  Target price for milk 
(b) 

Intervention price 
-  Butter 
- 

Skimmed-milk powder 

Beef/veal 
- 

Intervention price for adult bovine animals (carcase weight -  category 
R3) 

Sheepmeat 
-  Basic price (slaughter weight) 

Pigmeat 
-  Basic price (slaughter weight) 

Table  wine 
-  Guide price type  RI 
RII 
Rill 
AI 
All 
AIM 

(ECU/%/hl) 
(ECU/%/hl) 
(ECU/hl) 
(ECU/%/hl) 
(ECU/hl) 
(ECU/hl) 

Tobacco (premiums)  7 
I 
Flue cured 
- 
II 
Light air cured 
- 
Dark air cured 
Ill 
- 
Fire cured 
- 
IV 
Sun cured 
-  V 
- VI 
B as mas 
-  VII  Katerini 
-  VIII  Kabakoulak 

Fruit and vegetables 
Basic and buying-in  prices 

1996/97 

1997/98 

309.80 

309.80 

3 282.00 
2 055.20 

3 282.00 
2 055.20 

3 475.00 

3 475.00 

5 040.70 

5 040.70 

1 509.39 

1 509.39 

3.828 
3.828 
62.15 
3.828 
82.81 
94.57 

2 709.65 
2  167.48 
2  167.48 
2  383.62 
2  167.48 
3 754.15 
3  185.41 
2 276.15 

3828 
3.828 
62.15 
3.828 
82.81 
94.57 

2 709.65 
2  167.48 
2  167.48 
2  383.62 
2  167.48 
3 754.15 
3  185.41 
2 276.15 

The  aid per tonne  is to be  multiplied  by the  regional  yield  in the  production  region  in question. 
To he differentiated  according  to  the  regional  yield  for cereals/oilseeds  to arrive  at the regional  reference  amounts 
Amount  per hectare  fixed  by  Member  State  in  Regulation  (EC) NO  3072/95  (OJ L 329. 30  12  1995,  p.  18) 
After  application  of  the  adjustment  following  the overrun of  the  maximum  guaranteed  quantity. 
Aid  for  sun-dried  fodder  is  fixed  at ECU  38.64/t. 
After  the  reduction  following  the  overrun  of  the  maximum  guaranteed  area. 
Supplementary  amounts  have  been  fixed  for certain  varieties; see  OJ L  148,  306.1995.  p. 40. 
A  scries  of  prices covering  different  products  and periods  is fixed each  year. 

Agrimonetary  measures 

69.  Most of the currencies were relatively stable in  1997. The dollar continued to make up lost 
ground  after  its  sharp  devaluation  in  the first half  of  1995; by  about  mid-May  it  was  15 % up 
on  its June  1995 level. Generally  speaking,  the dollar  trend  was reflected  in  similar  trends  for 

THE AGRICULTURAL  YEAR 

25 

sterling and the Irish pound. On the other hand, the vast majority  of the  'strong'  currencies saw 
a slight  devaluation,  their market  rates  approaching  the January  1993 level. 

70.  The agricultural conversion rates did not change for the French franc, the Portuguese escudo, 
the Danish  krone or  the Finnish  markka. The rate  for  sterling  underwent  four  revaluations  and 
that for the Irish pound three. After  several falls  in the agricultural conversion rate for the Italian 
lira, the Council considered  that  the conditions for  a substantial  revaluation  of 3.08 % had  been 
met on  1 March. 

71.  The  Council  decided  to  reapply  the  arrangements  adopted  at  the  time  of  the  'sensitive' 
revaluations in  1995. Under these rules,' the agricultural conversion rates applicable for  flat-rate 
aid per hectare or per animal, and for  structural  or environmental  aid, are frozen  until  1  January 
1999, the date  scheduled  for  the  introduction  of  the single currency. The Council  also decided 
to limit the difference  between  the frozen  agricultural  conversion  rate and the rate which would 
have applied  if  it had  not  been  frozen  to  11.5 %. This provision  gave rise to a reduction  in the 
frozen  conversion  rates  for  the Swedish  krona  (0.11 %) and  the pound  sterling  (3.61 %). 

72.  The Member States concerned  can grant aid to offset  the loss of income entailed by the fall 
of institutional  prices in national currency. The amount of aid is subject  to an upper limit set by 
the Council  and  may  be granted  on a degressive  basis for  a period  of  three years. The  EAGGF 
funds  up to 50% of the ceiling  set by the Council, whether or not there is a national  component 
and  irrespective  of  its size. 

73.  In  1997 Belgium, Denmark,  Germany, Luxembourg,  the Netherlands  and Austria  granted 
their second instalments of compensatory aid in connection with the 'sensitive' revaluations which 
occurred in June and July  1995. In the light of monetary developments in  1997, the third planned 
instalment  was cancelled  for  these Member  States. Sweden  granted  the  first  two instalments of 
the sensitive revaluation  compensation  of  11 January  1996. Ireland  granted  the part financed by 
the Community  of the first  instalment of compensation  for the three sensitive revaluations. Italy 
and the United Kingdom had still  not reached a decision on whether to grant such compensation. 

Promotional  measures 

74.  In  1997, as far as the programmes directly managed  by the Commission  are concerned, the 
two-year  programme  for  fibre  flax  ended  in  July  and  was  followed  by  a  six-month  interim 
programme pending the launch of a new two-year campaign. The fifth olive oil campaign is under 
way,  running  until  July  1998. The  evaluation  of  the  first  phase  of  the  campaign  showed  very 
encouraging results, with consumption  up in all the Member States. As regards programmes not 

Regulation (EC) No 724/97 (OJ L 108, 25.4.1997, p.  8). 

26  THE AGRICULTURAL  YEAR 

directly managed by the Commission, promotion campaigns continued for milk and milk products, 
quality beef,  apples, citrus  fruit  and grape juice. For these products as well the results  reflected 
in the evaluation  reports are encouraging. 

75.  Funds for the beef/veal  sector were increased, enabling several campaigns to be organised 
in 1997. The promotion measures were extended to include quality veal. The Commission presented 
a proposal  for a Regulation  to the Council  on the promotion  of beef  in non-EU  countries and 
information  campaigns on the new rules on the labelling of beef. 

76.  A first series of measures to promote flowers and live plants was launched  in  14 Member 
States. 

77.  Lastly,  a programme  for  table  olives  submitted  by industry  organisations  in Italy  started 
up in 1997. 

78.  The breakdown  of the budget by product  is as follows: 

flax 

Olive oil 
Fibre 
Grape juice 
Nuts 
Apples/citrus fruit 
Table olives 
Quality beef 
Milk and milk  products 
Quality agricultural  products in the most remote regions 
Flowers and live plants 

Consumer  interest and product quality 

(ECU  million) 

Amount fixed  in  1997 

17.6 
1.0 
5.8 
0.9 
7.8 
1.0 
31.3 
8.8 
4.9 
14.7 

79.  In connection  with  the implementation  of Council  Regulation  (EEC) No 2081/92  on the 
protection of geographical indications and designations of origin,1 the Commission made additions 
to the list of registered  designations, which now exceeds 440. The Council Regulation  was also 
amended to allow a more flexible transitional period where products are registered at Community 
level.2 

1  OJL  208, 24.7.1992. 
2  OJL  156,  13.6.1997. 

THE AGRICULTURAL YEAR 

27 

80.  The information  campaign  aimed at familiarising  the public with the meaning of the terms 
PDO  (protected  designation  of  origin),  PGI  (protected  geographical  indications)  and  TSG 
(traditional  speciality  guaranteed) and the logo in use continued.  At first directed  at producers, 
then distributors, it then entered  the consumer information  phase  with the theme  'products with 
a story'. 

81. 
It was felt  that  the profusion  of quality  labels intended  to highlight the particular  qualities 
of  food  products  was  liable  to  create  confusion  as  regards  the  nature  of  the  labels  and  the 
requirements they reflect. The Commission is therefore having an inventory of such labels compiled, 
with two major  objectives: to acquire detailed knowledge of, firstly, the various systems and the 
latest  developments  in  them  and,  secondly,  the  expectations  on  all  sides  of  the  food  industry 
regarding  those  systems. 

82.  In  line  with  the  objective  of ensuring  sustainable  agricultural  and  rural  development,  the 
approach  adopted  takes  account  of  the principal  economic  and  social  functions  performed  by 
agricultural  producers, and is also aimed  at facilitating  consumer  choice. Particular  attention  is 
paid to production  methods. 

Assistance to the needy 

83.  The European Union continued its food aid programme for the needy1. This involves making 
agricultural  produce  or  products  processed  from  agricultural  produce  available  to  associations 
working  in the  field  in the various Member States. 

Free distribution  of agricultural  products  (1997) 

Member  Stale 

Appropriations  allocated 
(ECU) 

Cereals 

Olive  oil 

Quantities  (tonnes)  ' 

Skimmed 
milk 
powder 

Butter 

Beef 

Belgique/Belgie 
Dan mark 
Eliada 
Espana 
France 
Ireland 
Italia 
Luxembourg 
Portugal 

2 986 000 
1 518 000 
15  784 000 
40 394 000 
34 452 000 
2 031 000 
49 646 000 
44 000 
15  216 000 

3 500 

34 740 
12611 

5 000 

40 000 

2 000 

5 200 

300 

6  135 

60 
2 000 

2 971 

420 
420 
1 679 
4  171 
4 275 
500 
9 388 
5 

8  131 

13 
2 060 

1  Regulation  (EEC)  No  3730/87,  10.12.1987  (OJ  L  352,  15.12.1987,  p.l);  Commission  Decision  96/687/EC, 

22.11.1996  (OJ  L  317.  6.12.1996,  p. 22). 

28  THE AGRICULTURAL YEAR 

Member  State 

Appropriations  allocated 
(ECU) 

Cereals 

Olive  oil 

Suomi/Finland 

United  Kingdom 

2 039 000 

10 700 

29  190 000 

Quantities  (tonnes)' 

Skimmed 
milk 
powder 

Butter 

Beef 

200 

8000 

Total1 

193 300 000 

106 751 

7 000 

10 204 

11466 

29 058 

1  These  quantities take  account of  an adjustment  to the plan made during the marketing  year because  insufficient  stocks of  olive  oil  were  available. 
1  ECU  I million  should  be  added  to the  ECU  193.3 million  to cover the  financing  of intra-Community  transport costs. 

84.  The table below gives a breakdown of the amount involved and of the quantities which may 
be withdrawn  from  intervention  stocks  in each Member State. 

Harmonisation of  legislation 

Veterinary  and zootechnical  legislation 

85.  Some  major  decisions  were  adopted  in the veterinary  and  zootechnical  fields  in  1997. 

86.  The Council amended and updated Directive 64/432/EEC on animal health problems  affecting 
intra-Community  trade  in  bovine  animals and swine.1 

87.  In the animal  welfare  sector the Council adopted Regulation (EC) No  1255/97 laying down 
Community criteria for staging points2 to ensure optimum conditions for the transport of animals. 

88.  Lastly, to improve production and marketing conditions for beef and beef products, the Council 
adopted  Regulation  (EC)  No  820/973 (see point 95) 

89.  Under  the  powers' allocated  to  it,  the Commission  adopted  numerous  implementing  texts 
to supplement  the measures  laid  down  for the completion  of the single  market. 

90.  In  the  animal  health  field,  safeguard  clauses  to  prevent  the  spread  of  diseases  in  the 
Community  were also  adopted, particularly  in response to the outbreak  of  classical  swine  fever 
in the Netherlands,  Spain, Belgium  and Italy. 

91.  To protect  public  health,  a large  number of decisions  were taken  to prohibit  imports  from 
various  non-EU countries  of fishery products liable to pose a serious threat  to consumer  health. 

1  Directive 97/12/EC (OJ L109, 25.4.1997, p. 1). 
2  OJL  174. 2.7.1997,  p. 1. 
3  OJL  117, 7.5.1997,  p. 1. 

92.  Numerous  decisions  were  also  adopted  on  the  Community  financing  of  measures  for 
eradicating  animal  diseases  and curbing the spread  of animal  diseases  in the  Community. 

THE AGRICULTURAL YEAR  29 

Bovine spongiform  encephalopathy 

93.  The Community  institutions continued to work hard in  1997 to combat  bovine  spongiform 
encephalopathy  (BSE)  and  the other transmissible encephalopathies. The temporary  committee 
of. inquiry  set  up  by  Parliament  in  1996 reported  to Parliament  in  February  and  recommended 
a series of measures  to combat  BSE. On the basis of the report, Parliament  adopted  a resolution 
on  19 February  inviting  the Commission  in particular  to implement  its recommendations'  and, 
on 23 April, set up a new  temporary committee of inquiry  to monitor action  taken.2 On  14 May 
the Commission  adopted  an  action plan containing a series of recommendations  to eliminate as 
.much as possible  the potential  risks posed by BSE in the light of the growing  body of  scientific 
data and on 20 October it presented a consolidated final report to the new committee of inquiry.' 
The report sets out the measures taken to eradicate BSE, protect public health and restore consumer 
confidence.  On the basis of  the committee Of inquiry's report, Parliament expressed  satisfaction 
in a resolution  adopted  on  19 November4 with the measures  taken  by the  Commission. 

94.  As part of  its action  plan, the Commission  supplemented  the protection  measures  taken in 
1996, by prohibiting the use of materials presenting a BSE risk (the brains, eyes, tonsils and spinal 
cord  of  bovine  animals, sheep and goats; spleens of sheep arid goats)'' and  by strictly  regulating 
the transport of animal waste/ On 28 July, the Commission also supplemented the list of ingredients 
whose use is banned in compound feedingstuffs7  and introduced special labelling  for animal  feed 
containing  protein  products  derived  from  mammalian  tissues." , 

95.  To increase consumer protection by improving information on the origin of meat, the Council 
adopted on 21 April Regulation (EC) No 820/97*' which establishes a system  for the  identification 
and  registration  of  bovine  animals, involving  in particular  the provision  of  a passport  for  each 
animal and  the creation  of a computerised database  in each Member State, and also a consistent 
and reliable system  for  labelling  beef and veal and products derived  from  them. Contrary  to the 
Commission  proposal, the Council  took Article 43 rather than  Article  100a of  the EC Treaty  as 
the legal  basis  for  the regulation. The Commission  applied  to the Court on  22 July  1997 for  the 

OJC  85.  17.3.1997. 
OJC  150.  19.5.1997. 
COM(97) 509. 
OJC  371. 8.12.1997. 
Decision 97/534/EC (OJ L 216. 8.8.1997). this ban will enter into force on  I January  1999. 
Decision 97/734/EC (OJ L 294. 28.10.1997). 
Decision 97/582/EC (OJ L 237. 28.8.1997). 
Directive 97/47/EC (OJ L 211. 5.8.1997). 
OJL  117. 7.5.1997. 

. • • • * ,. 

30  THE AGRICULTURAL YEAR 

regulation to be cancelled on account of this choice of legal basis (Case C 269/97). The Commission 
had the  backing  of the  European  Parliament  in this case. 

Animal  feed 

96.  The  Commission  adopted  Directive  97/6/EC1  amending  Council  Directive  70/524/EEC 
concerning additives in feedingstuffs2  prohibiting, as a precaution, the use of avoparcin pending 
the results of investigations  under way into the risk of transferring  resistance to antibiotics used 
in human  medicine  through  the use of antibiotics  in  feedingstuffs. 

97.  Following  the  numerous  amendments  to the Annexes  to Council  Directive 74/63/EEC on 
undesirable substances and products in animal nutrition and an important change in the terminology 
used in this Directive, the Commission deemed it appropriate, for the sake of clarity, to consolidate 
the various instruments amending the Annexes to the Directive in question by Directive 97/8/EEC.3 

98.  For  practical  reasons  and  for  the sake of  legal consistency,  the Commission  considered  it 
the  veterinary  protection  measures  regarding  bovine  spongiform 
appropriate,  following 
encephalopathy  and  the  ban  on  the  use of  protein  derived  from  mammalian  tissue  in ruminant 
feed,  to adopt  Decision  97/582/EC4 supplementing  Decision  91/516/EEC5 establishing  a list of 
ingredients  whose  use  is prohibited  in compound  feedingstuffs. 

99.  In  addition,  to  prevent  users  of  feedingstuffs  containing  protein  derived  from  certain 
mammalian  tissues  from  feeding  them  to  ruminants  through  ignorance  of  current  rules,  the 
Commission adopted Directive 97/47/EC,6 which introduces into Council Directives 77/101/EEC1 
and 79/373/EECR on the marketing of straight and compound feedingstuffs  provisions on appropriate 
labelling of such feedingstuffs  calling livestock farmers' attention to the ban on their use in ruminant 
feed.  Furthermore,  so  that  livestock  farmers  are  informed  as  to the exact  nature  of  ingredients 
contained in feedingstuffs,  the Commission decided in Directive 97/47/EC9 to withdraw the option 
offered  to feed  manufacturers  under Directive 91/357/EEC of declaring  all  mammalian  protein 
under  the description  'land  animal  products'. 

OJL35.  5.2.1997. p.  11. 
OJL270,  14.12.1970, p. 1. 
OJL48,  19.2.1997, p. 22. 
OJL 237, 28.8.1997. p. 39. 
OJL 281, 9.10.1991, p. 23. 
OJL 211, 5.8.1997,  p. 45. 
OJL 32, 3.2.1977. p. 1. 
OJL 86, 6.4.1979. p.30. 
OJL 211. 5.8.1997,  p. 45. 

THE AGRICULTURAL YEAR  31 

100.  The  Council,  for  its  part,  adopted  Directive  97/40/EC1 on  25 June  1997  postponing  for 
18 months  the  date  by  which  the  Commission  was required  to decide  on  all  the  authorisation 
applications  (1  January  1996)  submitted  under  Directive  93/113/EEC concerning  the  use  and 
marketing  of  enzymes, micro-organisms  and  their preparations  in animal  nutrition. 

101.  The  Commission  transmitted  two proposals  for  Directives2 to the Council  on  25  and  28 
July  1997, one amending  Council  Directive 93/74/EEC on feedingstuffs  intended  for  particular 
nutritional purposes and the other amending Directive 95/69/EC laying down the conditions and 
arrangements  for  approving  and registering certain  establishments and intermediaries  operating 
in  the animal  feed  sector  and  amending  Directives  74/63/EEC, 79/373/EEC and  82/471/EEC. 
The purpose of these proposals is to deal with the production, circulation and use of a new category 
of products:  nutritional  supplements  for  animals. 

Plant  health 

102.  In the field of plant health, the Council Directive 97/3/EC3 aimed at introducing the principle 
of Community  financial  solidarity  and Member States' liability into the Community  plant health 
regime was  adopted  on  20 January  1997. 

103.  The Commission, in its programme of work, amended Community legislation  to continue 
to ensure that Community plant production was adequately protected in the light of newly identified 
risks  from  specific  harmful  organisms,  in  particular  new  protection  measures  for  the  citrus 
producing  areas of  the Community.4  Also Commission  Directive 97/14/EC removed  the import 
prohibition  on  potatoes  from  Algeria5 and  Commission  Decision  97/5/97* recognised  Hungary 
as free  from  the  bacterial  ring  rot  disease  of  potatoes  and  hence  able  to export  potatoes  to the 
EU. Commission  Directive 97/46/EC7 amending Directive 95/44/EC8 established  the conditions 
for  the  introduction  or  movement  of  potato  material  in  the  Community  for  research  or  trials 
purposes. 

104.  There  was also ongoing  reporting  and discussion  on the situation  concerning  potato ring 
rot in the Community  and the action taken to eradicate occurrences of this disease in accordance 
with Community  legislation.9 

OJL  180, 9.7.1997,  p. 21. 
COM (97) 408 and 409 final, 25.7.1997  (not published). 
OJL 27, 30.1.1997. 
Directive 98/83/EC OJ L  15, 21.1.1998). 
OJL 87.  2.4.1997 
OJL 2, 4.1.1997 
OJL 204, 31.7.1997. 
OJL  184,3.8.1995. 
Council Directive 93/85/EEC on the control of potato ring rot (OJ L 259. 18.10.1993). 

32  THE AGRICULTURAL YEAR 

105.  Several  derogations  from  the Community  plant  health  regime  were  also  adopted  which 
enabled the introduction of certain  plants and plant products -  potatoes, vine plants, strawberry 
plants -  from  specified  origins, under  strict additional  phytosanitary  measures. 

Seeds and Propagating  Material  Sector 

106.  In July  1997 the European  Parliament  gave its opinion  on the so-called  seeds  'package' 
proposal  (COM(93)  598 final). The most  important  amendments  related  to the environmental 
risk assessment  for seed of genetically  modified  plant  varieties and the labelling of packages of 
such seed. The Commission's revised proposal to the Council will incorporate these amendments. 

107.  As a  follow-up  to the SLIM  (simpler  legislation  for the internal  market)  exercise, the 
Commission  made a proposal  to the Council  to simplify  Council  Directive 91/682/EEC on the 
marketing of ornamental  plant propagating  material and ornamental  plants.1 

108.  In addition to the usual routine measures the Commission authorised the indelible printing 
of information  on packages of seed of oil and fibre plants  and extended  a similar provision to 
all fodder  plant species.2 

Plant protection  products 

109.  With regard to the re-evaluation programme for a first series of 90 existing active substances 
covered by Regulation  (EEC) No 3600/923, the dossiers submitted by the interested notifiers are 
under examination  in the rapporteur Member  States. 

110.  Forty-three evaluation reports have been submitted to the Commission for further examination 
with all Member States in the framework  of the Standing Committee on Plant Health. Thirty-five 
evaluation reports including five reports on new active substances have been peer reviewed during 
1997. The Commission  adopted  a Directive  for the inclusion of a first active substance into the 
positive  list of Directive  91/414/EEC. 

111.  Following annulment in 1996 by the Court of Justice of Annex VI of Directive 91/414/EEC 
providing  for uniform  principles  for the authorisation  of plant protection  products, the Council 
adopted4 on 25 June  1997 a new Commission  proposal  re-establishing  this Annex, essential for 
the proper  functioning  of the Community  regime, in the light of the Court's judgment. 

'  OJL376,  31.12.1991, p. 21 
2  OJL48,  19.2.1997, p.35 
5  OJL366,  15.12.1992, p. 10 
4  OJL  134,  12.7.1997, p. 33 

THE AGRICULTURAL YEAR  33 

Pesticide residues 

112.  On 25 June, the Council  adopted a Directive (Council Directive 97/41/EC1) amending the 
four basic Directives concerning pesticide residues in agricultural products (Directives 76/895/EEC, 
86/362/EEC,  86/363/EEC  and  90/642/EEC). The  measure  streamlines  Community  procedures 
for  the  fixing  of  maximum  levels  and  resolving  trade  problems  and  also extends  the  scope of 
the legislation  to processed  products. 

Organic farming 

113.  During the year the Commission adopted Regulations to improve and refine the Community 
regime established  by  Regulation  (EEC) 2092/91, in  particular  by revising  the list of  products 
authorised in organic farming  for plant protection  to take account of developing practice in this 
field  (Commission Regulation 97/314/EC2 concerning imports from third countries; Commission 
Regulation 97/345/EC3, amending Article 3 of Regulation No 207/93, concerning the provisional 
authorisation of non-organic  ingredients in organic  foodstuffs  to a maximum  limit of 5 % of the 
total  agricultural  ingredients  and  Commission  Regulation  97/1488/EC4,  amending  Annexes  II 
and VI concerning  the list  of  plant  protection  products  authorised  in organic  farming). 

State aid 

114.  The  Commission  adopted  a  new  version  of  the  Community  guidelines  for  rescue  and 
restructuring aid to agricultural  undertakings. The new rules entered into force on 1  January  1998 
for  new aid. 

115.  This  modification  involves  a  substantive  change  of  policy.  Until  now,  the  Commission 
has considered  compatible  with  the common  market  rescue and  restructuring  aids fulfilling  the 
following  specific  criteria:  financial  difficulties  should  result  from  past  investment;  difficulties 
should  be caused  by external  factors  and  total  aid  to  the  investment  is  to  be  maintained  under 
certain  ceilings. Member  States  had,  as an alternative,  the possibility  of  using  the  Community 
guidelines  applicable  to all  sectors.5 

OJL  184.  12.7.1997 p. 33 
OJL 51, 21.2.1997. p. 34 
OJL 58. 27.2.1997, p. 38 
OJL 202, 30.7.1997, p. 12 
OJC368, 23.12.1994. p. 12. 

34  THE AGRICULTURAL YEAR 

116.  The  specific  criteria  for  the  agricultural  sector  are  now  replaced  by  criteria  of  the  same 
nature of those used in the same guidelines, i.e., a counterpart for the aid is needed in the surplus 
sectors, consisting  of  an irreversible  reduction  or closure of capacity  (5 % to  16 %). 

117.  In  order  to  take  into  account  the  special  features  of  the  agricultural  sector,  for  small 
agricultural  enterprises  (defined  as  operators  having  no  more  than  10 annual  work  units)  the 
requirement of irreversibly reducing or closing capacity may be considered to be achieved at the 
relevant  market  level  rather  than that of the enterprise  concerned. 

118.  In recognition of the practical problems associated with capacity reduction, the Commission 
will  waive the capacity  reduction requirement  where the aid concerns only  a minimum  amount 
of output such that trade distortion  is at most only of very minor incidence. This derogation  can 
be applied  when  the  production  concerned  by  the  aid  in  a  given  year  does  not  exceed  3 % (if 
the measures are focused  on certain products or producers) or  1.5 % (if the measures are general) 
of the total  annual  value of  products concerned  in a given  Member  State. 

119.  After publication at the beginning of 1996 of a new framework  for research and development 
concerning  all  sectors,  including  agriculture,  the  Commission  adopted  a  modification  to  this 
document  which  clarifies  and  redefines  its  policy  on  such  aid  in  the  agricultural  sector.  The 
modification  followed  from  the  fact  that  the  framework  did  not  make  any  provisions  for  R & 
D work, fulfilling  the conditions of Article 92 (1) of the Treaty  to be aided  at above 75 %. This 
75 %  limitation  constituted  a  more  restrictive  approach  than  had  previously  been  applied  in 
agriculture. After the entry into force of the modification  on 1  February  1998 the framework  will, 
in  defined  circumstances,  allow  aid  of  up  to  100%  in  the  agricultural  sector.  Four  conditions 
are imposed;  that the research  is of general  interest to the sector concerned,  that  it is published, 
that its results are made available  for exploitation  by interested  parties on a equal  basis and that 
it fulfils  the conditions laid down in Annex 2 of the GATT agreement on agriculture. Cases which 
do not satisfy  these conditions  are to be examined  under  the other  rules of  the  framework. 

120.  The  Commission  had  adopted  in  1995 guidelines  regarding  State  aid  policy  in  the  form 
of short term reduced interest loans in agriculture ('operating  loans').1 The main objective of these 
guidelines  is to tighten  Commission  policy concerning  these types of  operating  aid.  According 
to these  guidelines,  the  Commission  recognises  that  the  specificities  of  the  agricultural  sector 
may produce disadvantage in the form of higher interest rates on short term loans regarding other 
sectors of the economy. Member States are thus allowed to compensate  that difference  between 
sectors,  having  as  a  precondition  to  supply  the  calculation  method  they  intend  to  apply, 
demonstrating  that  there  is  no  overcompensation. 

121.  During  1997, several Member States (Italy, Portugal, Spain) submitted  their proposals  for 
calculation methods of this disadvantage. Detailed examination of their proposals revealed a number 

1  OJC44,  16.2.1996. p. 2. 

THE  AGRICULTURAL  YEAR 

35 

of  practical  problems  encountered  in  the application  of the guidelines. Solving  those  problems 
required,  firstly,  the  suspension  of  the  application  of  the  guidelines  in  order  to  allow  the 
Commission  to carry  out  a thorough  examination  of all the implications of these problems  and, 
secondly, the adoption of a new communication  clarifying  the interpretation  to be given to point 
C  of  the guidelines. The  criteria  provided  for  in  the  guidelines  (to  be interpreted  according  to 
the principles  confirmed  with  the  new  communication)  will  enter  into force  on  30 June  1998. 

722.  During  1997, the  Commission  undertook  steps  to  assure  a  better  coordination  between 
Structural Funds and competition  policy in the agricultural sector. It is expected that, for the next 
round  of  Structural  Funds  starting  after  1999, rules relating  to competition  aspects  in  structural 
programmes  are clear  and  transparent  both  for  Member  States  and  to the  Commission. 

123.  As  in  previous  years,  the  Commission  received  a  large  number  of  notifications  in  the 
agricultural  sector  (a total  of  266 compared  with  an annual  average of 290 in the previous  four 
years. As expected from  their size and administrative structure, the majority of notifications  came 
from  Italy (28%), Germany  (20%)  and Spain  (10%). As regards the three new Member States, 
major contributors to notifications  in previous years, their notification  level has clearly decreased 
in  1997, probably  stabilising. 

124.  The Commission  took a final  negative decision in a Portuguese case regarding aid granted 
in favour of the public owned cereal trading company EPAC (Aid No C 15/97). The aid concerned 
a State guarantee, as well as special financing conditions in the framework  of a debt consolidation 
loan. The aids granted  were not considered  to be in conformity  with rules regarding  rescue  and 
restructuring  aid  for  companies  in  difficulty. 

125.  Since the aid had not been previously notified and was particularly distortive of competition, 
the Commission  used  for  the first  time the possibilities offered  by the Boussac judgement  in the 
agricultural  sector.  In  fact,  this  decision  was  preceded  by  an  interim  decision  requesting  the 
Portuguese  government  to suspend  the aid  until  a final  decision  has been  reached. 

126.  As the Portuguese authorities have not ceased the aid, the Commission was obliged to apply 
to the European  Court  of  Justice  to enforce  the application  of Community  law. 

127.  In what concerns  its policy  for  publicity  aid in agriculture, the Commission  had noted  in 
1996 that  assurances  given  by  Member  States  may  not  guarantee  compliance  with  mandatory 
Commission rules in this field. In fact, some public funded publicity material was found to contain 
breaches of  EC provisions,  Article  30 of  the Treaty  in particular. 

128.  To  this  end,  the  Commission  adopted  a  final  negative  decision  for  French  State  aid  for 
encouragement  of  sheep  consumption  (Aid  No  C  18/95). Publicity  logos  'Agneau  des  bergers 

36  THE AGRICULTURAL YEAR 

de France'  and  'Agneau  français,  qualité  bouchère'  were deemed  incompatible  with Article  30 
of the Treaty. 

129.  In a related  matter,  the Commission  considered  start-up aid for  a Regulatory  Council  for 
the quality  mark  'Rioja  calidad* (Aid  No N 541/96). The public  aid  was  not given  to a private 
quality origin, but to a regional quality label. As this quality label was not covered by Regulation 
(EEC) No 2081/92 and  it was  in practice  reserved  to agricultural  products of  the Rioja  region, 
the Commission  considered  it contrary  to Community  provisions. 

130.  In  the  framework  of  aid  for  publicity  measures,  the  Commission  opened  the  procedure 
provided  for in Article 93 (2) of the Treaty to Italian  aid for promotion  and publicity of Sicilian 
citrus fruits (Aid No C 41/97), entirely financed by the public budget. According to the Community 
guidelines  for  this  aid,1 the maximum  level  of  aid  for  these  actions  is  50%,  as a general  rule. 
Although  these  guidelines  allow  this  rate  to  be  increased  in  particular  circumstances,  the 
Commission has never fixed a ceiling for the maximum rate acceptable. It had nevertheless accepted 
rates up to 75 % (and, exceptionally,  80%). The Commission  does  not  accept a  100% aid rate 
for  these actions, maintaining  that the contribution  from  the beneficiaries  shall  be  'significant'. 

131.  After  having in late 1996 adopted a final negative decision on the French biofuel  case (Aid 
No C 51/94), the Commission  adopted  in  1997 two final negative  decisions  relating  to  biofuel 
cases,  in  Italy  (Aid  No  C  43/94)  and  Belgium  (Aid  No  C  5/95).  Both  cases  were  deemed 
incompatible  with  common  agricultural  policy  rules. In contrast  to the  French  case,  they  were 
not considered  incompatible  with  Article 95 of  the  Treaty. 

132.  In  the  French  biodiesel  case,  and  in  spite  of  its  strict  policy  concerning  the recovery  of 
illegal aid, the Commission did not insist on recovery because the breach of Community provisions 
did  not  lead  to  an  increase  of  aided  production  and  the  reestablishment  of  the status  quo  ante 
would result in a far worse situation  for the beneficiaries.  For the same reasons, the Commission 
did  not  insist on  recovery  of  the Italian  biofuel  aid. The  Belgian  aid  has  never been  granted. 

133.  In what concerns the execution of the final negative decisions, both France and Italy asked 
for  extensions  of  the  time  period  necessary  to  implement  them.  Equally,  the Commission  has 
adopted  a similar  negative  approach  towards  both  requests,  on  the  grounds  that  these  are  not 
supported  by an objective  impossibility  of their  application. 

134.  At the end  of  1995, the Commission  opened  the procedure  provided  for  in Article 93(2) 
of the Treaty regarding an Italian  law providing for  the State to take over guarantees  undertaken 
by cooperative members in favour of agricultural cooperatives declared insolvent. The Commission 

'  OJL302.  12.11.1987,  p. 6. 

THE AGRICULTURAL YEAR 

37 

has  assessed  the  aid  as  a  retroactive  operating  aid  to cooperatives,  without  any  possibility  of 
restructuring,  since all  the cooperatives  concerned  were closed  or about  to cease  operation. 

135.  In  1997, Italy submitted  to the Council a request for approval of this aid in the  framework 
of Article 93(2) third subparagraph of the Treaty, alleging exceptional circumstances. This request 
was accepted  by  the Council  and the aid was deemed  compatible  with the common  market by 
derogation  from  Article 92 of  the Treaty. 

136.  The procedure before the Commission -  suspended as a consequence of the Italian request 
to the Council  -  has consequently  become  void. Furthermore, the Commission  has waived  the 
possibility  of  asking  the Court  of Justice  for  the annulment  of the Council's  Decision. 

137.  While maintaining its well established policy of opposing operating aid in the agricultural 
sector,  the  Commission  decided  to  raise  no  objections  to  three  notifications  relating  to  the 
Community's  outermost  regions:  for  the French  overseas  departments  and  the  Azores  Islands, 
the aid is transport  aid concerning  the financing of part of the shipping  costs  of  local products; 
for  the  Canary  Islands,  the  notification  concerned  a  special  economic  and  fiscal  regime  also 
applicable  to agriculture  including  several  types  of operating  aid. 

138.  The Commission considered that this aid was justified in order to compensate for the strongly 
negative economic impact of the combination of insularity and remoteness of these regions, without, 
however,  having  an  impact  on  the internal  market. 

139.  In  what  concerns  aid  linked  to the  BSE disease,  the Commission  opened  the  procedure 
pursuant  to Article  93(2)  of  the Treaty  towards  Italian  aid  for  the region  Friuli  Venezia  Giulia 
for  compensation  of  operators  in  the  sector  of  processing  and  marketing  of  beef  products,  for 
compensation  for loss of value and decrease in slaughterings  between  18 March  and  16 August 
1996 (Aid  No C 51/97). 

140.  Until now, the Commission policy had been only to accept compensation for indirect effects 
of the BSE crisis in the UK, this Member State being the only one for which a total ban on exports 
had been imposed. For other Member States, only direct compensation had been allowed. In this 
particular  case,  the  proceedings  have  been  opened  because  there  was no sufficient  evidence  to 
demonstrate there is no overcompensation. The opening of procedure does not cover the fact that 
the aid  is now compensating  indirect effects  in a Member  State other  than  UK. 

141.  After  having  in  1995 opened  the procedure  provided  for  in  Article  93(2)  of  the  Treaty 
regarding a restructuring  aid given by the regional  authorities of Navarra  to company  'Cârnicas 
del  Sadar'  (Aid  No  C  33/95)  and  following  additional  information  supplied  by  the  Spanish 
authorities, the  Commission  has decided  to close the  procedure. 

38  THE AGRICULTURAL  YEAR 

142. 
'Cârnicas  del  Sadar'  is a company  formed  by  previous  workers  of  a  bankrupt  company 
('Pamplonica, S.A.'). Following the bankruptcy of the latter, 'Carnicas del Sadar' obtained  from 
the managing judge the facilities, equipment and the marketing brand of the company, for pursuit 
of  the  same  activity.  The  capital  needed  to  restart  production  was  obtained  by  using  the 
unemployment allowances of the workers, as well as regional government aid. Although  formally 
the  beneficiary  of  the  aid  is  a  new  company,  the Commission  considered  that  it  remained  the 
same business and, under this condition, the Community guidelines for rescue and  restructuring 
of companies  in difficulty  could  be applied. 

143.  In the field of agri-monetary  related  aids four cases have been  notified  in  1997. Three of 
these  cases  concerned  Ireland  and  were  based  on  Council  Regulation  (EC)  No  724/97  which 
provides  for  the  possibility  of  compensation  being  granted  for  losses  of  income  caused  by  a 
reduction in agricultural conversion rates for certain currencies. The other case concerned Sweden 
and was based on Regulation (EC) No 2990/95 which covers the same subject matter for Finland 
and  Sweden. 

144.  The first Irish case (Aid No N 256/97) concerned  the revaluation of the Irish pound  which 
occurred in November  1996 and January  1997, whereas the Swedish case concerned the revaluation 
of  the  Swedish  krona  of  July  1996. The  second  Irish  aid  (Aid  No  N  408/97)  referred  to  the 
subsequent  revaluation  of  the  Irish  pound  which  occurred  in March  1997. Within  the scope of 
these notifications,  both Member States envisaged  granting the maximum  aid allowed-under the 
Regulations. Equally, all the schemes involved only Community financial  support. Consequently 
the amounts payable in these schemes were limited to half the total possible under the Regulations. 

145.  The third Irish case (Aid No N 397/97) concerned the utilisation of national moneys unused 
in  the  framework  of  aid  No  N 256/97  for  the  implementation  of  a new  agrimonetary  scheme. 
Although  this  new  scheme  is different  from  the  early  approved  schemes  (concentrating  aid  to 
the  beef  sector  on  a restricted  group of  animals),  the  Commission  considered  that  the  aid  was 
not distorting  competition, since the aid level did not compensate the income  losses suffered  by 
these producers. 

146.  In a Dutch  case concerning  publicity  aid  for  ornamental  plants (Aid  C  34/97), where the 
Article 93(2) procedure was initiated on the aspect of partial financing of aid through a parafiscal 
tax on imports from  other Member States, the Commission considered  that this tax differs  from 
parafiscal  taxes  normally  applied.  The  taxation  of  imports  would  only  be  possible  if  the 
representative partner organisation  in the Member State concerned agrees to it. Furthermore, the 
earnings  of  the  tax levied  on  imports  are given  back  to the partner organisation  in the Member 
State concerned.  The moneys concerned  have to be spent  for generic promotion  for  ornamental 
plants decided  in  consultation  between  the Dutch  product  board  for  ornamental  plants  and  the 
partner organisation but must always be approved by the partner organisation. This rechannelling 
of the tax earnings  to representative  organisations  would, according  to the Commission's  view, 

THE AGRICULTURAL  YEAR 

39 

ensure that products  of  the Member  States  concerned  could have a comparable  benefit  from 
publicity aid to Dutch products which are taxed in the Netherlands. 

147.  The Commission, however, opened the procedure in this case because it had not sufficient 
information  to consider  that  the  partner  organisations  with  which  contracts  were  concluded 
represented all producers and traders in the Member State concerned (or at least their overwhelming 
majority) and that the rechannelled moneys were really used in all cases in a way that producers 
and  traders  in  the other  Member  States  could  have  a comparable  benefit  from  publicity  aid 
measures. 

148.  Furthermore the Commission considered consultation of other Member States and third 
parties in the framework  of this procedure as necessary because application of the taxation and 
rechannelling system directly concerns the interests of all other Member States and organisations 
and enterprises in the ornamental plants sector in these Member States and therefore their agreement 
to such a system needs to be verified. 

149.  As regards particular rules applicable to the new Member States (Austria, Sweden, Finland) 
by virtue of the provisions of the Act of Accession, the Commission had to establish what the 
contracting parties meant by the word 'flexibility'  Used in Declaration 31. Indeed, this provision 
promises the Commission would apply 'flexibility' on transitional national aid schemes designed 
to  facilitate  restructuring,  as  regards  the  processing  industry  in  Austria  and  Finland.  The 
Commission, in cases 445/B/95 and  14/96, had already decided this could mean disregarding 
the normal exclusions for aid (so-called  'selection criteria'  according to Decision 94/173/EC). 
Moreover, at the end of  1996 in case 517/B/96 the Commission agreed to an aid proposal where 
selection criteria were disregarded and without even requiring a contribution from the beneficiary 
in closing down part of the production capacity. 

150.  The Commission opened the Article 93(2) procedure in regard to an aid proposal which 
would imply an increase of production capacity in an excluded sector (starch). In its Decision, 
the Commission specified  concern that, with a view to the common interest of the Community, 
the term 'flexibility'  as used in Declaration 31 can only go so far and that increasing production 
capacity might be beyond this scope. 

151.  A second aspect of transitory provisions applying to the new Member States is the transitional 
degressive product support applying to virtually all agricultural products according to Articles 
138 and 140, Act of Accession. Although this type of aid already reached the phase of considerable 
degression  in  1997, the  amendment  of  the relevant  Commission  decision  to take  account of 
recurring  revision  of  the  support  level  before  and after  accession  was a constant  task  to the 
competent services during the last year. 

1(0  ^ 

< 

Il -  Economic situation and farm incomes 

General overview 

152.  After the remarkable economic results in  1996 in certain production sectors, particularly 
arable crops, and disastrous results in others, such as beef and veal, 1997 saw a return to a much 
more balanced situation. The cereals market, which in 1996 had enjoyed particularly favourable 
conditions, both domestically and internationally, returned in  1997 to a more normal situation. 
The beef and veal market, which had collapsed as a result of the 'mad cow' crisis in the spring 
of  1996, gradually  strengthened  from  the autumn of that year thanks to the support measures 
adopted by the Community and increased consumer confidence, although this was still fragile. 
Although the market for pigmeat was hit in spring  1997 by the outbreak in the Netherlands of 
one of  the European  Union's  worst-ever  swine-fever  epizootics, producers  in the rest of the 
Community generally enjoyed  a good year. On balance, results were also positive for oilseeds, 
sugar beet and poultry. 

755.  Weather conditions in 1997 were certainly less spectacular than in the previous year, which 
saw exceptional harvests, but also less disappointing than might have been feared at certain key 
moments. The beginning of autumn  was generally  speaking  favourable  for  the preparation of 
fields  and sowing, except in the southern and central parts of the Community, where sowing was 
delayed by heavy rainfall. The second part of autumn was very cold and damp in most of the 
Community, and waterlogged land made the sowing of some winter crops difficult  or, in certain 
cases, impossible. Total rainfall during the January-March period was below normal throughout 
Europe, except in Scotland and areas of southern Spain. Precipitation in January over the whole 
of the Iberian Peninsula, south-east France, several regions in the north and south of Italy and 
in Greece was above average. 

154.  February saw particularly heavy rainfall  in northern Europe, while in March, the whole 
of Europe, with the exception of some regions in the south of Germany, experienced  insufficient 
rainfall,  with  above-average  temperatures,  which  accelerated  the growth  of  winter crops and 
increased water shortages. 

42  ECONOMIC SITUATION  AND FARM INCOMES 

755.  The situation was somewhat helped by rain throughout Europe from the end of April, except 
in the south  of  the Community  where the rains arrived  too late to benefit  winter crops.  Rainfall 
during summer  1997 was also higher  than  normal, adversely  affecting  not only yields but  also 
the quality of winter crops at harvest. Spring cereals, on the other hand, and particularly  maize, 
enjoyed  conditions  which  were generally  more favourable  not only  than those for  other cereals 
but also, in certain cases, than those during the previous year. Overall, weather conditions in 1997 
produced yields, except for summer crops, which were generally lower than the exceptional levels 
of  the previous  year,  but  nevertheless  in  line with the long-term  trend. 

156.  On  the  macroeconomic  level, economic  growth  in  1997  was  slightly  higher  than  in  the 
previous  year  and  the  situation  on  the  labour  market  remained  unsatisfactory,  despite  a  slight 
increase in the number of jobs created and the stabilisation or reduction in the rate of unemployment 
at  Community  level.  As  in  1996, economic  growth  was  mainly  the  result  of  investments  and 
particularly  exports,  domestic  consumption  having  grown  more  slowly  than  GDP.  Inflation 
continued  to fall,  reaching  2.1 % in  1997, its lowest level  since the beginning of the  1960s. The 
public debt in the Member States also fell, to an average of 2.7 % in 1997 for the Union as a whole, 
against  a figure  of  6.4 % in  1993. 

757.  Overall, although  still  unsatisfactory  in certain  respects, results in  1997 show  signs of an 
upturn  which  should  be reinforced  in  1998 and  1999, provided  there is no marked  deterioration 
in the international  situation. 

158.  Changes during the year in agricultural conversion rates generally had little effect  on farm 
incomes, except in the United Kingdom. Most currencies were relatively stable during  1997, except 
for  the pound  sterling  and  the Irish  pound  and although  the  'green  rates'  for  the two currencies 
increased  by  14 % and  more  than  6 % respectively  during  the  first  10 months  of  the  year,  the 
negative effect  this revaluation would have had on farm incomes was partly offset by the Council's 
decision  to freeze  the agricultural  conversion  rates applicable  to per-hectare  and per-animal aid 
until  1  January  1999, under the arrangements established after the significant revaluation of certain 
currencies  in  1995. 

759.  These  arrangements  also allowed  other Member  States  (in  particular  Sweden)  to protect 
themselves  from  the  negative  effects  on  farm  incomes  of  the revaluations  carried  out  in  1996. 
As regards  Italy, although  the conversion  rates for  aid were  frozen  in March  1997, it should  be 
recalled  that aid for the  1996/97 marketing year had been reduced by about  12 % from  the levels 
of the previous  year  following  revaluation  of the Italian  lira between  April  1995 and July  1996 
after  a previous  devaluation  of  around  20 %. 

160.  The  revaluation  of  the pound  sterling,  the Irish  pound  and  the Italian  lira  led  to a fall  in 
institutional  prices  in  the  national  currencies  and  lower  market  prices  in  the  Member  States 
concerned. However, those Member  States were authorised  to make compensatory  payments to 

ECONOMIC  SITUATION  AND FARM  INCOMES 

43 

cover consequent  losses of income, with the EAGGF covering 50 % of the payments. Ireland 
made such compensatory payments but, by the beginning of November, neither the United Kingdom 
nor Italy had done so. It must also be pointed out that, during the first 10 months of  1997, the 
'green  rates'  for  certain  Member  States increased  slightly. The resulting  increase in prices in 
national currency was 2.2 % in Belgium and Luxembourg, 0.7 % in Denmark, 2 % in Germany 
and Austria,  1.1 % in Spain, Portugal and France and 2.3 % in the Netherlands. 

Production  levels and price trends 

767.  Cereal production in  1997 is estimated at some 202 million tonnes, slightly less than the 
level achieved in the previous year, which had seen the European Union's largest-ever harvest. 
It should be noted, however, that while the 1996 record was reached with a set-aside rate of 10%, 
the 1997 harvest was obtained on a larger area, following  a reduction in set-aside to 5 %. This 
increase in area was offset  by a fall in yields compared with the exceptionally high levels of the 
previous year. 

162.  The total area sown to cereals increased by  1.1  million  hectares or around 2 % over the 
previous year, less than the total area freed  by the reduction of the rate of compulsory set-aside 
from  10 % to 5 %, which was of the order of  1.9 million  hectares. This is because, parallel  to 
the  increase  in  areas  sown  to  cereals,  there  were  increases  in  the  areas  sown  to  oilseeds 
(+0.5 million hectares) and protein plants (+0.2 million hectares) and a slight increase in voluntary 
set-aside (+0.1 million hectares). Increases in cereal areas principally involved barley, common 
wheat, maize and triticale. 

163.  Yields were on average 3 to 4 % below the record levels of the previous year, but, as already 
noted, generally followed the long-term upward trend. Maize yields in 1997, however, were even 
higher than in  1996 thanks to particularly favourable  weather conditions for the crop during the 
year. 

164.  According  to initial, provisional  estimates, production  of common  wheat was down by 
around 3 % on the previous year and that of durum wheat by about 12 % owing to a substantial 
reduction in yields caused by water shortages in the production regions during the first few months 
of the year. Maize production reached almost 37 million tonnes, the highest-ever level, up nearly 
7 % on the previous year. The production of rye and triticale was also up significantly (+5 % and 
+15 % respectively). Barley production  was more or less stable, with lower yields being  offset 
by an increase in the areas sown. 

165.  Market prices were generally lower than during the previous year and closer to the invention 
prices, unlike  in  1995/96  when  there  was a significant  gap between the market price and the 

44  ECONOMIC SITUATION  AND FARM  INCOMES 

intervention price for most cereals. The market began to slacken in July 1996 as soon as the size 
of the  1996 harvest became known  and marketing began. This situation continued throughout 
most of the  1996/97 marketing year, except for the period March-April  1997 when uncertainty 
about the US wheat harvest, following  frost  in certain production regions, caused world wheat 
prices to shoot up and cereal prices on the Community market to increase. 

166.  After reaching a peak in April, prices on the internal market fell rapidly to the intervention 
price level, with the exception of durum-wheat prices, which increased constantly from October 
1996 owing to shortages on the world market and a Community harvest which was expected to 
be well below that of the previous year. At the beginning of November 1997, market prices were 
10 to 30 % above the intervention price for common wheat, 60 to 80 % for durum wheat and 5 
to 20 % for barley and maize (although market prices were below intervention prices on certain 
markets for barley in Germany and for maize in Italy). 

767.  Oilseed production in  1997 (rape, sunflower  and soya) was a record  14.7 million tonnes, 
of which  13.5 million  tonnes were for  food  uses and  1.2 million tonnes for non-food  uses, i.e. 
produced on areas set aside. This represents an increase in total production of 21 % on the previous 
year and a 26 % increase in production for food uses. After several years of stagnation or decline, 
the production of protein plants (peas and field beans) shot up by almost 20 % as a result of both 
increased areas and higher yields. 

765.  Sugar production  in  1997, at more than  17 million  tonnes, was at a record level, 3.4 % 
up on the previous year. A combination  of  factors  was responsible: a slight increase in areas, 
a significant increase in sugar-beet yields and a higher sugar content. The higher yields were the 
result of good weather conditions, particularly at the beginning and the end of the marketing year. 

769.  According to initial, provisional  estimates  available in mid-November, wine production 
was down by 5.5 % on the previous year, but was still around the average for the last three wine 
years. Production fell particularly in France and Italy, while it was stable in Spain. Quality will 
be exceptional  in several  producer  Member  States  because of good  weather conditions in the 
autumn. This played a vital role in the rapid  increase in market prices for red wines from  the 
end of September. Prices for  white wines, on the other hand, were very depressed  throughout 
the year, particularly in Spain and Italy. 

770.  The unseasonal  frosts  which hit southern  Europe (particularly France and Italy) and the 
southern parts of Germany at the beginning and end of spring had an often drastic effect  on the 
production of several kinds of fruit. Peaches and nectarines were particularly badly affected, with 
production falling by 60 to 70 % in France and Italy, as were apples, Community production of 
which fell  by  15 to 20 %. The citrus  fruit  harvest, on the other hand, is expected to be large, 
possibly exceptional, up by around  15 %. Prices were generally good, not only for fruit of which 

ECONOMIC  SITUATION  AND FARM  INCOMES 

45 

production  was significantly  down, such  as  apples,  peaches  and  nectarines, but also for  certain 
vegetables, such  as tomatoes  and  cauliflowers. 

777.  Estimated milk production in  1997 was very slightly down on the previous year, at around 
121 million  tonnes,  as  a  result  of  a  reduction  in  herds,  partly  offset  by  an  increase  in  yields. 
Deliveries to dairies should remain  more or less stable. Estimated  butter production  is down by 
1.5 %, although  consumption  should  remain  at the same  level  as the previous year. For the first 
time for several years, total cheese production remained practically unchanged, or even fell slightly, 
as a result  of  a marked  fall  in  the  production  of  cheeses  made  from  'other  types  of  milk'  and 
stable production  of cow's milk cheese. This confirms  that the upward  trend is at an end, as was 
already  evident  in  1996 when  production  increased  by  only  1.6 % against  an  average  of  more 
than 2 % in previous years. Cheese consumption,  which increased by 3.9 % in  1995 and by 0.9 % 
in  1996, rose  by only  0.3 % in  1997, more  or  less  in  line  with  the increase  in production. 

7 72.  After  falling by around  10 % in  1996, market prices for butter slowly but steadily increased 
during 1997, recovering during the first  10 months of the year all they had lost during the previous 
year.  In  mid-November  1997, they  were  on  average  8 %  above  the  intervention  price. This  is 
explained  by a reduction  in intervention  stocks, falling  production,  more or less stable domestic 
consumption and a resumption of exports, particularly  to Russia. Prices for  'other milk products' 
were  fairly  firm  during  1997. It should  be  noted,  however,  that higher prices on  the market  for 
milk products  were  not reflected  in higher  producer  prices. 

775.  For the second consecutive year, beef and veal production.was fairly stable in 1997 (around 
7.950 million  tonnes), having  reached  the  peak  of  its cycle during  the  1996/97 marketing  year. 
This cyclical  production  peak  was, however,  around  300 000 tonnes  less than could  have been 
expected  without  the slaughter  of  calves  and  particularly  of  cattle  of  more  than  30 months  old 
in the  United  Kingdom  following  the BSE  (bovine  spongiform  encephalopathy)  crisis. After  a 
fall of 7.4%  in  1996, beef and veal consumption  began  to recover in  1997, increasing by around 
3%. 

174.  Elsewhere, exports of beef and veal to third countries continued at a fairly high level despite 
the difficulties  caused by the BSE crisis. This contributed  to the gradual increase in beef and veal 
prices during  1997, after  a fall  of  around  15 % between  April  and September  1996. From May, 
market  prices  for  live  cattle  were  substantially  higher  than  at  the  same  time  the  previous  year 
and,  in mid-August  even  reached  pre-BSE  levels. 

775.  Market  prices  for  the  reference  quality,  particularly  during  the  first  half  of  the  year, 
nevertheless  remained  below  80 % of  the  intervention  price,  the  threshold  for  the adoption  of 
market  support  measures.  Between  the  beginning  of  the  year  and  the  end  of  September  1997, 
220 000 tonnes were bought in, adding  to the 430 000  tonnes already  in intervention  storage at 

46 

ECONOMIC  SITUATION  AND FARM  INCOMES 

the end  of  1996. From  the end  of  August,  the  rate  of  intervention  purchases  gradually  slowed 
owing to a significant  improvement  in  the market  situation. 

776.  The  production  of  pigmeat  in  1997  was  heavily  influenced  by  the huge  number  of  pigs 
that had  to be slaughtered  in the Netherlands  to eradicate  swine  fever,  which hit the country  in 
the spring. Overall, production  was slightly down  on the record level of the previous year, when 
the  fall  in  the  consumption  of  beef  and  veal  caused  by  the  BSE  crisis  had  pushed  up  the 
consumption of white meats throughout the Community. Although pigmeat production  increased 
in  several  Member  States,  the  fall  in  the  Netherlands  was  so  great  that  the  net  result  for  the 
Community  of  15 was a fall  of 0.7 % on the previous year. Consumption  is also expected  to  fall 
slightly  as a result of excessive price  increases  and  the  return  of consumers, although  still  only 
tentative, to  beef  and  veal. As  already  noted,  pigmeat  prices  were  fairly  high from  April  1996, 
reaching  exceptional  levels  in  mid-May  1997,  as  a  result  of  shortages  in  the Netherlands,  and 
to a lesser extent, in Germany. From then on, however, prices fell considerably, although remaining 
for  most of  the year at the very firm  levels  of  the previous  year. 

777.  Production of poultrymeat continued to increase at a very substantial rate in 1997 (+3.1 %), 
driven  by  a sharp  increase  in domestic  consumption  and  an even  greater  increase  in exports  to 
third  countries.  Thanks  to  this  dynamism,  since  1996  both  the  production  and  the  domestic 
consumption of poultrymeat have exceeded those of beef and veal, and poultrymeat exports have 
rapidly approached  the level of beef and veal exports. After  the rise in prices following  the BSE 
crisis,  market  prices  for  chicken  stabilised  during  1997  at  levels  generally  below  those  of  the 
previous  year, but still  higher  than  those  obtaining  before  the outbreak  of  the crisis. 

775.  Production  of sheepmeat and goatmeat  was slightly  down on the previous year (-2.4 %), 
as  a result,  in  particular,  of  a substantial  fall  in  the  United  Kingdom  and  Ireland.  After  being 
particularly  high  in  1996,  market  prices  remained  firm  in  1997 and,  except  during  the  spring, 
even  exceeded  their  levels of  the previous  year. 

Producer  prices 

779.  The information  available on 20 November  1997 suggests that the index of nominal producer 
prices for  all agricultural products fell  in  1997 by an  average of 2.4%  for  the Community  of  15. 
As compared  with  1996, the  index  of  producer  prices  for  crop  products  fell  in  nominal  terms 
by an average  of 4.6 %. In  particular,  cereal  prices  fell  by  an  annual  average of  9 %, those  for 
potatoes  by  6.7 %,  those  for  wine  by  5.2 %,  those  for  vegetables  by almost  3 % and  those  for 
olive oil  by more than 23 %. Prices  for  sugar  beet  and  fruit,  on the other  hand, increased  by an 
average  of  1.3 % and  1.4%  respectively. 

180.  Trends  in producer  prices  for  livestock  products  were generally  more  satisfactory,  with 
the index of prices remaining, on average, fairly stable (-0.3 %) in nominal terms as a consequence 

ECONOMIC SITUATION AND FARM INCOMES 

47 

of increases in prices for pigs (+3.5 %) and sheep and lambs (+1.3 %), a.slight rise in cattle prices 
(+0.5 %, after a fall of around 13 % in 1996) and a reduction in prices for poultry (-2.2 %), milk 
(-2.3 %) and eggs (-4.0%). 

757.  Allowing for inflation, the index of producer prices fell by an estimated average of 4.8 % 
in real terms for the whole of the European Union, with above-average falls in Spain (-7.6 %), 
Ireland  (-8.8  %),  Italy (-5.8  %), Portugal  (-8.1  %) and the United Kingdom  (-  15.9 %) and 
relatively smaller ones in Belgium (-1.7 %), Denmark (-1.5 %), Greece (^ 1.5 %), France (-1.8%), 
Finland (-2.5 %) and Sweden (-4.0 %). The index of real prices was relatively stable or even 
slightly up in the other Member States. 

Input prices 

752.  In  1997, the index of purchase prices of staple goods and services in agriculture rose on 
average by some 0.9% in nominal terms. Excluding seeds and fertilisers, the nominal prices of 
which fell  by around 3 %, the prices for  all staple goods and services in agriculture increased 
in nominal terms. Above-average increases were expected for breeding livestock (+4.5%), energy 
(+ 3.3 %), repair and maintenance of equipment (+ 3.3 %) and veterinary services. 

755.  The deflated index of prices of staple goods and services in agriculture fell by an estimated 
average of  1.3 % in the European  Union  as  a whole, but  the decreases  were put  at  1.6 % in 
Denmark, 2.6% in Greece and the Netherlands, 2.9 % in Ireland, 3.6% in Italy, 5.9% in Portugal 
and 4.6 % in the United Kingdom. 

Trends  in farm  incomes 

184.  The final figures for trends in farm incomes wilt not be known until some time in 1998.' 
The only underlying factor explaining the trend in farm incomes for which preliminary estimates 
are  already  available  for  1997  is  the  'agricultural  price  spread'  (the  producer  price  index: 
intermediate consumption  index ratio). This deteriorated  in virtually  all Member  States, most 
particularly in the United Kingdom, Ireland, Sweden, Finland, France, Portugal and Italy. However, 
it improved  somewhat in the Netherlands and Greece and, to a lesser extent, in Germany and 
Denmark. 

755.  It  is  worth  pointing  out,  however,  that  this  indicator  has  lost  some  of  its  economic 
significance  since  the  entry  into  force  of  the  CAP  reform,  by  reason  of  the  introduction  of 
compensatory aid in return for the cuts in institutional prices under the reform. This aid, which 

However, readers can refer  to the estimates published  by Eurostat  in its Statistics in focus  series. 

48  ECONOMIC SITUATION  AND FARM  INCOMES 

is  included  under  'subsidies'  in  the  agricultural  economic  accounts,  now constitutes  a  key 
component  in  the  formation  of  agricultural  incomes,  at  least  as  far  as cereals  and  beef  are 
concerned. In 1996, operational subsidies received by agriculture as a whole totalled over 30% 
of gross value added in the Community of  15, but this figure  is probably considerably  higher 
in the cereals and beef sectors. 

Changes  in nominal  producer prices  of  agricultural  products in 1996 and 1997 

Member Stale 

EU-15 

Belgique/Belgie 
Danmark 
Deutschland 
EXXdba  (Elldda) 
Espana 
France 
Ireland 
Italia 
Luxembourg 
Nederland 
Osterreich 
Portugal 
Suomi/Finland 
Sverige 
United Kingdom 

Source: Eurostat 

Crop 
products 

- 4 .6 
- 2 .4 
- 1 .5 
1.4 
4.4 
-10.1 
- 3 .6 
-  11.6 
-4.1 
0.8 
1.3 
- 0 .3 
- 8 .9 
- 0 .4 
- 7 .4 
-  17.4 

1997/96 

Livestock 
products 

- 0 .3 
1.8 
1.9 
2.5 
4.3 
2.7 
3.4 
- 6 .4 
- 2 .1 
0.1 
3.4 
2.1 
- 2 .1 
- 2 .2 
- 0 .6 
-  11.9 

Crop 
products 

-0.5 
-  1.7 
-  1.4 
-5.5 
6.8 
-3.1 
0.4 
-11.9 
2.5 
3.4 
0.4 
2.1 
-0.2 
-9.2 
-7.8 
- 7 .4 

1996/95 

Livestock 
products 

1.0 
2.0 
4.3 
1.3 
0.2 
4.6 
-0.9 
-4.0 
1.2 
-5.1 
3.2 
0.5 
3.0 
-16.1 
- 2 .6 
2.3 

Total 

- 2 .4 
0.2 
0.7 
2.2 
4.4 
- 5 .4 
- 0 .3 
- 7 .0 
- 3 .3 
0.2 
2.4 
1.6 
- 5 .8 
- 1 .6 
- 2 .5 
-  13.9 

(%) 

Total 

0.2 
0.6 
2.2 
-  1.1 
5.0 
- 0 .4 
- 0 .3 
- 5 .0 
2.0 
- 3 .7 
1.9 
0.9 
1.2 
-  14.3 
- 4 .1 
-  1.5 

186.  As far as developments in farm  incomes in  1997 are concerned, it should be pointed out 
that these depend not only on the movement of producer prices and prices paid by farmers  for 
goods and services, a summary  of  which  is given  above, but also on other important  factors, 
including the volume of production, the growing role of direct aids as part of incomes and the 
development of the agricultural labour force as regards the indicators of income per work unit. 
If account is taken of all these factors and working on the basis of the data available at the time 
this chapter was drafted, economic results for European farmers as a whole in 1997 looked like 
being less favourable  overall  than in the previous three years, which saw substantial increases 
in incomes, but much more balanced than in the previous year. However, even if in certain sectors, 
such as cereals, there was a relative fall in incomes in 1997 because of the fall in producer prices, 
amounting on initial estimates to an average of 9% compared with 1996, it should not be forgotten 
that these sectors had achieved very good results over the previous two years. On the other hand, 
the beef and veal sector probably made a slight recovery in 1997 from the catastrophic situation 
which had prevailed since the beginning of the BSE crisis. As already stated, the situation  for 
pig-breeders, poultry-breeders and sugar-beet growers in  1997 was also relatively favourable. 

ECONOMIC SITUATION  AND FARM INCOMES 

49 

Deflated  output  price  indices 

(1990  a  100) 

Member  State 

1990 

1991 

1992 

1993 

1994 

1995 

1996 

1997 

1997/96 

Belgique/Belgie 
Danmark 
Deutschland 
EXX&ba  (Elldda) 
Esparta 
France 
Ireland 
Italia 
Luxembourg 
Nederland 
Osterreich 
Portugal 
Suomi/Finland 
Sverige 
United Kingdom 

EU-15 

100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 

97.3 
98.1 
96.2 
95.2 
101.9 
94.8 
97.8 
93.4 
102.8 
89.6 
100.8 
97.1 
86.5 
92.6 
91.5 
93.7 

89.5 
92.4 
92.8 
91.3 
93.3 
83.4 
89.6 
91.9 
89.8 
82.3 
92.1 
92.4 
73.2 
89.7 
86.4 
91.9 

84.9 
83.8 
80.0 
80.6 
85.2 
84.1 
83.5 
96.6 
87.9 
78.0 
83.4 
87.3 
70.6 
87.7 
79.3 
94.5 

85.1 
84.8 
79.5 
79.5 
87.3 
88.8 
82.6 
95.8 
87.5 
76.0 
84.2 
85.5 
72.7 
86.5 
81.6 
93.1 

85.6 
79.9 
77.5 
78.7 
87.7 
94.1 
81.9 
95.5 
90.9 
73.6 
84.9 
63.2 
72.6 
63.9 
79.8 
98.7 

82.8 
78.8 
77.5 
76.5 
86.5 
90.3 
78.3 
89.3 
89.2 
69.9 
84.8 
62.7 
71.2 
54.4 
76.1 
94.9 

78.9 
77.5 
76.3 
76.6 
85.2 
83.5 
77.0 
81.4 
84.0 
68.9 
84.8 
62.3 
65.5 
53.0 
73.1 
79.9 

- 4 .8 
- 1 .7 
- 1 .5 
0.3 
- 1 .5 
- 7 .6 
- 1 .8 
- 8 .8 
- 5 .8 
- 1 .4 
0.0 
- 0 .5 
-8.1 
- 2 .5 
- 4 .0 
-15.9 

Changes  in nominal  agricultural  input  prices  in  1995,1996 and  1997 

Member State 

Intermediate  consumption 
(goods  and  services) 

Investment 
(goods  and  services) 

Total 

1997/96 

1996795 

1995/94 

1997/96 

1996/95 

1995/94 

1997/96 

1996795 

1995/94 

m 

Belgique/Belgie 
Danmark 
Deutschland 
EUdfia  (Elldda) 
Espana 
France 
Ireland 
Italia 
Luxembourg 
Nederland 
Osterreich 
Portugal 
Suomi/Finland 
Sverige 
United Kingdom 

EU-15 

0.9 
2.0 
0.7 
2.0 
3.3 
2.3 
2.0 
- 0 .9 
-1.0 
1.3 
- 0 .3 
3.7 
- 3 .5 
2.9 
2.1 
- 2 .4 

4.1 
4.2 
3.3 
2.9 
8.7 
4.0 
4.1 
3.8 
3.0 
3.7 
4.7 
5.0 
0.3 
2.3 
6.9 
6.1 

2.7 
0.0 
0.4 
0.2 
5.6 
3.3 
1.7 
1.6 
10.6 
1.3 
3.3 
- 2 .1 
3.5 
- 2 1 .9 
5.7 
3.3 

2.5 
0.5 
1.0 
0.8 
3.1 
4.6 
1.4 
1.6 
3.4 
- 1 .1 
2.4 
0.9 
4.2 
1.3 
1.0 
2.7 

3.1 
0.2 
2.2 
1.1 
6.4 
5.2 
2.4 
0.0 
4.3 
0.9 
2.6 
2.1 
4.1 
1.7 
1.2 
2.3 

3.4 
3.6 
2.8 
1.2 
11.3 
5.9 
2.0 
4.6 
4.7 
1.5 
3.1 
2.0 
7.3 
-14.4 
6.0 
3.6 

1.3 
1.7 
0.8 
1.7 
3.2 
2.7 
1.9 
- 0 .3 
1.2 
0.2 
0.4 
2.5 
- 2 .0 
2.4 
1.8 
- 1 .7 

3.9 
3.7 
3.1 
2.5 
8.2-
4.2 
3.8 
2.8 
'3.6 
2.4 
4.1 
3.7 
1.0 
2.1 
5.4 
5.5 

2.9 
0.5 
0.9 
0.5 
6.8 
3.7 
1.7 
2.3 
7.6 
1.4 
3.3 
- 0 .3 
4.2 
-19.5 
5.8 
3.3 

50  ECONOMIC SITUATION AND FARM INCOMES 

Deflated  input price indices (intermediate consumption) 

(1990  =  WO) 

Member  Slate 

1990 

1991 

1992 

1993 

1994 

1995 

1996 

1997 

1996/97 

Belgique/Belgie 
Danmark 
Deutschland 
EUrf5a  (Elldda) 
Espana 
France 
Ireland 
Italia 
Luxembourg 
Nederland 
Osterreich 
Portugal 
Suomi/Finland 
Sverige 
United  Kingdom 

EU-15 

100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 

97.5 
97.0 
96.7 
98.3 
104.7 
96.0 
97.9 
97.3 
96.0 
98.7 
96.8 
98.8 
94.5 
102.8 
95.3 
97.9 

95.2 
94.5 
94.1 
96.0 
103.5 
92.0 
96.2 
94.3 
92.8 
96.0 
95.2 
96.2 
89.1 
102.4 
92.9 
97.2 

93.5 
90.9 
92.7 
91.9 
101.5 
91.0 
94.2 
92.9 
95.7 
91.4 
90.9 
93.7 
79.9 
102.0 
88.3 
100.1 

91.3 
88.6 
89.1 
90.0 
98.4 
89.5 
92.6 
91.7 
93.1 
89.5 
87.5 
88.9 
76.2 
96.6 
88.1 
98.0 

90.9 
87.2 
87.6 
88.5 
95.1 
88.3 
92.6 
90.8 
97.9 
89.0 
88.7 
85.2 
75.7 
74.7 
90.8 
97.9 

92.3 
89.1 
88.6 
89.8 
95.3 
88.7 
94.4 
92.7 
97.1 
91.1 
90.9 
87.7 
73.4 
75.9 
96.6 
101.3 

91.1 
89.2 
87.0 
91.1 
91.8 
88.7 
94.4 
90.1 
93.5 
90.7 
88.6 
88.9 
69.3 
77.4 
97.2 
96.8 

-  1.3 
0.1 
-  1.6 
0.1 
- 2 .6 
- 0 .1 
0.4 
- 2 .9 
- 3 .6 
- 0 .4 
- 2 .6 
1.6 
- 5 .9 
2.0 
0.5 
- 4 .6 

Farm accountancy  data  network  (FADN) 

Farm incomes 

187.  Output, costs and incomes of commercial  farms1  in the EU2 are calculated  from  observed 
data collected in a survey of harmonised farm accounts3 (see Chapter VII, Table 3.2.1.). The survey 
provides valuable information  about how farm incomes vary, which is not apparent from the global 
averages  in  the  results  for  the  agricultural  sector  as  a  whole.  This  section  presents  variations 
according to type of production. For an explanation of the various types of production, see Chapter 
VII, Table  3.2.2. 

755.  The results set out here are all  based on observations, and  the variations are calculated  in 
real  terms  (adjusted  for  inflation).  At  the  time  of  going  to  press,  some  results  were  not  yet 
available.4 Detailed results (in current ecus) for the different  types of farming and different  business 
levels economic  size of  farm  are given  in Chapter  VII, Tables  3.2.3. and  3.2.4. 

Farms which  market  the bulk of their production and have a minimum  level of economic  activity. 
Results refer  to the  15 Member States. 
Known as the farm* accountancy data network (FADN). About 58 000 farms are surveyed in EUR  15, and they 
cover EU production  representing  over 90 7c  of the total value added in primary  agricultural  production. 
Results for  1995/96 do not cover Germany or.the United Kingdom (Scotland) since complete figures were not 
yet available for these two Member States. Averages could not therefore  be worked out for EU-12 or EU-15. 

ECONOMIC SITUATION  AND FARM  INCOMES 

51 

Income by type of farming 

189.  The large differences in average income between Member States (see Figure 1 ) are inherent 
in the structure of agriculture  in these countries. The Member States with the highest average 
incomes are generally  speaking those with a large number of large-sized  farms specialising in 
arable crops  or  involved  in  the most competitive  sectors  of  production  (pigs  and/or  poultry, 
horticulture  and dairying). The southern Member  States, with a large  number of  small  farms 
engaged in mixed  farming  (crop and livestock production) or  'other permanent crops'  (mixes 
of different  cropping enterprises) have average incomes below the EU average. 

Real income per farm 

Family farm income (FFI) 

Bekjique/Belglê 

Danmark 

Oeutschland 

EXXàSa (Ellada) 

Espana 

France 

Ireland 

Italia 

Luxembourg 

Nederland 

ôsterreich 

Portugal 

S uo mi/Finland 

Sverige 

United Kingdom 

Hu  1994/95 

•i 

1995/96 

WÈÊmÊmmÊimmamËmiÊmÊmÊmÊ—mmÊÊÊÊÊm 

• 
100 

* 

i 
200 

i 

i 
300 

400 

Index (EU-12, all farms average 1993/94 = 100) 

Source: EU-FADN, DG VI/A3. 

Figure  1 

790.  In the 1995/96 accounting year (the third year of implementation of the 1992 CAP reform), 
average farm  incomes in real terms were up on  1994/95 in several Member States: Denmark, 
France, Ireland,  Italy, Luxembourg, Portugal and the United  Kingdom. For others the  figures 
were lower than the average results recorded in 1994/95. 

52  ECONOMIC SITUATION  AND FARM  INCOMES 
52  ECONOMIC SITUATION  AND FARM  INCOMES 

Family farm  income 
Family farm  income 
by type of farming 
by type of farming 

ECONOMIC SITUATION AND FARM INCOMES 

53 

797.  Figure 2 shows the wide range of incomes for each type of farming from one Member State 
to another.  It also  shows  that the results for  those  types of farming  most  affected  by the CAP 
1992 reform  had a major  impact on the average results for all farms in some Member States. For 
instance, there was an increase in the average income of arable farms in Denmark, France, Italy, 
Portugal  and the United  Kingdom, whereas the trend was in the opposite direction for the same 
type of farming  in Belgium, Greece, the Netherlands and Spain. In Italy, Portugal and the United 
Kingdom there was also an increase in the average income of producers specialising in beef, while 
their opposite  numbers in Belgium and Spain experienced  a drop in incomes. In France the fall 
in the average income of specialised beef farms was a factor in limiting the increase in the average 
farm income. In the Netherlands, on the other hand, the downward trend in the average farm income 
was moderated  by the increase in the average  income of holdings specialising  in beef. 

792.  In the case of Ireland, the average income of arable farms fell slightly while that of specialist 
beef  farms  remained  stable. In Ireland,  as in Luxembourg,  the increase  in the national  average 
income is primarily linked with upward trends in average incomes for dairying and mixed farming. 

193.  The average results for all farms in some Member States can also be explained by the results 
of  farms  engaged  in enterprises  other  than  those  targeted  most  by the  1992 CAP reform. For 
instance, the fall  in the average  farm  income seen  in the Netherlands  stems from  lower average 
incomes  of  not  only  arable  holdings  but also  those  specialising  in  horticulture  and dairying. 
Similarly,  the improvement  in the average  farm  income  in Italy  can be explained  partly by the 
increase in average  incomes for vineyards, holdings growing  'other permanent crops' and dairy 
farms. 

Third year  of application  of the reform 

194.  Figure  3 shows  that the value of production  of the average  holding  (minus subsidies and 
inflation) rose in all the EU-12 Member States except Belgium, Greece and Spain, where decreases 
were  seen,  and in Ireland  and Portugal,  where  the value of  production  of the average  holding 
remained  at virtually  the same level as in the preceding  year. 

795.  It can be seen from Figure 4 that, during the third year of application of the reform, income 
from  direct  payments  continued  to increase. Net public  receipts  (all grants  and subsidies  paid 
directly to the farm,  including  national aids and compensation  payments,  less production  taxes) 
increased  in all the Twelve except Greece and Spain (though the figures are still provisional for 
these two countries). 

796.  According to the 1995/96 figures, in all the Member States apart from Greece the percentage 
of total agricultural  turnover (including public subsidies) and of farm  incomes accounted for by 
public  subsidies  continued  to rise. The percentage of the total  agricultural  turnover  in  1995/96 

54  ECONOMIC SITUATION AND FARM INCOMES 

Output (value) per farm, 
before subsidy 

Belgfque/Bekjié 

Oanmark 

Oeutschland 

EAAÔ.ÔQ (Ellâda) 

Espana 

France 

Ireland 

Italia 

Luxembourg 

Nederland 

Osterreich 

Portugal 

Suomi/Finland 

Sverige 

United Kingdom 

1994/95 

1995/96 

100 

200 

300 

400 

500 

Index (EU-12, all farms average 1994/95 = 100) 

Source: EU-FADN, DG VI/A3. 

Figure 3 

ranged  from  2.4 % for  the Netherlands  to  16 % for  Ireland  (in  1994/95, the  corresponding 
percentages were 2.3 % and  14.4 % respectively). As regards average farm income in 1995/96, 
public subsidies accounted for between  14.6% (in the Netherlands) and 85.3 % in Denmark (in 
1994/95, the percentages  for  these two countries  were  12.7 % and  79 % respectively). These 
percentages are averages for  all farms, including the types of farming  not directly targeted by 
the 1992 reform. 

797.  According to the  1995/96 figures, the value of direct public subsidies as a percentage of 
farm output (including subsidies) and of total agricultural turnover is even more marked in Austria, 
Finland and Sweden. 

ECONOMIC SITUATION AND FARM  INCOMES 

55 

Net public receipts per farm 

VEh  1994/95 

ESS  1995/96 

V 

SS5 

Belgique/België 

Danmark 

Deutschland 

EUàSo  (Ellâda) 

EspaAa 

France 

Ireland 

Italia 

Luxembourg 

Nedertand  . 

Ôsterreich 

Portugal 

Suomi/Finland 

Sverige 

United Kingdom 

100 

200 

300 

400 

500 

Index (EU-12, all farms average 1994/95 = 100) 

Source: EU-FADN, DG VI/A3. 

Figure 4 

S6-r-S> 

-  Agricultural  markets 

795.  This chapter reviews the world and Community markets for the main agricultural products, 
covering  price  trends  and  the  main  market  management  measures  proposed  or  decided  at 
Community  level. 

Cereals 

World market 

199.  World production of cereals in 1996/97 was well up on the previous marketing year, mainly 
on account of  feed  grains. Maize  production  in  the United  States  totalled  236  million tonnes, 
compared with 209 million tonnes during the previous year. World wheat production rose from 
540 million tonnes in  1995/96 to 581 million tonnes in  1996/97 as a result of larger harvests in 
most of the major producer countries. In Australia, the harvest was up by a third, to 23.5 million 
tonnes, compared with 17 million tonnes in 1995/96. The total wheat harvest in the CIS countries 
as a whole  was slightly  larger than in the previous  year. China, Canada and the United  States 
also had more abundant harvests, while Argentina almost doubled its  1995/96 production  figure 
(16 million tonnes as against 9.5  million tonnes). 

200.  As a result of  very high cereal prices during the  1995/96 marketing year, the areas sown 
to cereals increased in  1996 in all the major producer countries, and the world harvest totalled 
1 482 million tonnes in  1996/97, compared with  1 335 million tonnes in the previous marketing 
year. Production of  feed  grains rose from 799  million  tonnes in  1995/96 to 901  million tonnes 
in  1996/97 (an increase of  12.9 %). 

207.  World consumption of wheat during 1996/97 is estimated at 578 million tonnes, i.e. 3 million 
tonnes  less  than the harvest,  though  up on  the  previous  marketing  year (554  million tonnes). 
Consumption of feed grains is estimated at 871 million tonnes, well up on the previous marketing 
year (828 million tonnes), but falling short of production. World cereal stocks recovered slightly 
from the low  level  reached at the end of  the  1995/96 marketing year (184 million  tonnes) to a 

58  AGRICULTURAL  MARKETS 

total of 218 million  tonnes, just  a little less than  the  1994/95 figure (229  million  tonnes). This 
total  was made up of 99 million  tonnes of wheat and  119 million  tonnes of  feed  grains. 

202.  The volume of world trade in cereals totalled 183 million tonnes, including 92 million tonnes 
of  wheat,  as  compared  with  182 million  tonnes  (90  million  tonnes  of  wheat)  in  the  previous 
marketing year. Most of the importing countries bought roughly the same quantity as in the previous 
year, the exceptions being Iran, which imported far more, and China, whose imports fell sharply. 

203.  Harvest forecasts  for the  1997/98 marketing year indicate a decrease in world production 
(1 461 million tonnes as against  1 482 million tonnes for the previous year), resulting in particular 
from  a substantial  decrease  in the Chinese harvest  of feed  grains, particularly  maize  (down  23 
million  tonnes), while production  in most of the other producer countries  is expected  to remain 
at about the same level. With an expected increase in consumption in excess of production (1 474 
million tonnes compared  with  1  449 million tonnes in  1996/97), world stocks look set to fall by 
some  10 million  tonnes  to 205 million  tonnes. As far  as world  trade  in cereals  is concerned, a 
slight  increase  in  volume  can  be expected  (186 million  tonnes, including  94 million  tonnes of 
wheat). 

Community market 

204.  Community  production  in  1996/97 is estimated  at 206 million  tonnes  for  the  15 Member 
States, 29 million  tonnes more than  in  1995/96, when the south of  the European  Union  was hit 
by drought. 

205.  The  increase  in production  reflects  an  increase  in the  area sown  to cereals  (36.9 million 
hectares compared  with  35.6 million  in  1995/96, i.e. +3.7 %) and record  yields of  5.58  t/ha, as 
against  4.99  t/ha the previous  year. 

206.  This increase covered all types of grain. The record yields brought production of common 
wheat up to 91.3 million tonnes (+10.7 million tonnes), barley to 52.5 million tonnes (+9.0 million 
tonnes  ) and maize  to 35.3 million  tonnes (+5.5  million  tonnes). 

207.  Production  in  the  Iberian  Peninsula  returned  to  normal  after  four  years  of  drought,  and 
the Nordic regions of the Community  experienced  particularly  good  weather  conditions. 

208.  With  the cut  in  the  set-aside  requirement  to a single rate of  10 %, the area of  land  taken 
out of production under the arable support scheme fell from 6.4 to 5.6 million hectares. In addition, 
some 400 000 hectares  remained  uncultivated  under the five-year set-aside  scheme. Voluntary 
set-aside  of  nearly  2  million  hectares  brought  the  actual  total  rate  of  set-aside  to  14.4 %, with 
Spanish, German,  Swedish  and  Finnish  farmers  in the  forefront. 

AGRICULTURAL  MARKETS 
AGRICULTURAL  MARKETS 

59 
59 

60  AGRICULTURAL  MARKETS 

209.  The cut in cereal  prices under the reform  and the particularly  high prices for oilseeds and 
protein crops boosted  the use of cereals for livestock  feed, which rose to  106 million  tonnes  for 
the Fifteen  in  1996/97,  18 million  more than during  the period  preceding  the  reform. 

270.  Parallel  to this, trade between  Member  States continued  to develop. 

277.  Community exports during the 1996/97 marketing year (including processed products and 
food aid) are estimated at 29 million tonnes, compared with 19.5 million tonnes during the previous 
marketing  year. Commercial  exports  totalled  16.1 million  tonnes of common  wheat  (including 
flour),  8.9 million tonnes of  barley  (including malt) and 0.8 million  tonnes of rye and rye  flour. 
Exports of durum  wheat remained  below average, while exports of processed products regained 
their market  shares. 

272.  The continuing large volume of exports during the 1996/97 marketing year and the marked 
increase in internal  consumption  led, despite the record harvest,  to a further  fall  in  intervention 
stocks, from  2.7  million  tonnes  at the start of the marketing  year to only  2.3 million  tonnes by 
the end, consisting of 0.5 million tonnes of common  wheat, 0.8 million  tonnes of barley and  1.0 
million  tonnes of  rye. 

213.  This  situation  led  the Council  to set the single set-aside  rate  for  the  1997 harvest  at  5 % 
instead  of  17.5%. 

214.  For the 1997/98 marketing year the Council decided to cut the monthly increases applicable 
to the intervention price  by ECU  1.1  to ECU  1.0 per tonne per month  in line with the reduction 
in storage costs. 

275.  The Community  harvest  for  the  1997/98 marketing year is estimated  at some 200 million 
tonnes  for  the  15 Member  States. The  impact  of  the cut  in set-aside  in terms  of  an  increase  in 
production is expected to be moderated by a fall in cereal production in Spain and Portugal resulting 
from  yields  slightly  down  on  the record  levels  for  the previous  marketing  year. 

216.  The Council decided  to keep the compulsory set-aside rate at 5 % for the  1998 harvest and 
to suspend for a further marketing year the obligation of unremunerated set-aside where the historic 
base area is  exceeded. 

Oilseeds 

277.  Oilseeds yield oil and cake for animal feed. This means that the economic position  of  the 
sector depends on price trends for seed, oils and cake. The oils may be consumed without  further 
processing  or  as prepared  oils  and  fats  such as margarine. 

AGRICULTURAL  MARKETS 

61 

Oilseeds 

Production EU-15 

(million t.) 

13 

-

12 

11 

10 

/ 

Producti 
rap 

on of sunflower, 
e and soya 

1988 

1990 

1992 

1994 

1996 

i 

EU-12 

Including former GDR 

(million t.) 

(million t.) 

Sunflower 

Production EU-15 

1988 

.  1990 

1992 

1994 

1996 

,1' 
1988 

1990 

1992 

1994 

1996 

Source: European Commission, DG for Agriculture. 

Figure 6 

62  AGRICULTURAL  MARKETS 

218.  The European  Union  is a major  net  importer of  oilseeds, vegetable oils and cake, annual 
import volumes being largely dependent on the relative prices of seeds, cake, oils and competing 
animal  feed  products (cereals, corn gluten feed, etc.) and on the opportunities  for exporting oils 
and  cake  from  the EU. Total  imports  of  oilseeds  amounted  to  18.5 million  tonnes  in  1995/96 
and  16 million  tonnes in  1996/97. Soya accounts  for  most of  this quantity  (80 %). 

219.  Altogether,  30 million  tonnes of  oilseeds  were  crushed  in the  European  Union  (EU-15) 
in  1996/97, as against 28.4 millions  tonnes in  1995/96. Most of these were soya beans (around 
50 %),  followed  by rapeseed  (around  25 % and  sunflower  (around  22 %). 

220.  From  1993/94, the support arrangements for oilseed growers (rapeseed, sunflower and soya) 
have been part of the support scheme for producers of certain arable crops (cereals, oilseeds, protein 
plants and linseed) requiring producers taking part in the general scheme to set aside land. Under 
these arrangements, a payment of ECU 433.50/ha is made. The amount actually paid to growers 
varies regionally according to historic yields of cereals or oilseeds and is adjusted where necessary 
in line with  world  price fluctuations  beyond  a certain  margin. 

227.  For  1996/97, a specific  compensatory  payment  was  granted  for  some 4 691  803 ha, an 
area well within the maximum guaranteed area (MGA) of 4 933 800 ha. The compensatory payment 
was therefore  not reduced  for  an overrun  of  the MGA. However,  the observed  reference  price 
for  the  1996/97 marketing year was fixed at ECU 223.551/tonne,  13.593 % above the projected 
reference price (ECU  196.8/tonne); taking account of the 8% margin, this observed price resulted 
in a 5 % reduction  in compensatory  payments. 

222.  Total  oilseed  production  in  1996/97 was almost  15 million  tonnes (1.2 million  tonnes of 
which  was  non-food  production),  as against  12 million  tonnes  in  1995/96  (2'.1 million  tonnes 
non-food). 

Peas, field beans and sweet lupins 

223.  These products, which go chiefly  to the animal-feed  industry, compete with a wide range 
of other  raw  materials. 

224.  From  1993/94,  aid  to processors  and  minimum  prices  were  replaced  by  the aid  scheme 
for certain  arable crops (cereals, oilseeds, protein plants and  linseed) requiring producers  taking 
part  in  the  general  scheme  to  set  aside  land.  The  regionally  differentiated  aid  is  ECU  78.49 
multiplied  by the historic  cereals  yield. 

225.  Compensatory aid was paid for around  1.086 million hectares in 1996/97. Total production 
amounted  to 4.4 million  tonnes. 

AGRICULTURAL MARKETS 

63 

Linseed 

226.  The European Union produces both fibre flax, which is grown primarily for use in the textile 
industry  but  which  also gives  a high  seed  yield,  and seed  flax,  which  is grown exclusively  for 
linseed. Linseed is either used without further processing or is crushed to obtain oil (for industrial 
applications)  and cake used  for  animal  feed. 

227.  The European  Union  imports  large quantities of  linseed  (around  500 000 tonnes a year). 
Canada  is its major  supplier. 

228.  In  order  to  control  production,  a  better  balance  between  support  granted  for  linseed 
production  and other current crops was sought.  From  1993/94, linseed  was added  to the list of 
arable crops benefiting  from  per-hectare aid under the reform  adopted in  1992. A compensatory 
payment  of ECU  105.1 per tonne multiplied  by the cereal  yield  is granted. 

229.  The area sown to linseed  in  1996 totalled  171 000 ha, while the corresponding  figure  for 
1997 is put at 200 000 ha. The increase is mainly due to expansion of the area sown in Germany 
(an increase of  14 000 ha) and in the United  Kingdom (78 000 ha in  1997, as against 48 000 ha 
in  1996). 

Rice 

230.  The world harvest in  1996 was well up on  1995 (563.2 compared with 550 million tonnes 
of paddy rice) as a result of excellent harvests in countries in Asia (China, Indonesia, Bangladesh) 
and  Africa. 

« 

231.  During  1996,  the  volume  of  international  trade  decreased  by  about  2.1  million  tonnes 
compared  with  1995 (from  21  to  18.9 million  tonnes), mainly  because of  good  harvests  in  the 
countries  which are the main  net importers  of rice. 

232.  World  market prices  fell  in  1996 as  world  demand  was below  the previous  year's level. 

233.  Community  production  sold  on  the  world  market  in  1996  totalled  2.5 million  tonnes of 
x  paddy rice, as against 2.1 million  tonnes in  1995, thanks to the end of the drought  in Spain and 

64  AGRICULTURAL MARKETS 

the  increase  in production  of  indica rice. The  total  rose  from  438 000  tonnes of  paddy  rice in 
1995 to 632 000 tonnes in  1996. Japonica rice production  was also  15 % up on the  1.65 million 
tonnes of paddy rice of the previous  year. 

234.  Throughout  the  1996/97  marketing  year, Community  prices  were below the intervention 
price for  all varieties of rice. They were particularly  low in Spain and Greece because the indica 
rice produced in these two Member States faced stiff competition from rice imported from outside 
the European  Union. 

235.  For the first time in several years 162 000 tonnes of paddy rice were accepted for intervention 
in  1996/97, nearly  130 000 tonnes of  which consisted  of  indica rice. The good harvest  and the 
large volume of imports  were  the reasons behind  this  situation. 

236.  In  1996/97, the volume of  imports (principally  indica  rice) was about the same as in the 
previous year, at around 522 000 tonnes milled rice equivalent, while exports increased by about 
86%  (from  146 000 tonnes in  1995/96 to 261 000 tonnes, including  food  aid, in  1996/97). 

237.  Imports of semi-milled rice from the overseas countries and territories (OCT) at zero duty 
totalled  160 000 tonnes of wholly milled rice equivalent in 1996/97, compared with 212 000 tonnes 
in  1995/96. The reason for this decrease was two safeguard  measures applied by the Commission 
and the Council in January and May 1997 following disturbances caused in the Community market 
by these imports. 

238.  Imports  of  rice  from  the  African,  Caribbean  and  Pacific  (ACP)  countries  increased 
substantially,  from  7 000  to  27  000  tonnes  of  husked  equivalent  as  a.result  of  the  safeguard 
measures  for  OCT rice  and  the expectations  of  a change  in  the  import  arrangements  for  ACP 
rice. 

239.  In  order  to implement  an  agreement  with  the  United  States  in  the  form  of  an  exchange 
of  letters  under GATT Article XXIV.6,  the  Commission  adopted  Regulation  (EC) No 703/97, 
which  introduced  a cumulative  recovery  system  (CRS)  for  husked  rice  to adjust  for  over-  or 
undercharged  customs duties, for  a one-year trial  period  starting on  1  July  1997. 

240.  The reform  of the common organisation of the market in rice was applied for the first time 
in the  1996/97 marketing year, the main  features  being  the reduction  of the intervention  period 
to four months (April-July), the establishment of base areas and new rules on the quality  offered 
for intervention. The cut in the intervention price and the system of compensatory payments will 
be operational  from  the  1997/98 marketing  year. 

247.  Forecasts indicate an area sown of around 417 000 hectares in  1997/98, including 95 000 
hectares of indica rice. The quality of the harvest  is expected  to be good. Given  the restrictions 

on exports laid down in the Uruguay Round Agreement (151 200 tonnes of milled rice equivalent), 
large quantities  are expected  to be presented  for  intervention. 

AGRICULTURAL  MARKETS 

65 

Sugar 

World market 

242.  In  1996/97,  for  the  third  consecutive  marketing  year,  world  sugar  production  exceeded 
consumption. This surplus is currently estimated at 2.7 million tonnes, despite the marked increase 
(3.2  million  tonnes)  in  consumption  during  the  same  period.  The  final  level  of  stocks  for  the 
marketing year is put at 48.4 million tonnes or 40.2 % of consumption, well above the 30% seen 
at the end  of  the  1980s. 

Marketing  year 

Production 

Consumption 

Surplus  or  deficit 

(million  tonnes  of raw  sugar) 

Stock  as  9r of 
consumption 

World  market  trends 

1987/88 
1988/89 
1989/90 
1990/91 
1991/92 
1992/93 
1993/94 
1994/95 
1995/96 
Est.  1996/97 

Source:  F.O.  Lient. 

(1) 

104.7 
104.6 
109.1 
115.7 
116.9 
112.7 
111.4 
116.1 
125.9 
123.2 

(2) 

107.2 
107.0 
109.6 
110.4 
111.1 
111.9 
112.2 
114.0 
117.3 
120.5 

(3)  =  ( 1 ) - ( 2) 

- 2 .5 
- 2 .4 
- 0 .5 
+  5.8 
+  5.9 
+  0.8 
-  1.2 
+  2.1 
+  8.6 
+  2.7 

(4) 

31.2 
29.0 
27.9 
31.7 
36.0 
35.6 
33.6 
34.1 
39.8 
40.2 

243.  Despite  the  1.7 million  tonne  increase  in  world  stocks  at the end  of  the marketing  year, 
the trend in world prices did not fully  reflect  the downward pressure expected. In the past, ratios 
of stocks to consumption  like that seen in  1996/97 have caused prices to fall below ECU 20/100 
kg for white sugar and ECU  12/100kg for raw sugar, yet raw sugar prices remained more or less 
stable  (10-12 cents  per pound)  throughout  the  marketing  year, only  white  sugar prices  yielded 
to  the  downward  pressure,  and  then  only  slightly  compared  with  forecasts  at  the  start  of  the 
marketing  year. 

Average  spot  price: 
-  Paris Exchange  (white  sugar) 

= ECU  30.69/100 kg  1995/96 

ECU  26.99/100 kg  1996/97 (-12.1  %) 

-  New  York Exchange (raw  sugar) 

= ECU  21.58/100 kg  1995/96 

ECU  21.18/100 kg  1996/97 (-1.9  %) 

66  AGRICULTURAL  MARKETS 

244.  The fact that world prices were less volatile may be attributed first and foremost to structural 
changes in the supply and demand situation  in recent years: the trend towards  self-sufficiency 
in developing countries; the use of substitute sweeteners in industrialised countries, the break-up 
of the Soviet Union and also to the storage policy operated by some countries. Whereas during 
the previous marketing year India held a major  part of the surplus stocks, this year it was the 
industrialised  countries that ended up with  larger stocks (some 3.0 million tonnes), producing 
a buffer  effect  on prices throughout the marketing year. 

245.  Import demand is currently estimated at 36.0 million tonnes, some 1.8 million tonnes down 
on the previous marketing year. The main reason for this is that sugar was removed from stocks 
in the importing countries (some 2.4 million  tonnes) because in fact  world consumption over 
the same period increased. Imports of raw sugar remained  at roughly the same level as in the 
previous marketing year (around 19.0 million tonnes), while those of white sugar decreased. Since 
the refineries set up in the Middle East were not yet fully  operational, the use of stocks in some 
importing countries was the reason behind this decline. 

246.  The preliminary estimates for the 1997/98 harvest point, for the first time in three marketing 
years, to a world production deficit  compared with consumption. With production expected to 
remain steady, the forecast increase in consumption could bring the deficit to around 2.0 million 
tonnes. The level of stocks accumulated during the last three marketing years is sufficient to cover 
such a deficit, so sugar prices should therefore remain stable during the marketing year, becoming 
firmer  at the beginning of 1998 on account of localised supply-demand tension. In the European 
Union (EU-15) the area under sugar beet in 1996 (2 020 000 ha) was slightly down on the previous 
year. The average sugar yield amounted to 8.2 tonnes a hectare, which was 9.3 % up on  1995 
on account of improved growing conditions. These yields led to a production figure in terms of 
white sugar equivalent of  16.837 million tonnes: 16.515 million tonnes from beet, 0.275 million 
tonnes from  cane and 0.047 million tonnes from molasses. 

247.  From  this production, exports of unrefined  Community sugar qualifying  for  refunds, as 
in the previous  year,  totalled  around  2.75  million  tonnes, including  some  1.6  million  tonnes 
equivalent to preferential imports. Given the upturn in global production, exports of C sugar (non 
quota sugar production) increased by around 0.8 million tonnes to around 2.4 million tonnes. 
The amount of C sugar carried over also increased to 0.917 million tonnes. On the basis of these 
factors, the Community's level of final stocks rose by some 250 000 t, which had a stabilising 
effect  on world prices. 

AGRICULTURAL  MARKETS  67 

Sugar 

(million t.  raw sugar) 

World production/ 
consumption 

120 

100 

m  il 
li 
lin 
i 
11 
S 11 

1989/90 

199CV91 

1991/92 

1992/93 

1993/94 

1994/95 

1995/96 

1996/97 

Production 

Effifl  Consumption 

(million f. white sugar) 

EU-12 

Including former GDR 

EU-15 

Source: European Commission, DG for Agriculture. 

Figure  7 

68  AGRICULTURAL  MARKETS 

248.  Community  consumption  of sugar seems to have stabilised  at around  12 600 000 tonnes, 
reflecting  a  slight  upward  trend  despite  the  development  of  insulin  syrup  production,  which 
continued in  1996/97, reaching a total of 0.177 million tonnes (0.128 million tonnes in 1995/96). 
Isoglucose production, on the other hand, remains stable at around 0.302 million tonnes, in line 
with quotas. 

249.  The Council froze institutional prices during the 1996/97 marketing year and cut the amount 
of reimbursement  for  storage costs by 6.7 % to take account  of  interest  level trends. 

250.  The Commission, for its part, reduced the storage levy from ECU 3.62/100 kg for the period 
1995/96 to ECU 2.0/100 kg in  1997/98, presupposing  a fall  in actual guaranteed prices of 2.4 %, 
to the consumer's  advantage. 

257.  As for levies, the Commission set the B levy at 36.5 % of the intervention price for 1997/98. 

Olive oil 

252.  World production averages some 2 000 000 tonnes, of which 78 % comes from the European 
Union (around  1  550 000 tonnes). The other main producers are Tunisia ( 155 000 tonnes), Turkey 
(90  000  tonnes),  Syria  (75  000  tonnes)  and  Morocco  (45  000  tonnes).  Production  varies 
considerably  from  one year to another, and  the world  market  fluctuates  as a direct result of the 
Community  market  situation. 

253.  Estimated Community production eligible for aid in  1996/97 was around  1  859 400 tonnes, 
as  against  1 481 000 tonnes  in  1995/96. According  to  information  received  from  the Member 
States  when  the yields of olives  and olive oil  were  laid  down  for  the  1996/97  marketing  year, 
there are around 500 million productive olive trees in the European Union. Some 2 million  farms 
are engaged  in olive growing. 

254.  In  1995/96 Community  consumption  was around  1 390 000 tonnes (75 % of world con 
sumption). The most recent forecasts indicate that consumption in 1996/97 should be up on previous 
years,  mainly  because  of  the sharp  fall  in  prices.  Olive  oil  packaged  in quantities  of less than 
5  kg  accounts  for  the bulk  of consumption  (more  than  90 % of  the total), particularly  because 
of the influence of the consumption aid scheme introduced in 1979. At the beginning of the 1996/97 
marketing year, intervention  stocks totalled  12 000 tonnes, falling  to around 8 000 tonnes at the 
end of  the year. 

AGRICULTURAL  MARKETS 

69 

Olive oil 

(million t) 

£ 

# 

J 

Source: European Commission, DG for Agriculture. 

Figure 8 

255.  Greece  and Spain are normally the main suppliers, and  Italy, although  itself an  exporting 
producer,  remains the main purchaser. During  1996/97 imports  totalled 46 000 tonnes. Exports 
for  the  same  marketing  year reached  around  140 000 tonnes, far  exceeding  the  135 000 tonnes 
in  1995/96  and  nearing  the limit  imposed  under  the GATT  agreements. 

256.  The  Community  support  scheme  has, since  1987/8S,  included  a budget  stabiliser  with a 
maximum  guaranteed  quantity  (MGQ)  of  1.35  million  tonnes.  When  production  exceeds  that 
quantity  plus,  where  applicable,  the carryover  from  the previous  year,  production  aid  (paid  to 
olive  growers)  is reduced  proportionally. The MGQ  was exceeded  in  1995/96, leading  to a cut 
in aid. Forecasts suggest that the MGQ will probably also be exceeded  for the 1996/97 marketing 
year. 

257.  The Commission has for some time been studying various ideas for reforming  the support 

t  scheme  for  olive  growing. 

70  AGRICULTURAL  MARKETS 

Olive oil  eligible  for  production  aid  in the  European  Union 

Mcn-.r-cr State 

m.t'xs 

1989/90 

1990/91 

1991/9: 

I9V:/MJ 

199 .W4 

1994/95 

1995/96 

f  <nm tonnes) 

1996/97 
(estimate) 

E'.'/.tiba  (Elldda) 
E<pana 
Franco 
luha 
Portugal 

319.2 
408.0 
1.2 
390.0 
24.6 

316.4 
573.0 
2.8 
585.0 
35.1 

170.9 
700.0 
2.3 
148.0 
20.0 

430.1 
610.0 
3.4 
650.0 
35.0 

314.4 

636.0 
IS 
410.0 
17.1 

323.2 
5SS.0 
2.4 
550.0 
27.5 

389.9 
583.0 
2.4 
458.7 
29.2 

445.0 
375.0 
2.5 
6250 
34.0 

409.0 
964.0 
2.4 
445.0 
39.0 

Total 

1  143.0 

1 512.3 

1  041.2 

I  728.5 

1 379.3 

1  491.1 

1 463.2 

1  481.5 

1 859.4 

Dried fodder 

25S.  Dried  fodder  is made up of products  rich  in proteins  (minimum  15 %) derived  from the 
artificial  drying (dehydration) or natural drying (sun drying) of lucerne, other leguminous crops 
and certain  grasses. 

259.  The  table below  gives a summary of production  trends on the basis of aid applications. 

2*50.  In the early 1990s the increase in production of dried fodder was accompanied by an increase 
in the budget cost,  which led the Commission  to propose to the Council a reform  of the sector 
commencing  in the  1995/96 marketing  year. 

Production  of dried  fodder  (EU-15) (') 

1992/93 

4  236 
446 

Total 

4  682 

1993/94 

4  576 
420 

4  996 

1994/95 

1995/96 

1996/97 

4  468 
455 

4  923 

4  070 
402 

4  473 

3818 
253 

4 071 

(I  (XM) tonnes) 

F.HJJcr 

Dehydrated  fodder 
Sun-dried  fodder 

• '• F.L'i:  up t"  1994/9 J 

261.  The reform  adopted by the Council (Regulation  (EC) No 603/95 of 2 February  1995) may 
be summarised  as follows: 

( 1 )  replacing the variable aid paid out hitherto by a fixed  aid per tonne of ECU 68.83 per tonne 

for dehydrated  fodder  and  ECU  38.64 for sun-dried  fodder; 

(2) 

introducing  maximum  guaranteed  quantities  (MGQs): 

(a)  4.394  million  tonnes  for dehydrated  fodder  (4.412  million  tonnes  after  the accession 

of Sweden, Finland  and  Austria), 

AGRICULTURAL MARKETS 

71 

(b)  443 500 tonnes for  sun-dried  fodder; 

these maximum  guaranteed quantities are broken down  into national guaranteed  quantities 
(NGQs), allocated to the Member States on the basis of their average production  subsidised 
in the reference  marketing  years  1992/93 and  1993/94; where the MGQs are exceeded, the 
aid  is  reduced  in  order  to  avoid  any  overrunning  of  the  planned  budget  package;  when 
assessing overruns, the first 5% is applied to all Member States without distinction; beyond 
that point responsibility  becomes  national; 

(3)  stepping up integrated  control  system checks on aid  for arable crops and livestock  farming 
in order to allow identification  of all parcels on which fodder  for drying is being grown and 
thus prevent the cumulation  of aid. 

262.  In  the  1996/97 marketing  year,  the second  one  of  the  new  market organisation,  aid  was 
granted  for  3 817 894 tonnes of dehydrated  fodder  (87 % of the MGQ) and for 252 823 tonnes 
of sun-dried  fodder  (57 % of  the MGQ). 

Grain legumes (chick peas, vetches and lentils) 

263.  Council Regulation  (EEC) No 762/89 introduced  a specific  measure for  grain legumes in 
1989. It comprises  aid  per  hectare  for  a maximum  guaranteed  area  (MGA). The  measure  was 
renewed  on  several  occasions and  it is  now  included  in Regulation  (EC) No  1577/96. 

264.  The aid per hectare is set at ECU  181, and the MGA is 400 000 hectares. Should the MGA 
be exceeded,  the aid  is reduced  in proportion  during  the marketing  year  in question. 

265.  In  1996/97 the area under grain  legumes  totalled  550 000 hectares; overrun  of the MGA 
led  to adjustment  of the aid,  which  was set  at ECU  131.69; the area  for  the  1997/98 marketing 
year is estimated  at 500 000 hectares. 

Fruit and vegetables 

Fresh fruit  and  vegetables 

World situation 

266.  World  production  of  fresh  fruit  and  vegetables  is steadily  increasing. In  1995 it  totalled 
nearly  890 million  tonnes,  1.0 % up on  1994 and  8.9 % above  the average  for  the period  1989 

72  AGRICULTURAL MARKETS 

to  1991.1 Vegetables  (including  melons) account  for  around  55 % of  this total. With  some  102 
million  tonnes, the European  Union  was the world's  third  largest  producer  in  1995, after  China 
(169 million  tonnes) and India (104 million  tonnes) and  ahead  of  the United  States (64 million 
tonnes), Brazil  (39 million  tonnes)  and  Turkey  (32  million  tonnes).  Among  the  major  lines of 
production in the world it is worth noting the role played by tomatoes (78 million tonnes in 1995), 
oranges  (58 million  tonnes), apples (50 million  tonnes) and  onions  (32 million  tonnes). 

267.  As far  as citrus fruits  are concerned, the first estimates relating to the  1996/97 marketing 
year2 point to world production of totalling some 85 million tonnes, 1.3 % more than in 1995/96, 
10%  up on the figure  for  1993/94 and 87 % above the average for  the marketing years  1971/72 
to  1975/76. With production estimated  at around  8 million  tonnes, the European  Union, for the 
1996/97 marketing year, ranked third in the world, alongside China (7.9 million tonnes), behind 
Brazil  (17.7  million  tonnes)  and  the  United  States  (17.5  million  tonnes)  and  ahead of  Mexico 
(4 million  tonnes) and  Egypt  (2.5 million  tonnes). In  terms  of  percentage  of  world  production 
and of the average for the marketing years  1971/72 to  1975/76, there was a marked increase for 
China (from  1.6 to 9.3 %) and for Brazil (from  13 to 21 %) and a decrease for the European Union 
(from  14 to 9.4 %), the United  States (from  27 to 21 %) and Japan  (from  8.5 to  1.9 %). 

International trade 

268.  The  volume of  international  trade  in  fresh  fruit  and  vegetables  varies  from  one  product 
to another. For the period 1993 to 1995 and on the basis of imports, trade accounted for an average 
of  13 % of world production for lemons,  11 % for oranges and small citrus fruits,  11 % for pears, 
9.6 % for onions, 9.4 % for apples, 8.3 % for peaches and 3.8 % for tomatoes. For  1995, the EU's 
exports accounted for the following percentages of international trade: lemons  15%, oranges and 
small  citrus  fruits  11  %, apples  8.8 %, tomatoes  7.8 % and  pears  6.3 %. 

269.  The  European  Union  has  a  deficit  of  fresh  fruit  and  vegetables.  In  1996  exports  were 
equivalent  to 86 % of imports of vegetables, 53 % of  those of citrus  fruit  and 44 % of  those of 
other  fruit.  This gap widened  from  1995 (-2.5  million  tonnes  ) to  1996 (-2.6  million  tonnes), 
the differences  in export levels (+9.1 % for vegetables, -2.9% for citrus fruit  and +21 % for other 
fruit)  not offsetting  the increase  in  imports  (+  1.3 %  for  vegetables,  +  11%  for  citrus  fruit  and 
+ 7.0 % for other  fruit).  ' 

Source  : FAO  Production  Yearbook  Vol. 49  -  1995. 

2  Source  : FAO. 1997  annual  statistics on fresh  and  processed  citrus  fruit. 

Community market 

AGRICULTURAL  MARKETS 

73 

270.  At  nearly  9 million  tonnes, production  of  apples  in  the European  Union  for  the  1996/97 
marketing year was up by 6.2% on 1995/96, but the situation varied considerably from one Member 
State  to another. In some the increase was marked: +45 % in Germany, + 33 % in Luxembourg, 
while in others there was a substantial decrease: - 4 2% in Belgium and -22% in the Netherlands, 
with a range of -11  to +14%  in the other Member States. This trend  in production was  reflected, 
at  least  partially,  in the  trend  in producer  prices  of  pilot products,  those  for  which  the  Council 
fixes  basic and buying-in prices. For the 1996/97 marketing year as compared with  1995/96, these 
prices rose in France (+16% after a bad year in  1995/96), Belgium  (+3.7%) and the Netherlands 
and fell  sharply in Greece (-22%) and Germany (-16%). The EU average showed a fall of 12%. 
The trend  in production  and prices was reflected  in an increase in the quantities withdrawn  from 
the  market, from  2.4 7c of  EU production  in  1995/96 to 3.9 %  in  1996/97. 

271.  Production  of pears  for  the  1996/97  marketing  year  exceeded  2.9 million  tonnes,  6.6% 
more than  in  1995/96 and 6.8 % above the average  for the marketing years  1991/92 to  1995/96. 
The increase was accounted  for mainly by Spain (26% up on  1995/96), France (+10%) and Italy 
(+9.4%). For the  1996/97 marketing year, the Community average for producer prices was 3.5% 
down  on  1995/96,  with  marked  differences  between  Member  States  (ranging  from  + 2 6%  in 
Denmark  to - 34  7c  in Spain). The quantities  withdrawn  from  the  market  amounted  to 6.1 % of 
production, compared  with  1.8%  for  1995/96. 

272.  The  1996 marketing year for peaches was marked by an average level of production ( 19 % 
up on  1995 but only  1.8%  above the average for the marketing years  1991 to  1995). The average 
producer  price remained  more or less unchanged  overall  (0.2% down  on  1995, though  it fell  by 
26%  in Italy and  rose  by 29%  in Portugal). There  were again  substantial  withdrawals  (16% of 
production). 

273.  According to the figures available, production oi table grapes  for the  1996 marketing year 
was  about  14 %  up  on  1995. mainly  thanks  to  Italy,  which  alone  accounted  for  64 % of  EU 
prfKluctir.n.  Producer  prices  continued  on  an  upward  trend  for  the  sixth  consecutive  marketing 
year  (+ 5.7 % for  the  EU  compared  with  1995, but  -  14 % in  Italy).  The  quantities  withdrawn 
remained  minimal  (0.5 % of  production). 

274.  Production  of apricots  improved  in the  1996 marketing  year  (+36%  compared  with  the 
low  figure  for  1995). This  was  accompanied  by  a  17%  fall  in  the  Community  producer  price, 
which  reflected  a decrease  of  35 % in  France  and  an  increase  of  116 % in  Portugal. The  total 
quantities  withdrawn  increased  but still  did  not exceed  3.6 7c of  production. 

74  AGRICULTURAL  MARKETS 

Fruit 
Harvested  crop  of 

(million t) 

(million t) 

1988 

1990  1992  1994  1996 

1988 

1990  1992  1994  1996 

(million t) 

(million t) 

1988 

1990 

1992 

1994 

1996 

1988 

1990 

1992 

1994 

1996 

Source: European Commission, DG for Agriculture. 

Figure 9 

AGRICULTURAL MARKETS 

75 

In  the  citrus fruit  sector,  no global  figures  are yet  available  for  1995/96 or  1996/97, but 
275. 
there are signs of a stabilisation  of EU production  of oranges at 5.3 million  tonnes, as compared-
with  5.6  million  tonnes  for  the  1994/95  marketing  year.  At  1.3  million  tonnes  .for  1996/97. 
production  of  lemons rose after  two years of  low  figures;  it was nonetheless  below  the average 
for the period  1991/92 to 1995/96 (1.4 million tonnes). On the other hand, production of mandarins 
and  clémentines  fell  by 6.1 7c  and  12 7c respectively  compared  with  1995/96. From  1995/96 to 
1996/97, the average Community producer price fell for oranges (-13%) and mandarins (-6.6%), 
remained stable for clémentines (+0.7 7c) and rose for lemons (+3.1 %). The quantities withdrawn 
for  the  1996/97  marketing  year  were down  on  1995/96, equivalent  to 2.0 7c of  EU  production 
for  oranges, 0.9 7c for  mandarins, 0.6 % for  clémentines and  0.3 % for  lemons. 

276.  No overall figures have been produced for several marketing years concerning the production 
of  cauliflowers.  For  the  1996/97  marketing  year  as  compared  with  1995/96, the situation  was 
stable  in Italy (-  1.07c) and production  fell  sharply  in France  (-  12%). For the same marketing 
year,  producer  prices  were  well  down  in  all  the Member  States  (ranging  from  -  14 7c in Spain 
to -  34 7c in  Portugal)  apart  from  Denmark  (+  l;4 7c), and  the quantities  withdrawn  were well 
up (+47%)  on  the  1995/96 figure. 

' 

277.  The  sketchy  information  available  on  tomatoes  indicates  that  for  the  1996/97  marketing 
as compared with  1995/96. production rose in Greece-(+ 11  %), Spain (+34 7c) and Italy (+267c) 
and  fell  in Belgium  (-17 7c), and that the average  Community  producer price rose by  17 7c and 
withdrawals, although  remaining  negligible  (under  1  % of  production)  increased  by S3 7c. 

The main developments  in legislation and  policy 

278.  The  1997/98 marketing year is the first one to which the common organisation of the market 
adopted  by  the  Council  in  1996 applies. The  new  market  organisation  entered  into  force  on 1 
January  1997 and  the detailed  rules  for  its application  were  gradually  established  in the course 
of  the  year. 

279.  The  Commission  first  of  all  adopted  the  conditions  for  the  recognition  and  preliminary 
recognition  of  producer  organisations  and  the  detailed  rules  for  granting  aid  for  forming  these 
organisations.  It then  adopted  detailed  rules  for  the  application  of operational  programmes and 
operational  funds  and  also  intervention  arrangements.  Lastly,  it  decided  on  the  rules  for  the 
application  of  the processing  aid scheme  for  citrus  fruit. 

280.  The Commission, also under the reform,  adopted  detailed  rules  for  the application  of  the 
special  measures  for processed  asparagus and of  the flat-rate  aid  for hazelnuts harvested during 
the  1997/98,  1998/99 and  1999/2000 marketing  years. 

281.  Under  the  agreement  reached  in  1996  when  the  reform  of  the  market  organisation  was 
adopted, the Council adopted a programme for grubbing up apple, pear, peach and nectarine trees. 

76  AGRICULTURAL MARKETS 

This programme covers a maximum area of 20 000 hectares, shared equally between, on the one 
hand,  apple  and  pear  trees and,  on  the other,  peach  and  nectarine  trees. There  is provision  for 
the initial breakdown of these areas by Member State to be adjusted  subsequently to take account 
of applications  actually  submitted. 

282.  To avoid any risk of budget difficulties  arising from  an excessive volume of withdrawals, 
the  Commission  set  intervention  thresholds  for  the  1997/98  marketing  year  for  the  following 
products: tomatoes 360 000 tonnes, cauliflowers  111 300 tonnes, apples 387 300 tonnes, peaches 
272 400 tonnes, nectarines 89 800 tonnes, melons  176 600 tonnes, parsnips  197 400 tonnes, table 
grapes  162 200 tonnes, lemons 93 500 tonnes, oranges 408 500 tonnes, satsumas 23 300 tonnes, 
mandarins  36 000 tonnes and clémentines  133 400 tonnes. 

283.  Under the special safeguard clause laid down by the agreements resulting from the Uruguay 
Round  multilateral  negotiations  (GATT agreements)  the Commission  set  the trigger  levels  for 
the  1997/98 marketing year for  tomatoes, cherries, cucumbers, oranges, mandarins, lemons and 
table  grapes. 

284.  At the request of the Portuguese authorities, the Council extended the programme of measures 
for  improving  the application  of  Community  standards  for  fruit  and  vegetables  and  providing 
for  stricter  compliance checks  in Portugal. 

285.  The Commission  extended  the mechanism  for controlling  imports of garlic originating in 
China  for  one year. 

286.  The Community tariff quota for hazelnuts imported from Turkey was increased autonomously 
for  1997, from  25 000 to 34 060 tonnes, to take account of the trade arrangements for this product 
that existed  between  the new  Member  States  and  Turkey. 

287.  A specific  entry price, subject  to a quota,  was set  for  oranges  imported  from  Cyprus. 

288.  The export refund  scheme was amended  to bring the level of refunds  into line with market 
requirements. 

Processed  fruit  and  vegetables 

World market  and EU market 

289.  The information available about products processed from  fruit and vegetables remains very 
incomplete. As far as the European Union  is concerned,  it relates almost exclusively to products 
qualifying  for  processing  aid. 

AGRICULTURAL  MARKETS 

77 

290.  World  production  of  tomatoes for  processing  totalled  around  25.8 million  tonnes  for  the 
1996/97 marketing  year,  1.0  million  tonnes more than  in  1995/96. Different  trends  were  noted 
for the world's three leading producers: stability in the United States (10.3 million tonnes in 1996/97 
as  against  10.2 in  1995/96), an  increase  in the EU (7.9 million  tonnes compared  with 6.8)  and 
a  fall  of  some  8 % in Turkey  (1.7 million tonnes). 

291.  The  increase  in  EU  production  was  due  to  the  increase  in  the  production  of  tomato 
concentrate  (+0.7  million  tonnes, or + 16.5 %) and  the category  'other products'  (+0.3  million 
tonnes, or + 37 %),  but of  the 7.9  million  tonnes of tomatoes processed  in the European  Union 
into products  which  might have qualified  for  processing  aid, only  6.3  million  tonnes, or  80 %, 
actually did  so (6.2 million  tonnes for  1995/96). About two thirds of these quantities were used 
in the manufacture of concentrate. Among the products receiving aid there has been a steady decline 
in percentage  terms  for  peeled  tomatoes. 

292.  The  main  features  of  the  world  market  situation  in  1996/97  were a fall  of some 25 % in 
the price of concentrate and peeled tomatoes, the disposal of Turkish stocks, primarily to Russia, 
and  the existence  of large stocks of concentrate  in the United  States  and of peeled  tomatoes in 
Italy. 

293.  For  the  1997/98  marketing  year, production  is expected  to decrease  not  only  in  the  EU 
but also in the rest of  the world. 

294.  Nearly 494 000 tonnes ofpeaches  were tinned in syrup and/or natural juice in the European 
Union during the  1996/97 marketing year, compared with around 470 000 tonnes in the previous 
marketing  year. Greece  remained  the main producer  in the EU  (60% of  the total), followed  by 
Spain (26 %) and Italy (11 7o). The EU continued  to export this product (about  150 000 tonnes). 

295.  EU production  of  Williams  and Rocha pears  in syrup and/or  natural juice  totalled  over 
126 000 tonnes  for  the  1996/97 marketing year compared  with  125 000 tonnes for the previous 
year.  Italy  remained  the  main  EU  producer  (47 7c of  the  total),  followed  by  Spain  (30 7c) and 
France  (17 7o). The  EU  had  a deficit  of  this product  in  1996: exports  totalled  9  300 tonnes  of 
finished  product  and  imports  33 000 tonnes. 

The main developments  in legislation and policy 

296.  The  common  organisation  of  the market  which  governs  this  sector  covers,  in  principle, 
all products processed  from  fruit  and vegetables. However, Community  support is concentrated 
on  a few  products: peaches, pears, tomatoes, prunes, dried  figs  and  pineapples  (processing  aid 

78  AGRICULTURAL  MARKETS 

subject  to compliance with a minimum producer price), dried grapes and dried figs (intervention 
and storage aid at the end of the marketing year, accompanied by per-hectare aid for dried grapes) 
and  mushrooms  (duty-free  quotas). In addition, a minimum  import price scheme is in force  for 
dried grapes and certain products processed from cherries and for imports of soft fruit from certain 
central and eastern European countries, including the Baltic States. Lastly, raspberries for processing 
and dried  grapes  benefit  from  specific  measures  to improve  product quality  and  marketing. 

297.  The reform of the market organisation agreed in 1996 entered into force on 1  January  1997. 
This involved  adjustments  to the rules for  the application  of the processing  aid scheme and  the 
system  of  quotas for  tomato-based  processed  products. 

298.  Under the price package agreement the Council amended the breakdown between products 
of the quota granted  to France  in connection  with the aid  scheme  for tomato-based  products. 

299.  For the  1997/98 marketing year, the minimum  producer  price was kept at the same level 
as in the previous year except in the case of tomatoes (-2.0%) and peaches (-2.07o). Processing 
aid  was  cut  by  9.6 7o  for  tomatoes, 6.2 % for  peaches  in  syrup  and/or  natural juice,  14 7c  for 
Williams  and  Rocha pears  in syrup and/or natural juice, 7.8 % for  tinned  pineapples  and  2.7 7o 
for  prunes. This trend reflects  that  for  the ecu prices for  the raw materials in non-EU countries. 
The cut  in aid  for  pears was greater  because  the guarantee  threshold  had  been  exceeded. 

300.  For dried  grapes, the basic amount of  aid per hectare  was kept at ECU 2 785. This aid is 
paid only  for  specialised  areas meeting certain  yield  criteria. 

301.  The EU and Turkey agreed to amend the import arrangements for Turkish tomato concentrate. 
The  new  arrangements  came  into force  on  1 September  1997. There  are two six-monthly  tariff 
quotas a year of  15 000 tonnes each, exempt  from  customs duty. There were special  provisions 
applicable  during  the period  1 September  to 31 December  1997. 

302.  The  Community  brought  into  force  early,  on  1 July  1997, the  new  system  of  minimum 
import prices for certain soft  fruits  originating  in Bulgaria, Hungary, Poland, Romania, Slovakia 
and the Czech Republic agreed at the time of the negotiations on additional protocols to the Europe 
Agreements. The new arrangements lay down that the minimum  import prices are applicable on 
a permanent  basis, no longer on  the basis of  an ad hoc Commission  decision. The old rules, on 
the other  hand,  were maintained  for  imports  from  the Baltic  States. 

303.  The  export  refund  rates were adjusted  in line with changes  in the dollar exchange rate. 

AGRICULTURAL  MARKETS 

79 

Bananas 

304.  The main effects  of removing barriers between markets during the first four years of the 
market organisation for bananas' have been: 

-  a trend towards price convergence; 

-  a better mix of origins; 

Common organisation  of the market in bananas: main mechanisms for managing market supply 

Origin 

Instrument 

Customs  duly 
(for  3  and  4) 

Maximum  quantity 
(in  tonnes  net) 

(1)  EU 

Compensatory  aid 

Canary  Islands 
Guadeloupe 
Martinique 
Madeira and  others 
Crete, Lakonia. 

(2)  Traditional  ACP 

quantities  per country 

exemption 

854 000 

420 000 
150 000 
219 000 
50 000 
15 000 

857 700 

(3)  All origins other than  1 and  2 

tariff  quota 

ECU  75/tonne 

2 200 000  ' 

of which: 

(3)  (a)  non-traditional  ACP 

(3)  (b)  framework  agreement 

Colombia 
Costa  Rica 
Venezuela 
Nicaragua 

(3)  (c)  Other 

under quota 
allocated  by  country 
under quota  in  %: 
21 
23.40 
3 
2 

(4)  All origins  for quantities  in 
addition  to the tariff  quota 

Non-quota 

(4)  (a)  ACP in addition to 2 and  3 (a) 

(4)  (b)  other 

exemption 

90 000 

ECU  75/tonne 

ECU  75/tonne 

ECU  850/tonne. 20 % 
reduction  in six years 

ECU  100 less than  full 
duty 
Until July  1997: 
ECU  793/tonne 

no  limit 

1  Tariff  quota increased,  for  I99S.  1996  and  1997.  to  2.5S3  million  tonnes,  following  enlargement. 

305.  Bananas are supplied by three main groups (see table): 

- 

- 

- 

the Community production regions (market share:  17 %); 

the ACP countries (20 7c); 

the countries of Central and South America (63 76). 

1  Regulation  (EEC)  No  404/93,  13.2.1993,  OJ  L  47,  25.2.1993,  p.  1. 

SO  AGRICULTURAL  MARKETS 

306.  Under the market organisation  the European Union has different  obligations to these three 
groups  of suppliers  (see table, p. 79) 

-  -.Community produce: compensation for up to 854 000 tonnes and aid from the Structural Funds; 

-  ACP bananas: imports at zero duty for up to 857 700 tonnes, broken down by traditional ACP 

supplier country; 

-  bananas  from  non-member  countries  other  than  traditional  ACP  bananas:  a tariff  quota  of 
2.553 million tonnes (EU-15), at a duty of ECU 75 per tonne; within this quota, 90 000 tonnes 
are  reserved  for  imports of  non-traditional  ACP bananas  at zero duty. 

307.  The convergence  of  prices on the merged  market  has  meant  a  reduction  in the price  for 
Community bananas. To mitigate this effect  of the market organisation, producer groups receive 
aid  to offset  the gap between  the average  flat-rate  reference  income  fixed  in  1991  for  the  four 
production  areas  and  the  average  income  in  a  given  year.  Compensation  worth  ECU  29/100 
kilograms  with  a  supplement  of  ECU  3.8/100  kg  and  ECU  5.9/100  kg  for  Portuguese  and 
Guadeloupe  bananas'  was paid  for  the 684 605 tonnes of  bananas  marketed. 

30S.  Given, on the one hand, the relatively low level of prices in  1996 and, on the other hand, 
the expansion  of volumes traded (up 4 7c  from  1995 to  1996), expenditure on compensatory aid 
increased  in  1996 to ECU 203 millions, compared  with  ECU  180 millions in  1995. 

309.  Community  production  is expected to be up in  1997. According  to preliminary estimates, 
some  790 000 tonnes  will  be marketed, compared  with  685 000 tonnes  in  1996. 

* 

310.  Imports  of  traditional  ACP bananas  in  1996 amounted  to 733 000 tonnes  on  account of 
the  "tropical storm' licences. They  are likely  to be of  the order  of  700 000 tonnes  in  1997. 

311.  The tariff  quota opened for imports of third-country and non-traditional ACP bananas was 
set  for  1997 at 2 553 000 tonnes, an increase of 353 000 tonnes to take account of the accession 
of Austria. Finland and Sweden. It should be noted that, as in  1996, the Commission had to adopt 
the  increase  in  the  tariff  quota  itself,  since  the  Council  had  failed  to  reach  a decision  on  the 
proposal2 presented to it in April  1995. The Member States were still unable to agree, particularly 
about the adjustments  to be made following enlargement, so the Council did not reach a decision 
on  the  various proposals  for  amendments  to the market  organisation.' 

312.  The  market  organisation  for  bananas  was the subject  of  a complaint  to the  World  Trade 
Organisation lodged at the end of 1995 by a group of four countries: the United States, Guatemala, 

'  Regulation  (EC)  No  89S/97.  20.5.1997. OJ  L  128. 21.5.1997,  p.  12. 
z  CONH95)  115; (OJC  136.  3.6.1995) 
3  COM(95)  114.  amended  by  COM(96)  37  (OJ  C 92. 23.3.96)  and  supplemented  by COM  (96)  82 (OJ C  121, 

25.4.1996). 

Honduras and Mexico, subsequently joined by Ecuador, which became a member of the WTO 
in  1996. The rjfanel's report ruled that a number of aspects of the market organisation were not 
in conformity with WTO provisions. The Appellate Body upheld this ruling in September 1997. 

AGRICULTURAL  MARKETS 

81 

Wine 

313.  The area under vines in the EU fell steadily during the period  1993/94 to  1995/96, from 
3.4 to 3.3 million ha, a loss of some 4 % of the initial area. The most significant changes were 
seen in Greece (-18 %), Spain (-6 %) and Italy (-4 %). This was primarily the outcome of the 
Commission's grubbing policy since  1988. It is estimated that during the period  1988 to 1996 
the total area grubbed amounted to some 490 000 ha (provisional figure). The scheme was extended 
until the  1997/98 marketing year. 

314.  As far as yields are concerned, in the same period figures varied within individual Member 
States, while at Community level the average fell from 46.3 hl/ha in the 1993/94 marketing year 
to 45.7 hl/ha in 1994/95. Although the precise figure is not available, there was a further fall in 
1995/96. A modest reduction in areas translates into a substantial fall  in production. 

315.  The European Union is the world's leading wine economy with, on average, 60 % of world 
production  and 55 % of  world consumption. In  1995, these percentages were 62 % and 60 7o 
respectively. The other main producers are, in descending order: Argentina, the United States, 
eastern Europe as a whole (Bulgaria, Hungary, Romania, ex-Yugoslavia and the Czech and Slovak 
Republics), the- former Soviet Union (with  11 wine-growing republics) and South Africa. 

316.  With world production totalling around 250 million hectolitres (average for the period 1993 
to 1995), annual consumption amounts to some 217 million hectolitres (average for the period 
1993 to 1995). Most of the world surplus of around 30 million hectolitres is distilled. Not counting 
intra-Comrnunity trade, which represents about 30 million hectolitres, (12% of world production), 
international  trade in wine involves some 24 million hectolitres, which represents about  10% 
of world production. 

317.  In  1996  there  were slightly  more commercial  transactions  between  the  EU  and  other 
countries:  10 418 754 hectolitres were exported, compared with 9 793 000 hectolitres in 1995. 
France (3 409 942 hi), Italy (3 022 968 hi), and Spain (2 358 864 hi) are the main exporters and 
the principal trading partners are the United States (25 %), Canada (8 %) and Japan (7 %). In the 
past relatively large quantities were exported to Russia, but have dwindled to only 3 %. 

82  AGRICULTURAL  MARKETS 

318.  Imports of wine into the European Union increased substantially in 1996 (by 57 % compared 
with 1995) on account of low availability of EU-produced wine. The main importers are the United 
Kingdom (36 %), Germany (21 %) and Spain (16%). Some 45 % of the United Kingdom's imports 
(917 374 000 hi) are supplied by Australia and South Africa. The EU's main suppliers are the 
east European countries (32 %), followed  by Argentina (18 %), Australia (14 %), South Africa 
(10%) and the United States (97o). Spain imported an exceptionally large quantity of wine from 
Argentina (0.938 million hi) because its home production had been hit by the drought in some 
of its producer regions. 

319.  EU production for the 1996/97 wine year is estimated provisionally at 165 millions hectolitres 
for all categories of wine (table wine, quality wine produced in specified regions and other wine). 
The reason for what appears to be a substantial increase in production was that the 1995/96 harvest 
was the smallest in recent decades (151 millions hi). Guide prices for table wine of types AI, 
RI and RU were kept unchanged from  1995/96 at ECU 3.828 /% vol/hl. Table wine prices varied 
very widely according to production region: from  56 % to 127 % of guide prices. 

320.  Direct human consumption of wine, although showing a long-term downward trend, should 
be little changed  from  previous marketing years (128 million hi), as should industrial  use for 
vermouth and vinegar production (3.8 million hi). 

321.  Producers' and traders' stocks were 114 million hi at the beginning of the marketing year 
and by its end are estimated at around  119 million hi. 

322.  Despite increased production (165 million hi) and the stocks of  114 million hi at the start 
of the marketing year, it was nonetheless possible to avoid recourse to compulsory distillation 
in  1996/97. It was decided to apply a preventive distillation scheme and a support distillation 
scheme  to  cope  with  the  situation.  A total  of  some  11 million  hi  were distilled  (preventive 
distillation accounting for  10.7 and support distillation for 0.3 million hi). 

323.  Between 16 December 1996 and 15 February 1997, long-term storage contracts (nine months) 
were concluded for  10 320 000 hectolitres (table wine: 6 832 000; must: 2 837 000; concentrated 
must and rectified  concentrated must: 651 000). The 1995/96 total was 6 500 000 hectolitres. 

324.  Wine production in 1997/98 was estimated at the beginning of the wine year at 161 million 
hi (compared with  165 for the previous year), slightly above the average for the last three wine 
years. It should, however, be borne in mind that this period includes one marketing year (1995/96) 
when production was among the lowest figures  for several decades. 

(million hi) 

Wine 

AGRICULTURAL MARKETS 

83 

Production/consumption 

210, 

190 

170 

150 

130 

110 

.-# 

.# 

£ 

f 

(million hi) 

1988/89 

1989/90 

1990/91 

1991/92 

1992/93 

1993/94 

1994/95 

1995/96 

(1) Compulsory and optional distillation (Portugal excluded 1979-91). 

1992 figures  include Portugal. 

Source: European Commission, DG for Agriculture. 

Figure  10 

84  AGRICULTURAL MARKETS 

Cotton 

325.  According  to the United  States Department of Agriculture, around  33.8 millions hectares 
were  planted  with  cotton  in  1997/98 in  the  world  as  a whole,  producing  a forecast  19 million 
tonnes (87.3 million  bales)1, as against  33.7 million  ha and  19.3 million  tonnes in  1996/97. 

326.  Unginned cotton is not traded internationally, but the European Union, which has a cotton 
spinning capacity  which is much  larger than  its fibre production,  imports substantial quantities: 
more than  1 million  tonnes  from  1986 to  1990, 895 000 tonnes  in  1995. 

327.  The United States, the former Soviet Union, Syria, Argentina and Australia, during certain 
periods, are the main  suppliers. Intra-Community  trade, however,  remains limited, though it is 
increasing. 

328.  In the European  Union, the scale of cotton  production  is limited, in terms of both  surface 
area planted and number of producers. However, it is concentrated  in certain areas of Greece and 
Spain  where  it plays a very  important  socioeconomic  role. The  area planted  with cotton  in the 
EU rose from  501 000 hectares in  1996 to 510 000 hectares in  1997 (423 000 hectares in Greece 
and  113 500 hectares in  Spain)  and Community  unginned  cotton  production  for  the latter year 
is estimated  at  1 475  000  tonnes  (1  100 000  tonnes  in  Greece  and  375 000  tonnes  in  Spain) 
compared  with  1  500 000 tonnes in  1996. It should be pointed out that bad weather in Andalusia 
at  the  end  of  1996  seriously  damaged  some  winter  crops  (cereals,  sugarbeet  and  potatoes  in 
particular). To  limit  the resulting  loss  of  income,  Spanish  farmers  sowed  a substantial  part of 
the  areas  thus  vacated  with  cotton,  bringing  the  total  crop  area  to  113 500 ha, well  up on  the 
preceding marketing year (79 000 ha).The European Union is 25 to 30 7o self-sufficient  in cotton 
fibres, its consumption  being  around  1 250 000 tonnes. 

329.  The Community aid scheme provides for a guide price (ECU  106.30/100 kg from  1995/96 
onwards)  and  aid, equivalent  to the difference  between  that  price  and  the world price, granted 
to ginners who pay a minimum price to the producer. If the production of unginned cotton exceeds 
a  maximum  guaranteed  quantity  (MGQ),  the  guide  price  and  the  amount  of  aid  are  reduced 
proportionally. 

330.  After  the first  year of application  of the reformed  aid scheme, the Council decided, in the 
light  of  the  difficulties  encountered,  to  terminate  the  advance  fixing  mechanism  and  to  make 
changes  to the system  of advances. 

331.  The reduction of aid in each Member State is proportional to the amount by which it exceeds 
its MGQ, set at 782 000 tonnes  for Greece  and  249 000  tonnes  for  Spain. There is no limit on 

1 bale  =  approximately  217.7  kg. 

this reduction, but it is cut if the level of the world price allows expenditure on the aid scheme 
to be limited. For  1997/98 the provisional reduction is estimated at 31 7o of the guide price for 
Greece and 37 % for Spain. 

AGRICULTURAL  MARKETS 

85 

Silkworms 

332.  Silkworm rearing is practised in Greece, Italy, and to a lesser extent, France. It accounts 
for a tiny part of the EU's agricultural  activity and of world silk production. In certain regions 
such as Thrace, Veneto and Marche, however, it represents an important activity and know-how 
which deserves to be preserved. 

333.  World production of raw silk has risen markedly in the last few years. According to the 
FAO, it amounted  to  114 000 tonnes in  1994 (68 000 tonnes on average from  1979 to 1981). 
The industry is dominated  by Asian producers (112 000 tonnes). China (84 000 tonnes), India 
(17 000 tonnes), Korea (5 000 tonnes) and Japan (4 000 tonnes) together account for over 90 % 
of world production. 

334.  Community rearing is finding  it difficult  to sustain its level of activity. The increase in 
production  costs  is  not  always  offset  by  a growth  in  market  prices. Production  is declining, 
especially in Greece. 

335.  In 1996,1 943 boxes were produced successfully, compared with 1 736 in 1995, totalling 
41 831 kilograms of cocoons. The aid was set at ECU  133.26 per box for 1997/98. 

Fibre flax and  hemp 

Fibre  flax 

336.  The total world area sown with fibre flax  is around 750 000 hectares, producing around 
600 000 tonnes of fibre. However, it should be noted that, firstly, political developments in eastern 
Europe have disrupted flax production and, secondly, no precise information  is available about 
production  in China, another major producer  There is no significant  trade in raw flax between 
the European Union and third countries. On the other hand, fibre imports sometimes reach levels 
capable of disrupting the Community market. The Union has a deficit in medium- and low-quality 
fibres,  which it imports from  eastern Europe, Egypt and China. On the other hand, it supplies 
the whole world with high- and very high-quality fibres, since these are not produced elsewhere. 
In  1995, the Union exported 69 500 tonnes, of which 43 500 were long fibres and 26 000 short 
fibres. 

86  AGRICULTURAL  MARKETS 

337.  The Community area planted with fibre flax increased substantially between 1992 (44 000 
ha) and 1996 (132 000 ha). The increase in area was too much for the processing capacity available 
in the EU, so the Council introduced a system of compulsory contracts between producers and 
approved primary processors from  1997/98. This measure has had the effect  of stabilising the 
crop area (133 000 ha sown in 1997) and developing the primary processing industry, especially 
in Spain and, to a lesser extent, in the United  Kingdom. France, Belgium and the Netherlands 
have traditionally been the principal producer Member States, but production of this crop took 
off again some years ago in Germany and more so in the United Kingdom and Spain. While these 
two countries accounted for only 4 % and 0.4 % respectively of the Community area given over 
to this crop in 1993, they accounted for 14% and 377o respectively in 1997. Raw flax is processed 
into fibres by about 150 retting and scutching companies in the north-west of France (30), Belgium 
(100), the Netherlands, Germany and Denmark. There are also outlets for the product in non-textile 
sectors (paper-making in particular). 

338.  The market in flax fibre, depressed for some years, picked up towards the end of the 1992/93 
marketing year following  a distinct fall  in the Community  harvest for three years in a row on 
the one hand, and an upturn in flax consumption on the other. This balance on the market continued 
through the 1994/95 and 1995/96 marketing years. However, during the two following marketing 
years it became harder to dispose of scutched flax. The market depends very heavily on the fashion 
in clothing. 

339.  Aid for fibre flax in 1997-99 was set at ECU 815.86 a hectare. It is graduated by production 
area and harvesting method according to the traditional seed yield per hectare. 

Hemp 

340.  The world area planted with hemp has fallen  sharply in recent years: 100 000 to 150 000 
hectares have been sown as opposed to an average of 480 000 hectares for 1979-81. China, North 
Korea, India and Russia are the main producers. In the European Union production is very limited 
and traditionally concentrated in France, with a very small amount in Spain, although some other 
Member  States  (the  United  Kingdom,  the  Netherlands  and  Austria)  have  been  trying  to get 
production of this crop off the ground again in recent years. They were joined in 1996 by Germany. 
The 1997 EU harvest amounted to about 22 000 hectares. Trade with third countries is very limited. 
Aid for hemp was set at ECU 716.63 a hectare. 

Tobacco 

341.  In  1996 world production of tobacco increased significantly  (by  10.2 %) compared with 
the 1995 harvest, to 7.2 million tonnes. With 41.7 % of world production (and a  17 % increase 

AGRICULTURAL MARKETS 

87 

over its 1995 harvest), China remained by far the world's biggest producer, followed by the United 
States, India and Brazil. The European  Union, with 5.1 7o of world production, remained  in fifth 
place: in  1996 its production  of leaf tobacco totalled  337 000 tonnes, i.e. slightly more (+  1.2%) 
than  in  1995, thus maintaining  its percentage  of  world  production. 

342.  Prices rose on the markets of Malawi and Zimbabwe, considered  to be indicative of world 
price trends (particularly for flue-cured and light air-cured varieties). Prices on the European market 
also  increased,  particularly  for  oriental  varieties. 

343.  Growth in world leaf tobacco consumption  was slower (+ 1.5 7c) between  1995 and  1996. 

344.  The  EU's  tobacco  exports  to  the  rest  of  the  world  amounted  to  219  300  tonnes 
(283 900 tonnes in  1995), the main exports  being of  the oriental  varieties, sought after  for  their 
aromatic qualities. The significant  decrease in EU exports of tobacco resulted from  a substantial 
fall  in exports of flue-cured  tobacco in  1996. The European  industry  used about 707 000 tonnes 
of  baled  tobacco, of  which  543 000 tonnes  (76.8 %) were  imported. 

345.  Community  production  stabilised.  This  was the result of  the application  of the reform  of 
the common organisation  of the market  in raw tobacco. This reform  established  a quota scheme 
by Member  State and  group of  varieties  (there  are  now eight  groups of  varieties, instead  of  the 
34 groups under the old  system), and put  an end  to intervention  and export  refunds. 

346.  The total quota was set at 350 323 tonnes for the  1996 harvest, and Community production 
fell  short  of  this  figure  by 3.8 7c. 

347.  The Commission  presented  a report to the Council  and Parliament on the operation  of the 
market  organisation  for  tobacco  (COM  (96)  554  final  of  18 December  1996). It  is planning  a 
thorough overhaul of the present system, introducing from the 1999 harvest onwards a graduation 
of  the  premium  according  to  the  buying-in  price,  with  the  aim  of  improving  the  quality  of 
Community  production. 

348.  The  planned  reform  also  takes  more  account  of  public  health  and  environmental 
considerations and aims to step up controls and improve the management of the production quota 
system. 

88  AGRICULTURAL  MARKETS 

Hops 

World market 

349.  The world area planted to hops is around 82 408 hectares, of which almost 69 000 ha are 
situated in member countries of the International Hop Growers Convention (IHGC) and producer 
Member States of the European Union. There is also considerable production in China, for which 
there are no exact figures, only rough estimates. 

350.  The areas under hops in the IHGC and the EU fell on average by 3.41 7c  in  1996, with 
the sharpest falls in Ukraine (-28 %), Bulgaria (-19%) and Russia (-13 76). The main countries 
in which the crop area increased were Poland (4 76) and the United States (2 76). 

351.  The world harvest in  1996, at some 2 549 306 Ztr (1 Ztr (Zentner) = 50 kg), was much 
the same (-  0.16%) as in 1995. Product quality was higher, with an alpha acid content of 7.37 7c 
and total alpha acid production of 9 395 tonnes (8 584 tonnes in 1995). 

352.  Although it did not reach the record levels of 1993, the 1996 harvest was nevertheless 8 7c 
above the average of the  20 preceding years in terms of yield. 

353.  World beer production is estimated at 1 250 millions hectolitres for 1997. Since 8 000 tonnes 
of alpha acid would normally be used to produce this quantity of beer at a hopping rate of 5.8 g 
grams of alpha acid per hectolitre, the quantity of hops produced would exceed that required to 
cover needs (by  1  395 tonnes). It may be noted that hopping at 5.8 g/hl of beer requires around 
6.4 grams per hectolitre to be available in breweries; the difference  is accounted for by losses 
in storage and hop processing. 

354.  Breweries seem still to have sufficient  stocks to cover production for several months. It 
should  be  added  that  less  alpha  acid  is  needed  than  previously  because  of  a trend  towards 
manufacturing less bitter beers, on the one hand, and the results of constant technological progress, 
on the other. 

Community market 

355.  Hops are grown  in eight Member  States  (Austria,  Belgium,  France, Germany, Irelana, 
Portugal, Spain and the United Kingdom), with Germany accounting for 80% of the Community 
area devoted to hop growing, which totals 27 325 hectares. This is  173 hectares or 0.63 7o  less 
than the area harvested in 1995. 

356.  The quantity of hops harvested in  1996 was much bigger (12.617c) than in  1995. The total 
harvest  was 946 060 Ztr, and  the average  yield  per hectare  was  1.48  t/ha or 34.62  Ztr. 

AGRICULTURAL MARKETS 

89 

357.  Product  quality  was  good,  with  an alpha  acid  content  for  the Community  as a  whole of 
7.68 7o  for all three categories of varieties, representing  3 631 tonnes of alpha acid -  113'kg per 
hectare -  for  1997 beer  production. 

358.  Overall, the average price of hops sold  under contract  was ECU  194 /Ztr,  i.e. ECU  3/Ztr 
less than  for  the  1995 harvest. 

359.  The average price of hops sold on the free market fell sharply (from  ECU  140 /Ztr in  1995 
to ECU  98 /Ztr  in  1996). 

360.  Under the common  organisation  of  the market  in hops, the Community  has two types of 
financial  commitments. Firstly, aid  is granted  to growers to enable them to attain  a reasonable 
income level. For the  1996 harvest, the Council set this at ECU 480 per hectare for all varieties. 
Secondly, special aid is granted to hop producers converting part of their land under bitter varieties 
to other varieties more suited to market requirements. By 31 December 1996, when the programme 
ended,  the Commission  had  approved  conversion  plans  for  3 241 hectares. 

361.  Estimates  indicate  a smaller harvest  for  1997 than  for  the previous  year. 

362.  A  reform  of the common  organisation  of  the market  in hops was adopted  by the  Council 
on 22 July  1997 (Regulation (EC) No  1554/97, OJ L 208, 2.8.1997, p.  1). The main changes are 
as  follows: 

- 

a flat-rate annual aid per hectare based on historic averages, with a distinction made between 
the different  groups of  varieties, is to be granted  and  this aid  paid  soon  after  harvest; 

-  varietal conversion  may be undertaken  on a permanent  basis, i.e. with no restriction  on area 

or time  scale, aid  being  included  in the above-mentioned  flat-rate  aid per hectare. 

Seeds 

363.  The common market organisation  for seeds provides for production  aid for basic seed and 
certified  seed belonging to some 40 different  species of agricultural plant, including various types 
of fodder  seed, rice and  flax. 

90  AGRICULTURAL  MARKETS 

364.  In  1996 the total area in the Community  sown to seeds qualifying  for Community  aid was 
324 925 hectares. For the Member States taken  together this represents an increase of about 8 7c 
on  the previous  year. 

365.  The  areas  cultivated  for  the  production  of  seed  for  grass  and  legume  crops  for  feed  use 
totalled  153 453 hectares and  114 900 hectares respectively, representing an overall  increase on 
1995 of around  6.8 7c  and 7.4 7c respectively. 

366.  The  total  area  producing  rice  seed  was  18 594  hectares, some  1.6 % up on  1995. There 
was actually  a slight  reduction  in the area  under  indica rice (3  134 hectares, 9.7 7o  less than  in 
1995) and an increase  in the case of japonica  (15 460 hectares, 23.2 7c  more than  in  1995). 

367.  The  areas  used  for  growing  seed  for  the  production  of  fibre  flax  seed  and  linseed  were 
22 521 hectares and  13 672 hectares respectively,  i.e. 0.2 7c  and  22.4 7c  more respectively  than 
in  1995 for  the Member  States taken  together. 

368.  The area sown for  hybrid  maize seed production  was 55  192 hectares. This represents an 
increase of around 0.8 % on  1995 for  the Member  States  as a whole. 

369.  As regards seed eligible  for Community  aid in the  1995/96 marketing year, total  imports 
into the Union  (35 523 tonnes) continued  to exceed  exports to third  countries (13 496 tonnes), 
thus confirming  the trend  recorded  over  the  last  decade. Imports  of  hybrid  maize seed  totalled 
35 565 tonnes, of  which  28 006 (around  78.7 76)  were  simple hybrids. 

Flowers and live plants 

370.  This sector covers  a wide range of  products:  bulbs,  live plants (ornamentals and  nursery 
products), cut flowers and foliage. The market organisation includes quality standards and customs 
duties, with no specific  protective  measures against  imports other than  any safeguard  measures 
which might prove  necessary. 

371.  Over  the  last  few  years  production  and  trade  have  increased  in the European  Union  and 
in other countries  as well. 

372.  Around  115 000  ha  are  used  for  ornamental  horticulture,  of  which  about  22 000  ha  for 
bulb production, principally  in the Netherlands. 

373.  Community  imports  from  third  countries  totalled  286  000  tonnes  in  1996, with  a  value 
of ECU 875 millions, which represents an increase of about  113% on the figures for  1988. About 

AGRICULTURAL  MARKETS 

91 

half of this quantity  was fresh  cut flowers, the EU being the biggest market in the world for this 
product. The majority  of these flowers  (approximately  80 %) are exempted  from  customs duties 
under agreements such as the generalised preference  system  for Colombia and other Central and 
South  American  countries  and  the agreements  concluded  with  the ACP States  under the Lomé 
Convention. 

374.  Five Mediterranean  countries  (Cyprus, Israel, Jordan,  Morocco, and  the West  Bank  and 
Gaza Strip) are granted  tariff  exemptions  within  set quotas, provided  that the import  prices  for 
certain cut flowers (roses and carnations) are not below a certain percentage of the corresponding 
Community price. 

375.  Israel  is still  the  Union's  largest  supplier  of  fresh  cut  flowers  (37 000 tonnes),  followed 
by  Kenya (29 000 tonnes)  and  Colombia  (20 000 tonnes). 

376.  Community exports to third countries totalled around 263 000 tonnes in  1996, worth some 
ECU  868 million,  the  principal  exports,  in  order  of  importance,  being  live plants  and  nursery 
products, bulbs, fresh  cut flowers and  foliage. 

377.  The external  trade  balance  for  the entire  sector  was  negative  (ECU 6 million)  for  1996, 
whereas in  1995 it still showed  a surplus  (ECU  107 million). This situation  arises from  the  fact 
that  for  two lines of  production  -  fresh  cut  flowers  and  foliage  -  the import  surplus  amounted 
to ECU 204 million  and ECU  184 million  respectively. 

Animal feedingstuffs 

378.  Large quantities  of  agricultural  products  are used  for  animal  feed,  including  most  of the 
Community's output of cereals and oilseeds and virtually all of its permanent grassland and fodder 
production from arable land. Three quarters of all the European Union's UAA (utilised agricultural 
area) is used  for  this purpose. Furthermore,  feeding  costs  account  for  around  70 7c of  the total 
production  costs of pigmeat and  poultrymeat. 

379.  Overall demand*  has increased slightly  since  1993, mainly due to the increase in demand 
in the pig and poultry sectors. Approximately half (200 million tonnes FU) of the aggregate supply2 
is composed  of  feedingstuffs  which  are not  generally  marketed  (grass, hay and silage), mainly 
used  for  ruminants. The other half, which can  be used  for  all animals, consists of  feedingstuffs 
which  are  marketed  (cereals,  substitutes,  oilcakes,  etc.)  where  competition  (prices,  nutritional 

This  includes  all marketable  and  non-marketable  animal  feed.  Estimate  for  EU-15. 

2  Estimate based on the feed balance  expressed  as FU  (feed  units)  equivalent  to the energy  provided  by  1 kg of 

average  barley.  Source: Eurostat. 

92  AGRICULTURAL MARKETS 

value)  is most  intense. Since  the  introduction  of  the  CAP reform  in  1993, and  unlike  previous 
years, the quantities of cereals used in animal  feed  have increased  to the detriment of substitutes, 
most of  which are imported. 

380.  Total animal consumption of the key marketable products1 in the European Union is estimated 
at  roughly  194  million  tonnes  in  1996/97  (2  million  tonnes  more  than  in  1995/96).  This 
consumption is made up of, on the one hand, indigenous products, estimated at 144 million tonnes 
(over  6  million  tonnes more  than  in the previous  marketing  year,  mainly  due to greater  use of 
indigenous  cereals)  and,  on  the  other  hand,  products  imported  from  non-member  countries, 
estimated at around 52 million tonnes, i.e. over 4 million tonnes less than the previous marketing 
year (mainly because of a reduction in imports of oilcakes). Exports are estimated to have remained 
stable, at around  2 million  tonnes. 

381.  As regards substitutes subject to import quotas, the quota utilisation rates in 1996 for manioc 
imports  remained  at about 56 7o  for manioc  from  Thailand  and  increased  from  14 % in  1995 to 
around 40 7o in  1996 for manioc from Indonesia; the rate for manioc from  other GATT countries 
fell  to  23 7o in  1996, while  the rate for  non-GATT  members,  including  China,  was  again  0 7o 
in  1996. Utilisation  of the Chinese sweet  potato quota  fell  from  6 7o  in  1995 to 0 7o  in  1996. 

Industrial manufacture of compound feedingstuffs  in the EU by category of animal 

Compound  feed  for: 

- 

P»gs 
poultry 

other 

cattle (beef and dairy) 

1996 

41.5 

34.0 

8.2 

36.5 

Total 

120.1 

Change  since  1995 

% change 

(million  tonnes) 

1.2 

0.6 

0 

1.0 

0.8 

31 

1.9 
-
- 2 .8 

0.7 

382.  Total manufacture of compound feedingstuffs  in the European Union2 in  1996 is estimated 
at 120.1 million tonnes, 0.8 million tonnes more than in 1995. The rise is mainly due to an increase 
in the production of feedingstuffs  for pigs (+1.2 million tonnes) and poultry (+0.6 million tonnes), 
while production  of bovine feed  was down  by about  1 million  tonnes, largely  on account of the 
beef crisis. 

Covering most of the marketable feedingstuffs  used in the EU by the compound feed industry and by farmers 
(farm consumption and purchases of raw materials) and set out in the table 'Animal consumption of key marketable 
products (estimates EU-15)' and the following figure. Source: DG VI. 
Provisional figures for EU-15 not including Greece or Luxembourg, see Table 4.13.7.3, Part 2. Source : European 
Feed Manufacturers' Association (FEFAC). 

AGRICULTURAL MARKETS 

93 

Weighted average price of key marketable products 
EU average (estimate) 

1992/93 

1993/94 

1994/95 

1995/96 

1996/97 

I -  Cereals 
II -  Substitutes 
III -  Proteins 

I V-  Total 

(weighted average price) 

182.9 
124.6 
154.0 

163.3 

157.6 
120.4 
171.9 

153.6 

149.3 
115.9 
136.6 

140.2 

151.7 
121.4 
169.0 

150.6 

138.7 
115.3 
213.0 

150.7 

(ECUA) 

% change 
between 
1995/96 and 
1996/97 

-9 
-5 
26 

0 

Indicator of  the  trend  in average  prices  in the  EU  of  the  key  marketable  products and their principal  constituents,  weighted  by the  share  of  each 
in total consumption. For each cereal, an average EU price is calculated by weighting the arithmetical average price in each Member State by animal 
consumption  in each. For oilcakes and substitutes, which  are  for the  most part imported,  the average  cif  Rotterdam price  has been used.  Source: 
DGVI. 

383.  In terms of total production of compound f eedingstuf f s by Member State in 1996, the largest 
increases were recorded in France, Germany, the United Kingdom and Austria, while the main 
falls were in Italy, the Netherlands and Ireland. 

384.  As regards the incorporation  of raw materials into compound  feedingstuffs  by EU feed 
manufacturers in 1996, the quantity of cereals' used again showed an increase, from 40.9 million 
tonnes in  1995 to 43.3 million tonnes in  1996; the reason for this is to be found in the fact that 
prices for raw materials  were favourable  to cereals, particularly  given the high prices of soya 
oilcake and proteins, the decreasing  use of cereal substitutes and the growth of demand in the 
pigmeat and poultrymeat sectors. An increase in the use of cereals over the reference period was 
seen in all the Member States apart from  the Netherlands (no change). 

385.  The factor determining choice of the composition of feedingstuffs  remained raw material 
prices relative to one another and the percentage of total demand accounted for by the different 
animal species. 

386.  The average weighted price of the key marketable products in the European Union remained 
at the same level in  1996/97 as in  1995/96, but with major differences  from  one group of key 
products to another: marked  increase in the average price for proteins (+ 26 76) and fall  in the 
internal average price for cereals (-9 76) and substitutes (-5 76). 

387.  For  1997/98, livestock consumption of cereals will depend on developments in livestock 
demand, import prices and currency parities. 

Table 4.13.7.5, Part 2. Source  : European  Feed Manufacturers'  Association (FEFAC). 

Animal  consumption  of key marketable products  (estimate  EU-15) 

1994/95 
Animal consumption 

1995/96 
Animal consumption 

1996/97 
Aninul consumption 

EC 

|  Imnuns 

Exports 

Total 

EC 

Imports 

Exports 

Total 

EC 

Imports 

1  Exports 

Toul 

(million 

tonnes) 

Rile of 
import 
duues 

T 
T 
T 
T 

6 * B /T 
OB/T 
OB 
T 
OB 
OB 
OB 
OB 
OB 

T 
4-17 %  B 

OB 
OB 
OB 
OB 

2-5 *  B 
0-9 %B 
0  2 % B 
T 

32.0 
29.4 
22.5 
10.1 

94.0 

19.7 
-
-1.4 

10 8 
02 
-
5.0 
1.9 
0.4 
0.9 
0.3 
0.6 

206 

6.5 
0.7 
3.5 
2.3 
_ 
ISO 
4.7 
4.9 
2.8 
0.6 

195 

-
-
1.6 
0.7 

2.3 

15.3 
3.7 
05 
5.9 
0  1 
OX 
20 
0.7 
08 
0.8 
4.1 
3.7 
0.4 

19.5 

330 
24 9 
1.4 
2.3 
45 
2.4 
1.3 
0.2 
10 
-
35.5 

Total cereali 

Cereals 

- 

Common  wheal 
Barley 
Maize 
-  Other 

Suosrifuirs tx-Annex D total, of which 

- 

Manioc 
Sweet  potatoes 
CGF (com  gluten  feed) 
Bran 
MGC (mai7£ germ cake) 
Citrus  pellets 
Dried sugarbect pulp 
Brewing and distilling  residues 
Various fruit  waste 

Other energy-rich fttds  of which: 

Molasses 
Animal  and vegetable  fats  (added  10 feed) 

Total energy-rich  feeds 

Total  protein-rich  feeds 

Oilcake and seeds (oilcake equivalent), of 

Soya 
-  Rape 

Sunflower 

-  Other 
Other proteins of which: 

Protein crops 
Dried  fodder, etc. 
Fish meal and meal meal 
Skimmcd-milk  powder 

Key products index 100=1994/1W5 
-  Consumption  index 
-  Livestock demand  index 

Total  key  products 

134  1 

57.2 

• 

-

-
-
-
-
_ 
-
-
-
-
-
-
-
-
-01 

0  1 
-
0  1 

1.2 
0.9 
0.2 
0.0 
0  1 
1.1 
0  1 
0.2 
0.8 
-
23 

2.4 

96.3 
32.0 
29.4 
24.0 
10.9 

963 

35.0 
3.7 
0.5 
7.3 
10.9 
1.0 
20 
5.7 
2.7 
1.2 
4.9 
3.9 
1.0 

34.5 
31.0 
21.3 
11.7 

98.5 

20.1 
-
-1.5 

108 
0.2 
-
5.3 
1.9 
0.4 
1.3 
0.7 
0.6 

39.9 

21.3 

38.4 
24.7 
4.7 
4.5 
4.4 
14.4 
5.9 
4.9 
3.0 
06 

52.7 

5.8 
0.7 
39 
1.2 

-11.6 

3.8 
4.5 
2.7 
06 

17.4 

-
-1.7 

12 

2.9 

14.0 
29 
00 
5.9 
0  1 
07 
2.0 
08 
08 
0.9 
4.1 
3.7 
0.4 

18.2 

32.8 
23.8 
1.2 
3.2 
46 
2.4 
13 
0.3 
0.8 
-
352 

_ 
-
-
-
-
_ 
-
-
-
-
-
-
-
-
-
-
-
-
-
0  9 
07 
0.1 
00 
0.1 
1.0 
0.0 
0  1 
0.8 
-
IX 

101.4 
34.5 
31.0 
23.0 
12 9 

36.6 
32.0 
236 
12.5 

101.4 

104.7 

34.1 
2.9 
0.0 
7.4 
10.9 
0.9 
2.0 
6  1 
2.7 
1.3 
5.4 
4.4 
1.0 

20.2 
-
_ 
1.5 
108 
02 

-5.4 

1.9 
0.4 
13 
0.7 
06 

39.5 

215 

37.8 
238 
50 
4.4 
46 
13.0 
5.1 
46 
2.7 
0.6 

6.4 
0.8 
35 
2! 

-11.3 

3.9 
4.1 
2.7 
06 

541.7 

177 

189.0 

137.2 

563 

IX 

191.7 

1439 

1X9.0 
-
189.0 

1X9 0 
100.0 
100.0 

IV 1.7 
0 0 
191.7 

191  7 
101.4 
101.4 

-
-
09 
0 6 

1.5 

13.4 
29 

-5.5 

0 0 
0.7 
2.0 
0.8 
0.6 
09 
4.1 
3.7 
0.4 

17.5 

30 4 
22.1 
1.3 
2.5 
45 
2.3 
1.2 
0.3 
0.8 
-
32  7 

51.7 

-
-
-
-
-
_ 
-
-
-
-
-
-
-
-
-
-
-
-
-
0.9 
0.7 
0  1 

-0.1 

0.9 

-0.1 

0.8 
-
IX 

IX 

I93.X 
0(1 
193.8 

1062 
36.6 
320 
24.5 
13  1 

106.2 

33.6 
29 
_ 
7 0 
I0X 
09 
2.0 
62 
2.5 
13 
5.4 
44 
1.0 

39.0 

35.9 
22.2 
4.7 
46 
44 
12.7 
5.1 
4.3 
2.7 
06 

4X6 

193.K 

193 X 
102.6 
102.6 

Remarks: (e)  = estimate; T  =  Tariff  since  1/7/95;  B  =  bound  under  G A T T;  0  = exempt;  '*  =  import  duty  al  1/7/95. 

AGRICULTURAL  MARKETS 

95 

Weighted average price 
and animal consumption 
of key marketable products 

(ECU/t) 

(million t) 

Consumption 

Cereals 

—'•—> 

.^~ 

Proteins 

Substitutes 

198789 

1989190 

1991/92 

199194 

199SW 

1997.98 

1987/88 

1989/90 

1991/92 

199194 

199V96 

1997/98 

NB:  1996/97 = estimate. 
Source: DG VI, supply balance for key products. 

Figure 11 

Milk and milk products 

World market 

388.  According to FAO estimates, world production of milk (including cows' milk, buffalo milk, 
sheep's milk  and.goats' milk)  in  1997 is likely  to be just  about  0.4 %, or 2 million  tonnes up on 
1996, at 539 million tonnes. The increase is expected  in India for buffalo  milk, while cows' milk 
production  on  the other  hand  is expected  to  fall,  as  it did  in  1996. The decrease  in  production 
in  eastern  Europe  and  the  former  Soviet  Union  is  at  the  root  of  this  trend, since  in the rest of 
the world  milk  production  is increasing. 

389.  In  Asia, the growth  of  milk  production  in  India  (the  largest  producer  among developing 
countries  and third in the world after  the European  Union  and  the United States) during the year 
1995 was slowed by a shortage of fodder  in certain regions. In  1996 it increased by 4%, reaching 

96  AGRICULTURAL  MARKETS 

67  million  tonnes  and  is expected  to total  70 million  in  1997. Pakistan  is expected  to pass the 
20 million  tonne  mark, which  will put it in fifth place in the  world. 

390.  In Latin America, most countries increased production in 1996, and this trend was expected 
to continue in  1997. Brazil, the region's largest producer, is likely to show substantially  increased 
production  following  the development  of  milk  production  outside  traditional  areas  as  a  result 
of improvements in dairy farmers' incomes. In  1997 production  is expected to exceed 20 million 
tonnes. Production in Argentina, Chile and Uruguay should also increase. In Mexico, the abolition 
of  government  price  controls  increased  production  in  1996, as was  the case  in  other  countries 
in  the region  during  the  1980s. 

391. 
In  most  countries  of  eastern  Europe,  the  fall  in  production  continued  as  a  result  of  the 
reduction  in herds and hot, dry weather. Supplies of animal feedingstuffs  continued to be limited, 
with consequent further reductions in herds. Despite falls in production, price increases in a number 
of  these  countries  discouraged  consumption,  leading  to  a  surplus  of  supply  over  demand.  In 
addition, there was the move towards cheaper substitute products such as vegetable oils. Although 
consumption of traditional milk products fell, long-life milk, soft cheeses, ice-creams and desserts 
were  in great  demand. 

392.  In the United States production fell slightly in  1996, contrary to all the forecasts of growth 
due  to the bovine  somatotropin  (BST) programme. There  was little change expected  for  1997. 
In Canada, the maintenance of processing quotas for milk in 1997 will leave production unchanged. 

393. 
In  Australasia,  the  very  favourable  weather  conditions  in  1996  gave  way  to  a  drought 
affecting  much of Australia. This meant higher feed costs as forage was in short supply and grain 
prices were higher,  so milk production  will be below  the 9 million  tonne total  for  1996. In New 
Zealand,  milk  production  increased  markedly  (by  over  9 76)  as  weather  conditions  were  good 
for  grazing. For  1997 a  1  7c  increase is expected  in view of the less favourable  weather and  the 
lower  prices obtained  by producers during  the  year. 

Community market 

394.  In the European Union the total dairy herd at the end of  1997 is expected to show a return 
to the downward trend (-  2.3 76) which had been moderated in  1996 by the BSE crisis. The figure 
is put  at 21.6 million  head  at the end of  1997, representing  a decrease, of  500 000  head. 

395.  The reduction in the number of cows was compensated  for by the increase in yields, from 
5 435  in  1996 to 5 534 kg/cow in  1997, i.e. an increase of  1.8 %, which  is slightly  less than  the 
annual  average  (+ 2 76). 

AGRICULTURAL  MARKETS 

97 

396.  Production  of  milk  has remained  very  stable at around  120 million  tonnes since  1992. 
Similarly, and for the third year running, deliveries remained stable at around 113 million tonnes. 
In 1995, both production and deliveries increased by a million tonnes and since then production 
has remained stable. The fat content of milk, on the other hand, has continued to rise, meaning 
increasingly large adjustments  to the quota rules. 

397.  Butter production, which on present trends is showing an annual average drop of 2.9 %, 
totalled 1.87 million tonnes in 1995 and 1996, which marked an increase on 1994 and consequently 
a reversal of the trend. Production is expected to be down by 3.1 % in 1997. 

398.  Production of cheese increased by 1.6% in 1996, to a total of 6.48 million tonnes; in 1997, 
production  should remain more or less stable at 6.46 million tonnes, the 0.4 % drop resulting 
from lower production of cheese made from other types of milk and no change in that of cheese 
made from cows' milk. This confirms the signs of an end to the rise seen in 1996, when the increase 
was already well below the annual average (+ 2.4 76) seen since the introduction of quotas. 

399.  Production of all forms of milk powder continued to fall very slowly in  1995 and 1996, 
with totals of 2.24 million tonnes and 2.15 million tonnes respectively. There was little change 
in 1997 (2.16 million tonnes), but the trend varied from one type of powder to another: production 
of skimmed-milk powder was distinctly down (- 3.5 76) in  1997, while the production of other 
types of powder fell  in  1996 and rose in 1997. 

400.  After being reversed in  1995 by an increase of 4.4 %, the downward trend (-1.7 76) in the 
production  of condensed  and evaporated  milk has since continued. In  1996 there was a 0.7 % 
fall, and in 1997 production is expected to be up by 1.9% to 1.37 million tonnes. Casein production 
in  1996 was  133 000 tonnes, 6 % down on  1995. Production in  1997 is expected to remain at 
the same level. 

401.  Overall consumption of milk products in the European Union, after  having increased by 
3% in 1994, fell by 2% in 1995 and increased slightly in 1996. Another slight increase is expected 
for  1997, taking it to over  105 million tonnes. 

402.  Total drinking milk consumption remained more or less stable between  1995 and 1997. 
The 4997 figure is put at just under 29 tonnes, 0.8 % more than in the previous year. Whole milk 
now accounts for only 47 % of consumption, whereas in 1986 it was two thirds, i.e. double that 
of reduced-fat milk. Only the consumption of semi-skimmed milk is clearly on the rise, that of 
whole milk remaining  stable, whilst consumption of skimmed milk has been falling  by  1 % a 
year since 1992. 

403.  Cheese consumption in 1996 was equivalent to 93 % of production, at 5.98 million tonnes, 
an increase of  1 %. It is expected to grow by 0.3 % in 1997. 

98  AGRICULTURAL  MARKETS 

120 

100 

80l— 
1988 

1990 

Milk 

(million t) 

.Deliveries 

Internal utilisation 

Unsubsidised consumption 
, 

I 
1992 

I 
1994 

1996 

EU-12 

Including former GDR 

EU-15 

NB: Consumption calculated on basis of total milk equivalent (milkfat content) 

figures. 
1988 consumption includes 3.245 million t for animal feed. 

0.50 

0.25 

0.00 

(million t) 

1988 

1989 

1990 

1991 

1992 

1993 

1994 

1995 

1996 

(')  Public and private stocks covered by Article 6 of Regulation (EEC) No 804/68. 

Position on 31 December. 

Source: European Commission, DG for Agriculture. 

Figure 12 

AGRICULTURAL  MARKETS 

99 

404.  Demand  for  butter  has  fallen  steadily  since  1988, except  in  1994 when  it rose  by 2.9 %, 
a result  of  the reduction  in  the intervention  price  by 2 % in  1993 and  3 7c in  1994. Since  1995 
it has remained  around  1.75  million  tonnes. 

405.  Community  public  stocks  in  1996 were at an all-time  low. In March  1996, public stocks 
of butter and skimmed-milk powder  were almost zero. Only in Australasia were there  sufficient 
supplies. In the United  States, stocks were  insufficient  to meet internal  demand, almost  tripling 
internal  butter prices. Availabilities  were no better  in  1997. 

406.  Internal  prices  for  milk  products  started  to  rise  at  the  beginning  of  1997,  far  exceeding 
intervention prices in early summer. The reason for this was that production of intervention products 
had stabilised  or even  fallen  (e.g. skimmed-milk  powder), together with high demand  for butter 
exports  to Russia. 

407.  Export  refunds  were  amended  on  several  occasions  in  order  to  comply  with  the  limits 
resulting  from  the undertakings made during the Uruguay Round. Since  1  January  1997, refunds 
have been  reduced  by  5 % for  butter,  butteroil,  skimmed-milk  powder, whole-milk  powder and 
condensed milk, 53 % for  drinking milk, 9 % for  processed  cheeses and between  5 and 24 7c  for 
other types of cheese. 

408.  Exports of milk products from  the European  Union fell in  1996 by 2.2 million tonnes milk 
equivalent.  The  previous  year  had  been  an  exceptionally  good  one,  the  best  since  1989. Such 
a  situation  is  unlikely  to  be  repeated  in  the  foreseeable  future.  In  1996,  the  European  Union 
accounted  for 41 % of world  trade, which amounted  to 29.5 million tonnes, nearly 2 million less 
than in 1995. Imports totalled  1.3 million tonnes. The volume of world trade reflects the expansion 
or contraction of Community exports because European trade accounts for such a large percentage 
of the total, as can be seen from the tables in the Annex. The second largest supplier -  New Zealand 
-  accounts  for  only  21 7c 

Beef and veal 

409.  World  beef  and  veal  production,  estimated  at  56.5  million  tonnes  for  1996,  showed  an 
increase  of  over  1  %,  as  it  had  done  in  1995, still  accounting  for just  over  one quarter  of  total 
meat  production. 

410.  Production  of  beef  and  veal in the European  Union, totalling some 7 950 million tonnes, 

,  now accounts  for  only  about  14 % of  world  production. 

100  AGRICULTURAL  MARKETS 

411.  The supply of beef and veal grew in North America and the producing countries of South 
America, some of which are now officially  recognised as free of foot-and-mouth  disease. 

412.  Beef production in Australia fell on account of the drought, and market conditions meant 
that exports from Australia and New Zealand were reduced to below their share of the tariff quota 
for exports to their traditional North American export market. 

413.  In eastern Europe, and especially in Russia, production continued to decrease as herd sizes 
and productivity per head also fell. 

414.  On a world  market experiencing dynamic economic  growth and a strong propensity  to 
consume meat in developing countries, beef consumption was limited by consumer fears about 
BSE (bovine spongiform  encephalopathy). 

415.  World trade in beef and veal amounted in  1996 to around 4.86 million tonnes, or 8.6 % 
of production, some 2% up on 1995. 

416.  The upturn in world trade was influenced by the growing import needs of South-east Asia, 
which now accounts for one quarter of trade, and will continue in 1997 on account, among other 
things, of the export ban on Taiwanese pigmeat exports in the wake of foot-and-mouth disease. 

417.  The  two  South  American  exporting  countries,  Argentina  and  Uruguay,  now  officially 
recognised  as  being  free  of  foot-and-mouth  disease,  will  now  also  increase  their  exports of 
fresh/chilled  beef to the most remunerative North American markets. 

418.  More favourable access conditions on some import markets mean that a reversal in trends 
on the international markets can be expected in  1997 and thus some improvement in world beef 
prices. 

419.  At the beginning of 1997 there was a downward trend in cattle numbers in many countries, 
including the USA, where the decrease was put at some 2 7c. 

420.  World production is therefore expected to remain unchanged for 1997, whereas the medium-
term trend is an increase of the order of 0.7 % a year. 

421.  The Community  market in beef and veal was at the peak of the production cycle in the 
1996/97 marketing year, even though this production peak was somewhat truncated by emergency 
slaughterings on account of BSE, both calves and adult cattle being slaughtered, particularly in 
the United Kingdom. 

AGRICULTURAL MARKETS 

101 

422.  Plans to eradicate BSE were implemented  in several Member States, including the United 
Kingdom; these plans provide  for  veterinary health checks on identified  herds and  feedingstuffs 
and the elimination  from  the food  chain of meat  from  animals liable to be affected  by BSE. Up 
to the beginning of September  1997, over  1.730 million cattle had been slaughtered, in particular 
cull dairy  cows. 

Beef and veal  production 

( I 000  tonnes  carcass  weight) 

<7r  change 

1994 

1995 

1996 

1997 

II  194 
602 
2 486 
4 639 
1 825 
2 496 
2  455 
3 240 
1 427 

7  831 

55 300 

11 585 
601 
2 466 
4 783 
1 803 
2 550 
3 010 
2 733 
1  158 

7 964 

55 900 

11  749 
555 
2 485 
4 691 
1  702 
2 600 
3 220 
2 543 
1037 

7 950 

56 500 

11  617 
550 
2 500 
4715 
1  700 
2 650 
3 350 
2 400 
960 

7 900 

56 450 

1996/95 

+  1.4 
-7.7 
+ 0.8 
-  1.9 
-0.6 
+ 2.0 
+ 7.0 
- 7 .0 
-  10.4 

- 0 .2 

+  1.1 

1997/96 

-  1.1 
- 0 .9 
+ 0.6 
+  0.5 
- 0 .1 
+  1.9 
+ 4.0 
- 5 .6 
- 7 .4 

- 0 .6 

- 0 .1 

World 

USA 
Japan 
Argentina 
Brazil 
Australia 
India 
China 
Russia 
Ukraine 

EU 

423.  Other measures to improve the veal market hit by the BSE crisis, the premium for the early 
marketing  of  calves  and  the  calf  processing  premium,  involved  1.020  million  head  and  1.130 
million  head  respectively  up to the beginning  of  September  1997. 

424.  The decrease  in cattle  numbers  observed  in June  1997 points to the cyclical  downturn  in 
production  in  the coming  years, particularly  as regards  male bovines. 

425.  The market price for  the reference quality  (adult males of class R3) remained  below  80 7c 
of  the intervention  price, the  threshold  triggering  support  measures, consisting  of: 

- 

the direct  buying-in  on  the  market  of 225  million  tonnes  up to the end of  September  1997; 

-  compensation  for  loss of  income  paid  in  the form  of  increased  premiums. 

426.  Consumption  of  beef  and  veal, although  up on  1996, remained  below  average. 

427.  The  low level of  imports -  395 million  tonnes in  1996 compared  with 422 million  tonnes 
in  1995 -  reflects  exacting consumer requirements as to the origin of meat offered  for direct sale. 

428.  Exports of  beef  and  veal  to non-EU countries, which totalled  1.1 million  tonnes  in  1996, 
maintained  a relatively  high  level  despite  the difficulties  caused  by the BSE crisis. 

102  AGRICULTURAL MARKETS 

(million t) 

Meat 

1988 

1990 

1992 

1994 

1996 

EU-12 

Including former GDR 

•"• 

*n 
EU-15 

(million t) 

1.25 

1.00 

0.75 

1988 

Sheepmeat  and  goatmeat 

1990 

1992 

1994 

1996 

EU-15 

Source: European Commission, DG for Agriculture. 

Figure  13 

AGRICULTURAL  MARKETS 

103 

429.  The halt to vaccination  against  foot-and-mouth  disease should enable beef and veal  to be 
exported to new markets in the future and thus compensate for the planned cut in exports qualifying 
for  refunds. 

430.  After  the sharp fall  in market prices in  1996, in particular for cow meat (about  15 % from 
one  year  to the  next),  for  a few  months  beef  prices  have  been  picking  up, particularly  for  the 
reference  quality, to close to 80 % of  the intervention  price. 

431. 
In  the past  few  years  market  prices  have  fallen  by  an  average  of  about  15 % as  a result 
of  the  BSE crisis  and  the  15 % cut  in  three  stages  in  the support  price,  while  feed  prices  have 
fallen  by only  10%. 

Sheepmeat and goatmeat 

432.  World sheepmeat and goatmeat production, currently estimated at approximately  10 million 
tonnes annually, appears  to be in decline on account  of  a number of  factors,  such as the  falling 
price of wool, cuts in livestock numbers and lower profitability  compared  with other enterprises. 
The  world  has  a  total  of  1700 millions  head  of  sheep and  goats, over  60 % of  which  are  to be 
found  in Asia  and  Africa. 

433.  World  trade  is dominated  by  New  Zealand,  which  exports  up  to 400 000 tonnes  a year 
and by Australia, whose annual exports, often  in the form of live animals, exceed 300 000 tonnes. 
The  European  Union  is the  world's  third  largest  producer  after  China  and  the ex-Soviet  Union 
countries  and  is also the largest  importer  and  biggest  consumer.  EU exports remain  negligible. 

434.  On the Community market, production is expected to fall by 2.4 % to 1.145 million  tonnes 
in 1997, owing, in particular, to a significant  fall in UK and Irish production. Despite a significant 
fall  in consumption  in the United  Kingdom, Community  consumption  remained  stable in  1997, 
mainly  thanks  to the positive  image of sheepmeat  in the eyes of  the  consumer. 

435.  Intra-Community trade continued to develop: in 1996 trade exceeded 286 000 tonnes, France 
remaining  the principal  country  of destination  and  the United  Kingdom  the main  supplier. 

436.  During the first quarter of  1997, after sustaining a good level in 1996, the Community market 
price  remained  very  high  until  early  spring. From  June  onwards,  the price  again  exceeded  the 
1996  level,  influenced  by  the  revaluation  of  sterling  against  the  green  rate. The  average  lamb 
price on the Community  market  in  1997 was ECU  376 per  100 kg, i.e. almost 4%  up on  1996. 

437.  Imports  into the Community  are carried out principally  under reduced-tariff  or  tariff-free 
WTO quotas, together  with  additional  quantities  provided  for  in  the  Europe  Agreements  with 

104  AGRICULTURAL  MARKETS 

central and east European countries. The total reduced-tariff  or tariff-free  import possibility was 
317 000 tonnes in  1997, slightly more than in  1996, on account of the Europe Agreements. 

438.  It is estimated  that imports into the European Union in  1997 will total 265 000 tonnes, 
slightly less than in 1996, mainly on account of the fall in exports from the CEECs, due primarily 
to the reduction in livestock headage in this region in recent years. 

439.  The level of the Community ewe premium in  1996 was ECU  16.869 and the rural world 
premium supplement ECU 6.641 per ewe. Private storage stocks at the end of 1996 totalled only 
85 tonnes, in Finland. 

440.  In  1997 two advances on the ewe premium were fixed, for a total of ECU 9.196. Private 
storage aid was used for only 300 tonnes in Finland in 1997. 

441.  The  outlook  for  1998 is  for  stability  in  Community  production  and  consumption,  the 
decreases expected in the United Kingdom being offset by a slight increase in the other Member 
States. As importers may attempt to take advantage of the good market conditions, prices could 
fall  compared  with their  very high level in  1997. Intra-Community trade is likely to continue 
to expand. A similar trend may be forecast  for the medium term. 

Pigmeat 

442.  World production of pigmeat went on growing in  1996. A total of 86 million tonnes was 
produced, representing an increase of around 2 million on the preceding year. China is still the 
world's leading producer, estimated to account for over 40 million tonnes, followed by the European 
Union, which produced  16.3 million, up 2.3 % from  1995 tonnes in  1996. In the United States, 
the world's third largest producer, production went down, totalling 7.8 million tonnes in 1996. 

443.  The greatest parts of the years  1996 and 1997 were very favourable to the interests of the 
vast majority of pig producers in the Union. Prices were rather high throughout most of that period 
so that profitability  was good as well, despite the relatively high cost of animal feed. It should 
be stressed  that the effect  of bovine spongiform  encephalopathy  helped  to support prices  for 
pigmeat, thanks to an increase in its consumption  from  the second quarter of  1996, and when, 
in the spring of 1997, the effect of that factor was becoming less marked, it was followed by new 
dramatic events with quite significant positive effects on the price level for pigmeat in the European 
Union. 

444.  The Netherlands  was hit by the most serious outbreaks  of  classical  swine  fever  so far 
experienced in the European Union. In the summer of 1997 the number of pigs killed in the effort 
to fight this disease accounted for half of the total Dutch pig herd. 

AGRICULTURAL MARKETS 

105 

445.  From the spring of  1997 competition  on the Japanese market was substantially reduced 
after a ban on exports of pigmeat from Taiwan following numerous outbreaks of foot-and-mouth 
disease. Taiwanese exports of pigmeat are expected to remain blocked for quite some time. 

446.  In 1996 exports remained at a fairly high level, despite the GATT agreement which imposed 
limits on subsidised exports. Some 820 000 tonnes left the Union and around 60% of this quantity 
was exported without refunds. Overall, exports went up by 5 % against the level of  1995. As to 
imports, the bulk of pigmeat-derived  products entered the Union under association agreements 
or GATT agreements with preferential  rates of duty. The Union's main supplier continues to be 
Hungary, which accounted  for 36 000 of a total of 42 000 tonnes of imports in 1996. 

447.  Even though production of pigmeat is on the increase in a number of EU Member States, 
in  1997 the drop  in Dutch  production  will  be so  substantial  that  the net result for  the entire 
European  Union  will  be  a reduction  in  the  total  EU production  of  pigmeat  of  an  uncertain 
magnitude. 

Poultrymeat 

448.  Since  1991 world production  of poultrymeat has increased steadily, by over 6%  a year. 
Among the main producer regions, the rate of increase was even higher in China (24 % a year 
from  1991 to 1995), but production fell in Russia and Japan. In eastern Europe production started 
to increase again from  1994/95 onwards. 

449.  The world market continued  to expand  slightly  in  1996, thanks in particular to growing 
demand in Russia, China and Japan. Saudi Arabia's imports were expected to decrease in 1996 
and 1997 as a result of the development of domestic production. The United States retained  first 
place in the league of exporting countries in  1996 (increase of  18 76) and was expected to do so 
again in 1997 thanks in particular to exports of cheap cuts and various promotional programmes. 
Community exports increased by less than  1 % in 1996. The stronger dollar boosted EU exports 
in the early months of 1997. 

450.  Total poultrymeat production  on the EU market (EU-15) looked set to rise/ by a  further 
3.1 % in  1997. Economic conditions remained very healthy for the first eight months of 1997. 

451.  Poultrymeat qualifies for no support on the internal market. The measures governing trade 
with third countries have been adapted to comply with WTO rules: exports with refunds are being 
cut by some 30 000 tonnes a year (375 000 t for  1997/98). This restriction has led to a targeting 
of refunds  as regards both countries of destination  and products. 

106  AGRICULTURAL  MARKETS 

(million t) 

Meat 

1988 

1990 

1992 

1994 

1996 

EU-12 

Including former GDR 

EU-15 

(million t) 

15 

13 

11 
1988 

—r 

Consumption 

Pigmeat 

1990 

1992 

1994 

1996 

EU-12 

Including former GDR 

EU-15 

Source: European Commission, DG for Agriculture. 

Figure 14 

AGRICULTURAL  MARKETS 

107 

Poultrymcat  production 

(I  000  tonnes) 

Brazil 

China 

Hungary 

Japan 

USA 

USSR; 
Russia 

EU-12 

Others 

World 
production 

1 680 

1 879 

5.7 

6.4 

445 

1.5 

1  421 
4.9 

8 262 

2 998 

5 443 

7  165 

29 283 

28.2 

10.2 

18.6 

24.5 

100.0 

I  865 
1 997 
2  139 
2416 
2 691 
2 932 
3211 
3 491 
4  140 

2 040 
2 744 
2  820 
3 229 
3 950 
4 540 
5  736 
7 550 
9  347 

470 
465 
420 
426 
320 
320 
307 
320 
368 

1 465 
1  471 
1423 
1 391 
1 357 
1 367 
1 368 
1 258 
1 282 

9  105 
9 272 
9 931 
10 645 
11 204 
11 885 
12 396 
13  206 
13  786 

3  126 
3  107 
3 233 
3  169 
1 751 
1 428 
1 277 
1  142 
893 

5 784 
5  997 
6  108 
6  336 
6  766 
6  933 
6  915 
7  259 
7  555 

7416 
7 640 
6 279 
6  182 
7 661 
8  168 
8 413 
8  803 
9 471 

31 271 
32 693 
32 353 
33  794 
35 700 
37 573 
39 623 
43 029 
46 532 

11.4 

24.0 

3.6 

-  1.4 

5 3 

-  15.5 

2.8 

5.4 

6.8 

EU-15 

4  140 
4  160 

8.3 

4  330 

9  347 
11  000 
22.0 

12 500 

368 
365 

0.7 

1 282 
1 241 

2.5 

370 

1 240 

13  786 
14516 

29.1 
15  285 

859 
765 

7  781 
8  128 

9 471 
9  730 

47 034 
49 905 

1.5 

16.3 

19.5 

100.0 

719 

8  354 

10 088 

52 886 

2:3 

15.6 

0.3 

-  1.7 

5.3 

- 8 .5 

3.6 

3.2 

6.0 

1986 
Market  share (7c) 
1987 
I9S8 
1989 
1990 
1991 
1992 
1993 
1994 
1995 
9c annual  change 
ARC 95/91 

1995 
1996 
Market  share (9c) 
1997 
9c  change 
1997/95 

1996: estimâtes;  1997.  forecasts  The Community  figures  include  the  new  German  LinJer  from  1991  onwards.  Until  1990.  USSR; after  1991. Russia 
Soun-es: Community  August  1997  and  USDA  March  1V9X 

452.  Import quotas at reduced customs duties continue to apply under the association agreements 
(with Poland,  Hungary, Czech  Republic, Slovakia,  Romania,  Bulgaria  and  the Baltic  States). In 
addition,  15 500 tonnes of boned chicken  and 2 500 tonnes of turkey  meat can be imported each 
year  free  of  customs  duty,  to  which  has  been  added  4  800  tonnes  at  reduced  duty  for  1997/98 
(July/June)  under  the  minimum  access  arrangements. 

Eggs 

453.  World  production  increased  by 4.4 % a year on  average  from  1991 to  1995, and  this rate 
of increase  is expected  to continue  from  1995 to  1997. The increase  was moderate  in the United 
States and  in the  European  Union  but  in China  there  was  a rapid  rate of  expansion:  12 % from 
1991 to  1995 and  7 % from  then  on,  with production  equivalent  to four  times  that  of the EU. 

108  AGRICULTURAL  MARKETS 

China 

USA 

1987 
Market share (9c) 
19S8 
1989 
1990 
1991 
1992 
1993 
1994 
1995 
7c change  1995/91 

118 
23.0 
139 
141 
159 
184 
204 
236 
260 
290 
12.0 

1995 
1996 
Market share  1996 
1997 
7c change  1997/95 

335 
360 
51.3 
385 
7.1 

70 
13.7 
69 
67 
68 
70 
71 
72 
74 
75 
2.0 

75 
76 
10.9 
79 
3.0 

Eastern 
Europe 

34 
66 
34 
20 
15 
13 
12 
11 
11 
11 
-3.9 

10 
11 
1.6 
12 
8.3 

Egg  production 

Japan 

Mexico 

37 
7.2 
40 
40 
40 
42 
43 
43 
43 
42 
0.5 

42 
43 
6  1 
43 
1.2 

IS 
18 
20 
20 
20 
22 
22 
2.3 

26 
26 
3.7 
27 
1.4 

EU-12 

Others 

(billion) 

World 
production 

81 
15.9 
82 
79 
79 
83 
82 
80 
82 
83 
0.0 

EU-15 

88 
87 
12.4 
88 
0.3 

90 
17.5 
89 
47 
38 
69 
67 
65 
64 
66 
-  1.1 

65 
66 
9.5 
69 
2.9 

512 
100.0 
538 
496 
500 
528 
541 
568 
595 
628 
4.4 

674 
702 
100.0 
734 
4.3 

USSR,' 
Russia 

82 
16.0 
85 
85 
82 
47 
43 
40 
39 
3S 
- 5 .2 

34 
32 
4.6 
32 
-  3.3 

1996: estimates;  1997;  forecasts  The  Community  figures  include  the  new  German  bonder  from  1991  onwards  Until  1990.  USSR;  after  1991.  Russia 
Sources:  EU  August  1997:  USDA  March  1998. 

454.  World  trade has been  fairly  stable since  1992. The main  importer countries are still Japan 
(egg products)  and  Hong  Kong  (eggs in shell). The  volume of Community  exports  fell  by  17 % 
in  1996 and  the  preliminary  estimates  for  1997  indicate  little change. 

455.  The number of laying hens in the EU increased by an estimated 3.6% in  1997. The economic 
conditions  for  producers  were  very good during  the  first  six months of  1997 compared  with  the 
corresponding  period  of  the  previous  year. 

456.  The  common  organisation  of  the market  is similar  to that  for  poultrymeat. 

457.  As  far  as  trade  is concerned,  refunds  are  subject  to a ceiling  of  115 200 tonnes  (eggs  in 
shell equivalent  in  1997/98). Since summer  1996, the quantities  exported  have remained  below 
that  ceiling. 

458.  The association agreements with Poland, Hungary, the Czech Republic, Slovakia and Bulgaria 
involve an 80% reduction  in customs duties for certain egg products. Import .quotas at a reduced 
duty under minimum  access arrangements were opened  for an annual  volume of  113 479 tonnes 
in  1997/98, shared  between  three groups of products, of which only that for egg products is used 
100%. 

AGRICULTURAL MARKETS 

109 

Potatoes 

459.  The  increase  in areas planted  seen  in  1995 continued  in  1996. This was accompanied  by 
an increase  in yields  and  in  production. 

460.  Potatoes  are  one  of the products  for  which  no market organisation  has been  established. 
With a view  to the completion  of  the single market,  the Commission  presented  a proposal  four 
years ago for  a common  organisation  of the market in potatoes. The Council  has still  not taken 
a final decision  on  the  matter. 

461.  The total area under cultivation is nearly  1  500 000 hectares, making potatoes a major crop 
in  the  EU.  They  are  grown  in  all  the  Member  States,  although,  because  of  climatic  and  soil 
conditions, they  are  more  widely  grown  in  northern  regions. 

462.  The  Union  is  self-sufficient  in  potatoes  with  the exception  of  early  varieties. These  are 
imported  in  winter  and  early  spring  from  Mediterranean  countries  when  no, or  only  limited, 
Community production  is available. The main suppliers are Cyprus, Egypt and Morocco. During 
the past few years an annual average of some 400 000 tonnes of early potatoes have been imported 
from  non-member  countries. 

Honey 

463.  World production of honey amounted to about  1.1 million tonnes in 1996, which represents 
a  decrease  of  8 %  on  the  previous  year.  This  fall  marks  a  break  with  the  stability  of  world 
production  seen  over  the previous five years  around  a level  of  1.2  million  tonnes. 

464.  Self-sufficiency  within  the European  Union  was at 50.4 % in  1995/96, reflecting  a return 
to the  level  for  1993/94  after  the  fall  during  the  previous  marketing  year.  A larger  increase  in 
production  as compared  with  imports  was the reason  for  this. 

465.  Human  consumption  also increased  to 0.8  kg per  person  per year,  200 grams more  than 
in the previous  year. 

466.  The  Council  adopted  Regulation  (EC)  No  1221/97  laying  down  general  rules  for  the 
application  of  measures  to  improve  the production  and  marketing  of  honey.1  The  Commission 
planned  to  adopt  the  detailed  rules  for  the application  of  the Regulation  for  the  fourth  quarter. 

OJL  173.  1.7.1997,  p.  1. 

110  AGRICULTURAL  MARKETS 

The Member States were required to forward the national programmes provided for in the Council 
Regulation  by  15 December  1997. 

Non-food  set-aside 

467.  The Commission Regulation which sets out the detailed implementing rules for  'non-food' 
set-aside was amended and consolidated by Commission Regulation (EC) No 1586/97. Commission 
Regulation (EEC) No 334/93 is therefore repealed but will continue to apply in respect of non-food 
contracts concluded  before  the entry  into force  of Regulation  1586/97. The amendments  which 
have  been  introduced  envisage  a simplification  of  the  scheme  as  well  as  a harmonisation  and 
clarification  of  the rules  with  regard  to the delivery  of  the  raw  material  and  the application  of 
the system  of  securities. 

468.  Provisional  data  suggest  that  total  non-food  set-aside  in EU  15 in  1996/97  amounted  to 
725 000 hectares, as compared  with  1  050 000 hectares  in  1995/96. The total  non-food  area for 
1997/98 is estimated  at 440 000 hectares. The  lower  uptake  of  non-food  set-aside  as  compared 
with  1995/96 is due  to a lower  obligatory  set-aside rate. 

469.  The 725 000 hectares in 1996/97 included some 660 000 hectares of oilseeds, 60% of which 
was used  for  the  production  of  biodiesel. The  remaining  40 % was used  for  technical  oils  and 
in the chemical  industry. Other non-food  crops grown on set-aside land were cereals, medicinal 
plants, fibre plants  and  raw  materials  for direct  combustion. 

470.  Clause  7 of  the  Memorandum  of  Understanding  on certain  oilseeds  between  the  EC and 
the USA within the GATT framework  limits the quantity of by-products made available as a result 
of the cultivation  of  rape  seed,  sunflower  seed  and  soya  beans on  set-aside  land  which  may  go 
to the food  or feed  market  to  1  million  tonnes  a year  in terms of soya bean  meal equivalent.  As 
regards the  1996/97 marketing year, the 660 000 hectares of oilseeds represented around 600 000 
tonnes of  by-products  in  terms of  soya  bean  meal  equivalent. 

Starch production 

471.  Production  of  cereal  and  non-cereal  starch  in  the  European  Union  in  1996 amounted  to 
some  7.1  million  tonnes.  Of  this  total,  maize  starch  accounted  for  49 %,  (3.5  million  tonnes), 
wheat starch  for  25 % (1.77  million  tonnes)  and  potato  starch  for  26 % (1.9 million  tonnes). 

472.  The quantity of raw materials used was about  18.6 million tonnes, 51 % of this being  farina 
potatoes, 30%  maize  and  19%  wheat. 

AGRICULTURAL MARKETS 

111 

473.  The year 1996, particularly the first half, was characterised by stable market prices for maize 
and wheat, following the world market trend. The potato industry, for its part, experienced a very 
good  harvest  in  terms  of  both quantity  (yield  per  hectare)  and  quality  (starch  content  of the 
potatoes), thanks to good weather. Production just  exceeded  the quota overall  (the quota was 
actually exceeded in Denmark, Germany, Finland and the Netherlands). 

474.  The greater  availability  of  starch  led  to lower  prices  and  an  increase  in  the quantities 
exported. 

475.  Expenditure on starch products fell  substantially  as a result of the reduction in the unit 
amount of export refunds  in connection with world market stability: the average export  refund 
was ECU 40/t of maize as against the ECU 61/t seen in the previous marketing year. 

476.  The production refund arrangements, intended to supply cereal and potato starch at world 
market prices to producers of certain products not protected from imports, was applied for only 
part of  1996 on account of the alignment of world and EU prices. Expenditure on production 
refunds  was down 50 % on that seen in the two previous years. The unit rate of refunds  went 
down from ECU 22/t of starch at the start of the year for the general maize-based refund to zero 
between April and October  1996 as a result of steady world prices. 

^M a -H 13 

IV -  Rural development 

The challenges facing rural society 

477.  Rural areas account for over 80 % of the territory of the European Union and are home 
to more than one quarter of its population. Today, rural society is increasingly subject to pressures 
which threaten to undermine its already fragile equilibrium. That is why Article 130a of the Treaty 
establishing the European Community states that the Union is to aim to reduce disparities between 
the levels of development of the various regions and the backwardness of the least favoured regions, 
including rural areas. 

478.  The weakening of the economic fabric, mainly because of the decline in agricultural activity, 
demographic  imbalance and the threat of depopulation  because of the out-migration  of young 
people and an increase in the average age of the population and a reduction in the services which 
are essential  to quality  of life,  or, indeed, their complete  abolition  are just  some of  the main 
problems facing rural areas. Over the last decade agriculture has undergone huge changes as regards 
its role in the economy and the number of people employed in agriculture. These changes have 
not been without impact on the economy and social structures of the different  Member States 
and regions. 

479.  In 1987 the percentage of the working population engaged in agriculture, forestry, hunting 
and fishing  stood at around 8 % (EU-12). In  1995 this percentage had fallen  to 5.3 %  (EU-12 
and 15). Similarly, during the same period the share of agriculture in the gross domestic product 
fell from 3.5% (EU-12) to 1.8% (EU-12) and 1.7% (EU-15). These percentages, which represent 
averages, are made up of a wide range of figures for  individual  Member  States: in  1995 the 
percentage of the working population engaged in agriculture ranged from 20.4 % in Greece and 
11.5 % in Portugal at one end of the scale to 2.1 % in the United Kingdom and 2.7 % in Belgium 
at the other. As regards the share of agriculture in the GDP the figures range from 7.3 % in Greece 
and 4.8 % in Ireland on the one hand to 0.4 % in Sweden and 0.9 % in Luxembourg. The number 
of farms fell  from  8 644 000 in  1987 (EU-12) to 7 264 000 (EU-12) in  1993. At the same time 
the average size of farms increased, the utilised agricultural area (UAA) per holding rising from 
12.5 ha (EU-12) in 1985 to 16.4 ha (EU-12 and 15) in 1993, but there are large differences  from 
one country to another. The average UAA per holding was 4.3 ha in Greece, 5.9 in Italy and 8.1 

114  RURAL  DEVELOPMENT 

in Portugal, whereas  in  the  United  Kingdom  it  was 67.1, in Luxembourg 42.3 and  in Denmark 
37 ha. 

480.  The total number of people working on farms fell between  19S7 and  1993 from  17.7 million 
to  15 million  in EU-12,  a decrease of around  17 %. 

451.  While these trends may be observed  in all Member States, they vary in intensity from one 
to another, reflecting the diversity of agriculture and rural society in Europe and the varying severity 
of the socioeconomic  problems  in the different  countries. 

-  Agriculture  is undergoing  profound  changes which  are having  a direct  impact  on economic 
and  social  cohesion  in  rural  areas.  These  changes,  which  are  the  result  of  a  process  of 
modernising  agriculture  and  making  it more competitive, have not yet come  to an end. 

-  Changes in the economy and agricultural policy combined with the current situation with regard 
to agricultural structures give clues to the short- and medium-term outlook for the developments 
already under way. Around 30% of the 7.3 million  heads of holdings in the Union of  12 were 
aged over  55 in  1993. This  figure  rose to almost 42%  in Greece and 507c  in Portugal. The 
decline  in  agricultural  activity  suggests  that  economic  adjustment  will  be required  in  those 
countries, and this will call  for appropriate  measures to foster economic and social cohesion. 

- 

- 

In addition  to their task of producing a vast variety of raw materials, for both food  and other 
purposes, farmers  have an increasingly important role to play with regard to the structure and 
use of the land and the preservation and promotion of cultural and environmental assets against 
a background of growing integration between agricultural markets policy and rural development 
policy. 

In the current context  of  the second period of reform  of the Structural  Funds (1994 to  1999) 
the Community programmes under the various Objectives  1, 5(a). 5(b) and 6 are playing their 
part  in  developing  viable  rural  communities.  These  programmes  will  remain  in  force  until 
the end  of  1999. 

452.  In  July  the  Commission  presented  the  broad  guidelines  for  Community  policies  for  the 
start of  the  new  millennium,  including  rural  development  policy. 

Agenda  2000 

483.  The Commission  adopted  its proposals  for  the period 2000 to 2006 on  15 July  1997, then 
on 18 March  199S (see points 56 to 64) covering the financial outlook and the planned development 
of the main  policies of  the European  Union  in the context of  future  enlargement. The proposals 
call  for  continuation  of  the  reform  of  the  common  agricultural  policy  to  prepare  European 
agriculture  for  the challenges  of  the coming years (enlargement  of  the EU, negotiations  within 
the WTO framework) and for the maintenance of economic and social cohesion through the action 

RURAL  DEVELOPMENT 

1  15 

of  the  Structural  Funds.  Rural  development  policy,  the  Commission  says,  should  in  future  be 
incorporated  with these two policies, since the need  for a fully-fledged  rural development  policy 
covering the entire area of the Community  and forming  a whole together with the markets policy 
has increasingly been making itself felt. The Commission  stresses that it is important to reconcile 
the objective of competitiveness with keeping the fabric of rural society in good order in accordance 
with the European  society  model, while at the same time taking more account of  environmental 
aspects. 

484.  The Commission  states that, as is currently  the case, the measures relating to agricultural 
structures  and  rural  development  will  continue  to be  financed  under  Objective  1, the  approach 
of integrated development programmes being maintained. The three Funds, including the EAGGF 
Guidance  Section,  will  contribute  to the  financing  of  measures  depending  on  their  nature; two 
thirds of the appropriations  will be allocated  to Objective  1, the geographical  coverage of which 
will  be  reduced  by  the  strict  application  of  the  criterion  of  75 % of  the  average  GDP  for  the 
European Union. One significant change is proposed: the compensatory allowances in less-favoured 
areas  will  in future  be financed  by the EAGGF Guarantee  Section  as is already  the case for  the 
three accompanying  measures  approved  in  1992. 

485.  A new Objective  2 is proposed  for  regions with restructuring  requirements. It will  apply 
to areas undergoing economic  change: industrial  areas, rural  areas, areas dependent on fisheries 
and urban areas facing difficulties. The Commission stresses that all areas with high unemployment 
levels  and  depopulation  face  conversion  problems.  The  appropriate  adjustments  need  to  be 
encouraged and economic diversification  fostered. As far as rural areas are concerned, better links 
need to be established between town and country. In rural areas measures eligible under Objective 
2 (formerly  Objective 5(a) and 5(b) measures) will be financed  by the EAGGF Guarantee Section 
together with  the accompanying  measures; the ERDF, the ESF and  where appropriate  the FIFG 
will  also contribute. 

486.  In  all  rural  areas  outside  Objectives  1 and  2,  rural  development  measures  designed  to 
accompany  and  complement  market  policies  will  be  part-financed  by  the  EAGGF  Guarantee 
Section. Rural  policy,  in this context,  will embrace  all the measures at present part-financed  by 
the EAGGF Guidance  Section  and  will  be implemented  in a decentralised  way, at the initiative 
of  the Member  States. 

487.  Given the greater emphasis on environmental issues in agriculture, the accompanying measure 
on agri-environmental  matters remain compulsory  in line with the overriding concern of society 
to protect  the  environment  and  safeguard  the  countryside.  Measures  such  as  organic  farming, 
the preservation of semi-natural habitats, the maintenance of traditional orchards and hedgerows, 
the keeping  of  Alpine cattle  and the  upkeep  of  wetlands  need  to be  encouraged. 

488.  As far as Community initiatives are concerned, the Commission proposes that their number 
be reduced  from  13 to three, including  one  on  rural  development. 

116  RURAL  DEVELOPMENT 

European  Leader  symposium 

489.  From 9 to 11 November a symposium was held in Brussels, bringing together nearly  1000 
participants  representing  Leader  II  beneficiary  groups,  the  managers  of  the  102 programmes, 
representatives  of  the  national  administrations,  the  Community  institutions,  international 
organisations,  east European  countries  and Cyprus. The purpose of  the conference  was to hold 
talks with those involved on the ground with a view to envisaging the future Community initiative 
on rural development  on  the  basis of experience  gained  in the context  of Leader II. 

Horizontal  measures 

Improvement  and  modernisation 

490.  Every  year, some 41 000 holdings receive investment  aid which requires the preparation 
of  individual  investment  plans  for  improving  competitiveness,  modernising  the  conditions  of 
production  and diversifying  activities, preserving the environment,  improving health conditions 
for  stock  and  animal  welfare.  Over  time,  these  aids  have  had  restrictions  imposed  on  them  to 
bring structural measures into line with market situations and to ensure the sustainable development 
of  the different  sectors  of  production  over  the  longer  term. 

Young  farmers 

491.  Aid to young farmers, comprising an installation premium and extra investment aid under 
Articles  10 and  11 of Regulation  (EEC) No 950/97, is intended to encourage young people able 
to adjust  to the new realities of agriculture  to become heads of holdings by providing  them  with 
the resources  from  which  to meet  the  initial  expenditure  involved. 

492.  On 4 September  1996, the Commission adopted a report on young farmers and the problem 
of taking over holdings in European  agriculture, for  presentation  to the Council, Parliament, the 
Economic  and  Social  Committee  and  the Committee  of  the Regions. 

493..  This  report,  which  is  the  Commission's  contribution  to  the debate  on  the  installation  of 
young people in agriculture, looks at the economic and social problems experienced by new farmers 
and  at  problems  relating  to  legal  and  tax  matters.  It  then  considers  the  existing  Community 
instruments  to  encourage  and  help  young  people  to  establish  themselves  in  the  countryside, 
describes how they are applied  and assesses the results in the various Member States. The report 
also sets out  a  number  of  guidelines  and  recommendations  on  measures  which  could  be taken 
at Community  and national  level  to encourage  greater consistency  and more effective  action to 
help young  farmers  throughout  the  Union. 

RURAL  DEVELOPMENT 

117 

Less-favoured  agricultural  areas 

494.  Specific  aid  to  farmers  in  the  less-favoured  agricultural  areas  accounts  for  the  majority 
of commitments  under  the EAGGF Guidance  Section  for  Objective  5(a) measures  for  farmers. 

495.  Mountain and other less-favoured  agricultural areas have continued to receivecompensatory 
allowances to assist the maintenance of agricultural activity and the retention of population. This 
aid, which  is intended  to offset  the usually  higher production costs, is applied  over a wide  area. 
Over  1.2  million  holdings  receive  allowances  to assist  farming  in  mountain  and  less-favoured 
areas.  Overall,  less-favoured  agricultural  areas account  for  56 % of the  agricultural  area  of  the 
15 Member  States. 

496.  A number of Member States have sent the Commission their ideas on improving Community 
policy on mountain  areas. The Commission  is continuing discussion  with the Member  States on 
adapting  the  measures  in question  to meet  the specific  needs of the various  mountain  areas. 

Measures  concerning  the  processing  and  marketing of agricultural  and  forestry 
products 

497.  Implementation  of  measures  to improve  conditions  for  the  processing  and  marketing  of 
agricultural  and  forestry  products  as provided  for  by Regulations  (EC)  No 951/971  and  (EEC) 
No  867/902  continued  as  part  of  the  programming  of  the Structural  Funds  for  the  period  1994 
to  1999. In  the  regions  eligible  under  Objectives  1 and  6, that programming,  like  the  measures 
under  Objective  5(a),  was  included  in the relevant  programming  documents. 

498.  By  the  end  of  1996,  the  Commission  had  approved  47  programming  documents  under 
Regulations  (EC) No  951/97  and  (EEC) No 867/90: 

• 

nine  national  single  programming  documents,  for  France,  Spain,  the  United  Kingdom,  the 
Netherlands, Denmark, Luxembourg, Austria, Finland and Sweden (excluding regions eligible 
under  Objectives  1 and 6); 

thirteen  regional  single  programming  documents,  for  Germany  (at  the  level  of  the  Lander) 
and  Belgium  (at  regional  level); 

one Community support framework  for Italy, comprising  13 regional operational programmes 
for  improving  the conditions  under which  agricultural  products  are processed  and  marketed 
and  a multi-regional  operational  programme  and  12 operational  programmes  for  improving 

OJL  142. 2.6.1997, p. 22. 
OJL  91. 6.4.1990. p. 7. 

118  RURAL DEVELOPMENT 

the conditions under which  forestry  products are processed  and marketed, for  the regions of 
Italy  not covered  by Objective  1. 

499.  In 1997, amendments were made to some programming documents, particularly those relating 
to Spain, the Netherlands, some German regions and also to the Community  support  framework 
for Italy. The changes relate to the inclusion  of  new sectors, adjustments  to financing  plans and 
transfers of funds within Objective 5(a). The improvement of monitoring and evaluation procedures 
continued  within  the partnership  framework.  All  the programming  documents  will  be  in  force 
until the end of  1999. 

500.  A  report  on  the  implementation  of  Regulation  (EC)  No 952/97  on producer  groups  and 
associations thereof geared to concentrating supply and adjusting production to market requirements 
is being prepared  for  presentation  to the Council  by the Commission. 

Regional measures 

Objective  1 

501.  The bulk of the Objective  1  regions of the Community  is situated in essentially rural areas 
where  agriculture  and  forestry  constitute  the  main  land  use  and  play  a  major  part  in  income 
generation  and employment.  In most of  the Objective  1 areas, other sectors of the economy  are 
underdeveloped  and  agriculture  constitutes  an  important  source  of  private  sector  employment 
in rural  areas  (about  15 % of  employment  in agriculture). 

502.  Measures  for the development  of these  regions are deployed  through Community  support 
frameworks  or  single  programming  documents  with  funding  being  provided  for  a  range  of 
instruments  by  the  three  Structural  Funds  and  the  FTFG  through  integrated  development 
programmes. Amongst other development  measures, the instruments for  rural development and 
agriculture  mainly  take  the  form  of  multi-fund  integrated  packages.  They  aim  to  diversify 
agriculture  and  extend  the  range  of  economic  activities,  which  at present  is over-dependent  on 
agriculture. 

503.  Since 1994 Objective 5(a) measures have been integrated into these programmes, providing 
close  coordination  and  synergy  with  other  measures.  In  some  Member  States  compensatory 
allowances  paid  in less-favoured  areas play  a major  role in the Community  support  framework 
or single programming document, limiting the possibilities for funding  other measures of a more 
developmental  type. 

RURAL  DEVELOPMENT 

119 

Objectives  1 and 6 -  1994 to 1999 
Single  programming  document  (SDP) or operation programme  (OP) 
(as at  1 September  1997) 

Number of 
SPDs or 
OPs 

Structural 
Funds 
ECUm 

ERDF 

ESF 

EAGGF 

RFC 

ECUm 

* 

ECUm 

% 

ECUm 

% 

ECUm 

% 

1 
6 
14 
14 
6 
3 
10 
1 
1 
5 
1 
1 
3 

730.0 

515.9 

70.7 

166.7 

13  640.0 

13  980.0 

26  300.0 

2  190.0 

5  620.0 
14  860.0 

150.0 

165.6 

6  820.0 

50.0 

4  092.0 

9  489.5 

67.9 

2  560.5 

15  944.2 
1  194.9 

2  562.0 

60.6 

6  047.0 

54.6 

45.6 

525.5 

1  953.0 

9  660.0 

65.0 

2  739.0 

80.0 

107.7 

53.3 

65.0 

40.0 

33.1 

13  980.0 

8  723.9 

62.4 

3  148.7 

459.9 

252.0 

172.5 

122.6 

2  359.8 

1  331.8 

37.5 

48.7 

56.4 

105.8 

63.9 

747.2 

22.8 

30.0 
18.3 

23.0 

24.0 

34.8 
18.4 

26.7 

20.0 

22.5 

23.0 
25.4 

31.7 

47.0 
2  644.5 

1  800.0 

3  313.8 
431.4 

1  058.0 

2  228.0 

21.5 

24.8 

I  894.2 

177.6 
61.4 

245.9 

6.4 
19.4 

12.9 

12.6 

19.7 

18.8 

15.0 

14.3 

15.0 

13.5 

38.6 
24.4 

10.4 

0.4 
83.5 

130.0 

995.0 

38.2 

47.0 

233.0 
8.5 
0.0 
213.2 
4.0 
4.1 
34.9 

Total cost 

ECUm 

2  411.7 

58  466.8 

25  954.6 

47  702.8 
5  005.4 

10  383.2 

27  525.3 

958.7 

831.4 

26  713.4 

1  326.1 

635.0 

5  670.7 

213  585.1 

0.1 
0.6 
0.9 
3.8 
1.7 
0.8 
1.6 
5.7 
0.0 
1.5 
0.9 
1.6 
1.5 

1.9 

Member State 

Belgique/Be'.gie 
Deutschiand 

E U d f ia  (Ellada) 

Espafia 
France 

Ireland 
Italia 

Nederland 
Osteaeich  l 
Portugal 
Suomi/Finland  '2 
Sverige  '' 

United  Kingdom 

Total  EU 

66 

94  687.6 

56  725.1 

59.9 

22  222.4 

23.5 

13  948.1 

14.7 

1  791.8 

1  Since  1 January  1995. 
1  Objective  6. 

504.  Appropriations  for  Objective  1 account  for  almost  70 % of  all  appropriations  under  the 
Structural  Funds. Measures to improve rural areas are financed  in full  by the EAGGF Guidance 
Section  and  partially  and  to a limited  extent  by the other two Funds. 

505.  The  rural  development  policy  makes  a remarkable  contribution  to  improving  economic 
and  social  cohesion  in  non-urbanised  areas  which  are  of  particular  importance  in  the  regions 
qualifying  under  this  Objective. 

506.  The  good  results  achieved  from  the  implementation  of  operational  programmes  in  rural 
areas  and  in  particular  from  the  inclusion  of  Objective  5(a)  in  a  single  programming  and 
management  procedure  illustrate  the need  for  a stronger  rural  development  policy  in  Objective 
1 areas. 

507.  Following  the natural  disasters  in the Azores, more specific  problems  were identified.  A 
shortfall  of  appropriations  became apparent  in countries  like Greece  where  the  implementation 
effort  was particularly  rapid. 

508.  The conversion  of agriculture in the new German Lander has already shown good results. 
These  areas  are  now  among  those  with  the most  productive  levels  of  agriculture  in  the Union 
while at the same time protecting the environment and conserving the countryside. Considering 
the historical context and the need for social revitalisation, village development policy has proved 
the central  instrument. 

120  RURAL  DEVELOPMENT 

509.  The table on page  119 gives the breakdown  of the Union's contribution, by Member State 
and by Fund,  and  the total costs. 

Belgium 

510.  The EAGGF contribution, which accounts for only a small part of the total amount allocated 
under Objective  1  to Hainaut, continued without major difficulties.  Most of the expenditure was 
under the two horizontal Regulations (Regulations (EC) Nos 950/97 and 951/97) on socio-structural 
measures  and  aid  for  the agri-foodstuffs  sector. The more specific  rural development  measures 
are more complicated to implement and are designed to support farmers in their activities or help 
them diversify.  The prudent  management  of  this programme  is designed  to avoid  disturbances 
which could arise from  the Objective  1  rate of aid in this region as compared with  neighbouring 
areas. 

*' 

Germany 

511.  The main objective of the policy to promote agriculture and the countryside in the Objective 
1 regions of Germany is to create sustainable employment; it is also designed to stabilise the rural 
economy  and  improve  the environment. The programmes  have seen  a very  satisfactory  rate of 
utilisation of appropriations and the interim regional evaluation reports confirmed that the integrated 
approach  formulated  in the operational  programmes  was appropriate. 

Greece 

512.  The national programme  for agriculture, which qualified  for the CSF deflator  in  1995 and 
1996, continued  to make rapid progress, enabling the  1998 tranche  to be committed  before  the 
end of  1997. A new  amendment,  with  an increase  in the EAGGF amounts, came  into effect  on 
30 December  1997. 

513.  The rural  development  aspect  of  the regional  MOPs saw  very  variable  rates of  progress, 
but overall  a slight  improvement  was  noted  in the rate of implementation  of  measures. 

514.  The  measures  financed  under  Regulation  (EEC)  No 2019/93  (specific  measures  for  the 
smaller Aegean islands) have been fully operational since 1995. In 1996 the Commission prepared 
its first progress report, in accordance with the Regulation, on the first two years of implementation, 
giving details  on  the implementation  of  the various measures and  some requests  by Greece  for 
the adaptation  of  certain  schemes  to make  them  more  relevant. The  report  was considered  by 
the Council and transmitted to Parliament. The progress report on the third year of implementation 

is being prepared. An evaluation report will also be produced in 1998; in the light of the conclusions 
reached, changes  may  be proposed  if  appropriate. 

RURAL DEVELOPMENT 

121 

Spain 

515.  The assistance financed by the EAGGF Guidance Section in the Spanish Objective  1 regions 
is intended  to promote  rural  development  and  the  modernisation  of  agriculture. 

516.  The Commission adopted the following in the course of 1996: 'Development and economic 
diversification  of rural  areas', in June, for which the EAGGF contribution  amounts to ECU  170 
million,  and  the MOP  for  technical  assistance  for  the  updating  of  statistics,  allocated  ECU  15 
million  from  the EAGGF,  in  October. 

517.  Progress on the various operational  programmes can be described  as satisfactory  overall, 
although  the general  delay  in national  part-financing  could  make  it difficult  to finalise them in 
1999." 

France 

518.  Implementation "of  the  various  SPDs  seems  to  be catching  up  after  the  delays.  In  1996 
amending  decisions  were  adopted  to  take  account  of  the delays  and  relaunch  the  utilisation  of 
appropriations. Implementation of the programmes should be swifter  in  1997 as changes are made 
in the light  of  the mid-term  reviews. 

519.  The  part  of  the  Nord  department  eligible  under  Objective  1 (Hainaut)  is  experiencing 
difficulties  as regards  the utilisation  of appropriations, to the point  where a transfer  of  unusable 
appropriations  to measures  financed  by other  Funds  is under  consideration. 

Ireland 

520.  The  operational  programme  has  been  in  operation  since  1994, and  the  mid-term  review 
was completed  in  1997. 

521.  Additional  funding  of ECU  18 million was provided  for the control of farmyard  pollution 
and dairy hygiene  measures. 

122  RURAL DEVELOPMENT 

522.  The food  sub-programme, which is part of the industry operational  programme, was also 
examined as part of the mid-term review of that OP, and funding  for the programme was reduced 
by ECU 28 million  as a result of  the review. 

523.  The operational programme for local urban and rural development, which contains a measure 
for village renewal, was also the subject  of a mid-term review, but there were no major  changes 
recommended  for  this measure. 

Italy 

524.  Programmes  for  eight regions of  the Mezzogiorno  were  adopted  in  1994 and  1995. For 
these first two years expenditure went mainly  on transitional  measures put in place to  facilitate 
the switch from the old to the new system integrating Objective 5(a) into Objective  1 programming. 
These measures enabled the delay  which had built up in, for instance, payments of the subsidies 
under Regulations (EEC) Nos 2328/91 (first and foremost the compensatory allowance for  farmers 
in less-favoured areas) and 1204/82 (citrus fruit plan) to be caught up. The other support measures 
provided for in the programmes actually started up in 1996 and 1997 after a widespread  information 
campaign  which  was followed  by  the submission  of a large number  of  projects. 

525.  As  far  as  the  multiregional  programme  on  support  activities  for  services  involved  in 
agricultural  development  is concerned, the Ministry responsible continued the regular  financing 
of the activities of extension officers  and in June 1997 initiated the procedures for implementation 
of the research  measure. 

526.  The second multiregional programme for the development of southern lines of production 
was  adopted  by  the  Commission  at  the  end  of  1996. The  bodies  which  are  to  implement  the 
programme  were selected  in July  1997. 

Netherlands 

527.  A serious delay was noted in the implementation of some measures relating to the promotion 
of  new agricultural  activities, village renewal,  farm  tourism  and ecological  structures. 

528.  The amendments proposed  in connection  with  the mid-term review  should  help to speed 
up the implementation  of  the agricultural  and rural development  aspects  of the programmes. 

RURAL DEVELOPMENT 

123 

Austria 

529.  EAGGF assistance under the structural policy for Burgenland has had very positive  effects 
on the rural economy. According to the mid-term review, the operational programme is well adapted 
to the region's  needs. The  integrated  approach  for  improving  the economic  and  environmental 
situation  has highlighted  not only  an increase in productivity  but also better market  orientation 
of  production. 

530.  Utilisation  of appropriations  is  satisfactory. 

Portugal 

531.  The  implementation  of  the  four  multi-fund  programmes  adopted  in  1994  involving  the 
EAGGF Guidance Section  has on the whole gone according  to plan. 

532.  More  particularly  the development  programme  for  the autonomous  region  of the  Azores 
(Pedraa)  is  ahead  of  schedule:  the  1998 annual  instalment  was committed  in  1997. According 
to the mid-term  review,  the role of  the EAGGF Guidance Section  needs to be  reinforced. 

533.  The agricultural  sub-programme of the MOP for the modernisation of the economic  fabric 
has been implemented satisfactorily. Some development priorities may be redefined in the mid-term 
review. 

534.  A  fifth  multi-fund  programme  was adopted  on  28 July  1997  concerning  the  integrated 
development of the area of Alqueva (Pediza) with Community assistance of ECU 203.133 million 
allocated  to  it, of  which  ECU  70 million  is to come from  the EAGGF Guidance  Section. 

United Kingdom 

NORTHERN  IRELAND 

535.  All  measures  are  in  full  application,  with  the  exception  of  aid  for  the  food  processing 
industry, for which the UK Government has reduced its national co-funding. The sub-programme 
was subject  to  a mid-term  review,  and  several  recommendations  were made  to change  aspects 
of  the  programme.  Particular  attention  was  paid  to  the  problem  of  funding  of  aid  to  the  food 
industry. 

124  RURAL DEVELOPMENT 

HIGHLANDS  AND  ISLANDS 

536.  In  1997,  a  mid-term  review  was  undertaken  of  the  agriculture  and  rural  development 
measures, but  no major  changes  were  recommended. 

MERSEYS1DE 

537.  During the year  it  was decided  to reduce EAGGF funding  to ECU  1.1  million  following 
the decision of the United Kingdom Government not to provide further funding for the application 
of Regulation  (EC) No  951/97 (formerly  866/90). 

Most remote regions 

538.  These regions suffer  from  economic and social backwardness compounded  by permanent 
structural factors (remoteness, island status, limited local markets). In 1991 and 1992, in accordance 
with the declaration on the outermost regions of the Community annexed to the Treaty on European 
Union, the Community set up three programmes: Poseidom (for the French overseas departments: 
Martinique, Guadeloupe, French Guiana and Réunion), Poseima (for the Portuguese archipelagos 
of Madeira and the Azores) and Poseican (for the Canary Islands). These programmes are tailored 
to  the  specific  characteristics  of  each  region  and  cover  a  variety  of  sectors.  They  include  a 
substantial agricultural section comprising aids to supplement the CAP and specific aid for a wide 
range of products. These  measures  are financed  by the EAGGF Guarantee Section  and  fall  into 
two categories  (paragraphs  ^9  and  540). 

539.  Special supply arrangements: each year or marketing year, under the management committee 
procedure, the Commission  adopts  a forecast  supply  balance  for  the main agricultural  products 
for human consumption and local processing. Within the quantities laid down in the supply balance, 
products can be imported duty-free from non-member countries. An aid equivalent to the advantage 
of  exemption  from  import  duties  is  granted  for  imports  from  the  European  Union.  An 
interdepartmental  working  party  on  the  remote  regions  is  exploring  ways  of  improving  the 
effectiveness  of these arrangements, adjusting,  where necessary, the technical details of how the 
aid  is  calculated. 

540.  Supplementary production,  marketing and processing aid is granted for agricultural products 
from  these regions. 

541.  The  basic  Regulation  governing  the  agricultural  section  of  the  Poseidom  programme 
(Regulation (EEC) No 3763/91 ) was amended in November 1995 (by Regulation (EC) No 2598/95) 
following  the Commission's  report on the implementation  of the measures and at the request of 

,  the French  authorities. In  1997 the Commission  adopted  further  implementing  regulations. 

542.  Preparatory work is under way on the revision of the basic Regulations governing Poseican 
and  Poseima (Regulations  (EEC) Nos  1601/92 and  1600/92). 

RURAL DEVELOPMENT 

125 

Objective  6 

543.  The new structural policy objective  was created in connection  with the latest enlargement 
of  the  Union  at  the  beginning  of  1995. As  regards  the  system  of  granting  assistance  from  the 
Structural Funds, Objective 6 corresponds to the existing Objective  1 approach, though with slightly 
lower aid intensity  per capita. Some 50 % of the total  surface  area of Sweden  and 60 % of that 
of Finland  are designated  as Objective  6 areas. 

544.  Despite substantial efforts  being made to develop private and tertiary sector activity, these 
regions are dependent  in the long  term  on public  support  on  account  of  the very  harsh climate 
and the extremely low population density. The principal objective of Community structural policy 
in these areas is to prevent depopulation and improve rural living standards. In addition, emphasis 
is put on increasing the value added to raw materials obtained from the region by processing them 
within  the region  and  on measures  to make better  use of local  potential. 

545.  In Objective 6 areas, with their harsh climatic conditions, payments for less-favoured  areas 
form  a key  element.  This  is understandable  as  agriculture  and  forestry  are core  activities. The 
goals to increase on-the-spot processing and make better use of indigenous potential are advancing, 
even  though  the pace could  be  faster. 

Finland 

546.  The  bulk  of  EAGGF funding  is devoted  to compensatory  allowances, although  the part-
financing rate for  this scheme is relatively  low. In addition there are measures for improving the 
efficiency  of agriculture and the food processing industry. Despite the delayed start of the specific 
rural package, more  than  300 development  plans funded  by the EAGGF and creating some 350 
new jobs  have  already  been  accepted  under  this  scheme. This  is crucial  for  the area, since the 
overall programme has neither succeeded in preventing the rapid fall  in the number of farms nor 
has it managed  to create enough jobs  outside  agriculture. Limited  funding  allocations  for  rural 
development  have  been  partially  offset  by a nationally  funded  compensation  package. 

Sweden 

547.  With  the help of EAGGF-funded  development  projects  launched  during  1996, some  300 
jobs  will be either created  or  safeguarded. 

126  RURAL  DEVELOPMENT 

National aid 

548.  Under Article  142 of  the Act of Accession, Finland and Sweden  may, with  authorisation 
from  the  Commission,  continue  to  grant  the  long-term  national  aids  for  agriculture  in  their 
northernmost  areas  which  applied  before  accession  to  the  European  Union.  However,  this 
authorisation  is  subject  to  the  condition  that  the  volume of production  and  the intensity  of the 
aid do not increase. By its decisions of 4 May  1995 in the case of Finland and 28 February  1996 
in the case of Sweden, the Commission approved these aid schemes, which apply from  1 January 
1995 in the areas concerned  (normally  north of the 62nd parallel). These areas cover 55.5 % of 
the utilised agricultural  area of Finland and  14 % of that of Sweden. In response to duly justified 
requests from the two Member States, the Commission amended the relevant decisions on 4 April 
and  17 July  1997 for  Finland  and  Sweden  respectively. 

549.  The Commission has produced the 1995 report on the implementation of this aid in Finland 
and presented  it to the Council  for consideration. The report on the situation  in Sweden is being 
prepared. 

Objective  5(b) 

550.  The  activity  of  the monitoring committees, which  were already  in operation  in  1995 and 
1996, intensified  in  1997. 

557.  The  monitoring  committees  are responsible  for overseeing  measures part-financed  under 
Community  programmes.  Each  committee  is chaired  by  a representative  of  the  Member  State 
concerned  and  made  up  of  representatives  of  the  authorities  involved  in  part-financing  and 
sometimes  representatives  of  economic  and  social  circles.  Where  appropriate,  the  monitoring 
committees  propose  major  amendments  to programmes. 

552. 
In  1997, the main  activity of the monitoring committees  involved  preparing and  carrying 
out mid-term  reviews. This provides  the committees  with a vital  tool  for  assessing  the possible 
effects  of measures under way and as far as possible ensuring the maximum  impact, particularly 
with regard  to creating  and  safeguarding jobs. It is aimed  above all, in accordance  with Article 
130a of the Treaty,  to narrow  the gaps between  rural  areas and the rest of  the territory  in terms 
of  the  level  of development  (income  and employment)  or at the very  least  not to widen  them. 

553.  The various committees selected assessors and approved the specifications  for  the reports 
to be drawn  up. In all cases the committees selected external assessors via a tendering procedure 
designed to enhance the credibility of the reports to be discussed and approved by the committees. 
Contracts have been concluded for 83 evaluation reports, often accompanied by additional specific 
and  sectoral  studies. On  the  basis of these reports, a large number of  committees  have  already 

RURAL  DEVELOPMENT 

127 

proposed amendments to programmes. A total of 61 amendment decisions were discussed and 
approved in 1997. 

554.  The mid-term review exercise proved not only important but also difficult.  Some Member 
States which had previously not introduced this practice had to overcome additional problems, 
leading to delays. The results nonetheless confirmed  how useful the method was in enabling the 
monitoring committees to consider the best way of improving the results achieved  by the end 
of programmes. 

Summary  table showing the funding  of Community  Objective  5(b) SPDs for  1994-99 

(ECU  million)  ' 

Member  State 

SPD 

Total 
Structural 
Funds 

EAGGF 

ERDF 

ESF 

Total  public 
expenditure' 

Total  c o s t' 

BelgieTBelgique 
Danmark 
Deutschland 
Espafia 
France 
Italia 
Luxembourg 
Nederland 
Osterreich 
Suomi/Finland 
Sverige 
United  Kingdom 

Total EU 

• 

3 
1 
8 
7 
21 
13 
1 
5 
7 
2 
5 
11 

84 

78.1 
54.0 
1 240.8 
676.2 
2  250.9 
904.3 
6.0 
150.0 
411.0 
194.0 
141.0 
820.5 

23.8 
21.6 
527.8 
423.4 
1  010.9 
411.1 
2.2 
50.6 
164.2 
66.7 
40.2 
151.2 

41.1 
21.6 
479.5 
163.1 
945.9 
370.6 
3.1 
81.8 
175.0 
94.5 
70.6 
535.0 

13.2 
10.8 
233.5 
89.7 
294.1 
122.6 
0.8 
17.6 
71.8 
32.8  , 
30.3 
134.3 

183.1 
112.2 
5 072.1 
1 336.0 
4  952.0 
2  247.5 
20.5 
510.6 
1 089.5 
457.1 
447.7 
1 763.4 

266.2 
202.3 
7  588.4 
1 838.5 
7  948.7 
4  700.6 
25.5 
595.4 
2 679.9 
624.0 
727.1 
I 972.1 

6  926.7 

2  893.6 

2 981.6 

1  051.5 

18  191.6 

29  168.7 

' Current prices. 
2 Including  Member  States'  financial  contributions. 
'  Including  funds  from  private  sources. 

555.  As far as the purely financial execution is concerned, all the competent authorities for each 
Structural Fund had already undertaken payment substantiation procedures in the first  year of 
application of each programme (as a reminder, a large number of the programmes (30) had been 
approved during the second half of  1995 (1996 in the case of Sweden)). 

55f5.  Whereas 1996 was the first year of full implementation for all the programmes, 1997 was 
the year of checks on execution for many of the regions covered by Objective 5(b). The economic 
and financial  situation sometimes led to tighter budget discipline and made difficulties  for the 
authorities responsible for the national or regional part-financing accompanying the Community 
contributions. This situation was one of the factors causing additional delays (in the case of the 
United Kingdom) or creating delays where none had existed before (some regions of Spain). The 
Community method of payment requires that for each annual instalment the Member State provide 
the Commission with evidence of payments made to the final beneficiaries  of the programmes 

128  RURAL  DEVELOPMENT 

in order to obtain  advances  for  each  following  annual  instalment. It goes without  saying  that in 
the case of  the programmes  started  late the commitments  for  1997 were delayed. 

557.  Overall,  however,  expenditure  on  the  programmes  got  going,  and  the  Community 
commitments  actually  increased  more than proportionally  compared  with the early  years of  the 
programmes, which had  been difficult  on account of delays in the approval of the SPDs. Many 
regions proved that it was possible, even in programmes relating to economically vulnerable areas, 
to maintain  a  satisfactory  rate  of  expenditure.  Several  regions  managed  to advance  as  regards 
commitment of the budget tranche for  1998. Some of the initial delays were made up in this way, 
for instance in some regions of Spain and in Germany; in other cases there were still delays but 
the rate appeared  satisfactory  (e.g. in France). 

558.  A  continued  effort  needs to be made for  the rest of the period. It is an important  issue  to 
be tackled with the Member States, particularly in view of the possible difficulties  in some Member 
States of ensuring  part-financing  of the measures provided  for  in each SPD. 

559.  Finally, some Member  States seem to have specific  difficulties  which the Commission  is 
looking  into within  the partnership  framework. 

Belgium 

FLANDERS 

560.  The  two Flemish  programmes  for  the period  1994 to  1999 (Meetjesland  and  Westhoek) 
have the general  aim  of  increasing  and  maintaining  agricultural employment,  improving  living 
conditions  in  villages  and  diversifying  agriculture  and horticulture. * 

561.  These programmes lay particular emphasis on the integrated approach to rural development, 
based on the idea that land use must be seen from a global perspective highlighting the comparative 
advantages of individual  areas. Tourism is regarded as a key to the development of these regions, 
while at the same  time efforts  are being made to attract  businesses. 

562.  Some environmental  measures are being undertaken  under the two Flemish  SPDs. These 
relate  primarily  to  the  establishment  of  an  environmental  coordination  and  support  centre  for 
businesses and  an environmental  evaluation  of the businesses in the region. 

563.  The monitoring committees  both met twice in  1997. They noted  that progress was rather 
slow outside the strictly  agricultural projects. The main reason for the delay was that there were 
problems with part-financing  from  the Flemish Government. Only the  1994 budget tranche had 
been committed  for  the three Funds. Payments of the Community contributions  were limited  to 
the first 1994 tranche  (second  1994 tranche for  the EAGGF). 

564.  A series of proposals for amendments to the programmes was put forward. The Commission 
is considering  how the SPDs  need  to be amended  on  the basis of  the mid-term  reviews, so any 
changes to the Flemish  SPDs should come about  in the second  half  of  1998. 

RURAL DEVELOPMENT 

129 

WALLONIA 

565.  Implementation  of  the Objective  5(b)  SPD  for  Wallonia,  which  had  been  rather  slow in 
1996, made significant progress in 1997: nearly 47% of the Community appropriations have been 
committed  since the beginning  of  the  1994-99 programming  period. Programming  can  thus be 
said  to be good on  the  whole, but efforts  need  to be made to speed  up progress  on  the  ground 
once the administrative  side has been  completed. 

566.  A  priority  target  is the forestry  industry -  given  the potential  it represents  for  the region 
-  for  which  Structural  Fund  assistance  has  been  granted  for  projects  ranging  from  increasing 
awareness  among  the  public  and  owners  to  primary  processing  and  including  aid  for  good 
sylvicultural management of large wooded areas. The main aim is to reconcile the'main  functions 
of the forest, i.e. wood production, tourism and its ecological and environmental role. More active 
support needs to be given to the sub-measure concerning  the planting and upkeep of hedgerows, 
which  has had some  teething  troubles. 

567.  As  far  as  agriculture  is  concerned,  the  main  thrust  is  diversification,  together  with 
encouragement  of traditional  lines of production,  with  the emphasis on  improving  quality. 

568.  The  Objective  5(b)  monitoring  committee  for  the region  of Wallonia  met  twice  in  1997. 
It noted a favourable  budget situation for the EAGGF and the ESF (commitment of the first three 
tranches for the EAGGF and the first four  for the ESF) but some delay in the case of the ERDF 
(only  the first tranche  had  been  committed). 

569.  The monitoring committee, in the light of the outcome of the evaluation exercise, is making 
changes to the programme, mainly to enable the delays with regard to the ERDF to be dealt with. 

Denmark 

570.  The Danish Objective 5(b) areas cover 19.6% of the total territory and 7% of the population. 
The programme has a total budget for the period  1994-99 of 202 ECU million (1994 prices). The 
main objectives  are the creation  and  safeguarding  of  permanent  employment  opportunities  and 

130  RURAL DEVELOPMENT 

the improvement  of  income  levels  in  the  areas  concerned,  while  at  the  same  time  paying  full 
attention to the protection and improvement of the environment. There are three major development 
priorities: diversification and protection of the environment in agriculture and forestry, development 
of  small and medium-sized  enterprises  and development  of  tourism. 

571.  The programme monitoring committee met on 12 June 1997. The main point on the agenda 
was the mid-term  review. According  to the report,  progress  was satisfactory  given  the delayed 
start  of implementation.  However,  in order  to achieve  the objectives,  it  would  be  necessary  to 
promote some of the slower measures more actively. As an example of successful active promotion 
of measures, the evaluation  report mentioned the results which had been obtained  in the county 
of  S0nderjylland  in  the  field  of  conversion  of  traditional  agricultural  production  to  organic 
production. The efforts  had resulted in a large number of projects  which contributed to the main 
programme objectives of ensuring economic viability for the population in the area and protecting 
and improving the environment. The evaluator saw no need for modifications  of the programme 
structure at the present  stage, but recommended  that the situation  be reviewed  in  1998. Despite 
a strong demand  for extra resources for some of the measures, the Committee decided to follow 
the evaluator's recommendations.  It  was also  decided  to postpone  a decision  on  the  allocation 
of the indexation  resources  until  1998. 

Germany 

572.  Under Objective 5(b) eight different regional programmes in Germany, with total investments 
of ECU 5 200 million, are being part-financed  by the Commission,  including  ECU 523 million 
from  the EAGGF,  ECU  475 million  from  the  ERDF and  ECU  231 million  in  ESF funds.  The 
programmes  cover  17 % of the total  area of Germany  and 9.7 % of  its population. 

573.  At various  meetings of the monitoring  committees, modification  decisions were taken in 
the partnership  framework  in order to ensure  smooth  implementation  of  the programmes. They 
included reallocations of yearly tranches within sub-programmes and reinforcement of  successful 
measures. The results  of  the mid-term  evaluations  underline  the  fact  that  rural  development  in 
Germany  is playing  a dominant role in German  regional  policies and that the 5(b)  programmes 
contribute  best  to promoting  these policies  and  the development  of rural  areas. 

574..  Overall,  progress  is  very  satisfactory,  especially  in  those  Lander  where  rural  areas 
predominate. Schleswig-Holstein, Bavaria, Baden-Wurttemberg and Lower Saxony have readjusted 
their initial rhythm, and spending has accelerated. They have applied for  the commitment  of the 
1998 tranche in order to keep up with implementation  progress. Thanks to the experience gained 
during  the  period  1989  to  1993  the  programmes  also  succeeded  in  better  integrating  human 
resources policies  in rural  development  efforts. 

RURAL DEVELOPMENT 

131 

Spain 

575.  The Spanish Objective  5(b) programmes continued to make satisfactory  progress in 1997, 
both from  the financial  point of view and as regards actual execution; at the end of the year, the 
seven  Objective  5(b) regions  had committed  the  1997 tranche  for  the three Funds  and  in  some 
cases (Navarre, Aragon) brought forward the 1998 commitment; several regions are already starting 
to use up the appropriations  allocated  to certain measures; in the case of the Navarre  European 
pilot programme,  all  the  appropriations  will have been spent by the beginning of  1999. 

576.  The monitoring committees for the seven regions reviewed progress made during the period 
1994 to 1996 in the light of the results of the mid-term review. The reports studied paint a generally 
positive picture of the impact of these programmes, while at the same time suggesting  possible 
improvements  in  coordination  between  the  bodies  managing  the  various  measures  and  in  the 
dissemination  of  information  to those participating  in rural measures. The evaluators  called  for 
a greater effort  in the implementation of the ESF section, particularly with regard to the integration 
of measures to make better use of human resources with the other schemes under the programme. 

577.  In the light of progress between  1994 and  1996 and the mid-term reviews, several  regions 
proposed a shift in the balance between the measures and development priorities initially approved 
in  1994 to improve  the chances of achieving the objectives  of the programmes. After  study and 
approval by the monitoring committees, these changes, together with the use of the deflator, were 
endorsed  by Commission  decision. 

France 

578.  In  the course of  1997, the Objective  5(b) monitoring committees concentrated  mainly on 
studying  the  interim  assessment  reports  which reviewed  the  implementation  and  impact  of  the 
programmes.  There  were  as  yet  no  impact  indicators  available;  several  SPDs  were  adjusted, 
however,  in  the  light  of  the assessment  exercise. 

579.  Despite  the delay  in the approval  and launch of the programmes, the rate of progress  was 
satisfactory  overall,  generally  in line with the annual schedule. 

580.  In some areas not previously classified  (in particular Upper Normandy and four of the five 
departments  of  Pays  de  la  Loire),  the  operational  implementation  of  the  programme  and  its 
administrative and financial  management encountered difficulties  because of the lack of previous 
experience on the part of managers, project leaders and awarding authorities, leading to inevitable 
delays. These  problems  affecting  those responsible  for  the programmes  inevitably  delayed  the 
implementation of the programme. The setting-up of the national technical assistance programme 
in  1997  should  go  some  way  towards  rectifying  the  imbalance  between  regions,  improving 

132  RURAL  DEVELOPMENT 

harmonisation  in the management  of programmes  and facilitating  the task of those responsible, 
by means  of  training  schemes,  exchanges  and  transfers  of  information  and  experience,  and  by 
the selection of a high-performance  computer system making for compatibility between regions. 

581.  Schemes  relating  to  the  quality  of  agricultural  products  feature  in  virtually  all  the 
programmes: for instance in the SPD for Provence-Alpes-Côte d'Azur, with collective measures 
upstream  and  downstream  of  all  the  agricultural  industries  with  a view  to quality  certification 
of products, in Burgundy  with the development  in  1996 of a programme of contract  production 
of quality beef  to encourage  breeders to become fatteners or in some cases to return to  fattening 
or there again in Lower Normandy where efforts are being made to enhance the Norman credentials 
of herds. 

582.  There  are  often  difficulties  in  setting  up  economic  operations,  particularly  in  the  agri-
foodstuffs  industry, on account of the small  number of project  leaders in the countryside. Some 
regions, e.g. Burgundy,  Franche-Comté  and Limousin, on the other hand, have successfully  set 
up projects  for  the use of  wood  as fuel  or wood  processing  to enhance the value of local  forest 
resources. 

583.  In the field of tourism, the majority  of the numerous operations tend to be rather scattered 
and face coordination problems in bringing together the necessary equipment, village development 
and operational  structures. The situation  is similar  with regard to the development  and renewal 
of villages, repairs to individual public buildings often taking precedence over global development 
projects which for small communes are complex to design and implement. There are nonetheless 
some large-scale  projects  involving  an overall  theme such  as the Celtic civilisation  itinerary  in 
Burgundy. 

584.  The  protection  and  enhancement  of  the  natural  heritage  constitute  another  fundamental 
objective for some programmes, including that in Midi-Pyrénées, with the financing of coordinated 
action  on  vulnerable  ecosystems,  e.g.  in Lower  Normandy,  with strong emphasis  on action  for 
the protection  of water  resources  and  river development,  and in Brittany, with the  development 
of major  natural heritage sites. The schemes planned are sometimes reinforced  or adjusted  in the 
light of  local  issues, e.g.  action  to tackle pollution  from  agriculture and restore  water quality in 
Brittany, the inclusion  of  new  types of scheme for  the treatment of agricultural  waste in Centre 
and  the utilisation  of the deflator  appropriations  to meet major  waste management  policy  needs 
in Limousin. 

585.  Some programmes have successfully  put into practice an approach based on involving and 
giving  responsibility  to local  participants. This  is the case  in particular  in Rhône-Alpes,  Midi-
Pyrénées  and  Burgundy,  whose  Objective  5(b)  area  is subdivided  into seven  mini-regions;  its 
SPD thus has an unusual  three-tier implementation  structure (region -  department -  coordinated 

regional development programme  for each mini-region) depending  on the field concerned. This 
method  has encouraged  integration  and  offers  the prospect  of  development  at local  level  while 
enabling  a broadly-based  project  to emerge. 

RURAL DEVELOPMENT 

133 

Italy 

586.  Generally  speaking, the implementation  of the programmes  has confirmed  the validity of 
the strategies  decided  on  when  the programme  was  adopted.  The  collective  approach,  whether 
with a territorial  or  sectoral  slant, has been  followed  in farm  investments,  which  has  amplified 
the territorial impact of the schemes. In Veneto, for instance, coordinated investments have absorbed 
between  60  and  80 %  of  the  resources  allocated  for  improving  and  diversifying  agricultural 
production. 

587.  Increasing attention has been paid to measures to support employment. The Tuscany regional 
programme  incorporated  new  employment  aid  schemes  (aid  for  taking  on  labour,  setting  up 
businesses, etc.). The protection and improvement of the environment have been given particular 
prominence  in the province of Bolzano, where 37 Alpine refuges  and  several hundred  livestock 
farms  have  received  aid  for  various  types of  investment  for  environmental  purposes. 

588.  The monitoring committees for the  13 regions involved met regularly during the year and 
the  interim  assessment  is  nearing  completion.  There  is  still  a  delay  in  the  financing  of  the 
programmes, mainly as a result of the complexity of the implementing procedures, which  affects 
payments above all. The acceleration expected in 1997 was seen principally in those regions which 
qualified  under  Objective  5(b)  in  the  previous  programming  period  (1989  to  1993), while  the 
regions  benefiting  for  the first time continue  to show  the greatest  delays. 

Luxembourg 

589.  The programme has three priorities: to stimulate agriculture and forestry paying due attention 
to the environment, creating and maintaining permanent jobs and investment in tourism and quality 
of  life. 

590.  After  a considerable delay  in implementing  the programme, there were indications at the 
second meeting of the monitoring committee in the middle of  1997, of a will to get the monitoring 
exercise properly  under  way. 

591.  The rate of utilisation per Fund, based on payments, improved 46.3 % for the EAGGF and 
30.2 % for  the ESF and  a rather low  22.5 % for  the ERDF. Some EAGGF measures relating to 
the development  of  the  Our  nature  reserve, protection  of  the  environment,  maintenance  of the 

134  RURAL DEVELOPMENT 

countryside and the creation of tourist accommodation on farms have yet to be taken up by project 
leaders. 

592.  The monitoring committee agreed that there would have to be a shift of emphasis for some 
measures in  1998, on the basis of  the interim  report, due to be approved  early  in  1998. 

593.  The monitoring committee decided to alter the financing plan, and the Commission approved 
the carry-over  of unused  appropriations  to the  1997,  1998 and  1999 tranches. 

Netherlands 

594.  The  main  priorities  of  the Objective  5(b)  programmes  in the Netherlands  are to  support 
economic activities and improve the environment, to ensure sustainable development of the region 
by means of improving  the quality of the economic structure  in order to maintain  or if possible 
improve the level of employment  and  income  and  the quality of the natural  environment. 

595.  The provinces of Friesland, Groningen/Drenthe, Overijssel and Limburg are concentrating 
in general on the creation of new businesses, tourism and the development of the landscape, while 
Zeeland  places particular  emphasis  on the diversification  of  agriculture. 

596.  The  meetings  of  the  five  monitoring  committees,  which  are  held  twice  a  year,  were 
satisfactory. 

597.  The  interim  assessment  of each  programme  was presented  and approved  during  the first 
half  of  1997. The  vast  majority  of  project  leaders  said  that  their  projects  could  not  have  gone 
ahead without the Community contribution  and that the aid had speeded  up implementation  and 
enabled a wider-scale approach to be taken. The results of the evaluation reports made it possible 
to pinpoint  what adjustments  needed  to be made. 

598.  The  implementation  of  these  programmes  is progressing  satisfactorily.  Some  41.5 % of 
the appropriations allocated for the entire programming period, 1994 to 1999, for all the Objective 
5(b) regions  in  the Netherlands  have  been  committed  and  28.9 % of  the  payments  made. The 
breakdown  of commitments by Fund  is roughly  52.2 % for  the EAGGF, 40.3 % for  the  ERDF 
and  16.5 % for  the ESF, and payments represent 40.7 % for  the EAGGF,  26.7 % for  the ERDF 
and  10.1% for  the ESF. 

599.  Monitoring of the physical  and financial  execution  of projects can  be said to be good on 
the whole  for  all the 5(b) regions in  the Netherlands. 

RURAL DEVELOPMENT 

135 

600.  The environment  component is quite strongly represented  in the Dutch programmes. The 
largest  share  of  appropriations  for  environmental  schemes  is accounted  for  by the province  of 
Friesland, for nature protection schemes and measures to encourage farmers to use environment-
friendly  farming  methods. The province of Groningen/Drenthe is devoting  12 % of  funds  to the 
protection  of  the  environment,  forests  and  the countryside  under  projects  for  improving  water 
quality, the development  of a nature reserve and  the relocation  of certain  farms. 

601.  As regards information  and publicity, Objective 5(b) programmes in the Netherlands need 
to be more  transparent.  An  information  and publicity  campaign  is to be  implemented,  targeted 
at  private  beneficiaries,  and  there  are  also  plans  to  extend  membership  of  the  management 
committee  to representatives  of organisations  other  than  public bodies. 

Austria 

602.  The seven Austrian 5(b) regions cover about 60 % of the total area of the country and 29 % 
of its total population. Total investment amounts to ECU 2 700 million, of which ECU 411 million 
are contributed  by the Commission. During the early years programmes mainly concentrated on 
the creation  of  implementation  structures. The  authorities  had  to make  considerable  efforts  to 
adapt to Community  structural  funding. Consequently, the financial  progress of the programmes 
has still not made  up the delay of the first programming  year (Commission  decision:  December 
1995), although ESF appropriations have already been allocated for 1997 to Upper Austria, Salzburg 
and  Styria. 

603.  In  order  to  speed  up  implementation,  the  monitoring  committees  decided  that  some 
amendments needed to be made to programmes, including reallocation of ESF funds and  adjustment 
of  State  aid  schemes  which  form  an  integral  part  of  the programmes. Considerable  effort  was 
concentrated on the mid-term evaluations, preliminary results of which will be available in March 
1998. 

Finland 

604.  Finland's  Objective  5(b) area covers a population  of  1.1  million,  a fifth of  the  country's 
total,  and  one  quarter  of  the  total  surface  area. The  Objective  5(b)  area comprises  14 regions 
situated in Central and Southern Finland and the Aland Islands. The area is very sparsely populated, 
having a population  density  of  11.5 persons per square kilometre. The primary sector still plays 
a  major  role, accounting  for  an average of  over 20 %, the figure  varying  significantly  between 
regions, up  to  as  much  as  30 % in some. Structural  changes  in the primary  sector  thus  have a 
major  impact  in  such  regions. The  total  cost  of  the Objective  5(b)  programmes  for  the  period 
1995 to  1999 is ECU  624 million,.of  which the EU contribution  is ECU  194 million. 

136  RURAL DEVELOPMENT 

605.  The programme  is managed  at regional level. In  1995 a regional  management  committee 
was established  in each  region, consisting of representatives of different  administrative  sectors, 
local  authorities  and  rural  development  experts.  The  Regional  Councils  are  coordinating  the 
programming  work  and  looking after  coordination  with regional  strategies. In order to  simplify 
regional administration, the district offices  of the Ministry of Agriculture, the Ministry of Trade 
and  Industry  and  the  Ministry  of  Labour  were  brought  together  within  a single regional  body. 
This new administrative structure was launched in September 1997. This simplification  is expected 
to improve  the  implementation  of  the  Structural  Fund  policies  and  the regional  partnership  in 
future. 

606.  The aims of the Finnish programmes are to diversify and strengthen small and medium-sized 
enterprises,  to develop  services  in  the countryside  and  to make rural  areas more attractive. An 
important objective is also to help the adaptation of rural areas to the common agricultural policy 
and  to diversify  on-farm  and  off-farm  activities.  The  structure  of  the  primary  sector  is  to  be 
improved by developing new quality products and strengthening the cooperation between  farmers 
and other rural  entrepreneurs. 

607.  In  1997 the work of the monitoring committee was focused  on finding  means of speeding 
up  the  implementation  of  the  programme  and  improving  the  monitoring  system.  To  improve 
implementation, the Finnish authorities employed additional project leaders, improved information 
and  publicity  campaigns  and  established  nationally  funded  local  initiative  groups  to  activate 
projects. 

608.  The evaluation report was submitted in the autumn, indicating improvement in partnership 
and in project activities. The report also indicates the need to improve the administrative structures 
of  the programme  as  well  as clarifying  the role of  the regions. 

609.  One finding of  the study  is that the regional  disparities seem  to be increasing  in  Finland, 
i.e. the rural regions are losing their status in terms of population compared with the other Finnish 
regions. 

610.  The  Commission  has  made  it  clear  to  the  Finnish  authorities  that  it  is concerned  about 
insufficient  monitoring and spending capacity. Despite this, there have been positive experiences 
in  Finland.  Several  local  development  projects  aiming  at diversifying  the economic  structure, 
creating  new jobs,  developing  local  services  and  remedying  environmental  defects  have  been 
launched (Southern Ostrobothnia). In other cases efforts have been made to promote the processing 
of primary  products  (wild  berries, mechanical  wood processing) and  to develop cultural  events 
based on Karelian and  Orthodox  culture (Savo region). Many Finnish regions are implementing 
projects  targeted  at  networking  rural  enterprises  and  thus  increasing  their competitiveness  and 
reducing  the negative effects  of  remoteness. 

RURAL DEVELOPMENT 

137 

Sweden 

611.  The  implementation  of  the  SPDs  in  the  five  Swedish  5(b)  regions  (approved  by  the 
Commission  on 8 May  1996) started  in reality  in autumn  1996. For this new Member  State the 
introduction  of  the Structural  Fund  system  meant  the creation  of new administrative  structures 
which  took  some  time  to  handle.  This  explains  the  slow  start  in  the  implementation  of  the 
programmes. However, a remarkable speed-up in implementation developed during the first half 
of  1997 in  most  regions,  and  the  forecasts  indicate  continued  progress. Initial  problems  of  an 
administrative nature also characterised the payment situation, but delays are expected to be caught 
up as commitments  have  been  speeded  up and procedures  improved. 

612.  The  mid-term  review  exercise  for  the five programmes  was completed  in autumn  1997. 
As a whole,  the programmes  remain  valid,  and  no major  amendments  are expected.  However, 
it was noted that the cuts in public budgets may make the national part-financing  of projects more 
difficult  in the future. The general development of the employment situation may make it difficult 
in some regions to reach the employment  targets of the programmes. The  initial  administrative 
problems were also noted, and the need to take action to speed up the implementation of measures 
on which progress has been  slow. 

United Kingdom 

613.  The  11 programmes  have taken  an integrated  approach  to the development  of  their rural 
areas. Agriculture  and environmental  development  actions are linked  wherever possible to the 
development  of other sectors  in the local  economy. 

614.  The interim evaluation exercise for all 11 programmes is almost complete. The results suggest 
that the initial  strategies  and  financial  allocations between  the different  priorities  in each  of the 
programmes remain valid and in only a few cases are amendments proposed to the financial plans. 
The  studies  have pointed  out  that  a greater  degree  of  rigour  is required  in  the monitoring  and 
assessment  of  results,  and  the  recommendations  have  been  incorporated  in  the  programme 
management  systems. 

615.  The apparent lack of national part-financing for agricultural diversification  and farm tourism 
is a particular problem  for  the EAGGF in rural Wales, where it is possible that around  one third 
of the allocation  could  remain  unused. 

616.  Despite certain  reservations  in the evaluations over the reporting  of  some of the  forecast 
results, it is likely  that the job creation  targets in the programmes  will  be exceeded. 

138  RURAL DEVELOPMENT 

617.  Financial progress continues to be slow under all of the Funds. This masks a much greater 
degree  of progress  in  terms  of  allocations  to projects  which  for  the  EAGGF is  up  to  70 % of 
programme  resources  in some regions; these projects  have to be completed  and final payments 
made. Good progress is being made in Scotland and Wales, where great emphasis has been placed 
on promoting  EAGGF-assisted  environmental  investments. 

Community  Initiatives (CI) and Innovative  Measures 

Leader 11 

618.  The  Leader  Community  Initiative  supports  rural  development  projects  -  designed  and 
managed  by  local  partners  in  a  rural  environment  -  that  put  the  emphasis  on  innovation, 
demonstration  and  transferability. 

619.  Leader II, which, as its name implies, follows on from Leader I, is based on three priorities: 

- 

- 

- 

support  for  transferable  innovative  projects  that  demonstrate  new  approaches  to  rural 
development; 

support  for  exchanges  of  experiences and  the transfer  of  know-how; 

support  for  cross-border  cooperation  projects. 

620.  By the end of  1995 the Commission  had approved  67 Leader II programmes, a further  31 
programmes  being approved  by 31 December  1996. The final four programmes  were  approved 
in  1997. The  appropriations  available  total  about ECU  1.7  billion. 

621.  The situation  in each  Member  State is as  follows: 

Belgium 

622.  The Leader II programmes introduced on 24 October  1994 for Meetjesland  and Westhoek 
were discussed and revised at length. The Commission's concern was to ensure that the programmes 
featured  the  essential  components  of  the CI,  in  particular  a  definition  of  the  recipients  of  the 
Community  aid  (local  action  and  collective  groups)  and  complied  with  the  principle  of 
concentration, the aim being to guarantee the impact of the programmes. The latter were approved 
on  12 December  1997. 

623.  The Leader JJ programme for Hainaut province was adopted on 8 July 1997. The contribution 
from the Community is ECU 4.1 million (ECU 1.9 million from the EAGGF and ECU 2.2 million 
from  the ERDF) out of  a  total, both public and private, of ECU 9.3  million. 

RURAL DEVELOPMENT 

139 

624.  On 19 June 1997 the Commission adopted a Leader II 5(b) programme for Wallonia featuring 
a Community allocation of close to ECU 3.3 million. The emphasis of the programme is on support 
for  the  creation  of  local  action  groups  that  can  put  forward  and  implement  innovative  local 
development programmes. The time taken by the Commission  to adopt a decision is attributable 
to the novel  nature of  the measure and the fact  that the latter covers all sectors of the economy 
and puts official  development  support  structures  at the service of  local  groups. 

Denmark 

625.  The  Danish  Leader  II  programme  has  a  total  budget  for  the  period  1994-99  of 
ECU 26 million  (at  1994 prices). The long-term objective is to maintain and redevelop the areas 
concerned  as  active  and  viable  local  communities. To date,  11 local  action  groups  have  been 
selected,  development  officers  have  been  appointed,  a  number  of  projects  under  Priority  A 
('Acquiring  Skills') have been launched and promotion activities have been carried out. Progress 
is expected  to  speed  up as the results of the measures filter through. 

Germany 

626.  The 50 Leader II local action or collective groups for Objective 1 of are using every possible 
means to improve the economic situation of villages, in particular as regards mobile services and 
activities. 

627.  The  upkeep  and  conservation  of  the  cultural  landscape  feature  prominently  in  rural 
development. 

628.  The  take-up  of  appropriations  is proceeding  as planned.  Mid-term  evaluators  have  been 
chosen  and  will  present  their  findings  in April  1998. 

629.  Altogether,  EAGGF Guidance  appropriations  for  1994-99 total  ECU 50 million. 

630.  Thus far, in the context of Objective 5(b), 119 Leader groups have begun developing projects 
in the various fields of activity. For three of the seven programmes, this has already brought about 
the allocation  of  additional  reserve and indexation  funds,  while for the others progress in  terms 
of payments is still unsatisfactory. The Monitoring Committee has designated mid-term evaluators 
with a view to analysing implementation-related problems and assessing the socioeconomic  effects. 

631.  A  national  Leader  network  has been  set up, with co-financing  from  the Commission,  in 
order to promote  network  efforts. 

140  RURAL  DEVELOPMENT 

Greece 

632.  The field launch of Leader II took place in 1997 with the signing of the agreements between 
the local action groups and the intermediary bodies and the action undertaken jointly by the local 
action groups  and  the project  leaders. 

Spain 

633.  In  the  case  of  Leader  II  regional  programmes  for  Objective  1,  which  began  with  the 
acquisition of skills, most of the local action groups have presented innovative projects, and these 
are now  in  their  launch  phase. 

634.  With  regard  to  Objective  5(b),  1997  saw  the  completion  of  the process  of  selecting  the 
local  action  groups,  as  a  result  of  which  implementation  in  the  field  reached  what  could  be 
described as its cruising speed. Financial implementation is still at a fairly low level but is expected 
to rise sharply. The limited  public  funding  originally  earmarked  for Leader II programmes  was 
difficult  to  reconcile  with  the high  standards  assisted  projects  were  expected  to meet  in  terms 
of innovation  and quality. With a view to underpinning the qualitative impact of the programmes 
and in accordance with the proposals put forward  by the monitoring committees, the Commission 
amended  the  Leader  II  decisions,  allocating  the  appropriations  arising  from  the  strengthening 
of the Community  Initiatives  and  the deflator  for  1994-97  to bolstering  the Community  rate of 
co-financina. 

France 

635.  After  allocation of the reserve and the deflator,  the total appropriation  for the  18 Leader II 
Objective  5(b) programmes  was ECU 223.090 million. The process of selecting the local action 
groups was concluded  by the regions, some of which reserved the possibility of issuing a second 
call  for  projects.  The  pace  at  which  plans  are being  drawn  up is still  fairly  slow, however,  this 
being  attributed  by  a  number  of  local  players  to  an  insufficiently  flexible  approach  to  the 
management  of  the Community  Initiative  on  the part of  the authorities. 

636.  Delays  in implementing  Leader II  are, it seems, shortening  in the case of Objective  1. 

Ireland 

637.  The  progress  achieved  to date  was reviewed  by the Monitoring  Committee  on  the basis 
of a mid-term  evaluation  carried  out  by an  independent  assessor.  A number of amendments  to 

the programme have been agreed and the additional funding from the Community Initiatives reserve 
has been allocated to the groups. 

RURAL DEVELOPMENT 

141 

Italy 

638.  In  1995-96 approval was given to the Leader II programmes for Italy's eight Objective 1 
regions. By the beginning of  1997 the decision-making bodies in Abruzzi, Campania, Calabria 
and Sardinia had selected 41 local action plans presented by local action or collective groups. 
In the other regions this work was completed in the second half of  1997. The programmes tend 
to be located in areas that are less favoured  in terms of economic activity and employment. The 
measures occasionally supplement those introduced under operational programmes, but are more 
often  than not intended to preserve or give fresh  impetus to traditional local farming and craft 
trade activities. 

639.  The second phase of the Leader II initiative in Italy's 13 Objective 5(b) regions has elicited 
a great deal  of  interest  among potential  recipients, thus encouraging  local  players to become 
involved in the creation of numerous local partnerships. 

640.  A total of 52 local action groups have so far been selected; the selection process is still 
under way in Lazio and Piedmont. Selecting local action groups at regional level proved particularly 
complex: conducted as it is on the basis of quantified qualitative criteria, it is aimed in particular 
at guaranteeing satisfactory  territorial concentration. 

i 

Luxembourg 

641.  Approved  in  1995, the Leader II programme has opted  for  a strategy based entirely on 
innovation  and  transferability.  It  concerns  concrete  local  development  projects  covering  all 
economic and cultural sectors. 

642.  The initiative has succeeded in bringing together local players within a regional partnership 
that covers nearly every socioeconomic sector. 

643.  A few institutional and administrative problems notwithstanding, the Leader II programme 
is proceeding  satisfactorily. 

644.  The  local  players  have  formed  two  local  action  groups:  Clervaux-Vianden  and 
Redange-Wiltz. 

142  RURAL DEVELOPMENT 

645.  The  single-tranche  operational  programme  provides  for  a total  cost  of  ECU 4  883 300. 
The Community contribution  is ECU  1  million (i.e. about 20% of the total cost), 40% of which 
has already  been  paid. 

646.  The programme's mid-term evaluation is scheduled for the first half of 1998. The Monitoring 
Committee,  which  met  in  1997,  confirmed  the  need  to  restructure  two  measures  (innovative 
investment (SMEs) and incentives to distance working in a rural environment) in order to encourage 
greater awareness  of  their  status as pilot measures  within  the region  and  its businesses. 

Netherlands 

647.  The  Commission  officially  endorsed  the  Netherlands  national  Leader  II  network  on 
2 April  1997. The  network,  which operates under the aegis of the province of Friesland, has as 
its objective the exchange of experiences, mutual cooperation and the organisation of theme-based 
visits and  studies. 

648.  The three Leader H programmes (North-west Friesland, North-west Groningen and North-east 
Drenthe)  are  monitored  by  the  Objective  5(b)  monitoring  committees, whereas  the  three  local 
action groups concerned see to the smooth implementation of the projects. The programmes, which 
are aimed  mainly  at encouraging  sustainable  economic  and farming  activities  and  tourism, are 
proceeding  satisfactorily.  The  Community  contribution  for  the  three  Leader  II  Objective  5(b) 
programmes  is ECU  6.34  million,  nearly  30%  of which  has already  been paid. 

649.  The  execution  of  the Flevoland  Leader II programme  is proceeding  as planned. 

Austria 

650.  Thanks  to  the  Leader  II  programme  in  Burgenland,  amenities  and  services  have  been 
augmented  and  interconnected  with  a  view  to  increasing  their  effectiveness  and  more  closely 
matching  them  to requirements.  There  has been  an  increase  in  the population's  motivation  and 
skills. 

651.  EAGGF Guidance  appropriations  for  1995-99 total  ECU  1.1  million. 

652.  In the case of Objective 5(b) the main focus of activities during the first full year of Leader 
was on  the  creation  of  Leader  action  groups, 40 of  which  have  begun  to implement  measures. 
Progress on the financial front is still moderate, however. Programme implementation is expected 
to rise sharply  next  year,  given  the large number of projects  that are now ready to be executed. 

653.  In order to improve communication between the different  groups, a national Leader network 
was set up in  1997, with  the Commission  co-financing  50 % of  the total cost (ECU  250 000). 

RURAL DEVELOPMENT 

143 

Portugal 

654.  In  1997 the  implementation  of  Leader  II  was  back on  schedule,  no longer  experiencing 
the delays  that  had  been  a  feature  of  the preceding  year. A decision  on  reprogramming  which 
took into account the  actual  implementation  of the programme, the deflators  and the CI reserve 
was adopted  in May  1997. The  total  Community  contribution  is ECU  130.9 million,  including 
ECU 71.7 million  chargeable  to EAGGF Guidance. 

Finland 

655.  The strategy of the Leader II programme consists of encouraging the rural population and 
local communities to establish new local action groups (LAGs) in order to implement an innovative 
development process and, thereby, adapt to the fresh  challenges brought about by accession, the 
decline  of  farming  and  the  weakness  of  employment  generally.  The  two  programmes,  for 
Objective  5(b) and  Objective  6 areas respectively,  were adopted  in  1996. Altogether, 22 LAGs 
have been identified:  10 in Objective 6 areas and 12 in Objective 5(b) areas. After initiating phase A 
with  some  fact-finding  and  the  finalisation  of  their  business  plans,  the  LAGs  went  on  to 
implement phase B late  in the spring of  1997. The objective of the rurafareas  is to enhance and 
diversify  business  activities  and  utilise local and regional  resources. 

656.  In July the Commission  adopted the national Leader II network, co-financing  50 % of the 
total  cost. The  purpose  of  the  national  network  is to provide  an  information  link  both  between 
local action groups at  national  level and between  national  groups at European  level and to make 
technical  assistance  available  to all Leader  groups  within  the EU. 

Sweden 

657.  The aims of the  Leader  II programme are to promote rural  areas as a future  resource and 
to increase their attractiveness, thus encouraging not only the existing population but also an influx 
of people from  the outside. The three LAGs identified  in Objective 6 areas in  1996 immediately 
went over to phase B,  the implementation  of  their  business plans. 

658.  The work  of  the  nine local  action  groups  in the Objective  5(b) areas began  at the end  of 
1996. The administrative and information  problems which had led to a slow start were also noted 

144  RURAL DEVELOPMENT 

in the interim evaluation report presented  in the autumn of  1997. The evaluators later concluded, 
however,  that  the  administrative  problems  had  largely  been  resolved  and  that  implementation 
appeared to be proceeding satisfactorily. The evaluators underlined the importance of increasing 
the representation  of local  businesses  within  the partnership. 

659.  An EU co-financed  national network has been established which will help LAGs implement 
their plans and encourage them to take part in international contacts, this being an area in which 
activity  has thus  far  been  limited. 

United Kingdom 

NORTHERN  IRELAND 

660.  Implementation of the Leader II programme is proceeding satisfactorily  in Northern Ireland 
and additional money has been allocated  from  the Leader II reserve. A mid-term evaluation and 
review was conducted  but did  not recommend  any  major  changes  to the programme. 

HIGHLANDS AND  ISLANDS 

661.  The programme  underwent  a mid-term  evaluation  and review. The addition  of  Leader II 
reserve funding  and deflator  money  led to a modification  of the original  Commission  Decision. 

Objective 5(b) 

662.  Progress will clearly accelerate as the 31 local action groups formed under Leader II mature. 
There is concern, however, that the acceleration will not be sufficient  to ensure that all the resources 
are absorbed. A major difficulty  for some of the groups has been to secure local public co-financing 
that  matches  Leader  II  resources  from  the  Structural  Funds, and  this  has  undoubtedly  resulted 
in slower progress. 

663.  A number of groups have started to develop transnational contacts with a view to developing 
joint  projects.  This  is  encouraging,  as  such  operations  have  in  the  past  proved  to  be  the  most 
difficult  to  implement. 

664.  In  the United  Kingdom  the  lack  of  a  national  network  co-financed  by  the EU  is  giving 
rise to some problems. The fact that there is no unanimous agreement on the source of  national 
co-financing  is jeopardising  an  initiative regarded  by local action  groups as necessary. 

Other initiatives 

665.  The other Community Initiatives to which the EAGGF contributes are principally Regis II 
and Interreg  II. 

RURAL DEVELOPMENT 

145 

Belgium 

666.  The Interreg  II programme  was adopted  on  15 July  1996. The EAGGFs  share  is small: 
ECU 0.7  million  out of a total Community  contribution  of ECU  27.9  million. 

Greece 

' 

667.  The part corresponding to the EAGGF was incorporated  in the  'External Borders'  chapter 
of  the  Interreg  II  Community  Initiative  on  30 July  1996. The  EAGGFs  share  for  1996-99  is 
ECU  33.5 million, compared  with a total Community  contribution  of ECU  314  million. 

France 

668.  The Regis II programmes  for Réunion, Martinique, Guadeloupe  and French  Guiana  have 
all been adopted. The EAGGF contribution for the four French Overseas Departments is ECU 68 
million. The programmes contain measures corresponding  to the various Community  Initiatives, 
in particular  Leader II. 

669.  The  Interreg  II  programme  for  Hainaut  was  adopted  on  15  July  1996.  The  EAGGF 
contribution  is small: ECU  1.47  million  out of  a total  of ECU  29.4  million. 

670.  The Corsica-Tuscany and Corsica-Sardinia Interreg II programmes were adopted on 26 and 
27 September  1996 respectively  and  attract only  a very  small  EAGGF contribution:  ECU  0.27 
million  and  ECU  0.5  million. 

Ireland and  the  United Kingdom 

671.  Special support programme for peace and reconciliation: the EAGGF part of this programme 
increased  its  level  of  commitment  and  spending  throughout  the  year.  The  Rural  Community 
Network  and  the Rural  Development  Council  allocated  all  their  money  and  the Department  of 
Agriculture  established  a farm  and countryside  enhancement  scheme, which  was  well  received 

146  RURAL DEVELOPMENT 

by  farmers.  A  mid-term  evaluation  and  review  were completed,  the  main  recommendation  of 
which was that money for the remaining two years of the programme should be allocated on the 
basis of performance in the first three years of the programme. The EAGGF continued to support 
village renewal and water quality management projects in Ireland under this programme in  1997. 

672.  Interreg:  a  mid-term  evaluation  and  review  was completed  which  recommended  closer 
cooperation and more efficient administration of the programme. A major animal husbandry project 
linking two remote rural  areas was launched  during the year. 

Portugal 

673.  The Regis II programme for the Azores and Madeira was modified  in June  1997 to  adjust 
programming to financial  execution in  1994 and  1995, take the deflator  into account and launch 
a new EAGGF Guidance-funded  measure on Madeira: biological  control  of  the  Mediterranean 
fruit  fly.  The  total  Community  contribution  is ECU  126.5  million,  of  which  ECU  8.2  million 
is chargeable to EAGGF Guidance. 

Finland 

674.  The  North  Calotte  (Finland/Sweden/Norway)  Interreg  II  programme  includes  measures 
to  aid  cooperation  in  small-scale  rural  business  activities,  improve  environmental  and  living 
conditions  in  rural  areas and  underpin  traditional  forms  of Sami  livelihood. 

675.  EAGGF funding for the two Finnish/Russian Interreg II programmes (Karelia and South-east 
Finland)  is targeted  on  supporting  change and development  in agriculture  and  rural  life. 

676.  All three programmes, adopted on 30 July  1996, have together attracted only a very small 
EAGGF contribution:  ECU  3.5  million. 

Sweden 

677.  The EAGGF is funding local development, especially cooperation between different  research 
and training units and village groups, under the Nordic Green Belt (Sweden/Norway) Interreg II 
programme. The programme was adopted on 23 July  1996 and receives a contribution of ECU 5.5 
million, including  ECU  1 million chargeable  to the EAGGF. 

678.  The  North  Calotte  (Finland/Sweden/Norway)  Interreg  II  programme  includes  measures 
to aid cooperation in the context of small-scale rural activities, the improvement of environmental 

and living conditions in rural areas and the strengthening of traditional forms of Sami livelihood. 
The programme was adopted on 30 July 1996 and receives a contribution of ECU 12.2 million, 
including ECU 1.6 million chargeable to the EAGGF. 

RURAL DEVELOPMENT 

147 

Evaluation of rural development programmes 

679.  In accordance with the existing rules and looking forward to promoting sound and efficient 
management, as sought by the SEM 2000 exercise, the Commission has received nearly all the 
mid-term evaluations of the rural development programmes for Objective  1  and Objective 5(b) 
regions. In the case of Objective 5(b), summaries of the evaluations are produced which draw 
the main conclusions regarding what has been achieved at the financial level and in practice (on 
the basis of a list of quantified  indicators), the socioeconomic impact of the measures, detailed 
arrangements for implementing the programmes, and management problems. Those conclusions 
were presented to the monitoring committees concerned and have been used by the latter to make 
mid-term corrections to their respective programmes. The reports also enable the Commission 
to make improvements to the rural development policy in preparation for the next stage. 

680.  The interim report on the ex post assessment of Leader I  (1989/94) has been presented 
to the Commission. It covers the then 12 Member States, analyses the ascending approach to the 
initiative and its participative nature and includes a typology of the 217 local action groups on 
the basis of their territory, measures and degree of success. A more detailed survey covering some 
of the groups is being conducted in order to determine the actual impact of the measures. 

681.  In line with the Council Resolution of 2 December  1996 on the mainstreaming of equal 
opportunities for men and women into the European Structural Funds (OJ 20.12.967C 386/1), 
the evaluations now take that aspect into consideration. 

Supporting  measures 

The environment 

682.  Regulation (EEC) No 2078/92 marks the continuation and a considerable broadening of 
the measures set out in Article  19 of Regulation (EEC) No 2328/91 prior to the reform  of the 
CAP. The programmes lay down that farmers are to adopt environmental methods of production 
or implement measures to safeguard the environment and preserve the countryside. The agreements 
concerned are to cover a minimum of five years (20 years in the case of the long-term set-aside 
of agricultural land for reasons connected with the environment). The aid is set in relation to the 
surface area and the type of production specified  in the agreement. 

148  RURAL  DEVELOPMENT 

683.  In the first two years after the launch of the measure the implementation of some programmes 
was slow  and  the  funds  available  were  underutilised.  This  was due  to a variety  of  reasons, in 
particular the fact  that  the measures called  for  a change of approach on the part of farmers  and 
for  adjustments  at  administrative  level.  In  1996,  for  the  first  time  ever,  nearly  all  the 
agri-environmental programmes of the Member States were operational. It was also the first full 
year of implementation of the programmes of the new Member States. In 1997 several programmes 
approved  in  1993 completed  their first five-year cycle. 

684.  The Commission  has approved  a total  of  130 agri-environmental  programmes or groups 
of  agri-environmental  programmes  presented,  pursuant  to  Regulation  (EEC)  No  2078/92,  by 
Member States or regions, a^mong them Finland, Sweden and Austria. Moreover the Commission 
has, for 50 of  the programmes,  approved  amendments  requested  by Member States  in the light 
of the experience  gained  in the early  stages of  their  implementation. 

685.  In  April  1996  the  Commission  adopted  detailed  rules  for  the  application  of  Regulation 
(EEC) No 2078/92,'  the purpose  of  which  was  to add  detail  to the framework  provided  by  the 
Regulation, ensure consistency  between agri-environmental measures and other measures under 
the various Community policies, define the conditions for the granting of aid, guarantee a measure 
of  flexibility  as  regards  the commitments  needed  to ensure  the success  of  the Regulation,  and 
introduce administrative and other provisions covering financial monitoring, administrative scrutiny, 
checks and sanctions. The introduction of a specific expenditure-monitoring system has, for most 
programmes, made it possible to monitor spending on agri-environmental  measures and thereby 
optimise programme  effectiveness. 

686.  The Commission  attaches a great deal  of  importance  to the monitoring and evaluation  of 
agri-environmental  measures.  The  detailed  rules  for  the  implementation  of  Regulation  (EEC) 
No 746/96 specify  how the monitoring and evaluation are to take place and the Commission has, 
together with the other Member States, begun to scrutinise the plans, methods and early  findings 
of  the  monitoring  and  assessment  work  notified  by  the  Member  States  in  the  context  of  the 
implementing  Regulation.  The  Commission  sees  to  it  that  the  respective  supporting  measures 
are  implemented  evenly  and  effectively  in  the  Member  States. A report  to Parliament  and  the 
Council  on the implementation  of  the Regulation  has been  drawn  up and will be supplemented 
by  a  series  of  working  papers  on  support  for  organic  farming,  on  genetic  resources  and  on 
evaluation  and  monitoring  in the Member  States. 

Community  schemes  to assist  early  retirement 

687.  The Community scheme to assist early retirement, which was introduced under Regulation 
(EEC) No 2079/92, is aimed at encouraging  the replacement of older farmers by younger people 
and  thereby  improving  the profitability  of  the remaining  holdings. 

Regulation  (EC)  No  746/96,  OJ L  102. 25.4.1996,  p.  19. 

RURAL DEVELOPMENT  149 

688.  The scheme is currently being operated, in the form of national or regional multiannual 
programmes, by a total of 10 Member States. It is not being operated in the United Kingdom, 
the Netherlands or Luxembourg, and Finland is the only new Member State implementing iL 

689.  Altogether, the programmes are aimed at encouraging about 205 000 tanners and 7 500 
farm workers' to abandon farming. This would free close to four million hectares, part of which 
would be put to uses other than farming, e.g. forestry and the creation of ecological reserves. 
The rest of the area would be made available to other farmers, above all to young people seeking 
to enlarge their holding or take up farmmg as tndr main occupation. 

Forestry measures in agriculture 

690.  The Commission has adopted a number of  technical  and financial amendments to the 
programmes introduced under Regulation (EXX3 No 2080^2 ifistiruti^ 
for forestry measures m agiiciuu^ 
in the Member States more efïective and adjust the fmancial resources available. 

691.  In accordance with the Regulation, a report was presented to Parliament and the Council 
at the end of  1997, describing how the measures were applied in  1993-96 and assessing their 
impact on Community policies (agricultural, environment and forestry). 

692.  McfeovermeGwncUextendedfcrafive-year 
schemes relating to the protection of  forests  against atmospheric pollution  (Regulation (EC) 
No 307/97 extending the period of validity of Regulation (EEC) No 3528/86) and against  fire 
(Regulation (EC) No 308/97 extending the period of validity of Regulation (EEC) No 2158/92). 

693.  The Commission contributed a total of ECU 18.7 million to projects presented by Member 
States m connection with those two measures in 1997. 

694.  Under Council Regulation (EEC) No 1615/89 estabUshing a European Forestry Information 
and Communications System, as extended by Council Regulation (EC) No 400104, work proceeded 
on  the  harmonisation  and  qualitative  improvement  of  forestry  statistics  at  European  level. 
Consultation whh international organisations such as UN/ECE and FAO has been strengthened. 

Article 8 

695.  The measures referred to in Article 8 of Regulation (EEC) No 4256788,1 as amended by 
Regulation (EEQ No 2085/93,3 provide for 

1  OIL 374,31.12.1988. p. 24. 
%  OIL 193, 31.7.1993,p.44, 

150  RURAL DEVELOPMENT 

-  pilot or demonstration  projects; 

- 

technical  assistance; 

-  evaluation  studies; 

- 

the dissemination  of the  findings. 

696.  The purpose  of  the above-mentioned  measures is to: 

-  explore innovative possibilities  of development  that will act as catalysts in the development. 

of rural  areas; 

-  evaluate  and  assess  the effectiveness  of other Community  measures; 

-  disseminate on a Community scale the knowledge, experience and results of activities acquired 
as a result of activities in the field of rural development and the improvement  of  agricultural 
structures. 

697.  A  call  for  proposals  for pilot or demonstration  projects  for  women  in a rural context  was 
published in the Official  Journal of the European Communities in September 1996.l The proposals 
received  -  more  than 400  by  the end  of  February  1997 -  were scrutinised  in the course  of  the 
year. The Commission's  decision  on  the projects  selected  will be made early  in  1998. 

Agricultural  research 

698.  In  1997 agricultural research was funded  from the Community research and technological 
development  (RTD)  budget  under  two specific  programmes: 
(1)  AIR:  agriculture  and  agro-industry,  including  fisheries,  1990-94;2 

(2) 

FAIR:  agriculture  and  fisheries,  including  agro-industry,  food  technologies,  forestry, 
aquaculture  and  rural  development,  1994-98.3 

699.  Also in 1997 final reports were received and final payments made in respect of nine projects 
under  the now  concluding  AIR  programme. 

700.  A  significant  part (ECU 260 million) of the ECU 650 million budget of the ongoing FAIR 
programme  is  for  agriculture,  forestry  and rural  development. 

1  OJC284, 27.9.1996, p. 21. 
2  OJL 265. 21.9.1991. 
J  OJL 334, 22.12.1994. 

RURAL DEVELOPMENT  151 

701.  The figures and publications available indicate that the 43 projects  selected  from  the first 
wave1 of 520 FAIR submissions in  1995, for which ECU 43 million was available, are on target 
towards finding  solutions to some of the problems faced  by the common agricultural  policy and 
rural development  policy. 

702.  The 77 projects  resulting  from  the 518 submissions  concerning  agriculture, forestry  and 
rural development that were received in 1996 as part of the second wave of FAIR2 attracted  funding 
totalling  ECU  62 million  and  are now  under  way. 

703.  By  the  closing  date  of  the third  wave  of  FAIR  in  19973 a total  of  338 submissions  had 
arrived  and  were  competing  for  funding  totalling  ECU  46  million.  Altogether,  63  projects 
concerning  scientific  research  in  agriculture,  forestry  and  rural  development  were  selected. A 
further eight projects were placed in reserve and may be financed if savings are made in the funding 
of the main  group of  projects. 

Research  into  transmissible  spongiform  encephalopathies  (TSEs) 

704.  As a first major step in the 'research into transmissible spongiform encephalopathies action 
plan' adopted by the Commission on  13 November  1996 in the light of the conclusions of a group 
of  scientists  led  by  Professor  Weissmann,  a  specific  call  for  proposals  was  issued  from 
17  December  1996  to  14  February  1997,4  in  the  field  of  'Agriculture,  forestry  and  rural 
development'. This took place in the context of the FAIR programme, with a total  appropriation 
of  ECU  8.8  million.  Altogether, 24 proposals  were  received,  eight  of  which  were  selected  for 
funding. Major efforts  are being deployed, in particular as regards the development of diagnostic 
tests op  live  animals  and  carcasses,  the  analysis  of  genetic  factors  affecting  differences  in  the 
sensitivity to BSE and scrapie, and studies aimed at evaluating the transmission of TSEs to various 
species. 

705.  The specific call for proposals in respect of FAIR was followed by a joint call for proposals 
involving the Biomed, Biotech and FAIR specific programmes. This was issued on 29 April  1997 
and was closed on  15 July  1997.5 The Commission's proposal that a total financial  appropriation 
of  ECU  35 million  be  allocated  to this chapter  was endorsed  by the Council  and Parliament  in 
connection  with  some  supplementary  funding  for  the current  Community  framework  research 
programme. A total  of  66 proposals  was received,  23 of which were placed  on priority  lists as 

OJC357,  15.12.1994. 
OJC337.  15.12.1995. 
OJC381,  17.12.1996. 
OJC381,  17.12.1996. 
OJC  134.29.4.1997. 

152  RURAL DEVELOPMENT 

proposals  whose scientific  worth made them suitable for consideration  as possible recipients of 
Community  funding. 

Genetic resources  in  agriculture 

706.  Regulation (EC) No 1467/94 on the conservation, characterisation, collection and utilisation 
of  genetic  resources  in  agriculture  concerns  a  five-year  programme  with  a  budget  of 
ECU 20 million.' The objectives are to help ensure and improve the conservation, characterisation, 
documentation, evaluation and utilisation of plant and animal genetic resources useful to agriculture 
in the EU. 

707.  The  number  of  proposals  selected  as part  of  the  first  and  second  calls  for  proposals  for 
EC funding in 1995 and  1996 was ten and five respectively. In view of the reduced budget available 
in  1997 (ECU 0.2  million), action  focused  on accompanying  measures, with the organisation of 
meetings  and  workshops  on  the  conservation  of  genetic  resources.  A  third  call  for  proposals 
(attracting EC  funding  in  1997) took  place  in the second  half of  1996. 

OJ L  159, 28.6.1994,  p.  1. 

4^3 

V -  Financing of the CAP in 1997 

The EAGGF Guarantee Section 

708.  The 1997 financial year has to be seen against the general background of budget austerity 
in the Member States. The budgetary authority made an across-the-board cut in EAGGF Guarantee 
Section appropriations of the order of ECU 1  billion, while keeping the allocation for the beef 
sector unchanged, thus maintaining the total appropriations at ECU 40 805 million, i.e. in line 
with the initial  1996 budget of ECU 40 828 million. Expenditure nonetheless remained within 
the overall budget limit. This result was achieved thanks, among other things, to an under-utilisation 
of  appropriations  for  the  beef  sector  of  the  order  of  ECU  800  million  (on  account  of  less 
intervention buying-in and little 'early' slaughtering of calves) and for sheepmeat and goatmeat 
of nearly ECU 600 million (market prices remained high, so the level of premiums payable was 
lower). There was also underutilisation of appropriations for sugar (amounting to ECU 200 million, 
less  sugar  being  exported  under  the  quota  system)  and  for  cereals  (here  again  totalling 
ECU 200 million, as a result of less intervention buying-in), and also the additional quota for 
exceeding  the milk  quota  was charged,  amounting  to  around  ECU  460 million. A  sufficient 
margin  thus  resulted  to  finance  the  50 %  advance  on  the  aid  for  oilseed  crops  for  1997 
(ECU  1 300 million), payment of which was not allowed  for  when the budget was drawn up, 
and to cover market expenditure of the order of ECU 470 million under the 1997 budget under 
the heading of special measures to eradicate classical swine fever, which broke out at the beginning 
of  1997 and spread widely, particularly in the Netherlands, as the year went on. 

709.  It should be emphasised that any estimate of future expenditure in agriculture is particularly 
difficult,  since up to 20 months may elapse between the forecast  and the execution of certain 
items, and many unforeseeable factors, both internal and external, such as the ecu/dollar exchange 
rata, may have a major influence on expenditure. 

710.  Furthermore, budget forecasts by the Commission depend heavily on forecasts of expenditure, 
as well as some production forecasts, to be drawn up and submitted to the Commission by the 
Member States in accordance with Community legislation. The Commission is looking at possible 
ways of improving the conditions of financial administration and is implementing a programme 
to this end; the Commission is asking Member States to play their part in this effort by complying 

154  FINANCING  OF THE CAP  IN  1997 

with the relevant rules, i.e. by improving the quality of information  provided and supplying it 
more promptly. 

Budgetary discipline 

The guideline 

711.  Like previous years,  1997 is subject to the requirements of budgetary discipline, and in 
particular to compliance with the guideline resulting from the agreement reached at the Brussels 
European  Council  meeting  in February  1988 and extended  to  1999 on the same basis  at the 
Edinburgh European Council in December 1992. In order to curb CAP expenditure, the guideline 
limits its annual rate of increase. 

Trend of EAGGF Guarantee Section — Expenditure 

(ECU billion) 

1990 

0  Provisional figures for 1997. 

Sources: DG VI, EAGGF. 

Figure 15 

1995 

1996 

1997 (1) 

FINANCING  OF THE CAP IN  1997 

155 

712.  The general trend in EAGGF Guarantee Section expenditure since 1991 can be summarised 
as follows: 

EAGGF Guarantee  Section 

1991 

1992 

1993 

1994 

1995 

1996 

1997 

(ECU million) 

Guideline 
Expenditure financed  within the guideline 
Margin 

32511 
30 961 
1550 

35 039 
31 119 
3 920 

36 657 
34 590 
2 067 

36 465 
32 970 
3 495 

37 944 
34 503 
3 441 

40 828 
39 108 
1720 

41 805 
40 805 
1000 

Total expenditure ' 

31784 

31950 

34 590 

32 970 

34 503 

39 108 

40 805 

All types or expenditure have been financed within the guideline as from 1993. 
Provisional. 

713.  The guideline for  1997 was set at ECU 41  805 million (not including the appropriations 
entered  in the monetary reserve (ECU 500 million). The estimated requirement on which the 
preliminary draft budget was based was within the guideline. However, the budgetary authority 
applied a reduction across the board of ECU 1 billion and adopted a budget of ECU 40 805 million, 
roughly equal to the  1996 initial budget of ECU 40 828 million. 

714.  Figure  15 shows the trend of the guideline from  1988 to  1997 and of expenditure  from 
1988 to  1997, together with the appropriations entered in the  1997 budget. 

The monetary reserve 

715.  The operating mechanisms for this reserve are set out on page 139 of the  1995 Report on 
the Agricultural Situation. 

716.  In accordance with the Council decision on budgetary discipline, the ecu/dollar parity used 
for the 1997 financial year is equal to the average dollar parity for January, February and March 
1996,  USD  1 = ECU 0.78. The average quotation for the dollar from  1  August  1996 to 31 July 
1997 was ECU 0.84, giving rise to savings of ECU 244 million. The part of the savings in excess 
of the ECU 200 million threshold will be the subject of a proposal for a transfer to the monetary 
reserve. 

The EAGGF in the general budget 

717.  In  the  general  budget  of  the  European  Union  for  the  1997  financial  year,  totalling 
ECU 80 880 million (in payment appropriations entered in the 1997 budget), ECU 41 305 million 
in payment appropriations (including the monetary reserve and the appropriations entered in Chapter 

156  FINANCING  OF THE CAP IN  1997 

BO-40 'provisions'), i.e. 517c, was allocated to the EAGGF Guarantee Section. In  1996, EAGGF 
Guarantee  Section  expenditure accounted  for 48 7o  of general  budget  expenditure. 

718.  The trend  of  the share of EAGGF Guarantee  Section  budget  in the general  budget  since 
1988 is shown  in  Figure  16, which  shows  an  overall  reduction  of  that share  as  a result  of  the 
development  of other common  policies  and  a determination  to curb agricultural  spending. 

Expenditure 

719.  Essentially, the EAGGF Guarantee Section finances expenditure on the common organisation 
of the agricultural  markets, comprising: 

-  market  support  (ECU  11 668.7 million  in  1996); 

-  direct aids (ECU 27  807.4 million  in  1996). 

720.  Market support covers export refunds (ECU 5 699.8 million in 1996), storage (ECU 1  391.6 
million  in  1996), guidance  premiums  (ECU  886.6  million  in  1996), processing  and  marketing 
aids (ECU 1 433.5 million in 1996), consumption aids (ECU 1 636.6 million in 1996), withdrawals 
and similar operations  (ECU  111.9 million  in  1996) and other expenditure  (ECU 508.7  million 
in  1996). 

721.  Direct aid -  price compensation  -  is thus currently by far  the largest item of expenditure; 
it consists of,  in particular, direct aid for producers under the reform  (arable crops: ECU  J5 838.1 
million  in  1996, beef/veal:  ECU  3 809.2 million  in  1996) 

722.  Furthermore, as a result of the reorientation  and then the reform  of the CAP, the EAGGF 
Guarantee  Section  has  been  used  to  finance,  in  whole  or  in part,  certain  specific  measures  for 
the management  of  the agricultural  markets, such as the distribution  of agricultural  products  to 
the needy  in  the European  Union,  measures  to combat  fraud,  measures  to promote quality  and 
measures designed to compensate for the geographical isolation of the French overseas departments 
(Poseidom), Madeira and  the Azores  (Poseima), the Canary Islands (Poseican) and  the Aegean 
islands. In connection  with the CAP reform,  mention should also be made of the accompanying 
measures to assist producers in their efforts  to protect the environment, maintain the countryside, 
develop  the use of  forest  resources  or transfer  their holdings with  a view to early  retirement. 

723.  Figure  17 shows the major  changes that have followed  the reform,  indicating the level of 
the main types of financing in 1996 as compared with the pre-reform  situation; this demonstrates 
the fall  in storage expenditure  following  the measures to improve  the situation  of  the markets, 
the lower expenditure on refunds and the greater proportion devoted to new forms of aid introduced 
or developed  by the  reform. 

FINANCING  OF THE CAP IN  1997 

157 

Trend of EAGGF Guarantee Section expenditure 
against total expenditure under general budget 

(ECUbillion) 

Total general budget expenditure 

EAGGF Guarantee expenditure 

1988  1989  1990  1991  1992  1993  1994 

1995  1996  1997 (1) 

90-

8 0-

7 0-

6 0-

5 0-

4 0-

3 0-

20-

10-

0 

0  Budget appropriations. 

Sources: DG VI. EAGGF. 

Figure 16 

Breakdown of appropriations by sector 

724.  Figure  18 shows the breakdown of appropriations entered in the  1997 budget. 

725.  It should be noted that Chapter 10 of the 1997 budget (arable crops) covers appropriations 
for cereals, oilseeds and protein plants; aid per hectare (including  set-aside) makes up a very 
significant proportion of this expenditure (ECU  15 046 million). 

726.  The increase in appropriations allocated to Chapter Bl-21 (beef and veal) to provide for 
the expenditure needed for the eradication of bovine spongiform encephalopathy (BSE) and income 
support for cattle farmers meant that the share of this sector in the total of EAGGF Guarantee 
Section expenditure rose sharply. Supplementary expenditure for  1997 is put at around ECU 1.2 

158  FINANCING  OF THE CAP  IN  1997 

billion. This figure does not include expenditure on refunds and public storage since it is  difficult 
to isolate  the part  accounted  for  by  the BSE crisis  in such expenditure. 

727.  Trends  in  EAGGF  expenditure  by  sector  and  Member  State, the  detailed  breakdown  of 
EAGGF Guarantee  Section  expenditure  and  appropriations  under  the  1997  budget  by  product 
group and type are shown in Tables 3.4.1, 3.4.2, 3.4.3 and 3.4.4 (statistical annex to the Report). 

Public storage 

728.  As indicated  in Table  3.4.5  (statistical  annex  to the Report), between  31 December  1995 
and 31 December  1996 the book  value of products in storage showed  a slight  increase  on  1995 
after falling from ECU  1 133.4 million in 1994 to ECU 501.6 million in  1995, a decrease of 56%. 
At the end  of  1996 the  total  stood  at ECU 552.5 million, reflecting  a slight  increase  of  10 %. 

EAGGF Guarantee Section 
Expenditure by type 

(ECU billion) 

( ) 'Negative' expenditure, comprising amounts recovered in accounts clearances, milk levy. 

Sources:  DG  VI,  EAGGF. 

Figure 17 

FINANCING OF THE CAP IN  1997 

159 

729.  This development results  from: 

-  a marked reduction  (79 76)  in all cereal stocks; stocks of sorghum and non-bread common 

wheat were entirely eliminated; 

-  a 62 % decrease in olive oil stocks and the abolition of intervention for tobacco; 

-  a major increase (80 76) in stocks of milk products; 

-  a very substantial increase (96 %) in beef stocks following buying-in to support the beef and 

veal market (see below). 

Sectoral breakdown of EAGGF Guarantee Section appropriations 
1997 expenditure 

(million ECU) 

Fruit and vegetables 
TT7g 

Sheepmeat and goatmeat 
1447 

Tobacco 

Accompanying measures 

Other products and measures 
2190 

7 451 

40 805 
Mio ECU 

16160 

Sources:  DG VI,  EAGGF. 

Figure 18 

730.  During the first half of  1997 the trend was as follows: 

- 

the impact of intervention buying-in of beef continued to make itself felt; the value of stocks 
rose from ECU 294.7 million on 31 December  1996 to ECU 467.7 million on 30 June 1997; 

160  FINANCING OF THE CAP IN 1997 

- 

stocks of skimmed-milk powder and butter  increased. 

731.  It  should  be  noted  that  the possibility  of  buying  in tobacco  was terminated  in  1995; the 
last stocks were eliminated  in  1996. 

732.  These trends  are shown  in Figure  19. 

Clearance of  accounts 

733.  The clearance of the EAGGF Guarantee Section accounts represents the definitive recognition 
of  expenditure  incurred  by  Member  States  under  the  common  agricultural  policy  following 
verification of the annual statements, on-the-spot checks on various files and a significant number 
of administrative  and  physical  checks  carried  out  by the competent  authorities  of  the Member 
States. 

734.  The Commission adopted decisions on 23 April and 30 July 1997 on the clearance of Member 
States' accounts for expenditure financed by the EAGGF Guarantee Section for the 1993 financial 
year. 

735.  Under the  new clearance  procedure,  the Commission  adopted decisions on the clearance 
of Member States' accounts (actual  accounting  aspect) for expenditure  financed  by the EAGGF 
Guarantee  Section  for  the  1996 financial year on 5 May  and  30 July  1997. 

736.  The  finalisation  of  the clearance  of  accounts  for  1994 is under  way, and dialogues  have 
taken place with the Member  States concerning  clearance of  the  1995 accounts. 

737.  The Commission  also carried  out checks on expenditure  of  ECU  39 billion declared  for 
the  1996  budget  year  at  the  paying  agencies  and  at  the  bodies  responsible  for  verifying  the 
compliance of claims  with  Community  rules. 

738.  During  1997,  the  Commission  staff  gave  their  views  on  the  first  year of  application  of 
Regulations  (EC) Nos  1287/95 and  1663/95 on the new clearance of accounts procedure. Most 
of  the  Member  States  had  complied  by  15  October  1996  with  all  the  criteria  laid  down  in 
Community  legislation  concerning  the approval  of  their paying  agencies  and, in particular,  the 
establishment of a central coordination body, the certification  of their accounts, the establishment 
of  internal  auditing  bodies  at paying  agencies,  and  the  systématisation  of  their  administration, 
control and payment procedures. Some Member  States still have work to do in connection  with 
this. 

739.  Details  of  the  clearance  procedure  are  published  by  the  Commission  every  year  in  the 
financial  report  on  the EAGGF Guarantee  Section. The  1996 report'  describes  the activities  of 
the conciliation  body  set up by the reform  of the accounts.clearance procedure. 

FINANCING OF THE CAP IN 1997  161 

Book value of products held by 
intervention agencies 

(million ECU) 

1000 

750 

500 

250 

& 

J&  J 

J? Ff 

* 

c/  <f 

Sources: DG VI, EAGGF. 

Figure 19 

Expenditure  on agricultural  markets in 1997 

740.  The  uptake  of  appropriations  for  the  1997  financial  year2  totalled  ECU  40 423  million, 
i.e.  99.1% of  the  budget  appropriations.  At  the  end  of  the  financial  year,  appropriations  of 
ECU 310.0 million remained  unused. This balance is reduced by ECU 286.0 million on the basis 

1  Twenty-sixth Financial Report 1996 (COM (97) 589  final). 
2  The EAGGF Guarantee Section's financial year begins on 16 October and ends on 15 October of the following 

year. 

162  FINANCING  OF THE CAP  IN  1997 

of  a  transfer  of  ECU  20  million  from  Chapter  BO-40  to  subsection  Bl  and  a  transfer  of 
ECU 44 million  to the  monetary  reserve. 

741.  Underutilisation  was mainly in the chapters covering beef and veal (- ECU 870.6 million), 
sheepmeat and goatmeat (- ECU 553.9 million) and milk and milk products (- ECU 523.6 million). 
The underutilisation  in  the case of  beef  and  veal can  be explained  by the fact  that  consumption 
picked  up  despite  the  BSE  crisis,  so  there  was  less  intervention  buying-in  than  expected 
(350 000 tonnes instead of 530 000 tonnes). In the case of sheepmeat and goatmeat the main reason 
was that  higher  market  prices  reduced  the  need  for  appropriations  for  the  basic  ewe  premium. 
As  for  milk  and  milk  products,  the  main  reasons  for  underutilisation  were  the  revenue  from 
additional  levies  and  the  very  low  level  of export  refunds  for  cheese. 

742.  Two chapters  (arable  crops  and pigmeat) show  substantial  overutilisation.  In  the case of 
arable crops this stems from  the Council's failure  to reach a decision to postpone payment of aid 
per hectare for  oilseeds  for  the  1997/98 marketing  year to the  1998 financial year, which  led to 
additional  expenditure  of  ECU  1313  million  in  1997. As  for  pigmeat,  the  Commission  faced 
substantial  expenditure,  totalling  some  ECU  400  million,  on  compensation  for  producers  in 
connection  with the measures taken to deal with the outbreak of classical swine fever,  which was 
particularly virulent in the Netherlands. Developments in the ecu/dollar parity resulted  in savings 
of ECU 244  million  as  the  parity  on  which  the budget  was calculated  was USD  1 = ECU 0.78, 
whereas  the actual  average  rate  was  USD  1 = ECU 0.84. 

The EAGGF Guidance  Section 

743.  Implementation  of  the  reform  of  the Structural  Funds since  1  January  1989 has  gradually 
changed the nature of the aid granted by the EAGGF Guidance Section. An ever-increasing share 
of Community contributions  is taken up by the part-financing  of operational programmes (99.4 7c 
of  the total  in  1996, as  compared  with  52 7c in  1993 and  40 7c in  1991). The  second  reform  of 
the Structural  Funds, which  came  into  force  on  1  January  1994, put the finishing  touches  to the 
system of assistance. Virtually all financing  under the EAGGF Guidance Section is now provided 
through  measures  programmed  on  a multiannual  basis  and  in accordance  with  the principles of 
partnership and  subsidiarity  between  the Commission  and  the Member  States. 

744.  The current programming  period, which covers  1994 to  1999, is marked  by consolidation 
of the principles  which  governed  the first  period  following  reform  of the Funds. It also  includes 
some simplification  of  procedures,  for  example  Regulation  (EC) No 951/971 (on  improving  the 
processing  and  marketing  conditions  for  agricultural  products). Regulation  (EC) No 950/97" on 

OJ L  142,  2.6.1997.  p.  22  (former  Regulation  (EEC)  No  866/90). 
OJ  L  142. 2.6.1997,  p.  1 (former  Regulation  (EEC)  No  2328/91). 

FINANCING OF THE CAP IN  1997 

163 

improving the efficiency  of agricultural  structures amended  the relevant rules so that financing 
is based on a multiannual programme as for  the other objectives, thus harmonising  the  financial 
mechanisms.  In  this  way  the Community  schemes  implemented  by  the  Member  States, which 
account  for  a significant  part  of  financing  by  the Guidance  Section  (farm  improvement  plans, 
compensatory  allowances,  etc.)  give  rise  to  reimbursements  subject  to the  limits  laid  down  in 
the corresponding  multiannual  programmes. 

745.  The  measures  undertaken  on  the  initiative  of  the  Member  States  under  the  Community 
support  frameworks  are supplemented  by those  launched  by the Commission,  i.e.  programmes 
under the Community  initiatives such as Leader II, Regis II, Interreg II and Peace and measures 
financed  under Article  8 of Regulation  (EEC) No 4256/88 and transitional  measures. 

Financing 

746.  EAGGF Guidance  Section  expenditure by Member State during the period  1991 to  1996 
is shown  in the table below. 

EAGGF Guidance  Section expenditure  (commitment  appropriations) 

(ECU  million) 

Member Slate 

1991 

1992 

1993 

1994 

1995 

1996 

Belgique/Belgie 
Dan mark 
Deutschland 
EXXdba (Elidda) 
Espana 
France 
Ireland 
Italia 
Luxembourg 
Nederland 
Osterreich 
Portugal 
Suomi/Finland 
Sverige 
United Kingdom 
Others 

30.488 
18.038 
200.192 
274.205 
514.155 
425.262 
168.501 
326.511 
6.666 
20.496 
-
313.402 
-
-
110.243 

28.178 
23.518 
253.758 
392.200 
633.600 
554.359 
194.510 
375.874 
6.362 
21.899 
-
289.775 
-
-
100.781 

41.702 
H9.986 
348.724 
402.853 
412.906 
633.502 
165.709 
624.978 
9.014 
19.526 
-
313.946 
-
-  , 

99.495 

37.598 
42.491 
700.181 
266.288 
544.770 
619.763 
178.317 
263.187 
9.802 
32.068 
0.000 
,  510.490 
0.000 
0.000 
130.470 

40.0 
16.7 
807.9 
463.8 
709.5 
347.8 
157.3 
454.2 
6.0 
13.1 
97.7 
282.7 
109.8 
24.7 
74.1 
3.7 

39.9 
29.1 
805.1 
328.3 
695.0 
526.3 
261.1 
428.1 
4.3 
27.3 
122.6 
379.5 
102.4 
65.4 
116.0 
4.1 

Total 

2 408.159 

2  874.814 

3 093.397' 

3 335.425 

3 609.1 

3 934.5 

Including  ECU  97S  000  or multi-country  funding. 

747.  It is also interesting to note the breakdown of the Structural Funds by Objective. The EAGGF 
Guidance Section  contributes  to the following  four  Objectives: 

-  Objective  1 (regions  whose development  is lagging behind); 

164  FINANCING OF THE CAP IN 1997 

-  Objective  5(a) (agricultural  structures  in all regions); 

-  Objective  5(b) (rural  development  in certain  limited areas); 

-  Objective  6 (Nordic  regions), following  the accession  of  the new Member States. 

748.  The following table also shows, for  1994,1995 and 1996, expenditure under the Community 
initiatives and under Article 8 of Regulation (EEC) No 4256/88 (finance  for technical assistance, 
general studies, pilot and demonstration projects) and transitional measures (old measures which 
cannot  be assigned  to an Objective  under the new rules). 

749.  Expenditure  under Objective  1, which  had  increased  since  1991, stabilised  at the end of 
the first period  and  then  rose again  in  1994,  1995 and  1996. 

Expenditure  trend by objective 

(ECU  million) 

Objective 

1991 

1992 

1993 

1994 

1995 

1996 

Community support framework 

Obj.  1  (regions  lagging behind) 
Obj. 5a (agricultural structures) 
Obj. 5b (rural areas) 
Obj. 6 (Nordic areas) 

Community initiatives 

Leader 
Interreg 
Regis 
Envireg 
Peace 
Posei 

Art. 8 of  Reg. 4256788 

Transitional  measures 

1 440.827 
631.252 
260.152 

1 634.683 
701.333 
475.798 

1 599.218 
923.884 
508.644 

1 904.274 
1  131.599 
271.836 

2 395.2 
655.9 
249.5 
47.7 

2 416.5 
.  802.4 
508.4 
44.7 

Included under other 

leadings 

75.928 

63.000 

61.655 ' 

2.667 
4.249 
0.005 
5.849 

0.000 

5.184 

9.762 

235.9 
12.8 
4.1 
0.0 
1.3 
0.0 

0.6 

10.3 

83.1 
31.3 
17.0 
0.0 
8.1 
0.0 

15.4 

7.6 

Including  ECU  975000  of  multi-country  funding. 

Total 

2 408.159 

2  874.814 

3 093.397  ' 

3 335.425 

3 609.1 

3 934.5 

750.  Expenditure under Objective  5(a) was fairly  stable during this period, peaking in  1994 as 
a result of a change in the system of financing the 'indirect' measures (former Regulation 2328/91) 
which meant that reimbursements for  1993 and new financing  for  1994 were charged to that year. 
Expenditure under Objective 5(b) grew substantially  from  1990 to  1993, reflecting  the emphasis 
on  rural  development  policy,  but  fell  sharply  in  1994  following  delays  in  launching  the  new 
programming  period,  then  caught  up again  in  1996. 

751.  Since transitional measures are being wound up, expenditure on them has fallen since 1991. 

FINANCING OF THE CAP IN  1997 

165 

752.  While the amounts under Objectives  1 and 5(b) for  1991 to  1993 include measures under 
the Community  support  frameworks  and also those taken under  the Community  initiatives and 
Article 8 of Regulation  (EEC) No 4256/88, from  1994 onwards amounts for the latter are shown 
separately. 

Implementation  of  the  budget 

753.  In terms of  the appropriations available, including those originally entered  in the budget, 
the amending  budget  following  enlargement,  transfers  and carryovers  (ECU  3 987.2  million in 
commitment appropriations and ECU 4 093.1 million in payment appropriations), implementation 
of the  1996 budget  for  the whole of the EAGGF Guidance Section  was 98.7 % for  commitment 
appropriations  and  86.3 % for  payment  appropriations. 

754.  The appropriations  in the  1997 budget amount  to ECU 4 253.1 million  for  commitments 
and ECU 3 761.8 million for payments. These figures  include the appropriations for Community 
initiatives.  As  in  1996,  the  above  figures  also  include  that  part  of  the  payment  appropriations 
allocated  under  Regulation  (EEC)  No  3575/90  to  the  new  German  Lander  and  sums  for 
implementation  of  the programmes  in the most remote areas  included  in the  'Structural  Funds' 
chapter. The total of commitment appropriations does not include those for measures in the  fisheries 
sector,  since  this  is separate  from  agriculture. 

Agricultural  own resources 

755.  The EAGGF forms an integral part of the European Union's budget; its appropriations are 
therefore decided in accordance with the budgetary procedures in the same way as other Community 
expenditure. 

Trend  in revenue 
Charges  accruing  to the European  Union's  own  resources  from  the common  agricultural  policy 

Type  of  charge 

1992 

1993 

1994 

1995 

1996 

1997 

Levies 
Sugar levies, of which 
-  production ' 
- 
storage costs 
-  other 

1 206.8 
1 002.4 
606.8 
388.6 
7.0 

1  029.1 
1 115.3 
698.4 
416.7 
0.2 

922.5 
1  382.1 
809.9 
572.2 
0.0 

844.3 
1 316.3 
766.2 
542.0 
7.8 

810.1 
1  213.7 
711.5 
490.8 
11.4 

873.4 
1 366.0 
842.4 
513.4 
10.0 

Total 

2 209.2 

2  144.4 

2 304.6 

2  160.6 

2  023.8 

2  239.4 

1 

including  the additional  elimination  levy. 

(ECU  million) 

166  FINANCING OF THE CAP IN 1997 

756.  The  agricultural  policy  also  generates  revenue  in  the  form  of  sums  collected  under  the 
common organisation  of markets. This revenue, which forms part of the Union's own resources, 
consists  of: 

- 

- 

levies, which are variable charges on imports of agricultural products covered by the common 
organisation  of  the markets  and coming  from  third countries; such charges  are  intended  to 
compensate  for  the difference  between  prices on the world market  and those  agreed  within 
the  Community.  Following  the  Agreement  on  Agriculture  under  the  Uruguay  Round  of 
multilateral  trade  negotiations, levies were replaced  by fixed import duties as  from  1995; 

levies collected under the common organisation of the market in sugar; these are divided  into 
production  levies  On sugar  and  isoglucose,  sugar  storage  levies  and  additional  elimination 
levies; they ensure that farmers  and sugar manufacturers  finance  the cost of disposing of the 

. Community  sugar  which  is surplus to domestic  consumption. 

757.  It should be noted that there are other sources of agricultural  income: under the common 
organisation  of the market  for milk and milk products, producers pay an additional  levy if milk 
production quotas are exceeded. This revenue does not, however, form  part of the Community's 
own resources, but is considered  to be part of the measures to stabilise the agricultural  markets. 
It  is deducted  directly  from  agricultural  expenditure  in the sectors  concerned  for  the  financial 
year in question. 

0°^ 

VI -  External  relations 

United States 

758.  In accordance with the 1996 exchange of letters between the EU and the US on a settlement 
for cereals and rice, a cumulative recovery system for rice was introduced in July 1997, on a trial 
basis, and a tariff  rate quota for malting barley was established for 1996. 

759.  Discussions are continuing for a comprehensive EU/US wine agreement, which would give 
improved protection for EU designations of origin and would authorise imports of US wines made 
using certain oenological practices not approved in the EU. 

760.  Bilateral consultations took place on the EU support measures for canned fruit. 

761.  Negotiations  were concluded  on a bilateral  veterinary equivalence agreement covering 
sanitary  measures  affecting  trade  in  live  animals  and  animal  products  and  the  Commission 
forwarded  a proposal for a Council Decision on the conclusion of the agreement. 

762.  Discussions continued between the Commission and the US authorities in an effort to address 
US concerns on the trade implications of the EU decision on specified risk materials. 

763.  Bilateral consultations took place on EU exports of wheat gluten to the US. The Corn Gluten 
Feed Monitoring Group continued to meet regularly. 

Canada 

764.  In  December  1996 the EU and Canada  signed  a political  declaration  and  action plan, 
designed, inter alia,  to strengthen and expand EU-Canada economic and trade relations. Under 
the terms of the plan, both sides agreed to exchange inventories of barriers to trade by October 
1997 in an effort to facilitate trade in goods and services and to further reduce or eliminate tariff 
and non-tariff  barriers. 

168  EXTERNAL RELATIONS 

765.  Discussions continued between the Commission and the Canadian authorities in an effort 
to resolve problems in the interpretation and application of the Community WTO commitments 
on cereal  tariffs. 

766".  In March  1997 the EU and Canada reached an agreement in principle on a draft  text for 
a new equivalence  agreement concerning  veterinary  measures relating to trade. The adoption 
procedure was delayed due to the EU's concern over Canada's new import restrictions on bovine 
products introduced in the wake of the BSE crisis. 

Mexico 

767.  The first round of negotiations towards the conclusion of a new political, economic and 
trade agreement between the EU and the United Mexican States took place in Brussels in June 
1997. The talks resulted in a draft Agreement on Ecohomic Partnership, Political Coordination 
and Cooperation and a draft Interim Agreement on Trade and Trade-related Aspects. Discussions 
will begin in the latter part of  1997 on the detailed aspects of the agreements following the full 
ratification  of the Agreements by the Council. 

768.  On 27 May 1997, the European Union and the Government of the United Mexican States 
signed an agreement on the m itual recognition and protection of designations for spirit drinks. 
The purpose of the agreement is the mutual protection of designations of spirituous beverages 
produced on the territory of the two parties. This agreement is the first of its kind to have been 
signed with a Latin American  country. 

Mercosur and Chile 

76"9.  At the meeting of the EU/Mercosur Joint Committee set up by the Interregional Framework 
Agreement between the European Community and Mercosur signed in December  1995, it was 
stressed  that  the  Framework  Agreement  was  to  be  applied  on  a  provisional  basis  pending 
ratification. In this context details of the commercial objectives laid down in the Agreement were 
worked out, and the organs established since the Agreement was signed were confirmed, particularly 
the Joint Subcommittee on Trade. 

770.  This Subcommittee was instructed to look at trade issues with the assistance of the three 
working groups. The agricultural sector was to be studied by the working group on commodities, 
which was due to complete its analysis of the trade situation by the end of 1997. 

771.  The same procedure is also under way with regard to trade between the EU and Chile. 

Japan and the Republic of Korea 

EXTERNAL RELATIONS 

169 

772.  Work with Japan and the Republic of Korea continued to be centred on market access and 
deregulation  issues, particularly  in relation to continuing to remove trade barriers in the areas 
of plant and animal health. In March  1997 Commissioner Fischler undertook a six-day visit to 
Japan, accompanied by 20 senior European business executives, to promote European agricultural 
and food exports to Japan and to strengthen contacts with the Japanese Government. The visit 
was judged to have been very successful. Serious difficulties  arose as a consequence of Korea's 
decision to impose a restrictive quota, in March  1997, for imports of milk-powder blends (for 
which the EU is the dominant supplier) under the WTO safeguards  procedures. The EU does 
not accept the validity of these measures, and consultations with Korea are continuing. 

New Zealand 

773.  On 17 December 1996 the Council adopted a decision on the conclusion of an Agreement 
between the European Union and New Zealand on sanitary measures applicable to trade in live 
animals and animal products. This agreement is the first of its kind between the Community and 
a third country  and is designed  to reduce existing regulatory barriers still further.  It puts into 
practice the provisions of the WTO Agreement on the Application of Sanitary and Phytosanitary 
Measures and will facilitate  trade between the European Community and New Zealand in live 
animals  and  animal  products  through  progressive  recognition  of  the  equivalence  of  sanitary 
measures, acceptance of the régionalisation principle and the improvement of communication 
and cooperation. 

774.  Discussions also took place on the definition  of butter eligible for reduced duty within a 
WTO tariff  quota. 

Republic of South Africa 

775.  South Africa  became a full  beneficiary of the generalised system of preferences  in 1997. 

776.  Based on Council negotiating directives, the process towards a free trade agreement with 
South  Africa  continued  at  technical  and  ministerial  levels. The  South  African  Minister  for 
Agriculture, Derek Hanekom, met Commissioner Fischler on 27 June 1997 to consolidate progress 
on  the  negotiations  and  to  address bilateral  trade  issues. Both sides  expressed  an  interest in 

170  EXTERNAL RELATIONS 

accelerating  progress  leading  to a comprehensive  bilateral  agreement  establishing  a  free  trade 
area between the EU and South Africa. This would cover trade, development and a series of other 
aspects of cooperation  based  on three principles: full  WTO compatibility,  respect  for  sensitive 
interests and  products/and  benefits  for  the southern  African  region. 

777.  A  separate exercise  aimed  at establishing  an agreement on wines and spirits between the 
EU and South  Africa  has been  started. 

Central and eastern  European countries (CEECs) 

778.  In  the  first  part  of  the year,  negotiations  were concluded  for  the  adaptation  of  the  trade 
concessions  contained  in  the Europe  Agreements  (Association  Agreements)  with the Visegrad 
countries (Hungary, Poland, the Czech Republic and Slovakia), Bulgaria, Romania, and with the 
Baltic  States  (Estonia,  Latvia  and  Lithuania).  This  adaptation  was  to  take  account  of  EU 
enlargement  and  the results of  the GATT Uruguay  Round. 

779.  For the Visegrad countries, Bulgaria and Romania, existing autonomous measures providing 
for  the maintenance of  concessions  to these countries were extended  from  1  January  1997, and 
were then superseded from  1 July 1997 by new autonomous measures introducing in full the results 
of  the negotiations.  For  the  Baltic  States,  autonomous  measures  introduced  from  1 July  1996 
continued  to apply. Both  sets of measures will remain in force  until the Additional  Protocols to 
the Europe  Agreements  have been  finally  adopted. 

780.  The  new  Europe  Agreement  with  Slovenia,  which  included  reciprocal  agricultural 
concessions, entered  into  force  on  1  January  1997. A Cooperation  Agreement  with the Former 
Yugoslav Republic of Macedonia (FYROM), involving Community tariff concessions, was signed 
on 29 April  1997, with  a view  to its entry  into force  at the end of the year. 

781.  Negotiations for wine and spirits agreements with the Czech Republic, Slovakia and Slovenia 
continued,  as  well  as the  renegotiation  of  the current  agreements with Bulgaria and  Romania. 

782.  Negotiations for veterinary, phytosanitary and animal welfare equivalence agreements with 
the Visegrad countries, Bulgaria and Romania continued, and those with the Czech Republic were 
completed. 

783.  The Commission published its opinions on the applications of 10 CEECs for EU membership 
and made certain proposals (in the framework  of its Agenda 2000 documents) with regard to pre-
accession  financial  assistance  (including  for  agriculture) for thé CEECs. 

Mediterranean  countries 

EXTERNAL RELATIONS 

171 

784.  Under the Euro-Mediterranean partnership agreed with the EU's Mediterranean partners 
in November  1995 in Barcelona, new Association Agreements are to be negotiated, which will 
replace the Cooperation Agreements of the 1970s. Negotiations with Tunisia, Israel and Morocco 
were concluded in  1995. In  1997, an agreement was concluded with the Palestinian Authority. 
Negotiations are being held with Algeria, Jordan, Egypt and Lebanon. The agreement with Jordan 
should  be  signed  by  the  end  of  1997. Exploratory  talks  with  Syria  were  held  in  1997, and 
negotiations  may  start  in  1998. The  new  agreements  with  Israel,  Morocco, Tunisia  and the 
Palestinians will enter into force after ratification by national parliaments, probably in 1998. These 
agreements will serve to enhance trade and provide for reciprocal trade concessions on agricultural 
products. 

785.  The reciprocal concessions on agriculture in the new agreements with Israel and with the 
Palestinian Authority came into force on an interim basis in 1996 and 1997 respectively. Specific 
decisions on certain products were also taken to anticipate certain provisions of the new agreements 
with Morocco and Tunisia in order to maintain traditional flows of agricultural goods. 

786.  Negotiations with Turkey on adjustments  to the preferential  arrangements on agriculture 
were completed  in  1997. These adjustments  extend the preferential  regime for Turkish goods 
imported into the EU; they also provide for reciprocal Turkish concessions for EU agricultural 
goods exported to Turkey. The adjustments also address the problems between the EU and Turkey 
linked to the implementation of the GATT Uruguay Round and to EU enlargement. The package 
should enter into force in  1998, with some elements being applied from September 1997. 

787.  Conclusions  were reached  in  1996 in  negotiations  with  Cyprus  to take  account  of the 
consequences of Uruguay Round implementation, with a view to being adopted in 1997 and applied 
from  1  January 1998. 

EFT A countries 

788.  The European Union continued in 1997 its negotiations with Switzerland on the conclusion 
of a new bilateral agricultural  agreement. These negotiations are being conducted on the basis 
of a general negotiating mandate in six other sectors. The negotiations on agriculture centre on 
mutual tariff concessions and the reduction of the technical barriers to trade (in particular in the 
veterinary, plant health, wine and spirits sectors). 

789.  Conclusion of the agreement will depend on the progress of negotiations in the other sectors, 
in accordance with the Council directives, which provide for the interlinking of the various fields. 

172  EXTERNAL  RELATIONS 

790.  In  1997, the  EU  held  negotiations  with  Norway  on  the conclusion  of  a  new  bilateral 
agreement in the agricultural  sector. These negotiations, based on the principle of reciprocity, 
are aimed at extending the concessions provided for in the existing agreements and promoting 
greater liberalisation of trade in the sector. 

Multilateral cooperation and international  organisations 

World Trade Organisation (WTO) 

791.  The first biennial WTO Ministerial Meeting took place in Singapore from 9 to 13 December 
1996, to assess the implementation of the members' commitments under the WTO. The Conference 
noted that progress had been made in advancing the reform programme in agriculture, including 
the implementation of agreed market access concessions and domestic support and export subsidy 
commitments. The Ministers approved the report of the Committee on Agriculture which states 
that : 

792.  "The negotiations to continue the reform process referred to in Article 20 of the Agreement 
on Agriculture will be conducted in conformity with the timetable and all other provisions contained 
in that Article. Useful experience will be gained by the Committee on Agriculture to further pursue 
in  1997 and  thereafter: 

- 

the assessment of the compliance with these commitments, taking into account the need for 
full  and timely compliance; and 

-  a process of analysis and information  exchange, in accordance with all relevant provisions 

of the Agreement on Agriculture. 

793.  This will allow WTO Members to better understand the issues involved and to  identify 
their interests in respect of them before undertaking the mandated negotiations laid down in Article 
20." 

794.  In  1997 the WTO Committee on Agriculture held regular meetings and several informal 
consultations  at  which  progress  in  the implementation  of commitments  negotiated  under the 
Uruguay Round was reviewed. 

795.  The  WTO  Committee  on  Sanitary  and  Phytosanitary  Measures  is  monitoring  the 
implementation of the commitments of WTO members, working on guidelines on consistency, 
and developing a monitoring system on the process of international harmonisation. The European 
Commission participated  actively in the work of both' committees. 

EXTERNAL RELATIONS  17 3 

Accession to  World Trade  Organisation 

796.  The Commission  negotiated  with acceding countries regarding the agricultural aspects of 
accession to the WTO, with the main focus on China, Taiwan, Russia, the Baltic States, the newly 
independent  States of  the  former  USSR  and  Saudi  Arabia. 

WTO consultations and dispute  settlement 

797.  The  panel  established  at  the request  of  Ecuador,  Guatemala,  Honduras, Mexico and  the 
United States to examine the EU banana regime issued its report on 22 May 1997. The EC appealed 
against  the  report  to  the  Appellate  Body,  which  issued  its  report  on  9  September  1997. The 
Appellate Body found  that certain aspects of the EC banana regime were not in conformity  with 
WTO provisions. 

798.  A  panel established  at the request of  the United  States, and subsequently  also of Canada, 
to examine EU measures prohibiting the use in livestock farming of growth-promoting hormones 
issued  its  report  on  18 August  1997. The  EU  subsequently  appealed  against  the report  to  the 
Appellate Body. 

, 

799.  At the request of Brazil, a panel was established concerning the import of poultry into the 
EU. 

800.  The EU participated  as a third party  in consultations requested  by the United  States with 
the Philippines  on  the latter's management  of  pigmeat  and poultry  tariff  quotas. 

801.  The EU held two rounds of consultations with Japan under Article XXII of GATT concerning 
administration  of  the import  arrangements  for  pigmeat. 

802.  The EU  held  consultations  with  Korea  in  September  1997 under Article XXII of  GATT 
on the restrictive quotas imposed on imports of milk-powder blends under the WTO Agreement 
on Safeguards.  Australia  participated  as a third  party. 

The generalised system  of preferences  (GSP) 

803.  The provisions of the Council Regulation applying the new multiannual generalised system 
of preferences  (GSP)  for  agricultural  products  entered  into  force  on  1 January  1997. The  aim 
of the GSP is to foster  the  integration  of developing  countries  into the world  economy  and  the 
multilateral  trading  system. The  new  scheme  grants preferential  access to Community  markets 
for a wide range of agricultural  products from  the developing countries. It focuses  on the needs 

174  EXTERNAL  RELATIONS 

of the poorest  of  the beneficiary  countries  by transferring  preferences  gradually  from  the more 
advanced  to the  least developed  countries  (LDCs), which benefit  from  zero duty  on exports to 
EU markets  for  all products  included  in the GSP. 

FAO 

804.  As  a  member  of  the  United  Nations  Food  and  Agriculture  Organisation,  the  Union 
participated  fully  in the work of the various bodies within the organisation,  including  meetings 
of  the Committee  on  Agriculture,  the  Committee  on  World  Food  Security,  the Committee  on 
Commodity  Problems  and  the  Committee  on  Forestry,  presenting  its  agricultural  policy  and 
approach  to  food  security.  It  took  part  in  the  technical  consultations  on  the  revision  on  the 
International  Plant Protection  Convention  (IPPC) (Rome,  13-17 January), aimed,  among  other 
things, at bringing it into line with the Agreement on the Application of Sanitary and Phytosanitary 
Measures  of  the  Final  Act  of  the  Uruguay  Round.  It  also played  an  active  part  in  the  seventh 
session of the Commission  on Plant Genetic Resources for Food and Agriculture (Rome,  15-23 
May). At this conference  the Commission  acknowledged  the progress made towards revision of 
the international  undertaking  in this field. It also took account of the importance for  agriculture 
and  world  food  security  of conservation  and  the sustainable use of plant genetic  resources and 
also stressed  the need  for  high-level  participation  by  governments  in further  work. 

Organisation  for Economic  Cooperation  and Development  (OECD) 

805.  The  EU continued  to play  an  active  part  in  the  Organisation  for  Economic  Cooperation 
and  Development  (OECD), particularly  in  the Committee  for  Agriculture  and  several  working 
parties  such  as  those  on  agricultural  policies  and  markets,  East/West  economic  relations  in 
agriculture, agriculture and trade, agriculture and the environment, export credit, seed certification, 
standards  for  fruit  and  vegetables, etc. It also played  a prominent  role in the Council  Group on 
Rural  Development,  based on a multisectoral  approach  in this area. The Union also contributed 
to compiling reports reviewing the agricultural  situation and outlook in the OECD countries and 
the report reviewing  countries  whose economies are undergoing  transition  (central  and  eastern 
Europe, the former  Soviet  Union, China and Mongolia). 

International  Sugar Organisation  (ISO) 

806.  At  its Council meeting  on 29 May  1997, the International  Sugar Organisation  adopted  a 
medium-term strategy, giving practical guidelines for the implementation of the 1992 International 
Sugar Agreement,  which  was also extended  unchanged  for  a further  two years to 31 December 
1999. 

EXTERNAL  RELATIONS 

175 

International  Grains Agreement (IGA) 

807.  The International Grains Agreement,  1995, consists of two separate legal instruments: the 
Grains Trade Convention, 1995, and the Food Aid Convention, 1995. Both conventions will remain 
in force  until  30 June  1998. 

808.  Negotiations on their extension or replacement by a new convention started in autumn 1997. 

Food aid 

809.  The European  Union continued to implement its aid programme for developing countries 
and aid  organisations. 

810.  Under the  1995 Food Aid Convention, of which the European Community and its Member 
States are signatories, the minimum annual contribution in wheat equivalent is 1  755 000 tonnes. 
The quantities  to be supplied  in  1996 remained  virtually  unchanged. 

811. 
In Regulation (EC) No 1292/96 of 27 June  1996, the Council established a new  framework 
for  food  aid  policy  and  administration  and  a  list  of  countries  and  organisations  eligible  for 
Community  aid. 

ISSN 0254-1475 

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DOCUMENTS 

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03  15  14  17 

Catalogue  number  :  CB-CO-98-601-EN-C 

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