Opinion of the Economic and Social Committee on 'A policy to consolidate the European agricultural model'
Date: 1999-10-21
Institutions: European Economic and Social Committee
Subjects: agricultural production, agricultural structure, common agricultural policy, consumer protection, international competition

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Opinion of the Economic and Social Committee on ‘A policy to consolidate the European
agricultural model’

(1999/C 368/21)

On 25 February 1999 the Economic and Social Committee decided, in accordance with Rule 23(3) of its
Rules of Procedure, to draw up an opinion on ‘A policy to consolidate the European agricultural model’.

The Section for Agriculture, Rural Development and the Environment, which was instructed to prepare
the Committee’s work on the matter, adopted its opinion on 28 September 1999. The rapporteur was
Mr Strasser.

The Committee adopted the opinion set out below at its 367th plenary session (meeting of 21 October
1999) by 76 votes to 5, with 15 abstentions.

1.

Introduction

1.1.
Europe has developed its own forms of community life
and ways of balancing various interests and settling disputes;
these patterns have been moulded by history and cultural
mindsets. A number of European states have managed over
many years to reconcile political and personal
freedom,
economic dynamism and social cohesion. The social market
economy — increasingly been fleshed out by environmental
aspects in recent years — has played a fundamental role in
achieving this success. The term ‘European model’ has rightly
been coined.

1.2.
The European agricultural model — like the European
social model — also forms part of Europe’s approach to social
and economic policy. The European agricultural model reflects
a policy which touches on fundamental questions that are
important to society as a whole. On the basis of this policy,
the EU should continue to ensure that farmers are in a position
to fulfil a sustained multi-functional role, even in a changing
economic environment. This will
involve a considerable
challenge to both farmers and those responsible for estab-
lishing agricultural policy.

Because of natural and structural factors, agricultural
1.3.
production conditions in the EU vary tremendously. There are
nonetheless a number of common features, brought about by
the shortage of space, the needs of the people and the historical
and cultural background. The European agricultural model is
based on these features and has the following fundamental
functions and characteristics:

— an agriculture that is basically characterised by family
farms and by co-operation, for instance in the form of
co-operatives;

— an agriculture that is strongly marked by the initiative
is also

and entrepreneurship of the producers,
competitive;

i.e.

it

— an agriculture that is multi-functional, i.e. that is concerned
with other things in addition to production, such as
conservation of the countryside, settlement areas, jobs and
the environment.

The European agricultural paradigm is thus based on several
fundamental, carefully balanced functions that are to be
carried out by farmers. These functions are economic, spatial,
environmental and social.

1.4.
At its meeting on 18 November 1997, the Council of
EU agricultural ministers expressed the firm will ‘to continue
developing the existing model of European agriculture and to
act to assert its identity both inside and outside the European
Union’. It was also stated in the Council’s conclusions that:

‘In the Council’s view, European agriculture as an economic
sector must be versatile, sustainable, competitive and
spread throughout Europe (including the less-favoured and
mountainous regions). It must be capable of maintaining
the countryside, conserving nature and making a key
contribution to the vitality of rural life, and must be able
to respond to consumer concerns and demands regarding
food quality and safety, environmental protection and the
safeguarding of animal welfare.’

1.5.
The Heads of State or Government also expressed
support for the European agricultural model at the European
Council in Luxembourg in December 1997, at which they
underlined their desire ‘to continue developing the present
European model of agriculture while seeking greater internal
and external competitiveness’. They pointed out that: ‘Euro-
pean agriculture must, as an economic sector be versatile,
sustainable, competitive and spread through European terri-
tory, including regions with specific problems’. (1)

1.6.
The concept of a ‘European model for agriculture’ was
the leading theme at the Congress of European Agriculture

— an agriculture that is geared to the principle of sustain-
ability, i.e. the conservation of natural resources which are
vital to life, biological diversity and the avoidance of
practices that involve costs for future generations;

(1) Presidency conclusions; SN 400/97, p. 14, 13 December 1997.

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in Ljubljana in October 1998. At
this congress the big
organisations representing European farmers and the represen-
tatives of EU agriculture ministers and the EU Commission not
only expressly supported the European agricultural model but
also stated that they were firmly determined to promote and
defend this model (1).

2. Major differences in the structure of enterprises and

production conditions

Huge differences exist within the 15 EU Member States
2.1.
between production and economic conditions, the type and
structure of production, but above all in the structures of
holdings. Large parts of the EU (a total of 56 %) fall into
economically disadvantaged areas with sometimes enormous
disadvantages in terms of location, as in upland regions, Arctic
regions or particular coastal regions.

The ESC points out

2.2.
that over the last 50 years
EU agriculture has undergone a process of adjustment of
unparalleled scope. Technical progress and increased labour
costs have brought about an unprecedented level of substi-
tution of capital for labour (2). This has gone together with an
increase in agricultural yields and productivity which is
the prices of
without equal. Because of
agricultural products in the last 40 years have not even risen
half as fast as the retail price index. Today’s EU consumers
must now spend, on average, barely 14 % of their incomes on
food, instead of a third (3).

these increases,

2.3.
Adjustments and structural change are bound to
accompany economic change and economic growth. This
fundamental principle applies equally to agriculture and down-
stream activities. There are however also a number of con-
straints on structural change in EU agriculture which have to
be borne in mind when making comparisons with,
for
example, north and south America or Australia. These con-
straints include:

— much denser population levels overall in Europe, which
means that agriculture, the countryside, nature and the
environment have to meet other claims;

— the fact that, in many cases, the structure of the agricultural
industry has evolved over a period of many centuries;

— in many cases, agriculture in upland areas does not permit

large-scale farming operations;

— society generally does not endorse agriculture unless
sufficient attention is paid to protecting nature,
the
environment and the countryside;

— other ethical values place tighter constraints on animal

husbandry;

(1) Report on the 1998 Congress of European Agriculture published
by the ECA (European Confederation of Agriculture), Brussels.
(2) In the 1960s more than 30 % of the total number of persons in
gainful employment in some EU Member States were working in
agriculture. The average figure for the EU is now barely %. Source:
Eurostat.

(3) Source: Eurostat.

— strict rules on production;

— sometimes strict regulations on the transfer of landed
property and/or limitations arising from spatial planning
measures.

2.4.
Support for the European agricultural model implies
recognition of the fact that an agricultural structure undergoing
continuing change still has to ensure that agriculture fulfils its
multi-functional role. Any short-term benefits generated by
savings in production costs must not be paid for in the form
of sectoral disadvantages, disadvantages to national economies
and disadvantages for society in the longer term.

2.5.
As is the case with the other sectors of industry and
commerce, EU agriculture also has to contend with higher
costs for a number of reasons, including the following factors:

— higher wages and salaries overall;

— higher prices for some inputs;

— higher energy prices;

— the possibilities offered by new production techniques and
processes (e.g. genetic engineering) and the processing of
inputs (e.g. the addition of hormones to animal feed)
cannot all be exploited;

— additional costs incurred as a result of higher environmen-
tal, health, animal and nature conservation standards.

The ESC points out that although the problem of higher costs
affects all industrial and commercial activities, a number of
points have to be borne in mind. In the case of agriculture,
producer prices are determined by the lowest price on the
respective markets to a greater extent than is the case with
high-value industrial products. Furthermore,
that
society wishes agriculture to be multi-functional is bound up
with the fact that agricultural production is tied to the land;
any relocation of all or part of production to low-wage
countries or countries having low environmental or labour-law
standards would therefore have far-reaching consequences for
the EU.

the fact

3. Multi-functional role of European agriculture

3.1.
This section of the present opinion, addresses the issue
of the multi-functional role of European agriculture only
insofar as is strictly necessary, since the ESC is focusing on this
issue in a separate opinion on ‘environmental priorities for the
multi-function agriculture of Agenda 2000’. The multi-
functional approach and the European agricultural model are
inter-dependent. The Committee would also refer here to its
opinion on support for rural development (4).

3.2.
The role of agriculture in society has, in the ESC’s view,
changed radically in Europe in recent decades. Protection of
the natural foundations of life, the wish for an attractive

(4) OJ C 407, 28.12.1998.

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man-made landscape and safe food have gained in importance
compared with agriculture’s role in respect of production and
quantitative security of supply.

expectations. This entails an increasing demand for services
which can only be met if the necessary remuneration is
provided.

3.3.
In contrast to the situation in the large agricultural
exporters overseas, farming in the EU Member States combines
several functions at the same time on the same stretch of land,
and is expected to do so by society. In the recital to the reform
of the CAP (1) the European Commission points out, among
other things, that the fundamental difference between the
European model and the model adopted by the EU’s principal
competitors lies in the multi-functional role of European
agriculture and the role which it plays vis-à-vis the economy,
the environment, society and the conservation of the country-
side; it is therefore essential to maintain agriculture in Europe
and to safeguard agricultural incomes.

3.4. Meeting at ministerial
level on 6 March 1998, the
OECD’s Committee for Agriculture reached agreement, after
lengthy discussion, on the goal of promoting a multi-functional
agriculture. The ESC sees this outcome as a positive step
forward (2). At the meeting ‘there was a broad consensus that
OECD Member governments should provide the appropriate
framework to ensure that the agro-food sectors’ fulfils, inter
alia, the following objectives:

— provides consumers with access to adequate and reliable

supplies of food;

— contributes to the sustainable management of natural

resources and the quality of the environment;

— contributes to the socio-economic development of rural

areas;

— contributes to food security at the national and global

levels.

The costs of

the services that a multi-functional
3.5.
agriculture is expected to provide today used to be offset more
or less adequately through the price of products. With the
deregulation of agricultural markets and falling prices for
agricultural products, this is becoming less and less possible.
The ESC therefore calls for the costs of services undertaken for
the public good, but not remunerated by the market, to be
offset — as a matter of principle — by direct payments geared
to particular tasks. And for these in future to be an integral
part of the CAP. In addition, solutions should be sought in
which direct beneficiaries — such as the tourism industry —
make a contribution.

4.2.
But European agriculture is also expected to be more
competitive on domestic and world markets. Greater linkage
of producer prices to world market prices is expected by the
processing industry, the food trade and consumers. However,
such expectations are increasingly in conflict with stricter
demands regarding land management, stockfarming and food
production methods.

4.3.
The ESC calls for farms to be given a fair opportunity
to meet the growing demands of society and the tougher
production requirements. This call is addressed to the leading
figures in the fields of agricultural policy, the processing
industry and the food industry, who cannot expect to receive
the highest quality at the lowest market price. The call is also
addressed, above all, to consumers, who are in a position
to promote particular forms of production through their
purchasing patterns.

An intact countryside, an environment worth living in
4.4.
and the maintenance of rural populations are increasingly
being looked upon as important resources of rural areas.
Conflicts sometimes arise when farmers are called upon to
provide the requisite services, particularly when they involve
restrictions on agricultural production.

4.5.
The ESC recognises that there is a conflict between
some of the expectations which agriculture or the CAP are
expected to meet; such contradictions are difficult to resolve.
On the one hand — quite understandably — requirements are
constantly being stepped up with respect to environmental
protection, animal welfare, quality standards and public health.
On the other hand, agriculture has to contend with equally
strong pressure for increased competition on the markets for
agricultural products and for a reduction of expenditure on
the CAP. The ESC thinks there is a vital need for a systematic
information campaign to make the public realise that higher
costs cannot always be offset by greater efficiency but have to
be reflected in producer prices or compensated for in other
ways. It also needs to be pointed out that services provided for
the public good do not come without a price-tag.

4. What consumers and society expect from agriculture

petition

and the CAP

5. European agriculture faces increasing pressure of com-

4.1. With growing environmental consciousness, more
calls for healthy food and changing leisure patterns, farmers
have to deal with a widening spectrum of claims, wishes and

(1) COM(1998) 158 final — OJ C 170, 4.6.1998, p. 93.
(2) Communiqué issued after the meeting of the OECD’s Committee

for Agriculture on 6.3.1998.

The ESC recognises the essential role played by the
5.1.
international trade in goods and services and the free market
in improving the level of prosperity;
industrialised states
cannot exist without participating in these activities. This
general principle also applies to agriculture. The critical
consideration is that competition between individual states
and between continents has to be fair. It is essential to lay
down binding rules for ensuring fair conditions of competition

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in trade in agricultural products if markets are to be opened
up further with a view to stepping up trade; such rules must
cover aspects such as standards in respect of the environment,
animal welfare and labour law.

5.1.1.
The EU is by far the world’s leading importer of
agricultural products and is the second largest exporter of
agricultural products. In 1996 the EU accounted for 14,6 %
of worldwide exports of agricultural products (excluding
intra-Community trade) (1) and 19,8 % of worldwide imports.
Expressed in absolute figures, the total value of EU imports of
agricultural products in 1996 was $ 83,9 billion and EU
exports of agricultural products to third countries totalled
$ 62,2 billion. The ESC interprets these figures as implying
that (a) EU agriculture is taking on international competition
in a much more resolute way than has been widely perceived
to have been the case up to now and that (b) there can be no
question of sealing off the EU markets. In its opinion on
agricultural aspects of the Commission’s Communication on
Agenda 2000(2) the ESC pointed out that the EU ‘already has
the most open market in the world’.

5.1.2.
The markets for agricultural products clearly number
amongst those in which competition has already been more
or less unrestricted for many years, especially since the
completion of the single market. As a result, farm-gate prices
are in many cases under constant pressure but producers
have become more market-orientated and therefore more
competitive at international level.

5.2.
The Uruguay Round brought about a quantum leap in
the liberalisation of international trade in agricultural products.
It did, however, also sharply reduce room for manoeuvre in
shaping agricultural policy. These restrictions affect not just
external protection but also conventional export incentives
and internal measures. The ESC is aware that EU agriculture
will face even stiffer competition as a result of eastward
enlargement and the forthcoming round of WTO trade talks.

6. New challenges facing EU agriculture

Under Article 20 (3) of

6.1.
the agriculture agreement
concluded under the GATT Uruguay Round, Member States
agreed to continue the phased reduction of aid and protection
measures one year before the expiration of the implementation
period (the commitment entered into under the Uruguay
Round). Article 20 of the WTO agriculture agreement does
not, however, make it absolutely clear what steps should be
taken to bring about further liberalisation in the forthcoming
round of WTO trade negotiations and the scope of such steps.

(1) Source: 1997 report on the situation of agriculture in the EU.
(2) OJ C 73, 9.3.1998, p. 71.
(3) WTO 1994 agriculture agreement; article 20 of this agreement
provides, inter alia, for a review of the impact of the Uruguay
Round and sets out the objective of introducing a fair, market-
orientated system in respect of trade in agricultural products.

inter alia,

the Millennium Round should cover,

6.1.1.
The EU is one of the champions of a new comprehen-
sive round of trade negotiations at the WTO. IT takes the view
that
the
following areas, in addition to agriculture: trade in services;
investment rules; a multilateral framework agreement on the
application of competition rules; trade and the environment;
and technical barriers. The situation as regards the interests of
the different states varies considerably. It is likely that this fact,
too, will make the negotiations over trade in agricultural
products particularly difficult. The differences of opinion
between the states belonging to the Cairns Group and the
USA, on the one hand, and the European states, Japan and
Korea, on the other hand, over fundamental aspects of
agricultural policy have intensified, thereby further aggravating
the situation. Two different approaches lie at the heart of the
conflict. The first group of states calls for a rigorous disman-
tling of aid and across-the-board liberalisation of trade in
agricultural products. The second group of states advocates
action to ensure that agriculture remains both sustainable and
multi-functional and therefore champions retention of a
necessary degree of external protection or specific agricultural
measures. Given this initial situation, the Commission and
the governments of the Member States will have to make
considerable efforts (a) to defend legitimate interests of EU
agriculture and (b) to safeguard the general conditions in
respect of agriculture which will enable the industry to
continue to play its multi-functional role.

6.1.2.
Council in Berlin issued the following declaration:

After taking a decision on CAP reform the European

‘The efforts made, notably in terms of reducing support
prices, represent an essential contribution by the European
Community in stabilising the world’s agricultural markets.
The European Council considers that the decision adopted
regarding the reform of the CAP within the framework of
Agenda 2000 will constitute essential elements in defining
the Commission’s negotiating mandate for the future
multi-lateral trade negotiations at the WTO.’

The ESC would draw attention to its opinions on CAP reform
which also addressed issues of the forthcoming round of WTO
trade negotiations. In its opinion on the agricultural aspects of
the Commission’s communication on Agenda 2000 (4), the
ESC urged the EU ‘not to jettison external protection where it
is necessary’ at the forthcoming WTO trade negotiations and
stressed the need ‘to introduce world-wide environmental and
social standards’.

6.2.
The ESC has closely followed the work of the EU on
concluding bilateral or regional free-trade agreements. The
Community is under tremendous pressure to include agri-
culture in such free trade provisions. In this context, however,
a critical stance should be adopted over the issue of the extent
to which free-trade provisions which include agriculture can
be reconciled with the goal of safeguarding the European
agricultural model. Attention is also drawn to the fact that
farmers in a number of developing countries, too, will be
placed under enormous pressure as a result of a further
liberalisation of international trade in agricultural products
agreed at the WTO or free-trade agreements.

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

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6.3.
Enlargement of the EU to include the CEEC poses
enormous political and institutional challenges for the EU.
Eastward enlargement of the EU is also a particular challenge
for EU agriculture. The ESC has expressed its views in detail
on this matter in several opinions, in particular its opinion on
the impact on CAP of the accession of the CEEC (1).

6.3.1.
Together with the issues of the environment, freedom
of movement for individuals, services and nuclear safety,
agriculture is one of the problem areas in the context of EU
enlargement to include the CEEC. The impact on both sides
will be far-reaching. The actual effect on the EU markets for
agricultural products, WTO commitments and the EU budget
will depend to a substantial extent on a number of factors,
including the following:

— the date when the first of the CEEC join the EU;

7.2.
If we are to draw the correct conclusions for the future,
we must first answer the question as to the extent to which
the CAP has promoted the goal of safeguarding the European
to which the recently
agricultural model and the extent
reformed CAP can fulfil this task. In particular, the question
arises of how, against the background of increasing compe-
tition, a multi-functional agricultural sector can continue to
provide the various services.

7.3. 1992 CAP Reform

7.3.1.
Throughout its history, the CAP has constantly being
adjusted to bring it into line with changing situations. The first
comprehensive reform was carried out in 1992 with the
following objectives, among others:

— the form and period of validity of transitional arrangements
(e.g. for the granting of market organisation premiums);

— to keep on the land a sufficiently large number of farmers
to safeguard the environment and the ‘family-farm’ model;

— in what form and to what extent the quantitative regu-

lations (quotas, reference quantities, etc.) will apply;

— to curb production sufficiently to re-establish balance on

the markets;

— whether, and to what extent, alternative products in the
field of renewable sources of energy or renewable raw
materials for industrial purposes can be developed.

6.4.
According to UN estimates, world population will
increase from the current figure of some 6 billion to approxi-
mately 8 billion over the next 20 years. This is bound to lead
to a sharp increase in the demand for food. The fact that a
series of states lack the wherewithal to pay is a problem which
has to be borne in mind here.

EU agriculture should also take advantage of the opportunities
provided by a world-wide increase in demand;
increased
demand should not, however, be exploited at any price.

7. A policy to consolidate the European agricultural

model

7.1.
The ESC sees no contradiction between maintaining
the European agricultural model and the need to bring
European agriculture into line with the changing economic
situations. Farmers will, however, have to meet major chal-
lenges and particular demands will also be placed upon the
CAP. The ESC sees a policy to consolidate the European
agricultural model as fulfilling a need to strengthen a generally
desired paradigm for agricultural policy and to develop it
further by means of concrete political measures. This will
however only be possible if the EU and the Member States are
able to retain the necessary agricultural policy leeway after the
coming round of trade negotiations at the WTO.

(1) OJ C 75, 10.3.1997, p. 4.

— to introduce extensification;

— to promote competitiveness and efficiency in the EU
agricultural sector in order to enable EU agriculture to play
its role on the world markets.

7.3.2.
The ESC addressed the impact of the 1992 CAP
reform in an earlier own-initiative opinion (2). In this opinion,
the ESC noted, among other things, that some of the objectives,
such as reducing surpluses, better targeting of environmental
requirements and the stabilisation of incomes to a certain
extent had been achieved. The ESC was, however, critical of
the failure to halt the trend towards further concentration of
agricultural production which was leading to an on-going loss
of jobs in agriculture. The observations made by the ESC in its
own-initiative opinion at the beginning of 1997 have been
borne out by subsequent developments. The decline in the
number of both agricultural holdings and jobs has continued
at approximately the same rate (an average of 3,7 % per year)
as was the case before the CAP reform.

7.3.3.
One clear benefit has been that the post-reform trend
in farm incomes has turned upwards. It must, however, be
borne in mind that, in spite of the sharp increase in direct
payments in the wake of agricultural reform, the improvement
in the net product per worker (3) has largely been brought
about as a consequence of the exodus from the land. Attention
the discrepancy between
is also drawn to the fact
that
agricultural and non-agricultural
incomes remains high on
average.

(2) Opinion on the Stocktaking of CAP reform, OJ C 89, 19.3.1997,

p. 39.

(3) Net product at factor costs = gross product at market prices less

depreciation, taxes and subsidies.

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The European agricultural model involves a variety
7.3.4.
of functions.
In the light of the current problems which
sometimes affect the multi-functional role of agriculture, such
the
as the disproportionate percentage of older farmers,
wholesale abandonment of farming in individual regions and
damage to the environment brought about by agricultural
production, it is clear that the current general background
does not sufficiently meet the need to safeguard the European
agricultural model. The ESC would, however, point out that
this is not just the fault of the CAP; the policies pursued by the
individual Member States when implementing EU market-
organisation measures and aid programmes must also bear a
share of the blame.

7.4. 1999 CAP Reform

7.4.1.
The reform measures agreed upon in Berlin will start
to come in effect next year. Despite the fact that the reforms
were not as extensive as had been proposed by the Com-
mission, their impact will be clearly felt, even in the medium
term.

The price reductions agreed upon will, make EU
7.4.2.
agriculture more competitive vis-à-vis rival producers in third
countries; these reductions will, however, herald yet a further
drop in farm income from the sale of agricultural products.
The role played by direct payments as an element in farmers’
incomes will therefore increase still further in significance. In
many cases, however, direct payments are failing fully to carry
out their role of providing compensation. It is, though, vital
for farms to cover their costs if they are to have an economic
future.

7.4.3.
The granting of direct payments is — or may be —
tied to the fulfilling of additional conditions. This will engender
more red tape and may lead to a situation in which only part
of the available direct payments can be taken up.

7.4.4.
The decision taken in Berlin to freeze expenditure on
the CAP, in real terms, at 1999 levels until the year 2006
means that there is very little financial leeway for fulfilling the
various tasks. This will, in the ESC’s view, have an impact in
particular on the second pillar of the CAP, namely the policy
for the development of rural areas. The ESC fears that
ultimately it will be impossible to achieve the praiseworthy
objective of sustainable development in rural areas — as has
already been pointed out in the ESC opinion on reform/funding
of the CAP (Agenda 2000) (1).

7.4.5.
The Council of Agriculture Ministers and also the
Heads of State or Government wanted the reforms to meet the
new challenges facing EU agriculture and to enact the prin-
ciples laid down at the Luxembourg summit. The ESC does,
however, fear that the squeezing of agricultural incomes will
increase significantly and there will be more pressure to
achieve further concentration.

(1) OJ C 407, 28.12.1998, p. 1156.

7.5. The CAP must support individual initiative and encourage

competitiveness

7.5.1.
The agreement of the Heads of State or Government
on CAP reform fixes the conditions governing agricultural
production for at least the next few years. In the light of the
forthcoming round of trade negotiations at the WTO, the
expected pressure for further liberalisation and the eastward
enlargement of the EU, there will be an ongoing debate on the
CAP or its key elements.

It is, however, vitally important to arrive at a basic consensus
on the need to take a number of specific agriculture measures
to safeguard the European Agricultural Model and/or a multi-
functional agriculture.

7.5.2.
As pointed out in the introduction, the European
Agricultural Model involves the provision of particular services
by the farming community. As there is no doubt
that
the public in the EU Member States want to maintain a
multi-functional agricultural sector, it is clearly essential to
ensure that those working in agriculture enjoy an adequate
standard of living, in accordance with Article 33 of the EC
Treaty.

7.5.3.
The ESC believes that farmers will in future be called
upon, even more than has been the case in the preceding
decades, to:

— react in good time to changes in market conditions and to

exploit new marketing opportunities;

— make use of

the opportunities provided by technical
progress to the extent that it is required for achieving
optimal production levels, observing the principle of
sustainability and meeting environmental requirement;

— bring down production costs and improve their market
position by engaging in industry-wide co-operation, per-
haps in the form of co-operatives;

— increase added value through product diversification, the
provision of quality products and the targeted exploitation
of market opportunities;

— take on extra jobs outside the farm if reasonable oppor-

tunities arise.

A further objective for agricultural measures at EU or national
level must be to support individual initiative.

7.5.4.
If EU agriculture is to provide the multi-functional
services expected of it, it is essential (a) to apply new CAP
instruments, such as insurance against crop failure and loss of
income and (b) to continue to pursue a price and market
policy based on the three key components of the CAP,
namely the single market, Community preference and financial
solidarity.

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7.5.5.
It has already been stated repeatedly that promotion
of competitiveness and efficiency is a key component of the
European agricultural model. Farmers must exploit existing
scope for becoming more competitive. Competitiveness is not,
however, merely a matter of price. The quality, image and
origin of agricultural products also play a role.

Consumers expect more information about the type of pro-
duction, origin and quality. The labelling and traceability of
food is becoming more and more important. Anyone who
measures up to these expectations has a chance of side-
in
stepping the growing price competition (also caused,
particular, by concentration in the food industry) and getting
more for their products. The possibilities in respect of product
designation provided by the EU provisions on the protection
of geographical indications and designations of origin (1) and
certificates of specific character (2) should also be exploited; it
is vital to remove any administrative barriers and reduce any
financial burdens which may be placed upon applicants for
such product designations.

7.5.6. Major scientific progress and progress in agricultural
technology have opened the way to tremendous gains in
efficiency which would not have been credible some decades
ago. It is not just farmers who have benefited from this
development. Consumers and society in general have also
benefited as such progress was a key prerequisite for increased
general prosperity. In the ESC’s view EU agriculture should
continue to be able to exploit new technological developments,
in particular in the field of biotechnology. We must, however,
ensure that environmental requirements and the expectations
of society with regard to agriculture are not disregarded; at the
same time it
to make sure that competitive
disadvantages caused by restrictions are avoided or offset.
Whatever happens, it is necessary for Europe to make greater
efforts in agricultural research for the development of future-
oriented technologies. Such efforts are also necessary in the
interests of greater self-reliance.

is essential

7.5.7.
Appropriate provisions will have to be introduced to
meet requirements in respect of nature conservation, the
environment, animal welfare, product-quality and public
health. When necessary, these will have to be constantly
updated, for example in the light of new findings. As is
explained in point 2.5, most of the stricter EU rules on
production may generate considerable competitive disadvan-
tages for farmers in the EU. With the increasing globalisation
of agricultural trade, this should be taken into special consider-
ation. In addition, in order to ensure fair terms of competition
within the EU’s internal market, all Member States must
apply comparable quality, environment and animal-welfare
standards.

(1) Regulation (EEC) No. 2081/92 of the Council of 14.7.1992 on
the protection of geographical indications and designations of
origin in respect of agricultural products and foodstuffs (OJ L 208,
24.7.1992, p. 1).

(2) Regulation (EEC) No. 2082/92 of the Council of 14.7.1992 on
certificates of specific character for agricultural products and
foodstuffs (OJ L 208, 24.7.1992, p. 9).

The ESC therefore takes the view — as it has already done
repeatedly in its opinions — that, key standards for agriculture
should be safeguarded by internationally-binding rules,
in
order to rule out otherwise insuperable distortions of compe-
tition. When introducing new rules governing agricultural
production or adjustments to bring it into line with new
knowledge and conditions, it is essential to follow the principle
of only doing what is objectively necessary.

7.6. Basic market regulation objectives must remain in place

7.6.1.
The ESC believes that the production of agricultural
goods for the market must continue to represent the essential
source of income for farmers and is therefore a vital element
of
the European model. Markets in agricultural products
are particularly susceptible to price fluctuations. Large price
fluctuations often send misleading signals to the market, lead
in stages to major losses and — in the longer term — are not
advantageous to consumers (3). Regulation of
the market
therefore provides a safety net. But it should not be allowed to
distort markets. In the long term agricultural production must
be geared to market conditions.

7.6.2.
It has to be recognised however, that, just has been
the case in the past, market regulations will periodically
have to be adjusted to accommodate changes in marketing
conditions and terms of competition. This must not however,
result in key components of the organisation of the markets,
such as import or intervention regulations and proven instru-
ments for managing supply, being dropped.

7.6.3.
It is likely that, apart from some exceptions and cases
of particularly favourable market situations, EU farms will
continue to be unable to match world market prices for
agricultural products on a sustained basis (see the observations
made in sections 2 and 4 above). The multi-functional role of
European agriculture will, on the other hand, acquire increased
overall social importance in the future. Since existing differ-
ences in production conditions will also basically remain the

(3) In the European Commission’s study entitled ‘Towards a common
agricultural and rural policy for Europe’ (European Economy
No. 5/97), compiled by expert agricultural economists, the follow-
ing factors are cited as justification for public measures to stabilise
markets for agricultural products:
— a high degree of risk given its dependence on weather and

exposure to pests and diseases (which strike locally);

— exposure to interest rate and exchange rate risk (which affect
the whole sector — but which may diminish post-EMU);
— a spatially-diffused, atomistic structure of many small busi-
nesses, which have a high proportion of immobile assets,
which restricts freedom of manoeuvre;

— a moderately long gestation period involved in the production

cycle;

— producers who have, individually, insufficient resources and

information easily to manage the risk;

— the responsibility to supply products consumed by every

citizen every day.

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same in the future, and other or stricter requirements will be
laid down for EU agriculture, the ESC feels that adequate
external protection will continue to be necessary.

If and when external protection is reduced,
it is vital to
safeguard the multi-functional role of agriculture, by ensuring
adequate payment — through a corresponding increase in
direct payments — for, in particular, public welfare services
provided by farms and thus ensure their continued existence.
These facts must be borne in mind not only at the WTO trade
talks but also in EU negotiations with third countries and
groups of states on free trade agreements.

7.6.4.
The ESC calls upon the Commission to do everything
possible to ensure that the forthcoming WTO trade nego-
tiations address not only a further reduction in external
protection but also — with a view to establishing fair terms of
competition — the obligation upon all WTO member states
to observe minimum environmental and labour-law standards,
as urged for instance in the ESC own-initiative opinion on the
World Trade Organisation (WTO). (1) To the extent to which
progress can be made in establishing binding rules for fair
trade in agricultural products, a case can also be made for
further liberalisation of international trade.

7.6.5.
The EU public demands food which is both safe and
of high quality, and urges action to safeguard the public,
animal and plant health and animal welfare. EU agriculture has
these demands which are
to take increasing account of
increasingly being enshrined in EU law. The Committee
welcomes the Commission’s intention to include these matters
in the negotiations, as key issues. The aim must be to take
steps (a) to prevent strict EU provisions from being rendered
meaningless by imports from outside the EU which distort
competition as they do not have to comply with similarly
strict requirements and ( b)
to prevent whole areas of
production being jeopardised. All states must be authorised to
act on major matters of concern to consumers in the respective
states. The Committee takes the view that one way to achieve
this aim would be through the application of the ‘precautionary
principle’ (Article 5.7 of the SPS (sanitary and phytosanitary
measures) Agreement, on the basis of a uniform risk assess-
ment procedure used by all WTO member states, as suggested
by the Commission.

the different production sectors.

7.6.6.
The ESC thinks that further moves towards liber-
alisation should be differentiated according to the situations
and requirements of
In
addition, provision should be made for currency fluctuations.
In the ESC’s view it is absolutely essential to extend the peace
clause beyond the year 2003. The same applies to the special
protection clause in Article 5 of the WTO Agreement on
Agriculture.

In a world market characterised by division of labour,
7.6.7.
exports play a vital role. For the reasons set out in several
paragraphs above, export refunds will continue to play a

(1) OJ C 101, 12.4.1999, p. 43.

certain role as an instrument of market regulation. The aim,
however, is to conclude international agreements which reduce
all kinds of export supporting measures as much as possible
in order to establish fair conditions of competition on the
international markets. The ESC does however urge that:

— EU agriculture make every effort to exploit the advantage
of being able to provide home-grown products for its own
markets which meet all the expectations of the consumer
(thereby reducing the dependence on exports);

— export opportunities be exploited, particularly in the case
of products in respect of which (a) EU agriculture or the
EU processing industry enjoy comparative advantages, (b)
there is strong worldwide effective demand and (c) exports
are in part possible without export refunds;

— supply-management

instruments be used not only to
ensure that existing WTO commitments are adhered to
but also to rule out exports at rock-bottom prices;

— in EU export policy for agricultural products, attention
should also be paid to the different situations of agriculture
in the target countries, especially the developing countries.

trade negotiations at

There are likely to be especially significant disagree-
7.6.8.
ments over the question of export support measures in the
forthcoming round of
the WTO.
Although Article 10(2) of the WTO Agreement on Agriculture
unambiguously refers to export credits and export credit
guarantees as export subsidies, it fails to lay down any rules
for these instruments. It was planned to reach an agreement
on those rules in the course of the implementation phase of
the Uruguay Round but no agreement was reached. In the
course of the forthcoming round of trade negotiations no new
restrictions must be placed on export support measures unless
agreement is reached on rules for export credits and export
credit guarantees. In view of the fact that internal EU prices
will normally continue to be higher than world market prices,
no agreements must be entered into on the phasing out of
export support measures.

7.7. Linkage of direct payments

7.7.1.
The multi-functional role of European agriculture
includes services which in earlier times were reimbursed — to
a more or less satisfactory extent — through income from
sales of products. This is now becoming less and less the case
and, as a result, direct payments are forming an ever more
important part of agricultural income. Although direct pay-
ments are important, they can play only a supporting role in
view of the fact that farmers are businessmen, producing
goods for the market, who should derive a substantial part of
their income from the sale of products.

The 1992 CAP reform represented a major step
7.7.2.
towards extending direct payments; this approach is now being
continued and stepped up. It is vitally important for farmers
— not least in respect of the roles which they perceive
themselves to have — that
these payments should not
constantly be the subject of political debate, that the purpose
of the direct payments be clearly spelled out and that their
survival be guaranteed in the relatively long term.

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7.7.3.
The ESC expressly supports the principle of linkage
with regard to direct payments and the provision of lasting
assurances as to the continued application of this increasingly
important CAP instrument. A distinction must therefore be
drawn between:

— direct payments in compensation for public-interest ser-

vices on which no market price can be placed;

— direct payments in compensation for price reductions, to

the extent that this can be established;

— direct payments in compensation for ongoing natural

difficulties which cannot be altered.

In view of the fact that the above principle has not been fully
adhered to in Agenda 2000 reform, the ESC believes that there
are likely to be damaging consequences, at least in the longer
term.

7.7.4.
In the interests of securing widespread acceptance of
the scheme, the ESC would draw attention to the need to
provide adequate justification for direct payments. However,
in view of the fact that the conditions for claiming direct
payments are constantly being tightened, and bearing in mind
that
farmers fulfilling these conditions is
the question arises as to whether the direct-
decreasing,
payment scheme is still in the position to meet the original
objectives.

the number of

It would clearly not be conducive to fulfilling these objectives
if excessively strict eligibility conditions were imposed which
(a) made it harder to overcome problems of adjustment and
(b) stood in the way of improved international competitiveness.
It is also essential to ensure that — as is the case with other
aid measures — direct payments are administered as efficiently
as possible and that excessive red-tape is avoided.

The acid test for the EU will be the extent to which it
7.7.5.
will manage to defend the CAP reforms at the forthcoming
round of WTO trade negotiations. The Commission has given
repeated assurances that the amended or new premiums
payable under market regulations are in accordance with the
‘blue box’ requirements and will be vigorously defended to
ensure their survival in the longer term. In the ESC’s view, it is
absolutely vital to safeguard these payments as the ‘blue
box’ approach to supply-management has proved successful.
Equally, the ‘green box’ needs to survive, as ‘green measures’
have become more important, have little impact on trade and
are essential as a tool for reimbursing the discharge of certain
obligations by agriculture.

7.7.6.
Since 1992 there has been a growing trend in the
CAP towards cutting expenditure on price-support measure
and extending direct payments by way of compensation; this
trend makes farm incomes increasingly dependent upon
budgets. The ESC would stress the need to guarantee the
financial backing for direct payments in the longer term in
order to provide farmers with the necessary security.

7.8. Rural development policy

7.8.1.
Integrated rural development measures, the second
pillar of the CAP, are of considerable importance. These
measures essentially involve bringing together the earlier
supporting measures (environmental programme and forestry
measures), structural measures covering agriculture (former
objective 5a), and the earlier aid programmes restricted to
particular target areas.

7.8.2.
Combining the measures in this way is, in the ESC’s
view, a good idea as it makes it possible to pay greater
attention to the planned objective of strengthening integrated
rural development policy, with particular attention being paid
to agriculture. Rural development policy fulfils a vital role but
it cannot take the place of conventional CAP instruments. The
ESC deplores the fact that the proposed funding merely keeps
pace with the previous level of expenditure. It is essential to
provide a higher level of funding in order to meet the real
requirements, particularly as regards ensuring the multi-
functional nature of agriculture throughout the EU.

7.8.3.
The market position of EU farmers will have to
be strengthened and, above all, marketing and processing
enterprises, in which co-operatives have a decisive role to play,
will have to be competitive if they are to cope with the growing
pressure of competition. The support measures in this field set
out in the Regulation on rural development have an important
role to play here. The ESC trusts that this regulation will be
implemented in a purposeful and effective way and also takes
the view that targeted marketing is a key way to strengthen
position on both the internal market and on the markets of
third countries. One essential objective must be to enable
farmers to add more value and increase the use of local
resources in the regions — thus bringing about a lasting
improvement in the economic viability of rural areas.

The CAP reform expands the compensatory payment
7.8.4.
scheme which is important
to farmers in less favoured
areas. This is the one instrument that makes a fundamental
contribution towards safeguarding farming in these areas. This
proven, virtually undisputed direct payment is designed to
provide compensation for ongoing natural disadvantages. The
ESC calls for this principle to be maintained and to be kept
separate from other CAP objectives.

7.8.5.
In the ESC’s view, agriculture’s role as a food
producer is also of vital importance with a view to maintaining
a widespread agricultural industry in less favoured regions and
ensuring that farms in these regions fulfil a multi-functional
role. The ESC therefore calls for appropriate specific measures
to be taken to maintain production, even under difficult
conditions. Such measures are required in particular in the
case of products to which there are scarcely any alternatives,
such as milk production and cattle and sheep-farming in
specific regions.

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7.9. Supplementary and alternative sources of income and employ-

ment for farmers

7.9.1.
It is not a new phenomenon for farmers to diversify
in order to secure an income from a variety of sources. Such
diversification is particularly pronounced in a number of
individual Member States as a result of existing structures and
local conditions. The decline in income from farming affecting
a large number of agricultural enterprises, and also personal
expectations as regards income, are frequent reasons why
farmers look for additional sources of income.

7.9.2.
Additional sources of income can help agricultural
enterprises to become economically secure. A key focal point
of rural development programmes must be the promotion
of employment in general and the creation of additional
opportunities for earning a living and supplementing income
for farmers and their family members. The ESC supports this
strategy but, with an eye to its effective implementation, it
calls for the removal of
legal restrictions and obstacles.
Financial aid alone will not be sufficient to achieve the planned
objectives.

7.10. The challenge of providing renewable raw materials

7.10.1.
One important role of agriculture and forestry since
time immemorial has been to supply energy products and raw
materials, in addition to food and animal feed. Biomass is
becoming more and more important as a renewable raw
material. Farmers are able to step up the production of biomass
as a raw material to a considerable extent. Such an undertaking
should not be regarded solely as part of the multi-functional
role of EU agriculture; it would also do much to protect the
environment, promote employment and, above all, strengthen
the European agricultural model.

Biomass is being used to an increasing extent as an
7.10.2.
alternative raw material in a number of industries. A variety of
plant-based raw materials are,
for example, used in the
chemical industry (as alternative ingredients in detergents and
printing ink) or in vehicle construction (vegetable fibre). Given
increased use of
the existing problems of waste disposal,
vegetable starch as a raw material in the packaging industry is
particularly important. The Committee regards this as a
very positive development and therefore calls for it to be
purposefully promoted, bearing in mind the ecological aspects.

Under the Kyoto Protocol (1) the EU undertook to
7.10.3.
cut greenhouse gas emissions by 8 % of the 1999 level in the
course of the period from 2008 to 2012. In line with this
commitment, the European Commission’s White Paper on
Energy for the Future — Renewable Sources of Energy (2)
foresees that the use of renewable sources of energy will be
doubled, from 6 to 12 % of overall energy production, by the
year 2010. Biomass has a key role to play here.

(1) Kyoto Protocol to the UN Convention of 11 December 1997 on

Climate Change.

(2) COM(97) 599 final of 26.11.1997, Energy for the Future —
renewable sources of energy: White Paper for a Community
strategy and action plan.

7.10.4.
In addition to its important environmental role, the
increased use of biomass in energy production also has a
considerable impact on employment. The above-mentioned
Commission White Paper (and the TERES II Study (3)) foresees
the possible creation of 500 000 jobs (net figure) by 2010.

7.10.5.
The ESC calls for appropriate regulatory measures
to be introduced, in addition to adequate financial support for
the production of biomass as a renewable raw material. The
aim is to facilitate the use of biomass in, for example, energy
production and as a material. Such measures could include:

— improving the competitive position of renewable energy
sources vis-à-vis fossil fuels; a number of Member States
have already introduced tax measures for this purpose;

— EU-wide rules on the use of bio-fuels, bearing in mind the

ecological and economic aspects;

— promoting greater use of electricity and heat generated

from the renewable source biomass;

— abolition of the limitations on oil seeds under the Blair

House agreement;

— abolition of administrative barriers against field crops for

non-food purposes.

The ESC also urges that research be stepped up into ways of
making biomass more competitive vis-à-vis fossil fuels and
into developing new ways of using biomass, perhaps in the
chemical or vehicle manufacturing industries.

8. Conclusions

8.1.
The European agricultural model should be seen as
part of an autonomous social and economic policy that
for some decades now has been characteristic of European
countries. It should be understood as a policy model for an
agriculture which is characteristically based on family farming,
is geared to economic, social and ecological sustainability and
is in a position to provide the various services desired by
society, i.e. which is multi-functional.

8.2.
The ESC is aware of the importance that the European
Commission, the member governments and European farmers’
organisations explicitly attach to the European agricultural
model. But however positive such recognition may be, what
counts at the end of the day is the extent to which this
recognition is actually reflected in policy.

Attachment to the European agricultural model must
8.3.
not be seen as incompatible with the need for farmers to adapt
to constantly changing economic conditions, for farms to be
competitive and for production to be geared to market needs.

(3) TERESS II, European Commission, 1997.

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8.4.
But one fact should be beyond dispute: the European
agricultural model is the decisive precondition for continuation
of the multi-functional role that society expects from agri-
culture. An agriculture that is geared solely to international
competitiveness cannot fulfil these demands.

8.5.
The ESC sees a ‘policy to consolidate the European
agricultural model’ as a vehicle for the concrete measures
needed to buttress the generally accepted model for agricultural
policy. The aim is to provide the various services of a
multi-functional agricultural sector, even in the teeth of
ever-increasing competition.

8.6.
Competitive, efficient farming is a key component of
the European agricultural model. The ESC assumes that in the
future farmers will be asked — even more so than in the past
— to exploit existing opportunities to improve competi-
tiveness and avail themselves of marketing openings and
additional scope for gainful employment or income; individual
initiative must be given adequate support in this context.
Technical progress is however also a vital prerequisite for
efficiency gains. There is, however, in the Committee’s view, a
case for awarding an appropriate form of compensation only
a) when competitive disadvantages are incurred by farms as a
result of the imposition of restrictions on environmental or
ethical grounds or in the wake of demands made by society
and (b) when the competitive disadvantages cannot be offset
by higher prices.

Brussels, 21 October 1999.

Given the production situation in the EU Member
8.7.
States,
it is not possible for agriculture to meet its multi-
functional remit under world market conditions. Market
targeted direct payments, agriculture-related
organisations,
structural measures and aid programmes for rural areas have
an indispensable role to play. Appropriate compensation must
be offered for services rendered.

8.8.
European agriculture must remain geared towards
production. It must be able to provide good, unblemished
foodstuffs. It is again securing an increasingly important role
as a source of non-food raw materials. It must operate in an
environmentally sound and sustainable way and must also be
in a position to deliver the desired services undertaken for the
public good. It must meet different requirements from, say,
American agriculture, and it has to hold its own under
relatively expensive conditions. This implies a continued need,
for appropriate external protection, and retention of other
important elements of market organisation.

Hence, endorsement of the European agricultural model makes
it essential not to call into question the major features of the
CAP at the forthcoming round of WTO trade negotiations.
A key principle should be that further international trade
liberalisation is justifiable only insofar as progress is made on
establishing binding rules for fair terms of competition in
international agricultural trade.

The President

of the Economic and Social Committee

Beatrice RANGONI MACHIAVELLI