Opinion of the European Economic and Social Committee on "The Future of the CAP"
Date: 2002-03-21
Institutions: European Economic and Social Committee
Subjects: World Trade Organisation, common agricultural policy, enlargement of the Union, reform of the CAP, socioeconomic conditions, sustainable development

27.5.2002

EN

Official Journal of the European Communities

C 125/87

Opinion of the European Economic and Social Committee on ‘The Future of the CAP’

(2002/C 125/18)

On 31 May 2001 the Economic and Social Committee decided to draw up an opinion, under Rule 23(3)
of its Rules of Procedure, on ‘the Future of the CAP’. On 4 September 2001 the European Parliament
decided to consult the Economic and Social Committee, under the final paragraph of Article 262 of the
Treaty establishing the European Community, on the mid-term review of the CAP under Agenda 2000.

In the light of these two decisions, the Section for Agriculture, Rural Development and the Environment,
which was responsible for preparing the Committee’s work on the subject, adopted its opinion on
4 March 2002. The rapporteur was Mr Ribbe, the co-rapporteur Mr Geraads.

At its 389th plenary session (meeting of 21 March 2002), the Committee adopted the following opinion
with 91 votes in favour and six abstentions.

1. Preliminary remarks

1.1.
The European Council’s Laeken declaration of
15 December 2001 expressly refers to the European Union as
a success story — starting with the coal and steel community,
and then with the common agricultural policy (CAP). The
Committee would stress that the common agricultural policy
is the only policy conducted and managed at Community
level. It is thus a key component of the European venture. At
the same time, the Laeken declaration makes it clear that
Europe today faces fresh challenges requiring fresh approaches.

The decisions taken under Agenda 2000, which was
1.2.
adopted at the Berlin summit in March 1999, cover the period
to the end of 2006. The mid-term-review in 2002 and 2003
can make only minor adjustments to the existing regulations.
A dependable framework is thus in place for the agricultural
sector until the end of 2006.

1.4.
A critical debate — of unprecedented intensity and
taking in more sections of society than ever before — has been
sparked off not least by the events of 2000 and 2001 (the BSE
crisis, the dioxin scandal and the tragic pictures which the
public saw of the fight against foot-and-mouth disease). This
debate has covered the running of both agriculture and
agricultural policy.

1.5.
The Eurobarometer poll conducted in spring 2001,
and the European Commission’s flash poll of November 2000
clearly show that European consumer confidence in the
common agricultural policy has been damaged. The crisis of
confidence among European consumers could for the most
part not be blamed directly on farmers, but, for instance, had
its origins further upstream and particularly in the feed sector.
Nonetheless, it is farmers who bear the brunt of the growing
criticism. Farmers are increasingly under threat of social
marginalisation.

1.3.
After 2006, however, changes may have to be made to
the Community’s common agricultural policy (CAP). The need
to act is already becoming clear today, and is due among other
things, to:

— upcoming EU enlargement;

Urgent action is needed to stem the tide, for the
1.6.
preservation and ongoing development within the Union of
multicultural agriculture run along ‘traditional’ lines (1) in line
with the principles of sustainability (the ‘European agricultural
model’ (2) is the key to (i) high-quality, regionally varied food
(ii) diverse, species-rich
production on a sufficient scale,
cultural landscapes in Europe and (iii) rural development.

— forthcoming WTO negotiations (with growing pressure

for liberalisation);

— still-unresolved economic, social, environmental and

regional difficulties;

— the sustainable development debate and application of

European agricultural model, and

— the need to meet the changing demands placed on

agriculture.

(1) The term used by the rapporteur (bäuerlich) does not refer to
farm size, but describes how the farmer works and thinks. It
denotes an approach that (i) is geared towards preserving the farm
and maintaining multi-skilled jobs (ii) considers the needs of
future generations, (iii) ties in closely with the local and regional
community, (iv) operates within interconnected and mutually
reinforcing ‘cycles’ as close to the farm as possible and (v) takes
responsibility for the natural environment and animal welfare.
(2) Economic and Social Committee opinion on a policy to consoli-
date the European agricultural model, OJ C 368, 20.12.1999,
pp. 76-86.

C 125/88

EN

Official Journal of the European Communities

27.5.2002

1.7.
The need for reform is the result not only of the
political exigencies outlined above but also of discussions
within society. The Committee is therefore particularly keen
to turn this need to good account and to work out a policy
that can take us forward into the future, and thus offer
worthwhile prospects to farmers, to all agricultural players and
to those affected by farming. It is vital to profit from the
growing interest shown by many individuals and groups in
how agricultural production operates in order to secure lasting
political safeguards for the European agricultural model, which
is a sine qua non of multifunctionality.

1.8.
The various demands made on agriculture must there-
fore be linked up as quickly as possible so that the European
farming sector is not again repeatedly faced with renewed
reform discussions at relatively short intervals. Never-ending
reform discussions are harmful and inevitably lead to irritation,
ill feeling and uncertainty both among farmers and in society
as a whole.

1.9.
As the representative of organised civil society, the
Economic and Social Committee, like virtually no other body,
has to address both the various demands made on agriculture
and the debate about the farming sector. The Committee has
therefore decided to make a technical contribution in the form
of an own-initiative opinion at
this stage, prior to the
upcoming reform discussion. This opinion — which will have
to be built on in further opinions (e.g. on the WTO,
enlargement or specific market organisations) — focuses
mainly on reform after Agenda 2000 expires, rather than on
the upcoming mid-term review.

1.10.
This opinion also comes in response to the European
Parliament’s request that the Committee set out its views on
the CAP generally and on the workings of Agenda 2000.

2. Changing times: 45 years of the CAP

2.1. The CAP’s foundations in the Treaty

The objectives of the common agricultural policy at
2.1.1.
that time were set out in what was then Article 39 of the
Treaty establishing the European Community, namely

— to increase agricultural productivity;

— thus to ensure a fair standard of living for the agricultural

community;

— to stabilise markets;

— to ensure the availability of supplies; and

— to ensure that supplies reach consumers at reasonable

prices.

2.1.2. Many times over the years, circumstances — mainly
financial and market-related — have pointed to the need to
adjust the CAP, and each time, policy has reacted to this.

2.1.3.
important for the CAP, including, at least, the following:

Other European treaty articles are also particularly

— Article 6 (integrating environmental protection require-
ments into Community policies, in particular with a view
to promoting sustainable development);

— Article 152 (ensuring a high level of health protection in
the definition and implementation of all Community
policies);

— Article 153 (ensuring a high level of consumer protec-

tion);

— Article 158 (reducing disparities between the levels of

development within the Community);

— Article 174 (Community policy on the environment, the
objectives of which include preserving, protecting and
improving the quality of the environment and which is
based inter alia on the precautionary principle and on the
principles that preventive action should be taken and that
the polluter should pay).

2.2. The different stages of the CAP and the different demands

made on it

2.2.1.
At the CAP’s inception, agriculture policy — and its
mechanisms — focused on raising productivity and production
levels. At that time, the main concern was to provide adequate
food production, to foster the structural changes that were
required for economic reasons and to free up workers for both
the expanding industrial sector and for the service sector as
well. It was possible relatively quickly to eliminate undersupply
in key agricultural goods in what was then the EEC.

2.2.2.
The main EU policy tools used to achieve this
were (i) support for certain internal producer prices and (ii)
protection against cheap imports (via import duties) (1).

(1) At national level, operational investment incentives and changes
in the structure of agriculture were often also introduced to
optimise production (e.g. land consolidation).

27.5.2002

EN

Official Journal of the European Communities

C 125/89

2.2.3.
Once the aim of providing adequate supplies at
reasonable prices (1) had been achieved in some sectors, these
had to face the question of how to deal with the increasing
quantities that could no longer be sold in the common market.
Surplus production was caused by (i)
the expansion of
European production and (ii) loss of market share as a result
of imports. Since the growth potential of EU consumption was
limited, the focus increasingly shifted to exports. Given that
prices were generally substantially higher than world market
levels, most exports were possible only with support. Export
refunds, together with intervention in the form of storage
measures, became a key agricultural policy tool.

A number of negative factors (not least the build-up
2.2.4.
of excessively large internal stocks and overly high costs) led
to further changes and reforms to the policy tools. For instance,
supply management emerged in certain areas through the
introduction of quota systems (e.g. for milk and sugar).

2.2.5.
Social and environmental issues increasingly entered
the CAP debate by the mid-1980s at the very latest and a
number of initial specific policy moves followed.

2.2.6.
However, neither the voluntary set-aside schemes
nor the other extensification measures adopted at that time
(such as the promotion of environmentally-friendly farming)
were able to resolve the increasingly apparent environmental
difficulties or the escalating costs of the market regulations.
Nonetheless, these may be deemed forerunners of the first
measures designed to link economic and environmental objec-
tives. Thus, the CAP did start, even some fifteen years ago, to
take on board some issues that today are becoming ever more
important against the backdrop of sustainability. Apart from
the productivity gains within European farming, world market
developments — particularly competition from heavily subsi-
dised American producers — and the emergence on the
international scene of new exporting countries such as Brazil
and Argentina have also been responsible for the European
Union continuing to run up surpluses in some production
fields. This has further tempered the desired success of
extensification measures.

These at the time relatively modest schemes did
2.2.7.
trigger some key developments. For instance, environmentally-
friendly farming evolved in leaps and bounds after the EU gave
it financial support and, thanks to the eco-regulation, an

important framework in which to operate. The number of
environmentally-friendly farms rose from 9 521 in 1988 and
28 868 in 1993 to 124 462 in 2000 (2).

2.2.8.
and environmental impact of the CAP, viz.:

At least two issues marked the debate on the social

— whether ongoing structural change would have an adverse
impact on regional viability and on the environment and
if so, what form would that take;

— whether the funding provided by Brussels would reach

the ‘right’ targets.

2.2.9.
There was a growing awareness that the productivity
trend set in motion and successfully pursued using traditional
CAP tools, not only has economic limitations but is also
constrained by biological, environmental and social factors,
and that it has a regional impact and raises consumer issues,
too. It became clear that the development criteria applicable to
agriculture — which is tied to a specific area and handles ‘live’
production factors — have to differ from those applicable to
industry.

2.2.10.

It is clear that

— many of the changes made to agricultural policy did
succeed in their stated objectives; the CAP became to
the engine of European integration —
some extent
especially in the case of southern enlargement;

— all moves for reform have been accompanied by vigorous

political debate about reshaping the CAP; and

— new ‘problem areas’ have continually emerged — and still
emerge — to trigger new discussions about reform. For
instance, interest is now focused in addition on the issue
of sustainable development and on eastward enlargement.
It must be noted that, in some fields, adoption of the CAP
by the candidate countries may lead to difficulties that
are not easy to resolve.

2.3. The 1992 reform

2.3.1.
The 1992 reform was an important turning point in
the CAP. The decisions taken must be seen in the context of
the GATT round that was then under way and which was
subsequently completed.

2.3.2.

The measures adopted in 1992 related mainly to:

— cuts in guaranteed producer prices (3);

— the offsetting of these cuts by direct price compensation

payments;

(1) The Committee would emphasise that ‘reasonable prices’ must

(3) Although production costs have fallen, this has not led to lower

not be taken to mean ‘cheap’.

consumer prices.

(2) These are figures for the EU 15. Some Member States have seen

much higher than average increases.

C 125/90

EN

Official Journal of the European Communities

27.5.2002

— the introduction of mandatory set-aside; and

— lower export refunds (volumes and budget) and reduced

external protection (with an eye to GATT).

2.3.3.
measures may be deemed a success:

Given the key factors behind the reform, the 1992

— Surpluses of butter, milk powder, cereals,

fruit and
vegetables which could be utilised only at great expense
(and the measures undertaken to destroy them) are now
largely a thing of the past and EU agricultural produce is
now increasingly being exported to non-EU markets
without export refunds (1).

— Over the following years, it was possible to slash high
intervention costs (2) and the share of export refunds (3)
farmers’
as part of
incomes were to be safeguarded less by the traditional
policy tools, than by the newly introduced price compen-
sation payments (5).

total expenditure (4). Henceforth,

At the same ‘flanking’ measures were introduced,
2.3.4.
including the agri-environment schemes. However, this part of
the 1992 reform, designed specifically to extensify production,
was limited to just a 5 % share of EAGGF guarantee expendi-
ture.

2.3.5.
Looking back on the discussions held in the run-up
to the 1992 reform, it is, however, also clear that other issues
were already raised in the debate at that time that were never
put into practice. The then Agriculture Commissioner, Ray
MacSharry, set out the new aims of agriculture policy as
follows:

2.3.6.
the time,
Under the Commission’s proposals at
market regulations were to be revamped to foster extensi-
fication and environmentally sound production methods (6).
Direct income support, which had been introduced, was to be
differentiated to reflect social and regional conditions, and the
same was to apply to all other quantity-based provisions such
as quotas and set-aside. Arable crop payments were to be
conditional on the use of environmentally-sound production
methods.

2.3.7.
As we know, at that time, no differentiation was
made and no corresponding conditions were attached to the
newly introduced direct income support.

2.4. Agenda 2000

2.4.1.
It became necessary to consider and launch new
reform moves more quickly than expected after the 1992
reform.

2.4.2.

Considerations focused inter alia on

— a more extensive market-led approach to agricultural
production and enhanced competitiveness on inter-
national markets by bringing EU prices closer into line
with prices on the world market;

— a stronger EU position in the new WTO negotiations to
be achieved among other things by cuts in export refunds
and the further switch from market support to direct
payments;

— preparations for EU enlargement;

— wider inclusion of environmental objectives in the CAP;

— the retention of an adequate number of farmers,

in
order to protect the environment, preserve the cultural
landscape and maintain the ‘traditional’ farming model;

— merging various agricultural structural measures and
support schemes in moves towards an integrated rural
development policy (second pillar of the CAP ).

— recognition of farmers’ two key remits: production and
environmental services, in conjunction with rural devel-
opment;

— the development of rural areas along these lines and also
including the promotion of other, non-farming economic
activities.

(1) A total of 70 % in 2001.
(2) In the crop sector, which today accounts for some 40 % of all
EAGGF expenditure, from 63.4 % of total expenditure in 1991 to
5.1 % in 1999.

(3) In the crop sector, from 38.9 % of total expenditure in 1991 to

4.9 % in 1999.

(4) In 1991, 91 % of EAGGF guarantee expenditure still went on
refunds and storage measures; in 2001, only 21 % went on the
traditional market support measures.

(5) In the crop sector, the share of price compensation payments
(including set-aside) rose from 0.8 % in 1991 to 89.3 % in 1999.

2.4.3.
Marrakech agreements. They have several objectives:

The Agenda 2000 reforms are consistent with the

— to maintain Community preference for the major agricul-

tural products, despite reduced customs duties;

— to win back market shares in our internal market, e.g. for

cereals in animal feed;

— to exploit opportunities on world markets which would

are not expected to fall between 2000 and 2007;

— to incorporate environmental objectives into the CAP;

— to put together a rural development policy on the basis

of a second pillar.

(6) Direct aid was calculated on the basis of each country’s pro-

ductivity in the past.

27.5.2002

EN

Official Journal of the European Communities

C 125/91

2.4.4.
In the run-up to the reform, criticism was again
voiced about arrangements for the distribution of EAGGF
the ...
‘The Commission acknowledged ...
resources.
support system ... was devoted,
in large part, to a small
minority of farms’ (1). This again sparked internal deliberations
within the Commission about redirecting resource distribution
to farmers and regions on the basis of actual need.

that

2.4.5.
Thus, the negotiations again included some of the
basic points of the 1992 reform relating to the incorporation
of new social and environmental aspects — albeit some in a
modified form ... One example was the proposal to introduce
ceilings for direct payments. The Commission plans also
included mandatory ‘modulation’ to reflect the prosperity of
the farm and/or its workforce in order to secure a ‘fairer’
distribution of support. And the mandatory linkage of direct
support to environmental constraints was planned, too.

2.4.6.
The Agenda 2000 negotiations also included unpre-
cedented discussion about all three ‘sustainability’ pillars, in
that equal consideration was given to economic, environmen-
tal and social aspects. After many rounds of negotiations, the
Council eventually agreed on a raft of measures to reshape
many market regulations (‘economic pillar’), but considerable
differences remained on social and environmental issues (2).

For example,

2.4.7.
failed to endorse the
the Council
Commission proposal for mandatory modulation or retention
of the 90 head of cattle limit per holding in respect of the
special premium for male bovine animals. The same is true of
the Commission proposal to scrap the silage maize pre-
mium (3). As a result, other fodder plants such as alfalfa
for
and clover remain at a disadvantage, even although,
environmental reasons, much would be gained from promot-
ing them.

3. Changes in agricultural policy over the last ten years:

an assessment

3.1.
Among other things, the reforms undertaken in 1992
and as part of Agenda 2000 made European agriculture more
competitive internationally. The problem of surpluses was
substantially eased, on the one hand, by world market access
becoming simpler and, on the other hand, by the use of
European cereals for animal feed becoming economically more
attractive. Many of the market difficulties that arose in the past
have been greatly mitigated by the adoption of first-pillar
measures.

(1) 1996 annual report of the European Court of Auditors, OJ C 348,

18.11.1997, point 3.30.

(2) It makes no difference that the second pillar, which makes up
some 10 % of agricultural expenditure, gave a boost to rural
development.

(3) The European Court of Auditors has criticised this support scheme
on environmental grounds — see European Court of Auditors’
special report No. 3/98 concerning the implementation by the
Commission of EU policy and action as regards water pollution,
OJ C 191, 18.6.1998.

3.2.
The further dismantling of price support under Agenda
2000 was only partially offset by an increase in first-pillar
direct payments (price compensation payments). Economic
pressure on many ‘traditional’ farmers has continued to grow
apace. There has been growing tension between the new
demands made by society on agricultural production (sustain-
ability, multifunctionality) and the economic exigencies that
farmers have to contend with as a result of ever-sharper
competition.

Direct payments to farms now play a key role. They
3.3.
require much more funding than traditional agricultural policy
tools such as export refunds,
interventions and storage
measures, and, generally speaking, direct payments to farmers
are probably more socially acceptable than indirect aid via the
old mechanisms. In all, there are now three different kinds of
direct payments to farmers, i.e.

— price compensation payments (first pillar)

— compensatory allowances in less-favoured areas (second

pillar) and

— direct payments to farmers for specific services provided
as part of the agri-environmental schemes (also from the
second pillar).

3.3.1.
The system of first-pillar direct payments based on
acreage or livestock numbers ties in closely with the former
price support arrangements. Its purpose is to offset the losses
incurred by farmers as a result of changes to the old price
support system.

By extension, the beneficiaries of this mechanism
3.3.2.
are, quite understandably, first and foremost the same farms
and regions that benefited most from the previous price
support system. This state of affairs often leads to public
criticism that a large share of direct payments goes to a
farms or has resulted in the
relatively small number of
concentration on certain crops (4). However,
it must be
remembered that Member States would have an opportunity
to influence the distribution of these direct payments, for
instance through modulation or by setting limits for male
bovine animals.

The Committee feels that very careful consideration
3.3.3.
must be given to whether the existing mechanism does in fact
best serve the issues society sees as vital for the future —
sustainability, multifunctionality and the maintenance of a
broad-based agricultural sector — and whether, in the long
run, this can be squared with WTO rules.

(4) In the crop sector, around 40 % of all direct payments go to just

3 % of farms.

C 125/92

EN

Official Journal of the European Communities

27.5.2002

3.3.4.
Second-pillar direct payments, are a different matter.
These involve financial compensation for actual natural disad-
vantages and/or payment for the performance of specific
environmental services. Such payments are thus a key element
— but also an element with room for improvement — for
incorporating environmental protection into the CAP.

3.3.4.1.
On the down side, these direct payments offset
only disadvantages and/or extra burdens, but often offer no
genuine direct incentives to give priority to more extensive,
rather than more intensive, production methods or to apply
key elements of consumer protection as part of the European
agricultural model (such as the promotion of food safety,
traceability and quality assurance).

The Committee has, in principle, consistently welcomed the
higher political profile given to rural development, despite the
fact that, so far, this second pillar makes up only 10 % of the
overall agricultural budget and currently enjoys no better
financial provision than the former flanking measures taken
together with Objective 5a and 5b support from the Structural
Funds in the late 1990s. Integrated rural development policy
must be broadly expanded as a useful adjunct to a number of
first-pillar tools that, while essential, may be in need of
revision, since such a policy is becoming ever-more important
for a multifunctional agricultural sector. The Committee would
stress that first-pillar measures and rural development tools
must help maintain and promote multifunctionality, and must
be consistent with the three sustainability pillars (economic,
social and environmental). Neither the first nor the second
CAP pillar should focus on one facet of sustainability alone.

Environmental schemes have failed to provide
3.3.4.2.
many farmers with an adequate incentive to shift to more
extensive production procedures in all but a few Member
States. A Commission study concludes that agro-environmen-
tal schemes mainly have an impact
in areas beset with
production problems and have virtually no effect in intensive
farming regions, where the financial incentives for farmers are
so poor.

3.7.
The upcoming mid-term review of Agenda 2000 must
not only consider whether the objectives of the individual
market regulations have actually been met in terms of market
and budget stability. In the Committee’s view, the focus should
be more on resolving a range of other issues in order to
determine how to take account of the new demands being
made on the CAP. These issues are of fundamental importance
for the CAP’s continued development beyond 2006. In the
Committee’s view, they include the following questions:

3.4.
The first-pillar direct payment scheme continues to
place the cultivation of many crops that are of key importance
for the environment and for regional economies — e.g. fodder
crops or grassland farming — at a disadvantage compared
with earlier price-supported crops, since they are not eligible
for direct payments.

— Has it been possible to improve the incomes of the

majority of the farmers?

— Have the reforms managed to halt job losses in the
if so, to what

farming sector (1) and rural areas and,
extent? Is this the purpose of the CAP at all?

Over the past few years,

3.5.
it has become clear that
conflicts may arise between, on the one hand, productivity
trends that make economic sense and are necessary under
given conditions and, on the other, the requirements of the
regional economy, the environment, animal protection and
welfare, and consumer protection. The CAP has not yet acted
to resolve these conflicts, i.e. it has not yet been possible to
find a genuine balance between the three sustainability pillars.

— Have the reforms changed the distribution of aid to

farmers and, if so, how?

— How far has use been made in the Member States of
Article 3 (Environmental protection requirements —
cross compliance) and Article 4 (Modulation) of Regu-
lation (EC) No 1259/1999, and what has been the
outcome?

3.6.
Nor has this yet been achieved by Agenda 2000,
despite the fact that the flanking measures introduced under the
1992 reform (forestry, early retirement and agri-environmental
schemes) were expanded and combined with other, sometimes
existing Structural Fund support measures to form — under
the heading of ‘rural development policy’ — the CAP’s second
pillar. This may have heralded a new era for the CAP, but the
question is whether measures now coming under the first
pillar are, as yet, tailored to be an ideal adjunct to the regional
policy, environmental and social objectives that are to be
specifically achieved with the aid of second-pillar measures.

— How far have the new demands made on agricultural
production been met? Are the criteria attached to the
allocation of expenditure consistent with what is required
under European agricultural model and the exigencies of
the sustainability debate?

(1) In the EU-15, one farming job is currently lost approximately

every two minutes.

27.5.2002

EN

Official Journal of the European Communities

C 125/93

— What has been achieved in resolving existing environ-
mental and nature conservation problems and overcom-
ing regional disparities?

— Is there a balanced distribution of expenditure between
the first and second pillars and between the sectors within
the first pillar (1)?

— Is there a sufficient balance between regions and between

producers?

— Is there scope for additional measures to better exploit
the special features of many agricultural products, their
quality and their importance for the environment, for
animal welfare and for the region concerned (2)?

— Are second-pillar resources really used effectively to
promote rural development? How effective were the
individual elements of the programme in practice? For
instance, do early retirement schemes help foster rural
development? Is it not the case that some reafforestation
measures conflict with efforts to keep the countryside
open?

— How could compensatory allowances for less-favoured
areas — which are proving to be a key policy tool — be
developed further?

— Why are there such different take-up rates both between
Member States and between individual regions within
Member States of, for instance, second-pillar resources
and agri-environmental measures (3)?

4. The demands made on agriculture now and in the

future

4.1.
Despite the fact that the CAP is changing constantly
and that many challenges have been overcome in the past, it is
clear that key tasks remain to be tackled. These concern both
policymakers and individual consumers, whose behaviour
often conflicts with the demands for, for example, for a more
regionally-based or a more environmentally-sound approach.

A change has taken place in what society expects and

4.2.
demands of farming.

4.3.
Today, politics and society take a different view of
agricultural production. Over the past fifteen years or so,
there have been ever-increasing calls — arising out of the

(1) For example, 40 % of EAGGF guarantee expenditure goes to field

crops, 4 % to fruit and vegetables.

(2) For example, would it not be appropriate in future to reward
regional producers who join forces to devote their efforts to
particular species that, while less ‘productive’, are suited to the
region concerned?

(3) For example, almost half of all resources awarded to the Austrian
and Finnish farming sectors from the EU agriculture budget come
under the second pillar. In Belgium and the Netherlands, that
figure is less than 5 %. In Germany, there are considerable north-
south disparities in the application of the rural development
schemes.

sustainability debate and from issues relating to regional
development,
jobs and the quality of employment, animal
welfare and consumer protection — to factor environmental
considerations into the CAP. Across Europe, more importance
is now attached to the quality of the countryside and of
production processes. European farming’s remit is not merely
to produce, but also to play a multifunctional role in rural
areas.

4.4.
Today’s farmers face additional tasks that in the first
place cost them money, without — so far — earning them
any, since market prices for agricultural products do not
include services performed by the farming sector as part of its
multifunctional remit.

4.5.
As for farmers’ incomes, it must generally be recog-
nised today that there is a wide discrepancy between producer
and consumer price trends and that the gap is continuing to
widen. Yet even within the farming sector, there are major
income differentials that cannot be simply attributed to
different skills levels, hard work or entrepreneurial spirit. Some
marketing chains have encouraged disastrous price trends by
offering foodstuffs at dumping prices. Market prices that are
sometimes below cost price greatly limit farmers’ room for
manoeuvre and their ability to take decisions that foster more
sustainability and multifunctionality. In many regions and
incomes no longer bear any
agricultural sectors, farmers’
relationship to the work they actually perform.

Given the difficult economic climate,

4.6.
farmers are
forced to take part as far as possible in every conceivable
move (within the law) to increase productivity in order to
compensate for real or de facto falls in (producer) prices and
simultaneous increases in input costs.

4.7.
The situation is exacerbated not only by the compe-
tition between European farmers, operating on sometimes
over-saturated markets, but also by relentless pressure from
the WTO to liberalise global trade in agricultural products. EU
production requirements and constraints differ from those in
other regions. Outside Europe, agricultural goods are often
produced more cheaply, inter alia because:

— the climatic conditions are sometimes more favourable

or farming systems enjoy greater structural advantages;

— some production methods fail to comply with European
values (lower environmental, animal welfare, consumer
and social standards, use of production-boosting sub-
stances banned in Europe);

— world market prices are often greatly influenced — and
distorted downward — as a result of export subsidies,
guarantees or securities.

C 125/94

EN

Official Journal of the European Communities

27.5.2002

4.8.
Hence the growing conflict between, on the one hand,
the need for farms to increase productivity and, on the other,
environmental, animal welfare and consumer considerations
(i.e. multifunctionality).

The hard struggle involved in the various reform
4.9.
negotiations and the incessant discussion about the next steps
that are required clearly show that the aims being pursued by
the EU are in fact in permanent conflict and that it is not
possible to square the circle. It is illusory — and will in future
remain illusory:

— to want to have an agricultural sector which can produce
under (often distorted) world market conditions (as far as
possible without financial support);

— and, which at the same time, meets all the production
expectations (in terms of quality, safety, protection of
natural resources, animal welfare etc.) and copes with
European costs (1);

— and also to secure a modern and attractive labour market
that helps protect employees and is marked by high
standards of employment, safety, and basic and further
training.

4.10.
All stakeholders must be aware of this as yet unre-
solved conflict of aims when assessing the CAP reforms to
date and considering how to reshape the policy. Even many
political decision-makers seem to be insufficiently aware of the
complex, interrelated issues involved.

4.11.
The key task for the future is thus to seek new ways
of helping the concepts of agricultural sustainability and
multifunctionality to achieve a breakthrough. The European
agricultural model can only function if a new balance is struck
between the economic, social and environmental pillars of
sustainability.

4.12.
There also has to be a way of offering farmers — and
young, next-generation farmers in particular — attractive
and economically stable prospects. In this connection, the
Committee would point to the guidelines set out in its recently
adopted opinion (2) and its backing for the joint declaration
on young farmers issued by the European Parliament, the
Committee of the Regions and the Economic and Social
Committee on 6 December 2001.

it

4.13.
is to
The Committee stresses how important
maintain these different functions of European agriculture. In
theory, a possible option might be to introduce liberalisation,
with food needs being supplied from outside Europe because
this would apparently be ‘more economical’ even though it
would of course run counter to the principle of security of
supply. However, farming culture, stewardship of the land and
job provision — all the elements of multifunctionality —
cannot be imported.

4.14. Maintaining the European agricultural model and
extending it to the new Member States will cost a lot of
money, probably more money than currently estimated in the
agricultural guideline. Given that money is tight and that many
finance ministers are seeking to cut public expenditure, the
question of whether the transfer of public funds to farming is
warranted will play a key role. The issue of the future —
sustainability — may be the key to society’s continuing
acceptance of long-term financial transfers to agriculture.

5. Reflections on the future development of the CAP

5.1. Reflections on fundamental issues

The EU has decided to promote a ‘multifunctional
5.1.1.
agriculture’. The services to be provided by EU farmers in this
context include:

— producing adequate levels (3) of high-quality, safe food-

stuffs;

— producing within an agricultural structure that fits in
with the countryside and respects regional exigencies;

— producing in accordance with environmental require-

ments (environmental protection);

— preventing rural exodus;

— maintaining employment;

— rearing livestock without

the use of hormones and

antibiotics;

— heeding animal welfare;

— preserving rural culture and rural cultural heritage;

— providing valuable cultural landscapes;

— maintaining biodiversity.

(1) A Brazilian farmhand earns perhaps 50 EUR a month.
(2) Opinion of the Economic and Social Committee on New economy,
knowledge society and rural development: what prospects for
young farmers? OJ C 36, 8.2.2002, p. 29.

(3) The Committee would, for instance, draw attention to its opinion
on New impetus for a plan for plant protein crops in the
Community OJ C 80, 3.4.2002.

27.5.2002

EN

Official Journal of the European Communities

C 125/95

5.1.2.
These services involve very much more than simply
producing food and to this extent agriculture is not directly
comparable with other economic sectors.

5.1.3.
production and the services involved,
attendant costs for farmers, namely:

There are only two ways of paying for such quality
i.e. of covering the

— through the price charged for the product or

— through direct state transfer payments (or a combination

of the two).

5.1.8.
This means of course that, in the context of the
debate on the future of the CAP, all existing agricultural policy
instruments will have to be reviewed to see that they fit in
with this new approach and are thus compatible with the
‘European agricultural model’. New instruments and models
will also need to be considered.

5.1.9.
CAP instruments of proven value must, as a general
rule, also continue to be applied in future; such instruments
will, of course, have to be further developed and brought into
line with the new conditions.

5.2. Direct payments

5.1.4.
As long as consumer prices do not cover the
(external) costs involved in taking account of multifunctional-
ity,
it will be necessary to provide transfer payments for
farmers who meet the multifunctionality criteria that still have
to be determined.

Direct payments will play an increasingly important
5.2.1.
role as long as the ‘external’ costs associated with multifunc-
tionality are not reflected in the price formation but have to
be met by society.

5.1.5.
In this context it has to be borne in mind that the
volume of transfer payments would show a further increase if:

— the additional constraints imposed on farmers were

stepped up, and if

5.2.2.
The Committee expressly endorses the principle of
linking direct payments to specific tasks and providing long-
term safeguards for this increasingly important CAP tool. This
does not in any way conflict with the requirement that if any
kind of direct payment is to be generally accepted, there must
be adequate justification.

— producer prices were to fall further,

inter alia under
pressure from a distorted global market or from the
marketing sector.

5.1.6.
Compensation — in the form of direct payments —
for the concrete additional services which farming is expected
to provide might form the socially acceptable basis for income-
support measures for EU farmers. EU farmers would no longer
be offered support simply to produce food cheaply and reliably
(product-based aid) but because competitive disadvantages
arise on the liberalised world market as a result of society
wanting agriculture to have a sustainable, multifunctional role
in rural areas and because they make key social and regional
contributions (maintaining jobs, farming of less productive
peripheral areas) (rewards for using the desired production
model). The aim should be to maintain broad-based, environ-
mentally compatible production that is focused on quality —
something which may require particular efforts and measures
in certain production sectors.

5.2.3.
This therefore raises the question of how far changes
might need to be made to current direct payment arrange-
ments. Doubtless, key sections of society will
in future
increasingly question the current direction of, and justification
for, direct payments under the first pillar, with calls to tie such
payments to multifunctional requirements. Policymakers will
have to address this debate.

5.2.4.
For the future, therefore, the establishment of a link
between the awarding of direct payments and the provision of
multifunctional services by agriculture might be a key issue in
the discussion. As things stand, a right to public aid cannot, as
a matter of principle, be derived from compliance with existing
legislation. However, consideration must be given to whether,
in the light of differences in production standards and
conditions across the world, it is necessary to deviate from this
principle in order to safeguard the multifunctionality of
European agriculture.

European society would thus recognise the unique
5.1.7.
farmers as: producers of healthy and safe food;
role of
custodians of the countryside; guardians of cultural heritage;
and committed supporters of natural and regional diversity.

The Committee stresses that multifunctionality not
5.2.5.
only means meeting environmental
and
demands. It also means, among other things, sustainability,
upkeep of the countryside, management of less-favoured areas,
the use or non-use of certain production techniques, animal
welfare and compliance with quality and safety requirements.

requirements

C 125/96

EN

Official Journal of the European Communities

27.5.2002

5.2.6.
sider whether, in future,

The Committee would ask the Commission to con-

a)

a multi-tiered and varied system of direct payments is
feasible:

— which is directed at active farmers who produce to
harmonised European environmental and animal
welfare standards that have been laid down uni-
formly and go beyond what is practiced outside
Europe, in other words in compensation for the
competitive disadvantages resulting from higher
European standards;

— which, at a second level, is designed for farmers
who meet additional, mandatory multifunctional
criteria (1) that go beyond good agricultural practice
and take account of factors such as stocking densities
or the preservation of features of the countryside;
and

— which, like the current agri-environmental schemes,
is designed not only to cover payment for the
performance of specific services, but also offers real
incentives to be multifunctional.

and whether

b)

the first pillar of the CAP could be enhanced with new
forms of support which enable each Member State (in a
framework of subsidiarity and within limits which avoid
distortions of competition) to strengthen its support for
those farms which accept additional commitments with
regard to quality improvement, environmental protection
and the safeguarding of jobs.

5.2.7.
The Committee recognises that potentially tying all
direct payments to particular (environmental, social and
area-specific) responsibilities represents a decisive change for
farmers, particularly since this would be likely to mean a
significant redistribution of funds among farms, regions and
even Member States. The Committee feels, however, that
making such a linkage provides the social justification for the
retention of transfer payments on a permanent basis.

5.2.8.
The examination should clarify how useful it would
be if, in future, entitlement to assistance were not confined
solely to enterprises whose products used to be, or continue

to be, subject to a market organisation and if these payments
by society were to be awarded on a general basis in compen-
sation for multifunctional production methods. All agricultural
areas would therefore be covered (2).

5.2.9.
One way to do this, which has been mooted by
various parties, could be to make a direct payment — in the
form of a standard per hectare premium to all farmers fulfilling
multifunctional criteria (3), that will have to be defined, irre-
spective of
the crop produced. The Committee asks the
Commission to give closer consideration to whether this is
feasible. It may be useful here to draw on the Commission’s
experience with the transposition of Regulation 1244/2001
(simplifying rules for the payment of direct support to small
producers). At the same time, consideration must be given to
the special features of particular crops such as olive oil.

5.2.10.
In addition to responding to the questions raised in
points 3.7 and 5.2.6, an assessment should be carried out into
how the current system for the distribution of direct payments
would change if a standard per hectare premium were in place,
and what impact that would have on the individual sectors,
regions and farms.

5.2.11.

Consideration should also be given to whether:

— greater political and social acceptance can in fact be

expected;

— this is a better way to secure multifunctionality in

European agriculture in every region and

— the administration itself can be simplified.

5.2.12.
In order to resolve the existing conflict between the
claims of nature conservation, on the one hand, and those of
agriculture, on the other, the Commission should also consider
whether a possible basic premium should also be paid in
respect of areas that,
in economic terms, are either non-
productive or of limited productivity (e.g. designated Flora-
Fauna-Habitat (FFH) areas, hedgerows, boundary strips, etc.).

5.2.13.
Direct payments currently come under both the
first and second pillars. Second-pillar measures must be
cofinanced by Member States. The Committee recommends
that, in the upcoming reform debate, consideration be given
to whether more acceptance and coherence could be attained
if this different type of financing were to be abandoned — at
least in part — and/or what other options are available to
resolve the difficulties arising in cofinancing the second pillar.

(1) In some European regions, stocks are kept independently of per-
hectare limits in line with ‘good agricultural practice’. The bull
premium still remains limited at 2 livestock units (LU) per hectare
of forage area. Thus, support for such farms is already reduced to
2 LU; (in 2002 to 1.9 and later even to 1.8 LU/ha) generally
speaking, however, such farms, which certainly cannot be
described as ‘multifunctional’, are not thereby excluded from
support.

(2) This could possibly solve the problem of the current system
penalising grassland farming, for example, or the cultivation of
‘cleaning crops’, e.g. pulses and grass-clover.

(3) Examples of such criteria are: stock-keeping in accordance with
per hectare limits (maximum 2 livestock units (LU) per hectare),
observance of a set crop-rotation, maintenance/establishment of
landscape features or the presentation of a particular percentage
area (to be specified) of landscape elements or ‘extensive’ forms of
cultivation, as defined on a regional basis.

27.5.2002

EN

Official Journal of the European Communities

C 125/97

5.3. The future of rural development (second pillar of the CAP)

5.3.1.
Rural areas not only have key functions to perform
as areas of land but above all also have a fundamental,
existential role to play for the people in economic, social and
cultural terms,

Rural areas derive their distinctive features and
5.3.2.
originality from the diversity of regional resources. Sustain-
ability arising out of a feeling of responsibility for future
generations is a top priority and must be complemented by
action based specifically on subsidiarity. Rural areas and
agriculture have close functional links. Rural policy therefore
requires the dovetailing of a range of different approaches. In
future, therefore, second-pillar tools must be backed up by
measures that go beyond the farming sector. These must cover,
in particular the technical and social infrastructure, which is
vital and indeed a sine qua non if rural areas are to fulfil their
widely-ranging tasks.

5.3.3.
Under the influence of extensive market liberalis-
ation, there is a move towards concentration. This not only
has an adverse impact on structurally weak regions but would
also call into question key aspects of the European agricultural
model
(e.g. regional closed-circuits). The European Com-
mission’s White Paper on Commerce (1) states: ‘There is a long-
term risk of extreme concentration of distribution in Europe,
resulting in a mere handful of big chains dominating the entire
retail market. […] In the distribution sector, concentration of
this kind could ultimately lead to a reduction in the range of
products on offer, the variety of selling systems and the
number of shops — particularly in city centres and rural areas
and it would alter the relationship between small producers
and retailers.’ Over the past few years, major commercial
chains have come to wield a great deal of market power. This
has led to major concentration in the processing industry,
which purchases agricultural raw materials in ever-greater
quantities from whatever the source and requires that the
products it buys be suitable for further processing. The result
is often standardisation, which undermines the agricultural
and regional diversity found in the past.

5.3.4.
The CAP and regional policy must actively counter
this trend in order to prevent a full-blown exodus from
structurally weak rural areas. In particular, they must have a
lasting impact on rural jobs. In structurally weak regions, the
sustainable use of regional resources in line with endogenous
development strategies must be supplemented by solidarity-
based regional compensation arrangements.

(1) OJ C 279, 1.10.1999, p. 74.

5.3.5.
The second pillar of the CAP is designed (i) to pay
for the various services provided by the agricultural industry
within the framework of multifunctionality by means of a
coordinated package of compensation payments, (ii) to support
the diversification of farming activities in order to broaden the
income base and (iii) to use investment aid to foster regional
competitiveness. Because of the specific functions of the
various rural development tools (second pillar), these cannot
replace CAP tools, but they must be a substantive and essential
adjunct to them. EU environmental, health and animal welfare
standards — especially those brought in under the most recent
agricultural policy reform — require EU-wide coordination
and coherence in order to ensure equivalent conditions and a
level playing field. However, these standards must also be
examined to check whether all the measures taken, some of
which have proved to have a dampening effect on certain
sectors, are in fact necessary.

The EAGGF rural development programme undoubt-
5.3.6.
edly has a key role. However, the Committee would stress that
in order to bring about overall progress in rural areas,
Structural Fund measures must also be applied. Forward-
looking rural strategies also require sweeping innovation. It is
therefore essential to continue to develop the EU Community
initiatives, especially Leader+ and Interreg, and to reflect these
experiences in rural policy.

5.4.

Supply-side management/market organisation

5.4.1.
Opinions on supply-side management sometimes
differ very considerably, as has been shown in the debate on
the rules governing milk quotas. In the context of globalisation
— and,
in particular in connection with EU enlargement
— quantity regulation measures are regarded as having a
detrimental effect and are being called into question not only
by agricultural economists, individual governments and EU
Member States but also by some farmers.

5.4.2.
Relatively stable markets are an essential prerequisite
for ensuring that agricultural enterprises can also meet pro-
duction criteria to a satisfactory degree. An agricultural sector
geared solely to meeting competition will certainly not be able
to fulfil its multifunctional role.

As agricultural markets are intrinsically unstable and
5.4.3.
extremely susceptible to price fluctuations, and bearing in
mind that farmers have little influence on the market in
bringing about quantitative adjustments, supply-side restric-
in the form of quantity-regulation
tions or
measures, clearly have an important role to play in bringing
about sustained, stable agricultural production.

incentives,

C 125/98

EN

Official Journal of the European Communities

27.5.2002

5.4.4.
This is particularly obvious if we take the example of
milk production. If the milk quota provisions were to expire
and not be replaced — as some Member State governments
are demanding — this would doubtless result in the concen-
tration of milk production in favourable locations, with the
attendant consequences not only for the environment, but
also for the economic clout of regions with unfavourable
in particular, which are especially
conditions. Grasslands,
valuable to nature conservation, need to be grazed on an on-
going basis by ruminants.

If

5.4.5.
the quota provisions were to expire without
replacement, this could be in blatant contradiction to all the
observations made with regard to the multifunctional role of
agriculture, the European Agricultural Model and broad-based
farming.

5.4.6.
To facilitate an informed discussion during the mid-
term review, the Committee therefore considers it essential
that research be conducted into (i) the impact of the abolition
of milk quotas and other quota systems on regional economies,
(ii) possible compensation (with what justification acceptable
to society?), (iii) how expensive that would be and (iv) generally
how to maintain broad-based grassland farming in the long
term.

5.5.

External protection/exports

The EU is the world’s leading importer of agricultural
5.5.1.
products. Although the EU’s share of
the overall world
population is about 6 %, it accounts for some 20 % of overall
imports of agricultural products (excluding intra-Community
trade).

5.5.2.
The Committee recognises that in the forthcoming
WTO negotiations the EU will have to face demands by a
number of individual states and groups of states for the EU’s
import duties to be substantially reduced or completely
abolished and for its borders to be fully opened up to imports.

5.5.3.
Under the current conditions prevailing upon the
world market, it is not possible to guarantee the continued
existence of an agricultural sector based on family-run farms
and with a multifunctional role, as desired by every sector of
society.

5.5.4.
In principle, the Committee therefore expects that
world trade policy must enable societies or economic areas to
protect their producers and customers against products which
were either not produced in accordance with the sustainable
production rules recognised and practised in their areas or
which do not meet imposed standards (e.g. meat containing
hormones, battery farming, genetically modified products and
BST in milk production).

5.5.5.
The Committee would point out that corresponding
rules are accepted in other sectors of the economy as a matter
of course; no one would propose, for example, to allow motor
vehicles without exhaust systems including catalytic converters
to be imported into the EU.

5.5.6.
It is essential that this form of external protection,
which also safeguards ‘Community preference’ in the case of
products deemed ‘sensitive’ for the EU agricultural sector,
forms part of the underlying provisions of the CAP. The
removal of such protection as a result of WTO obligations or
de facto removal as a result of free trade area rules would have
the overall effect of calling into question vital elements of the
CAP and therefore, in the final analysis, also challenging the
multifunctional role of European agriculture.

5.5.7.

The Committee therefore calls for:

— negotiations to be entered into not only on the question
of further reductions in external protection but also, with
a view to establishing fair conditions of competition, on
the introduction of binding minimum environmental
standards and labour law standards in all WTO member
states;

— a differentiated approach to be adopted, reflecting the
different situations and requirements of the respective
product
liberalisation
measures are undertaken;

areas, when further market

— ‘non-trade concerns’ to be covered by the WTO nego-
tiations, as demanded by the EU with a view to safeguard-
ing the multifunctional role of agriculture;

— steps to be taken to ensure that WTO rules cannot be
used to make it obligatory to grant market access to
products which give rise to justified doubts to their safety
(it
to include a corresponding
clarification in the Sanitary and Phytosanitary (SPS)
Agreement);

is therefore essential

— negotiations to be held on the introduction of provisions
to prevent strict EU rules, in fields such as the new green
technology (genetic engineering) or animal welfare, from
being rendered absurd by the introduction of products
from non-EU states which do not have correspondingly
strict rules. The danger of confusing and possibly mislead-
ing consumers should be avoided through the use of
clear definitions and the application of clear labelling
provisions.

5.5.8.
US Agriculture Secretary Ann Venemann has said,
‘The Doha agreement closed the door on the use of (European)
environmental measures as unfair trade practices and we kept
the precautionary principle at bay.’ These comments highlight
the fundamental nature of the differences not only in how
Doha is assessed, but also in the overall approach to the issue.
This points to difficult negotiations. The Committee however
expects the Commission to take a consistent negotiating
position, not least because culture and the countryside — as
products of
the European agricultural model — are not
tradable goods but part of society’s heritage that policymakers
have to defend. This heritage must be protected at least as
vigorously as,
the USA protects the export
interests of its major companies such as Microsoft.

for instance,

27.5.2002

EN

Official Journal of the European Communities

C 125/99

5.6.

Export refunds

In its opinion on the strengthening of the European
5.6.1.
Agricultural Model, the Committee has already set out a
number of
fundamental observations on the question of
agricultural exports; these observations do, of course, remain
valid.

5.6.2.
The Committee emphasised, in particular, that the
aim should be to make the greatest possible reductions in all
forms of export support. The Committee made it clear that the
in
export credits and export credit guarantees, employed,
particular, by the USA, should also be regarded as export
support measures, in accordance with Article 10(2) of the
WTO Agreement on Agriculture; no rules had, however, been
set out in this respect. This represents a fundamental problem
for the international competitiveness of EU agriculture and a
solution needs to be found.

EU farmers, who in future are even more assiduous
5.6.3.
in producing their products in accordance with the principles
of a sustainable, multifunctional agricultural sector, will of

course not only come under pressure as a result of the
potential importing of products which do not meet the above-
mentioned criteria but will, as a result, clearly have to contend
with additional difficulties in particular sectors in selling their
more expensive products on the world markets.

5.6.4.
It must at the same time be clearly recognised that
(good) returns can be made by selling quality products (e.g.
cheese, wine, etc.) on the world markets, too, even without
export refunds.

5.6.5.
Every farmer is, and continues to be, free to decide
how and what he produces and which markets he targets,
within the framework of the existing laws and rules. But the
growing shortage of funds, together with the WTO rules which
are likely to be introduced in future, will undoubtedly make it
necessary to review EU policy on agricultural exports at a later
stage. The tapping of ‘markets for quality products’ (without
the use of export support measures) rather than markets for
mass-produced products (e.g. the sale of cut-price cereals to
China on the back of export support schemes), will play an
increasingly important role in this respect and this is likely to
have an impact on all aid and other provisions of agricultural
policy.

Brussels, 21 March 2002.

The President

of the European Economic and Social Committee

Göke FRERICHS