Opinion of the European Economic and Social Committee on the  Communication from the Commission to the Council on risk and crisis management in agriculture (COM(2005) 74 final)
Date: 2005-10-26
Institutions: European Economic and Social Committee
Subjects: agricultural insurance, aid to agriculture, common agricultural policy, common organisation of markets, economic recession, natural disaster

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The Committee regrets however

3.2
that a number of
Member States have not yet allocated the appropriate resources
or established mechanisms of their own and asks the Commis-
sion to urge them to accelerate that process.

3.3
The EESC is concerned that, given the current difficulties
in reaching an agreement on the Community budget, the funds
ultimately provided might be lower than those set out in the
proposed budget. The decision by Member States to give the
Agency additional competences implies the need to ensure the

Brussels, 26 October 2005.

necessary funding to enable it to achieve its goals in the field of
maritime pollution prevention.
that maritime
pollution prevention and response are accorded the necessary
importance at Community level too, and that they are not
viewed purely from an economic perspective.

is essential

It

3.4
The Agency's role in promoting cooperation and coordi-
nation of Member States' resources and activities is funda-
mental for the establishment of a rational and cost effective
strategy.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND

Opinion of the European Economic and Social Committee on the ‘Communication from the
Commission to the Council on risk and crisis management in agriculture’

(COM(2005) 74 final)

(2006/C 28/04)

On 20 April 2005 the European Commission decided to consult the European Economic and Social
Committee, under Article 262 of the Treaty establishing the European Community, on the Communication
from the Commission to the Council on risk and crisis management in agriculture.

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 7 October 2005. The rapporteur was Mr Bros.

At its 421st plenary session, held on 26 and 27 October 2005 (meeting of 26 October 2005), the European
Economic and Social Committee adopted the following opinion by 122 votes to 1 with 3 abstentions.

1. Introduction

1.1
This communication from the European Commission
follows on from the considerable amount of work already
conducted at European level, including: the Commission Report
on risk management in January 2001, the Council discussions
under the Swedish Presidency in Spring 2001, the Spanish
Memorandum and the International Conference on Agricultural
insurance and income guarantees in Madrid at the beginning of
2002, the Greek Memorandum and the Seminar on natural
disasters in Thessaloniki in 2003, and the Conference organised
by the Dutch Presidency in December 2004 on Material and
immaterial costs of eradication of animal diseases.

1.2 More specifically, the communication has been drawn
up to fulfil a commitment made by the Commission, in the
form of a declaration issued in Luxembourg, in the context of
the June 2003 CAP reform:

the financing of

analyse in particular
these measures
through the one percentage point of modulation directly
re-distributed to Member States as well as the inclusion, in
each common market organisation, of an article empow-
ering the Commission to act, in the case of a Community-
wide crisis, along the lines established for such cases in the
common market organisation for beef’.

1.3
The communication also responds to the Conclusions of
the December 2003 Council which called for the discussion to
be continued; for an updated inventory of the risk management
tools available to be provided; for the different risk manage-
ment options to be considered;
for possible new measures
(common market organisation, financial support, competition
rules) to be taken into account; and lastly for the guidelines on
state aid in the agriculture sector to be assessed and adaptations
suggested.

‘The Commission will examine specific measures to address
risks, crises and national disasters in Agriculture. A report
accompanied by appropriate proposals will be presented to
the Council before the end of 2004. The Commission will

1.4
In the past, the CAP offered protection by means of its
market and price support policies. Since the last reform,
however, farmers are exposed more directly to a whole series

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of risks. The Commission therefore wishes to try out new
instruments, in the context of the CAP, so as to help farmers
improve their ability to manage risks and crises.

number of farmers participating. The funds must be formally
recognised by the Member State. Compatibility with the WTO's
green box would have to be assessed on a case-by-case basis.

1.5
In its working documents, the Commission has drawn
up an inventory of the current risks in agriculture: human or
personal risk; asset risk (buildings etc.); financial risk; liability
risk (genetically modified organisms); production risk (weather
conditions); and price risk. It has also drawn up an inventory
of the risk management tools currently available: indebtedness
and investment (tax exempt savings); adaptation of production
(contracts,
techniques; diversification; marketing techniques
integration); futures; mutual funds; and insurance.

In order to meet expectations more effectively and limit
1.6
the damage caused by crises in the agriculture sector, this extre-
mely broad analysis needs to be taken further.

2. The Commission proposal

In the first

three pages of

the communication,

2.1
the
Commission contextualises the problems relating to risk and
crisis management. The working documents accompanying the
communication address a large number of ideas. In the propo-
sals which follow, the Commission goes on to respond to the
explicit requests made in the Council Conclusions, i.e. extension
of a safety net and financing of risk and crisis management
measures through modulation using three options: insurance
and
against natural disasters,
providing basic coverage against income crises.

supporting mutual

funds

Using modulation funds would mean using instruments
2.2
based on rural development measures. Consequently, these new
measures would have to improve the competitiveness of agri-
cultural holdings (priority axis 1), respect
the principle of
annuality, comply with the rules on state aid and be compatible
with the green box criteria established by the WTO.

2.3
The first option is insurance against natural disasters. In
the Commission's view, this can help to reduce the ad hoc
compensation payments paid out by Member States. A financial
contribution of 50 % could be made towards producers' insur-
ance premiums. Compensation would be paid out where losses
exceeded 30 % of the average agricultural production in the
preceding three-year period, or a three-year average based on
the preceding five-year period (excluding the years of highest
and lowest production). Compensation could not exceed 100 %
of the income loss. The payment could not specify the type or
quantity of future production. Another alternative to subsi-
dising insurance premiums would be reinsurance by private
insurance companies.

The second option is mutual funds, which are a way of
2.4
risk sharing among groups of producers. Under this option,
temporary and degressive support could be granted to cover
administrative costs. It would be calculated according to the

2.5
The third option is to provide basic income coverage.
This is based on the Canadian model and the requirements of
the green box. The purpose is to increase the total liquid funds
available in the event of crises (support for incomes). The
system would be open to all agricultural producers. Compensa-
tion would be paid if the loss exceeded 30 % in the reference
period (as for option 1). An income indicator is to be deter-
mined. Compensation must be less than 70 % of the income
loss and must not relate to the type or volume of
future
production.

3. General comments

3.1
The Committee welcomes the Commission proposal,
which launches the debate on a subject that is vital for the
future of agriculture. The Commission has produced the
communication in response to specific demands within a
binding framework. The Committee considers this to be only a
preliminary analysis, which will need to be expanded on in
order to respond to the risks and crises listed in the introduc-
tion.

3.2
In chapters 1 (introduction) and 2 (background) of its
communication, the Commission gives a brief outline of the
new situation following the 2003 CAP reform (introduction of
the single payment scheme) and lists the various measures that
have been taken and the tasks that the Council has assigned
with regard to risk and crisis management
in agriculture.
Neither the Commission's communication nor the working
document from DG Agriculture explicitly mention the changes
which have occurred regarding the risks to which European
agriculture is exposed.

3.3
The Committee notes that the reform of June 2003 is
making agricultural prices much more volatile. This, combined
with the volatility of farm input prices, is increasing the likeli-
hood of economic crises affecting agricultural holdings. More-
over, many scientists believe that climatic instability is also
increasing. When economic crises occur, farmers are always the
weakest links in the various production and distribution chains.
They therefore need effective tools to help them to respond to
crises and risks. The Committee therefore wishes to comment
on a number of the points raised by the Commission.

taken the positive

The Commission has

3.4
step of
proposing three schemes. These would be optional as far as the
Member States are concerned, and complementary. They are
interesting in themselves and none should be rejected automati-
cally. However, each option needs to be analysed in more
depth.

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3.5
The Commission has considered using one percentage
point of modulation to fund these schemes. However, it should
first have assessed the cost of the proposed measures. While
in
emphasising that
budgetary terms, the Committee wonders whether the envi-
saged funding will be commensurate with needs.

the Commission's proposal

is neutral

3.11 Comments on the Commission's proposal

in connection with

rural development

3.11.1 A g r i c u ltu r a l i nsu r a nce

3.6
Funding under the first pillar helps to stabilise incomes
and markets, and this role has been guaranteed until 2013.
Such funding is vital for the survival of many farms, and modu-
lation of direct aid should not be increased.

3.11.1.1
The Committee draws attention to its opinion on a
common system of agricultural insurance (2): a number of the
requests made in this opinion remain valid. Agricultural insur-
ance is a useful tool for covering certain specific risks, but it
cannot replace the public authorities when it comes to mana-
ging exceptional risks.

3.7
The sums produced by modulation vary widely between
the Member States, and are non-existent for the new Member
States. The Committee therefore proposes that as an alternative
to the one percentage point of modulation, each Member State
could assign part of its EAFRD allocation to risk and crisis
management, up to a maximum of 0.1 % of its National Agri-
cultural Product.

Currently, under the guidelines for state aid in the
3.11.1.2
agriculture sector, aid is authorised up to a ceiling of 80 % of
the insurance premiums against losses due to natural disasters,
such as earthquakes and other extraordinary events. Losses
resulting from adverse weather conditions or animal and plant
diseases are classed as natural disasters only if the losses reach
a given threshold, currently set at 20 % of normal production
in disadvantaged regions and 30 % elsewhere.

3.8
Because of the use of modulation funds, the Commis-
sion has worked within a rural development framework. The
Committee believes that a broader approach should be taken
and that other means of action should also be considered,
including common market organisations (CMOs), competition
policy, trade etc.

3.9 Whilst it is essential to analyse a certain number of risks
and crises, their management is not always the responsibility of
the Common Agricultural Policy. The risks connected with
natural disasters, which cannot be forecast and therefore
cannot be insured against, and epidemics such as foot and
mouth disease, cannot fall within the remit of the CAP. Other
existing instruments such as the veterinary fund or the soli-
darity fund should be available for these specific situations. In
addition, an EU system for responding to natural disasters is
currently being considered (1), and this system should cover
risks in agriculture.

The Committee stresses that all these measures can
3.10
only be effective if
they are used to complement existing
market management mechanisms within the CMOs, which
include highly efficient tools tailored specifically to the various
sectors. Similarly, in relation to trade, it is absolutely vital that
the EU safeguard the Community preference within the Doha
round.

(1) See the EESC opinion currently being drafted on the Communica-
tion from the Commission to the Council, the European Parliament,
the European Economic and Social Committee and the Committee
of
Improving the Community Civil Protection
Mechanism (rapporteur: Ms Sánchez Miguel).

the Regions:

State aid of up to 50 % of insurance premiums is
3.11.1.3
also permitted, when agricultural
losses
beneath these thresholds, resulting both from natural disasters
and from adverse weather conditions or animal and plant
diseases.

insurance covers

The Commission's proposals on this aspect there-
3.11.1.4
fore represent a step backwards compared with the measures
currently authorised under state aid. In order to provide a real
incentive for the maximum number of farmers to make use of
these instruments, it is necessary to introduce a system that is
more attractive to the beneficiaries.

3.11.1.5
In some areas of risk prevention (such as multi-risk
insurance), tried and tested mechanisms already exist in some
Member States. The Committee supports the Commission's idea
of establishing a new supplementary agricultural
insurance
instrument, bearing in mind that
the introduction of new
measures at EU level must not threaten existing systems which
have already proved effective at national level.

Although the agricultural

3.11.1.6
insurance system is a
cross-cutting element in rural development, it must also allow
for sectoral implementation, in order to meet the specific needs
of the different regions of the European Union.

3.11.1.7
A considerable amount of unpublished work has
been conducted on the issue of re-insurance. Mutual associa-
tions and private insurance companies could join forces to set
up a re-insurance fund. The establishment of EU-level re-insur-
ance could bring real Community added value.

(2) OJ C 313 of 30.11.1992, p. 25.

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3.11.2 M u t u a l fu nds

3.11.4 Infor ma ti on

on

e x i st i ng

r i sk

a nd

c r i si s

manag e me nt me asu r e s

3.11.2.1
The support proposed by the Commission does not
provide a strong enough incentive. As a minimum, a capital
investment should be provided at the launch of these funds to
support their operation during the initial period. For it to be
workable, this option would need the backing of producers'
organisations.

3.11.2.2
The Council's failure to reach an agreement on the
establishment of a fund for the pig meat sector shows what a
difficult exercise this is. When a sector faces a serious crisis,
farmers' contributions are not
In many cases,
however, mutual funds enable economically viable farms to
weather a crisis.

sufficient.

One strong incentive for agricultural producers and
3.11.2.3
the other players in the production and distribution chains to
come together would be direct management of mutual funds'
market operations,
including marketing, processing, storage
and sales to non-EU countries. This would not only develop a
sense of accountability in all the various players, who would
play a greater role in market operations, but also bring the
situation into line with the 2003 reform. Moreover, when
instruments are implemented at a level close to the economic
operators rather than by the authorities, they often work more
effectively.

3.11.2.4
threat to existing mutual funds.

The new instrument should benefit and not pose a

3.11.3 B a si c c ove r a g e a g a i nst i ncome cr i se s

3.11.3.1
This option needs to be tested, and further work is
needed on the subject. The income support provided in the EU
for many sectors takes the form of direct aid, and under no
circumstances should the system now being proposed replace
direct payments to farmers. However, this does not mean that
the Commission cannot explore other avenues for the longer
term.

3.11.4.1
The Committee endorses the Commission's view
that it is necessary to promote the development of market-
based risk management tools (such as insurance, the futures
market and contract farming).

3.11.4.2
The Committee highlights its opinion on rural
development (4) and calls for training and information initia-
tives to be financed by the European Social Fund rather than
coming under rural development, which has other objectives.

3.11.5 H a r moni se d p r ovi si ons

agri-environmental measures

Under the subsidiarity principle, rural development
3.11.5.1
policy is implemented by the Member States. As a consequence,
only the
are binding. The
Committee acknowledges that this approach is useful from the
point of view of ensuring that policy is tailored to the actual
needs of the EU's different regions. However, the probability of
risks and crises occurring has increased throughout the EU. A
degree of harmonisation is therefore essential, so that all
farmers across the Union are treated fairly and have access to
risk and crisis management schemes.

3.12 Proposals in connection with Common Market Organisations

Alongside the three options put forward by the Commission,
the Committee would like to offer some other proposals. With
a view to efficiency and lower cost, the Commission must
provide for early means of intervention at the appropriate level
(e.g. promotion, private storage, production cuts), so as to
tackle crises rapidly.

In many sectors, market analysis tools can now predict the
onset of a cyclical crisis. These crises are often caused by a
momentary imbalance between supply and demand at regional
level. Rapid action, perhaps at regional
level, could help to
prevent crises becoming embedded and spreading to a wider
geographical area.

3.12.1 Pr omoti ng a g r i cu ltu r a l p r odu c ts

Analysis of the implementation of a system of this type in
Canada (3) shows that such schemes could provide a useful tool
for the EU in the medium to long term. They have been impor-
tant for some of our trade partners, e.g. the United States and
Canada. However, the Canadian mechanism is one of the main
planks in their agricultural income support policy, and requires
a large public budget which is not currently available to the
EU.

3.12.1.1
At EU level, promotion measures may be financed
using various tools: rural development, internal market or non-
EU country market. As mentioned above, early promotion
measures are an extremely effective way of preventing a crisis
from worsening. In the various regulations, the Commission
should simplify the implementation of these measures so as to
enable action to be taken swiftly.

(3) For further details, see: http://www.agr.gc.ca/pesra/main.html.

(4) OJ C 221 of 8.9.2005, p. 40.

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3.12.2 Su p p or ti ng p r odu c t stor a g e

3.12.5 Su p p or t i ng volu nta r y de cr e a se s i n p r odu ct i on

3.12.2.1
During sectoral crises, measures to support storage
have already proved effective in a certain number of CMOs. By
spreading product sales over a longer period, such measures
can help prevent crises resulting from over-production. The EU
should authorise producers' organisations to introduce this tool
under the mutual funds. It would also be an attractive means of
encouraging farmers to set up producers' organisations.

3.12.3 E x te ndi ng th e

‘sa fe ty ne t’

i n th e e v e nt of

ma r ke t cr i se s

3.12.3.1
In the event of major Community crises in the beef
CMO, the Commission may act on the legal basis of Article
38 (5) of the regulation on the common market organisation
for beef which states ‘When a substantial rise or fall in prices is
recorded on the Community market and this situation is likely to
continue, thereby disturbing or threatening to disturb the market, the
necessary measures may be taken’.

3.12.3.2
The Committee regrets that the Commission has
not seen fit to extend such a clause to other CMOs. The
Council of Ministers has endorsed the line taken by the
Commission.

The Committee points out that the situation has
3.12.3.3
changed since the 2003 reform and that some CMOs have no
safety net. If the pig meat or poultry sector were to face a
consumer-confidence
sharp drop in
crisis
consumption, many farms would go out of business.

leading to a

Given that

3.12.3.4
it would only mean providing the
Commission with the legal basis to take action, if it considered
the Committee calls for the
such action to be warranted,
general introduction of a ‘safety net’ clause for all CMOs, in
order to ensure a level playing field for all sectors. It therefore
asks the Commission and the Council to review their position.

aimed at

3.12.5.1 Measures
reducing production are
amongst the most effective available. If market expectations
suggest
supply may outstrip demand, voluntary or
compulsory measures to reduce production before harvest can
avert a crisis. These measures could be taken either by Member
States or by producers' organisations.

that

4. Specific remarks

4.1 The need to define crises in agriculture

The Commission defines a crisis as ‘an unforeseen
4.1.1
situation that endangers the viability of agricultural holdings,
either at a localised level or across a whole sector of produc-
tion’ (6). The Committee thinks that a clear distinction should
be made between economic and other crises, and that
economic crises should be defined using objective, transparent
criteria.

In the case of economic crises, the Commission needs
4.1.2
to define precisely what constitutes a ‘regional crisis’, ‘national
crisis’ and ‘Community crisis’. The definitions should be based
on a sound knowledge of the various markets, so as to deter-
mine the average price over the previous three or five years (in
the latter case, excluding the best year and the worst year). A
market crisis would be declared if there was an x % drop in the
price of a particular product over a period of y days. The vari-
ables x and y should be defined according to sector and
Member State, and possibly also according to production
region. The dates on which the crisis is deemed to begin and
end could then be decided by the public authorities.

For other types of crisis, each Member State has suffi-
4.1.3
cient definitions to handle existing situations in their own par-
ticular context.

3.12.4 Su p p or t for p r oc e ssi ng

3.12.4.1
In sectors where products can be consumed either
fresh or processed, measures to support processing can help to
prevent crises in the fresh products sector by temporarily
permitting a production surplus in the processed products
sector, where the market is less volatile and therefore less sensi-
tive to fluctuations
in the volume of production. These
measures could be taken either by Member States or producers'
organisations.

(5) Regulation No 1254/1999 (OJ L 160 of 26.6.1999, p. 21).

4.2 The need to adapt competition rules in the event of crisis

4.2.1
During crises, the lower prices paid to producers are
not always passed on to consumers (7) and this prevents the
market
from functioning at optimum levels. The Council
should review the 1962 regulation on the application of
certain rules of competition to agricultural production and
trade (8) and broaden the tasks of DG Competition, so as to
oblige it to ensure that the market functions properly in the
event of crisis by derogating from the usual principles.

(6) COM(2005) 74 final, p.4.
(7) OJ C 255 of 14.10.2005, p. 44.
(8) Regulation No 26/62, OJ No B030 of 20.4.1962, p. 0993.

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4.2.2
Specific tools can be introduced for this purpose,
particularly in the fruit and vegetable sectors. This government
intervention in market operations must be accepted by the
Commission in the context of the exemption regulations that
exist in sectors such as insurance. This derogation from the
competition rules would be temporary and would be overseen
by the public authorities for the duration of the crisis.

4.3.6
Cooperation with the relevant authorities in third
countries would make it possible to establish a price for the
beneficiary country that would not disrupt its own market.
European aid could focus on transport costs, administrative
costs or (in the case of food aid) the cost of the merchandise.

4.2.3
One option here would be inter-business price agree-
ments, such as those that could be reached by enterprises
covering the whole production and distribution chain or by
distributors, via central purchasing bodies.

In the case of unprocessed products, the difference
4.2.4
between the price paid to the producer and the consumer price
could be limited.

4.4 The need to move away from the annuality of the budget

In the current budget framework, which is based on
4.4.1
the EU's own resources and annual expenditure, it is impossible
to avoid this principle. However,
the principle has serious
consequences and should ultimately be reviewed in order to
improve the functioning of the EU.

In the shorter

4.4.2
is possible to avoid this
constraint. One solution could be to classify sums invested in
stabilisation funds as expenditure. These funds would only be
used if necessary in years when crises occurred.

term,

it

4.3 The need for better management of trade flows

4.5 The need to make more use of producers' organisations

4.3.1
As part of the August 2004 framework agreement on
the liberalisation of trade in agricultural products at the WTO,
it was agreed to completely abolish all forms of export subsi-
dies, provided all other existing instruments were eliminated in
parallel. The date and speed at which they are to be abolished
has yet to be decided.

4.5.1
One effective tool for managing trade risk is to enable
producers to organise so that they can exert a genuine influ-
ence in trade negotiations. The Commission must continue to
press forward in this direction and should, by means of incen-
tives, encourage farmers to set up producers' organisations.

4.3.2
However, the opening-up of the EU market will make
producers more vulnerable to crises. During the current nego-
tiations, Community preference must thus be preserved. The
EU's social, pricing and ecological standards must not be under-
mined by social and ecological dumping of cheap imports.
Food-sovereignty criteria must be taken into account. For these
reasons, a system of qualified external protection or market
access should be set up and further developed.

4.5.2 With regard to crisis management,
the Committee
would like to see organisations of producers and of the other
actors involved in the various production and distribution
for the tasks
chains come together at an appropriate level
which could be assigned to them.

5. Conclusions

4.3.3
In times of crisis, the EU should limit imports and
should use all the room for manoeuvre available to facilitate
exports when the time comes to implement the future WTO
agreements.

In terms of responding to the problems of risk and crisis
5.1
management, the Commission's proposals are a step in the
right direction, but only a first step.

4.3.4
The Commission could envisage maintaining a share
of the rights notified at Geneva so as to create a new tool for
managing trade flows.

The proposals are only an adjunct to the management
5.2
of agricultural markets conducted at European level via the
CMOs and trade regulation. These provisions, which have
demonstrated their effectiveness, must under no circumstances
be brought into question.

4.3.5
This right maintained at the WTO would not be used
for sectoral subsidies, but, for example as a joint mechanism
with third countries (like the one already set up with Egypt),
used in the event of crises within the Community in order to
facilitate the supply of external markets without exporting the
crisis elsewhere.

5.3
The EU already possesses instruments that can usefully
be deployed in the event of certain types of risk or crisis, and
these should be coordinated. The veterinary fund and the EU
solidarity fund should thus be retained and fine-tuned to enable
them to respond to risks and crises in the agriculture sector, in
tandem with the proposals outlined in the present opinion.

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5.4
The 2003 CAP reform and the increasingly unstable
climate conditions will have considerable implications for the
management of
farm holdings, which will be increasingly
vulnerable to risks and crises. Consequently, it is vital that the
ongoing liberalisation of trade in the Doha Round should safe-
guard the Community preference.

5.5
The three options proposed by the Commission need to
be explored in more depth and implemented in the short or
medium term. Nevertheless,
these proposals are not an
adequate response to the situation that will probably arise over
the coming years. Work must therefore be pursued on this
issue both at sectoral level during the forthcoming reforms of
the CMOs and through a cross-sectoral regulation.

5.6
As far as finances are concerned, committing one
percentage point of modulation is certainly a positive move,
but it is vital to ensure fair treatment of all EU farmers, for
example by committing 0.1 % of
the National Agricultural
Product. In future, other sources of financing will have to be
found.

Brussels, 26 October 2005.

5.7
The Committee calls for ex-ante and ex-post evaluations
in order (a) to assess new levels of risk in agriculture and
budgetary needs,
the
increasing vagaries of the weather, and the WTO negotiations,
and (b)
the solutions
proposed to address these situations.

inter alia following the CAP reform,

to analyse the appropriateness of

5.8
Organising producers and production and distribution
chains represents one potential way forward for European agri-
culture. The Commission should step up its work to promote
this kind of organisation.

The Commission has

5.9
step of
proposing three schemes. The aim should not be to decide defi-
nitively between them, but to make sure that they are all avail-
able for the future and to explore them in more depth.

taken the positive

5.10
Risk and crisis management is a key topic for the
Committee. On the basis of the work carried out in this field,
the Commission should, in the near future, table a legislative
proposal for putting the various provisions into practice. The
Committee wishes to be consulted on this.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND