Report from the Commission - The agricultural situation in the European Union -  2004 Report {SEC(2006)423}
Date: 2006-04-04
Institutions: European Commission
Subjects: European Union, agricultural situation, report

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 4.4.2006 
COM(2006) 155 final 

REPORT FROM THE COMMISSION 

The agricultural situation in the European Union 

2004 report 

{SEC(2006)423} 

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INTRODUCTION 

1. 

1. 

2. 

3. 

4. 

"The agricultural situation in the European Union – 2004 report", was completed in 
September  2005,  and  is  published  in  conjunction  with  the  General  Report  on  the 
Activities  of  the  European  Union.  A  separate  publication  has  been  produced  in  the 
beginning  of  2005  in  English,  with  the  title  "Agriculture  in  the  European  Union  – 
Statistical and economic information 2004". The present report deals in nine chapters 
with the main significant subjects in the year in question. 

ECONOMIC SITUATION AND FARM INCOMES 

Crop production was higher in 2004 compared to the previous year. As for livestock 
products  (ie  meat,  milk  and  other  dairy  products)  farmers  either  produced  the  same 
amount or more, depending on the product. Broadly speaking, farmers in the ten new 
Member  States  saw  their  incomes  increase  substantially  because  they  started  to 
receive direct payments under the Common Agricultural Policy. In some of 15 "old" 
Member States farmers experienced an increase in income, while in others they saw 
their  incomes  fall.  The  main  reason  for  the  fall  in  incomes  was  that  farmers  had  to 
pay  more  for  their  fuel,  fertilizers  and  feedingstuffs.  Over  the  European  Union  as  a 
whole,  agricultural  income  rose  by  3 %.  As  for  the  distribution  of  income,  the  top 
20 %  of  farms  received  70 %  of  total  farm  income,  while  the  top  50 %  of  farms 
received 90 % of total farm income.  

The  world  economy  grew  at  an  estimated  rate  of  5 %  during  2004.  This  was  the 
fastest  rate  since  the  seventies  and  was  due  to  supportive  macroeconomic  policies, 
historically  low  interest  rates  and  particularly  strong  growth  in  some  emerging 
economies such as China. Oil prices rose sharply during the year, peaking in October 
2004  at  about  USD 55  per  barrel.  In  the  European  Union  economic  growth  is 
projected  to  have  been  2.5 %.  The  Euro  recorded  a  high  against  the  dollar  in 
February, finishing the year at USD 1.36.  

In  the  first  nine  months  of  2004  the  overall  value  of  EU  agricultural  exports  was 
stable compared to the same period in 2003. The overall value of imports rose by 4 % 
in  the  first  nine  months  of  the  year,  compared  to  the  same  period  in  2003  (the  EU 
remained  a  net  importer  of  beef  for  the  second  consecutive  year).  The  overall  trade 
deficit  in  agricultural  products  in  the  first  nine  months  of  the  year  deepened  to 
EUR 3 billion  compared  to  EUR 2 billion  in  2003.  As  for  the  level  of  intervention 
stocks, these decreased in the case of meat and dairy products but were expected to 
increase  for  cereals,  due  to  the  exceptional  harvest  in  2004  and  low  prices  on  the 
world cereal market.  

2. 

POLICY DEVELOPMENTS AND LEGISLATIVE INITIATIVES IN 2003 

2.1. 

The CAP reform 

5. 

A package of reforms to the CAP was agreed in June 2003. The central element of the 
reform  was  "single  payment  scheme"  –  the  decoupled  aid  payment  that  (from  2005 
onwards) incorporates and replaces many of the former direct aids to farmers.  

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6. 

A second wave of reforms was agreed in April 2004. It applies to the tobacco, olive 
oil,  cotton  and  hops  sectors.  A  significant  part  of  the  production-linked  payments 
made  to  those  farmers  who  grow  these  crops  will  be  transferred  to  the  de-coupled 
single payment scheme (introduced into the CAP in June 2003).  The payments  will 
have to comply with horizontal obligations such as cross-compliance, modulation and 
financial discipline. The reforms will enter into force in 2006 (2005 for hops).  

2.2. 

Quality policy 

7. 

By  adopting  Regulation  (EC)  No  383/2004  the  Commission  introduced  greater 
transparency  into  its  policy  of  protecting  the  names  of  agricultural  products.  The 
Commission  furthermore  produced  a  Guide  to  Community  Regulations  in  order  to 
explain  the  purpose,  scope  and  implication  of  Regulations  (EEC)  No  2081/92  and 
(EEC)  No  2082/92,  which  are  the  regulations  that  specify  the  quality  policy  of  the 
EU.  During  the  year,  the  Commission  added  49  names  to  the  list  of  protected 
designations  of  origin  and  protected  geographical  indications:  the  list  currently 
comprises 681 products.  

2.3. 

Organic farming 

8. 

In June 2004, the Commission launched the European Action Plan for organic food 
and farming.  This analyses the  current  state of  the  organic sector  and  lays down an 
overall  framework  for  policy  in  this  area.  It  also  sets  out  21  actions,  including 
regulatory  initiatives,  to  advance  policy  favouring  a  balanced  development  of  the 
sector. The plan is the outcome of a public consultation exercise, undertaken over the 
last  three  years  and  to  which  Member  States,  Community  institutions,  stakeholders 
and all interested parties have made contributions.  

2.4. 

Promotional measures 

9. 

2.5 

10. 

As  in  previous  years,  the  Commission  continued  to  promote  the  sale  of  agricultural 
products both within the EU and outside it. In 2004, a number of new programmes for 
the promotion of products were approved for co-financing. Thirteen of these were in 
countries  outside  the  EU  (Japan,  Russia,  USA,  Canada  and  Brazil  amongst  others). 
46 new programmes were approved to promote products within the EU.  

Simplification of agricultural legislation 

Simplification continued to be an important objective during 2004. One purpose is to 
make the legislation as clear, as transparent and as accessible as possible. Another is 
to  reduce  paperwork  for  farmers  and  the  various  national  authorities  that  are 
responsible for administering the Common Agricultural Policy in the Member States.  

2.6. 

State aids 

11. 

In  October  2004,  the  Commission  adopted  Regulation  (EC)  No  1860/2004 
concerning  de  minimis  aid  to  farmers  and  fishermen.  This  regulation  exempts 
Member States from having to give prior notification to the Commission when they 
grant  national  aid  to  farmers  and  fishermen,  so  long  as  the  aid  is  not  more  than 
EUR 3 000  per  recipient.  This  initiative  will  help  farmers  and  fishermen  when  they 
are in a financial crisis.  

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12. 

During the year, the Commission took a number of decisions relating to state aid that 
had been granted previously for the promotion and advertising of farm products. As 
concerns  the  granting  of  state  aid  by  Member  States,  the  Commission  received 
252 notifications  of  draft  measures  in  the  agricultural  and  agro-industrial  sector.  It 
raised no objections to 212 of these measures.  

2.7. 

Assistance to the needy 

13. 

The European Union continued its aid programme for the needy by distributing farm 
products from intervention stocks to associations working with deprived people in the 
Member States. During 2004, products to the value of some EUR 214 million were so 
distributed.  

2.8. 

The outermost regions 

14. 

In October the Commission adopted a proposal for a Council Regulation aimed at the 
reform of the support schemes for agriculture in the outermost regions of the EU. The 
purpose of the reform is to improve the management of the schemes. In particular the 
reform seeks to change the philosophy behind the way assistance is provided by, for 
example, encouraging participation in decision making.  

2.9. 

Information measures concerning the CAP 

15. 

The Commission continued its efforts to explain the CAP to farmers, to other parties 
and  to  the  general  public.  To  this  end,  it  approved  the  co-financing  of  31  measures 
aimed  at  informing  people  about  the  CAP.  The  measures  include  seminars, 
conferences, publications and audiovisual media productions. The Commission itself 
organised  a  number  of  events  such  as  press  briefings,  hearings  and  conferences.  It 
was also present at five agricultural fairs held in various Member States.  

2.10. 

Information and communication technology 

16. 

In  2004,  investments  were  made  to  maintain  and  further  develop  the  information 
systems  of  DG  Agriculture.  Developments  were  driven  by  two  major  events:  the 
enlargement of the EU and the introduction of accrual accounting.  

2.11.  Advisory committees and relations with bodies representing the trade 

17. 

Some  85  meetings  of  advisory  committees  and  working  groups  were  held  in  2004, 
during  which  the  Commission  consulted  and  informed  the  representatives  of  the 
many  stakeholder  organisations  that  attended.  The  European  Parliament  convened 
15 plenary  sessions.  DG Agriculture  attended  whenever  the  Parliament  discussed 
subjects  of  relevance  to  rural  and  agricultural  affairs.  DG  Agriculture  provided 
responses or contributed to responses to 616 questions from MEPs.  

3. 

AGRICULTURAL MARKETS 

3.1. 

Crop products 

18. 

At the world level, production of cereals rose in the 2003/4 marketing year compared 
to  the  previous  year.  However,  in  the  EU  it  fell  substantially.  World  cereal  stocks 

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19. 

20. 

21. 

22. 

23. 

24. 

25. 

declined  once  again,  the  2003/4  estimate  of  stocks  being  260  million  tonnes,  as 
against 320 million tonnes in 2002/3 and 380 million in 2001/2. For the first time in 
several years, the EU produced less cereals than it consumed; the shortfall in wheat 
and maize was particularly marked.  

Oilseeds are grown for oil for human consumption and for cake which is used to feed 
animals. Despite the excellent weather in Europe in 2004 – which allowed yields to 
recover  from  their  low  level  of  the  previous  year  –  the  EU  continued  to  be  a  net 
importer of oilseeds.  

Concerning  the  world  sugar  market,  2003/4  was  again  a  "surplus"  year  in  that 
production  exceeded  consumption.  Brazilian  sugar  farmers  –  who  are  by  far  the 
biggest producers of sugar in the world – again reached a new record level of output. 
Within the EU, the area sown to sugar beet continued its long-term trend downwards 
and in 2003/4 production was significantly less than in the previous year. The lower 
output  affected  the  production  of  non-quota  "C"  sugar,  which  either  has  to  be 
exported  without  an  export  subsidy  or  has  to  be  carried  forward  to  the  following 
campaign.  

The  Commission  proposed  a  reform  of  the  sugar  regime  and  in  September  2003  it 
published  an  analysis  of  three  options  regarding  the  future  of  the  regime.  During 
2004,  these  options  were  discussed  in  detail  with  the  Member  States  and  with  the 
major stakeholders. In July 2004, the Commission published a Communication to the 
Council and the European Parliament spelling out its proposals concerning the future 
of  the  common  market  organisation  for  sugar.  The  essence  of  the  proposal  is  a 
significant reduction in the price of sugar beet which would be partially compensated 
by direct payments.  

The European Union is the world's main producer of olive oil, accounting for about 
three-quarters of the world's supply. The second wave of the CAP reform adopted in 
April 2004 provides for the reform of this sector. In particular a minimum of 60 % of 
the average production-linked payments received during the period 2000-2002 will be 
converted  into  entitlements  under  the  Single  Payment  Scheme.  Olive  farms  that  are 
smaller than 0.3 hectares will receive all their previous production-linked payments in 
order to simplify the procedures for the smaller farmers and provide a stable income.  

In  2003,  the  Commission  started  to  simplify  the  rules  concerning  fresh  fruit  and 
vegetables. It continued this work in 2004. 

The EU grows only a small proportion of the bananas that it consumes, importing the 
balance from African, Caribbean and Pacific countries (ACP countries) and a variety 
of  other  third  countries,  principally  in  Central  and  South  America.  During  2004,  in 
view of the accession of the ten new Member States, an additional quantity was made 
available for imports into these countries for the period from 1 May to 31 December 
2004.  

The EU is the world's top exporter of wine. Its main markets are the United States, 
Switzerland,  Canada  and  Japan.  In  2004,  the  value  of  exports  was  in  the  region  of 
EUR  5  billion.  With  regard  to  the  common  market  organisation  for  wine,  during 
2004, the Commission adapted a number of measures to take account of the situation 
in  the  ten  new  Member  States.  It  also  fixed,  for  the  2004/5  marketing  year,  an 
indicative financial allocation for the restructuring and conversion of vineyards.  

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3.2. 

Animal products 

26. 

27. 

28. 

29. 

4. 

30. 

5. 

31. 

32. 

The EU is  the  world's largest producer of milk, taking second place to India where 
most of the milk comes from buffaloes. The United States ranks third. During 2004, 
the  number  of  dairy  cows  fell  by  some  half  a  million  to  24  million.  The  average 
number of cows per dairy farm in the EU rose to 37. Amongst the EU 15, the largest 
dairy farms are found UK (average number of cows is 110) whilst the smallest dairy 
farms are found in Austria (10 cows).  

The EU is the third largest producer of beef in the world (after the United States and 
Brazil). Since 2003, it has become a net importer of beef; it exports mainly to Russia 
and imports mainly from South America. In the first nine months of 2004, total beef 
imports  amounted  to  about  half  a  million  tonnes,  with  an  increase  observed  in  the 
level  of  imports  at  full  duty.  This  demonstrated  the  strong  competitive  position  of 
some beef suppliers.  

As  for  sheep  and  goatmeat,  the  market  was  satisfactory  until  the  declaration  of 
bluetongue  disease  in  the  Southern  Iberian  Peninsula  in  October  2004,  after  which 
prices  fell.  As  regards  pigmeat,  the  EU  is  the  world's  second  largest  producer,  the 
biggest  producer  being  China.  During  2004,  prices  for  pig  farmers  in  the  EU  were 
unstable  and  finished  the  year  at  a  very  low  level.  Prices  in  2004  were  however 
expected to increase.  

For the last six years or so, there has been a very substantial increase in the world in 
the production of poultry meat. The increase has been of the order of 20 % per year 
since 1998. In the EU, however, the increase has been at a much slower rate of about 
3 %. Indeed in 2000, production in the EU fell due to an outbreak of avian influenza 
in  Italy.  Another  fall  in  output  occurred  in  2003  when  there  were  outbreaks  in 
Belgium  and  the  Netherlands.  It  was  expected  that  production  would  increase  in 
2004.  

AGRIMONETARY ARRANGEMENTS 

The agrimonetary measures adopted in 2004 were limited to fixing the exchange rates 
to be applied to direct aids in those Member States that had not adopted the euro.  

RURAL DEVELOPMENT IN 2004 

For  the  period  2000-2006  the  rural  development  programming  consists  of  the 
following:  68  Rural  Development  Programmes  –  RDPs  –  (cofinanced  by  EAGGF-
Guarantee),  69  Objective 1  regional  programmes  with  rural  development  measures 
(EAGGF  Guidance  cofinanced)  and  20  programmes  for  Objective 2  regions  with 
rural development measures (EAGGF Guarantee cofinanced). 

In  2004,  Community  expenditure  on  rural  development  amounted  to  some 
EUR 8 billion.  Of  this  the  EAGGF  Guarantee  provided  about  EUR 5 billion  (from 
October  2003  to  October  2004),  and  the  EAGGF  Guidance  provided  about 
EUR 3 billion (calendar year 2004). In 2004, modifications to 52 rural development 
programmes  were  approved  by  the  Commission.  Concerning  the  LEADER+ 

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programmes that had been previously approved 892 of the expected 938 Local Action 
Groups had been selected at the end of December 2004. 

ENVIRONMENT AND FORESTS 

In  2004,  the  Commission  provided  conceptual  input  for  the  IRENA1  project  and 
presented  an  analytical  framework  which  included  the  identification  of  a  set  of 
35 agri-environment indicators. The Commission continued the implementation of the 
"Biodiversity Action Plan for Agriculture"2. In May 2004, a Council Regulation3 was 
adopted  which  established  a  new  pluri-annual  Community  programme  for  the 
conservation,  characterisation,  collection  and  utilisation  of  genetic  resources  in 
agriculture. Several Member States notified the Commission of measures introduced 
by  them  regarding  the  coexistence  of  genetically  modified  crops  with  conventional 
and organic farming. The Commission evaluated these notifications according to the 
principles stated in its Recommendation of 20034. 

In  the  context  of  the  protection  of  forests  against  atmospheric  pollution5  and  fires6, 
the  Commission  continued  the  management  of  projects  and  national  programmes 
2000, 2001 and 2002. It launched a preparatory action in the context of the European 
Forestry Information and Communication Platform. The purpose is to facilitate access 
to  and  use  of  the  forestry-related  information  sources  and  databases  existing  in  the 
EU.  Work  continued  on  the  preparation  of  an  implementation  report  on  the  EU 
Forestry Strategy 

FINANCING OF THE CAP IN 2004 

CAP  expenditure  takes  into  account  the  financial  perspectives  decided  at  the  Berlin 
Summit in 1999 as adjusted at the Copenhagen Summit end of 2002 to comply with 
the financial effects of EU enlargement. 

Of  the  overall  commitment  appropriations  of  EUR 111 300 million  entered  in  the 
2004  general  budget,  an  amount  of  46 781.4 million  (ie  42 %)  was  allocated  to  the 
Guarantee Section. In 2003, EAGGF Guarantee Section commitments accounted for 
45 % of commitments in the general budget. EAGGF Guarantee Section expenditure 
comprised  in  2003:  export  refunds  (EUR 3 730 million);  public  and  private  storage 
(EUR 930 million);  direct  aids7  (EUR 29 690 million);  other  intervention  relating  to 
the  common  market  organisations  (EUR 5 410 million);  and  other  expenditure, 
principally rural development (EUR 4 710 million). Direct payments to farmers were 
thus by far the largest type of aid.  

IRENA  is  the  acronym  of  "Indicators  Report  on  the  integration  of  Environmental  concerns  into 
Agriculture policy". 
COM(2001) 162 final, volume III. 
Council Regulation (EC) No 870/2004. 
Commission Recommendation 2003/556/EC (OJ L 189/36, 29.7.2003, p. 36). 
Council  Regulation  N°  3528/86  (OJ  L326  of  21.11.1986,  p.2-4  Finnish  and  Swedish  special  editions 
Chapter 3, Volume 22, p. 59). 
Council  Regulation  (EEC)  No  2158/92  (OJ  L217  of  31.7.1992,  p.  3;  Finnish  and  Swedish  special 
editions Chapter 3, Volume 44, p. 3). 
Direct  payments  as  defined  in  the  Annex  to  Regulation  (EC)  No  1259/1999  of  17  May  1999 
(OJ L 160 of 26.6.1999, p. 113). 

6. 

33. 

34. 

7. 

35. 

36. 

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37. 

38. 

8. 

39. 

40. 

As  regards  the  EAGGF  Guidance  Section,  which  finances  rural  development 
programmes, for the period 2000-2006 there is no decrease in support. In actual fact, 
measures targeting agricultural structures and the diversification of rural areas which 
up to 1999 had been funded by the EAGGF  Guidance Section, are now covered by 
the Guarantee Section.  

Evaluation:  In  the  field  of  market  policies,  the  evaluation  of  tobacco  and  olive  oil 
CMOs were completed. For the wine sector, a contract was signed; a call for tenders 
was  published  for  bananas,  and  preparatory  work  advanced  for  pork,  eggs  and 
poultry,  as  well  as  for  the  environmental  effects  of  CMOs  relating  to  permanent 
crops. In the field of rural development policies, a study on the mainstreaming Leader 
innovations that had been launched in 2003 was completed.  

ENLARGEMENT 

The  Accession  Treaty  for  the  ten  acceding  countries  entered  into  force  on  1  May 
2004.  A  regulation8  adapting  the  texts  of  he  CAP  Reform  to  take  account  of 
enlargement  and  a  decision9  adapting  the  Act  of  Accession  to  take  account  of  the 
CAP  reform  were  adopted  on  22  March  2004.  Negotiations  with  Bulgaria  and 
Romania  on  all  chapters  were  completed  in  December  2004.  The  Commission 
continued to monitor the commitments that these two countries had made during the 
negotiations.  The  Directorate-General 
for  Agriculture  worked  closely  with 
DG Enlargement  on  preparing  the  Commission's  impact  study  on  Turkish  accession 
and  drafted  the  chapter  on  agriculture.  Substantial  contributions  were  made  to  the 
Commission Opinion on Croatia's application for accession. The opinion was adopted 
on 20 April 2004.  

Eight  out  of  ten  SAPARD  beneficiary  countries  became  Member  States  on  1  May 
2004.  The  Commission  adopted  various  provisions  to  facilitate  the  transition  from 
SAPARD  to rural development programming instruments available to new Member 
States.  As  of  the  end  of  December  2004,  a  total  amount  of  EUR  2 215  million 
(cumulative amount of EU contribution) had been committed to beneficiaries by the 
SAPARD Agencies. 

9. 

INTERNATIONAL RELATIONS 

9.1. 

International organisations and agreements 

41. 

The  EU  continued  to  participate  in  various  meetings  of  international  organisations. 
Concerning  the  World  Trade  Organisation  (WTO),  following  the  unsuccessful 
Ministerial  meeting  in  Cancun  in  September  2003,  work  continued  in  the  spring  of 
2004  and  led  to  a  very  successful  outcome  of  trade  talks  during  July  with  the 
conclusion of the Agreed Framework.  

42. 

The  EU  also  participated  in  the  meetings  of  the  Organisation  for  Economic  Co-
operation  and  Development  (OECD).  During  2004,  discussions  went  deeper  into 

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Council Regulation (EC) 583/2004 (OJ L 91 of 30.3.2004, p.1). 
Council Decision 2004/281/EC (OJ L 93 of 30.3.2004, p.1). 

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issues  of  trade  distortion  by  continuing  studies  regarding  "de-coupling"  and  the 
impact of risk-related support on production decisions.  

43. 

Following  the  conclusion  of  negotiations  held  during  2004,  the  International 
Agreement  on  Olive  Oil  and  Table  Olives  will  be  replaced  by  a  new  agreement. 
Concerning  developing  countries,  in  April  2004,  the  Council  adopted  an  EU  action 
plan aimed at helping them fight excessive dependency on the export of agricultural 
commodities.  

9.2. 

Bilateral and regional trade relations 

44. 

45. 

46. 

47. 

Regarding  the  negotiations  on  Economic  Partnership  Agreements,  during  2004,  the 
Commission  was  involved  in  the  elaboration  of  roadmaps  for  the  six  regions  in  the 
developing world that are involved. Further discussions were held on the outstanding 
issues of the EU/South Africa wine and spirits agreement.  

Following  ratification  in  all  EEA  States,  including  the  new  EU  Member  States,  the 
Agreement  on  the  European  Economic  Area  was  modified  to  take  account  of  the 
enlargement of the EU. In October, the Council granted a mandate to the Commission 
to undertake further bilateral negotiations with Iceland in agriculture. Agreement was 
reached  with  Norway  to  resume  bilateral  trade  negotiations  in  agriculture  in  2005. 
Intensive  talks  took  place  with  Switzerland  and  the  "bilateral  II"  package  was 
completed.  

The  Commission  held  talks  with  several  Asian  countries  on  the  subject  of  market 
access. The EU sent an inspection team to India to evaluate information received in 
the  context  of  a  request  for  approval  of  a  number  of  accreditation  agencies  for  the 
export  of  organic  food.  In  the  framework  of  the  Barcelona  process,  Association 
Agreements have now been concluded with all Mediterranean countries. Negotiations 
on  the  agricultural  part  of  the  future  Free  Trade  Agreement  with  the  Gulf 
Co-operation Council were provisionally concluded.  

Negotiations in the framework of the respective Europe Agreements were concluded 
with Romania and Bulgaria to take account of enlargement and to provide for further 
trade concessions in the agricultural field. Implementation of the new arrangements is 
expected in early 2005. Intensive negotiations were held with Mercosur with a view 
to concluding an Association Agreement by October 2004. This deadline was not met 
however  and  negotiations  will  continue  in  2005.  Relations  with  the  Russian 
Federation were fruitful as regards the achievement of an agreement in April on the 
Russian proposal for market access in the context of its accession to the WTO.  

48. 

Regarding the US, intensive negotiations on a comprehensive EU/US wine agreement 
were held. These will continue in 2005.  

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