Opinion of the European Economic and Social Committee on Health check of the CAP and its future after 2013
Date: 2007-10-25
Institutions: European Economic and Social Committee
Subjects: common agricultural policy, common organisation of markets, reform of the CAP, rural development

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Opinion of the European Economic and Social Committee on ‘Health check of the CAP and its
future after 2013’

(2008/C 44/17)

On 10 May 2007 the European Commission wrote to the president of the European Economic and Social
Committee, Mr Dimitriadis, under Article 262 of the Treaty establishing the European Community, to
request an opinion on Health check of the CAP and its future after 2013.

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 1 October 2007. The rapporteur was
Mr Kienle.

At its 439th plenary session, held on 24 and 25 October 2007 (meeting of 25 October), the European
Economic and Social Committee adopted the following opinion by 116 votes to two with six abstentions.

1. Summary and conclusions

The European Economic and Social Committee welcomes
1.1
the fact that the European Commission has at an early stage
asked it to draft an exploratory opinion on the health check of
the Common Agricultural Policy and its future after 2013.

1.2
The 2003 reform of the CAP was a major paradigm
shift. Regulation of agricultural markets through intervention
was greatly reduced, the linkage of direct payments to produc-
tion is now the exception, and, despite the enlargement of the
EU, financial expenditure on the CAP has fallen. The EU has
thus done more for the further liberalisation of international
agricultural trade than any of its competitors.

1.3
Not only farmers, but also food processing businesses are
currently going through a tough period of transition. The EESC
believes that there is a great deal of willingness to respond in an
entrepreneurial and market-oriented manner to the new condi-
tions, provided that the promises made during the reforms are
kept and sufficient legal and planning certainty is provided. This
is all the more true at a time when there is strong worldwide
demand for foodstuffs and renewable energy sources and the
importance of food security is being reassessed.

1.4
The EESC considers it right that the simplification of the
administrative rules applying to subsidies and the implementa-
tion of the cross-compliance requirements, along with a review
of the need to adapt existing provisions to future requirements
(see point 6.3), are seen as the main priority for the health
check.

1.5
In connection with the debate about the future of the
CAP after 2013, the EESC considers an adaptation of its aims
(Article 33 of the EC Treaty) to today's circumstances and chal-
lenges to be necessary.

The EU is committed to the European agricultural model
1.6
and to multifunctionality. The EESC points out that this cannot
easily be squared with ever greater liberalisation, especially since
European society's expectations of agriculture remain high.

1.7
The liberalisation of agricultural trade is likely to cause
considerable volatility and instability in agricultural markets.
Climate change is having a similar effect. Therefore, the EU will
continue in the future to need instruments for stabilising agri-
cultural markets. However, the EESC also calls for alternative
systems to be discussed and developed.

It is generally expected that the quota arrangements for
1.8
milk will expire on 31 March 2015. However, the EESC points
out that many naturally disadvantaged regions rely on milk
production. Timely proposals for safeguarding production in
these areas therefore need to be drawn up.

1.9
The EESC would also draw attention to its current
opinion on Compensation payments for disadvantaged areas
beyond 2010 (1), which deals with the need for targeted support
for naturally disadvantaged regions.

1.10
The EESC is convinced that direct farm payments will
continue to be essential in the future. If direct payments are to
receive and maintain public acceptance, the EU must be able to
explain their purpose.

The second pillar (rural development policy)

is even
1.11
more significant
for ensuring the multifunctionality of agri-
culture. The EESC therefore advocates more substantial funding
for
targeted
support can lead to the creation or the protection of jobs in
agriculture and rural areas.

the second pillar. Examples demonstrate that

2. Introduction

In 2007 the EU can proudly look back on 50 years of
2.1
successful European integration. Since the entry into force of
the Rome Treaty on 1 January 1958 the Common Agricultural
Policy (CAP) has been an important part of this unprecedented
development. Agriculture is still the only fully harmonised Com-
munity policy area.

(1) NAT/356.

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2.2
It is therefore encouraging that a majority of EU citizens
feel positive about agriculture and the CAP, as a representative
poll clearly shows (2). Advantage should be taken of
this
prevailing favourable mood to convince the public that the
resources provided by the CAP are invested well for the benefit
of
the relevant
measures and programmes, but good arguments to go with
them.

society. Politicians should deliver not

just

3. The 2003 CAP reform: a radical change

3.1
Following the changes to the CAP which had already
been decided as part of Agenda 2000, the agricultural reform of
June 2003 brought about a radical change.

2.3
The agricultural reform of 2003 (which has since been
complemented by reforms in other markets) transformed the
CAP to a much greater extent than any preceding reforms.

3.1.1
Single farm payments are being decoupled from
production. ‘Decoupling’ is the heart of the reform. So far, 85 %
of payments have been decoupled.

2.3.1
The rationale for the reform was that it would make
agriculture more market-oriented and competitive. It was also
intended to make the CAP more easily defensible in WTO nego-
tiations, while better responding to changes in public expecta-
tions of agricultural production.

the agricultural

A point frequently made by policy-makers was that once
2.4
completed,
reforms would restore planning
certainty regarding CAP instruments for farmers and down-
stream businesses (processing and distribution). The EESC has
repeatedly drawn attention to the importance of this require-
ment.

2.5
In December 2005, when the EU budget for 2007-2013
tasked the European
was agreed on,
Commission with conducting a review in 2008/09 of expendi-
ture and revenue covering all aspects of Community policies.

the European Council

2.5.1
Even before this, a ‘health check’ of CAP reform
measures has been envisaged. According to the Commission, the
aim is not to launch a new reform process, but to consider to
what extent the objectives of the CAP have been met, and to
what extend adjustments are needed.

Direct payments (‘single farm payments’) have been tied
3.1.2
food safety,
to compliance with particular environmental,
animal health, plant health and animal welfare standards
(‘cross-compliance’).

3.1.3
market
greatly reduced.

Regulation of agricultural markets in the form of
intervention, storage and export subsidies has been

3.1.4
production quotas, are to be gradually phased out.

The remaining quantity guidance measures, such as

3.1.5
In spite of enlargement and a wider remit, CAP expen-
diture for the 2007-2013 period will be down by 7.8 %
compared to 2006.

3.2
As a result, the EESC notes that at 43.6 % in 2008 the
share of the CAP in the EU's total budget (the Commission's
preliminary draft budget) will, for the first time, no longer be
the largest budget heading. It should also be remembered that in
1997 market support measures still amounted to EUR 35 billion,
or 85 % of funding for agriculture. In 2007, only EUR 5,7 billion
(13 %) has been allocated. A ceiling of EUR 1 billion has been
set
for export subsidies, compared with EUR 6 billion in
1997 (4).

2.6
A broad-based debate is already to be launched in
autumn 2007. The Commission plans to issue a communication
containing specific proposals on 20 November. The relevant
legislative proposals are planned for the first half of 2008 (3).
Separate from the health check, a discussion is envisaged on
the direction which development of
the CAP should take
post-2013.

(2) Eurobarometer 276, ‘Europeans, Agriculture and the Common Agri-

cultural Policy — 2006’
(http://ec.europa.eu/agriculture/survey/index_en.htm).
88 % of those surveyed agreed that agriculture and rural areas are
important for the future of Europe, 49 % were in favour of decoupling,
and a higher percentage (45 %) felt that the budget share of the CAP
was at the right level than that it was too high (16 %) or not high
enough (15 %). 58 % of those surveyed felt that funding for agriculture
should remain at the same level (32 %) or increase (26 %).

(3) Speech by Commissioner Fischler Boel on 7 May 2007 in the European

Parliament (SPEECH/07/288).

3.3
Cuts in CAP expenditure at the same time as an increase
in the number of beneficiaries (mainly due to enlargement)
mean that various measures may experience cutbacks.

The need for

3.4
the EU to strengthen its position in
defending the European agricultural model in WTO negotiations
the Commission in
consideration for
was an important
reforming the CAP. The reform of the CAP was a huge first step
for the EU. The Commission emphasises that the offers which
have been tabled so far in the WTO Doha Round are consistent
with the 2003 CAP reform. However, there are differing views
on this point.

(4) Source: European Commission, budget plans.

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3.5
The EESC is concerned to note that the CAP is increas-
ingly drifting apart. Differences in national implementation of
the CAP have grown considerably as a result of
the 2003
reform. However, this also affects competition in the internal
market.

5. European agriculture must make good use of

its

potential

4. European agriculture is adapting to changed circum-

stances

4.1
Under the decisions taken by the European Council on
the EU budget in 2003 and 2005, the CAP has been incorpo-
rated into the EU's overall financial framework. There are clear
political objectives, which will apply until 2013. Farmers now
need time to adjust to the changes.

Over

the last

few months,

5.1
there have been major
changes in global agricultural markets as a result of strong
global demand for foodstuffs as well as for regrowing raw mate-
rials (produced in the agricultural and forestry sectors) and
renewable energies. This should open up more opportunities for
farmers to cultivate and sell their crops. European agriculture, as
well as agriculture in developing countries, will benefit signifi-
cantly from this. However, the EESC considers it particularly
important that the increased use of production potential in agri-
culture and forestry should take account of sustainability and
environmental considerations. The EESC also points out that
there are considerable risks associated with the much greater
market volatility that is to be expected.

As a result of cuts in institutional prices and market-
4.2
support measures, and also of
the further opening-up of
markets to imports, production prices in the EU-15 fell in real
terms over the 2000-2005 period (5).

5.2
Tapping into existing potential means less dependence as
regards supplies of everyday necessities. It can also significantly
help to boost value added in rural areas and create employment
in all stages of production, processing and distribution.

4.3
The Commission has linked decoupling to expectations
not only of achieving more stable incomes (6) but also of an
improvement in farmers' income situation (7). However, income
trends in 2005 and 2006 do not yet bear out such expectations.
That said, incomes can be expected to increase in 2007, not
least due to the current increase in world market prices for agri-
cultural raw materials.

In its opinion on the 2003 CAP review (8), the EESC
4.4
pointed out that proving adherence to cross-compliance stan-
dards would mean a sharp rise in farms' own expenditure,
including on documentation. Costly investments are also often
necessary, for example in livestock farming. Experience already
suggests that some farmers with smaller and economically
weaker farms are unwilling or feel unable to take on the neces-
sary commitments, and are therefore obliged to give up
farming.

Decoupled direct payments should enable farmers to
4.5
make the best use of market opportunities.
In many cases,
adapting to markets requires investments, sometimes of large
amounts of capital, or, in some cases, very little financial invest-
ment, but a lot of advisory support. Subsidies are available for
restructuring and investments under the second pillar. The will-
ingness of agriculture, and above all of those taking on farms in
the future, to adapt to altered conditions and to make the neces-
sary investments depends in large part on the reliability of poli-
cies.

(5) EuroStat ‘producer price indices’: plant products — 9,3 %, animal

products — 15,8 %.
(6) DG AGRI, Memo/03/10.
(7) Mid-Term Review of

COM(2002) 394.

the

Common Agricultural

Policy,

(8) OJ C 208, 3.9.2003, p. 64 — NAT/178.

For many years,

the availability of cheap fossil

5.3
fuel
supplies was seen as an advantage. Since then, heavy depen-
dence and steep price rises have led to critical reflection on the
possible implications for major products used in people's daily
lives. There is a new awareness of the importance of secure
supplies, of both energy and food. This will become greater as it
becomes clear that
these cannot be guaranteed by imports
alone.

5.4
The UN's global climate report confirms what scientists
have already warned of, in terms of the consequences of global
warming. Even if global warming can be somewhat slowed
down,
increasingly extreme
weather conditions, droughts and water shortages are to be
expected. Agriculture and forestry in many countries will be
particularly hard hit.

serious consequences

such as

5.5
The EESC welcomes stronger awareness of the problem
in the EU, reflected e.g. in the Berlin Declaration on the 50th
anniversary of the signing of the Rome Treaties. In the EESC's
view, the heads of states' or governments' avowed intention to
in combating poverty and hunger, and
play a ‘leading role’
‘jointly to lead the way in … climate protection’
is to be
supported by all possible means. Agriculture in the EU-15 has
reduced its share of greenhouse gas emissions by 16 % over the
1990-2004 period (9), but pressures remain for further cuts.

(9) EEA Report No 9/2006 ‘Greenhouse gas emission trends and projec-

tions in Europe 2006’.

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considerably,

5.6
The need to achieve massive cuts in CO2 emissions must
also bring about a rethink of how goods such as agricultural
products are supplied. Strong transport growth is one of the
main reasons for rising CO2 emissions. Even with energy prices
rising
imports
environmentally
(e.g. apples and asparagus flown in from South America) will
only come under limited economic pressure. More attention
must be urgently paid to improving supplies of foodstuffs and
energy which do not involve long journeys. There are many
successful examples which show that this can be done, to the
benefit both of the environment and employment in rural areas.

questionable

5.7
The decision taken in Brussels in March 2007 by the
heads of state or government to require that 20 % of EU energy
come from renewable sources by 2020 is an important step
towards cutting CO2 emissions. This objective can only be
achieved if greater use is made of biomass. On many occasions,
the EESC has made it clear that farmers and forest owners are
willing and able to supply significantly greater quantities of
biomass raw materials. Various studies show that
increased
productivity and use of uncultivated land would have significant
potential (10).

Set-aside has proved valuable as an instrument

5.7.1
for
relieving the pressure on cereals markets. However, circum-
stances have changed due to the 2003 reform and the need for
agricultural raw materials for biofuel production. The EESC
to do away with set-aside.
therefore supports
However, it must be ensured that there are no environmentally
adverse effects or that these are offset. The Commission should
submit studies and proposals on this as soon as possible.

the plans

6. Health check

The decisions on CAP reform and the agreement on the
6.1
EU budget
for 2007-2013 (Financial Perspectives) also laid
down requirements for the review of the policy. The planned
review of CAP reform was dubbed a ‘health check’. The commu-
is expected to be published on
nication on this
20 November 2007, and the relevant legislative proposals in
Spring 2008. The EESC will be consulted.

subject

6.2
The EESC points out that the European Council, both in
December 2002 and in the decisions on the 2005 Financial
Perspectives, set objectives whereby the EU agricultural budget is
valid until 2013, as are the agricultural policy measures. This
was certainly a response to the fact that the way the previous

(10) Communication from the Commission — An EU Strategy for

Biofuels; SEC(2006) 142
Nachhaltige Biomassenutzungsstrategien im europäischen Kontext
(Strategies for sustainable use of biomass in a European context)
(Institut für Energetik und Umwelt, Leipzig)
How much bionergy can Europe produce without harming the envir-
onment? (European Environment Agency, EEA Report No 7/2006).

mid-term review was handled was widely seen as a breach of
trust — whilst what was announced was a review, what was
actually adopted was the most sweeping reform in the history
of the CAP.

6.3
The health check should be a review of the extent to
which the aims of the CAP reform are being achieved. The main
concern should be to identify needs for adaptation of existing
legislation, enabling

— easier and more straightforward implementation, and

— removal of obstacles to targeted implementation of reform

measures which have already been agreed on.

The EESC feels that the entire value added chain should be
taken into account, including production, processing and distri-
bution.

6.4
In the EESC's view, the priorities for the health check
should be a thorough review of the administrative rules for
farm subsidies and the implementation of cross-compliance. The
signs that the Commission has thus far given point towards
such tangible simplifications. However,
if cross-compliance is
not to remain a constant bone of contention, it is important to
secure farmers' support for it.

Doubts are expressed among farmers as to whether the
6.5
health check will
include attempts at substantial reforms, for
example in the system of decoupled direct payments or market
organisation arrangements which have already been reformed.
The EESC can only suggest that such doubts be removed by
clear statements from the Commission.

6.6
At the time of the 2003 CAP reform, farmers were reas-
sured that they could rely on the new conditions arising from
the reform staying in place up to and including 2013. In prin-
ciple, this should apply to all reform measures.

However, the EESC supports the Commission's concern
6.7
to arrive in good time at a comprehensive position on the
measures needed for the CAP's future post-2013. For example,
this applies to both expiry of
the milk quota system on
31 March 2015 and dealing with the consequences of scrapping
export subsidies. It is equally necessary to set out in a credible
manner, before the discussions on the next Financial Perspec-
tives begin, why a functioning, properly-funded CAP will still be
necessary, in the interests of the EU as a whole, even after 2013.

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6.8
The EESC also draws attention to the expectations of the
new Member States that the instruments of the CAP will fully
apply there after 2013. The health check provides an opportu-
nity to examine whether more needs to be done about this.

7.2.2
In its opinion on A policy to consolidate the European
agricultural model (12), the EESC emphasised that there was no
contradiction between preserving the European agricultural
model and the need to adapt European agriculture to changing
economic conditions.
the EU must
continue to have the necessary room for manoeuvre in agri-
cultural policy, even after the WTO trade negotiations.

It also emphasised that

7. Comments on the future of the CAP

7.1
The CAP is based on the objectives set out in Article 33
of the EC Treaty: to ensure a fair standard of living for the agri-
cultural community, to stabilise markets, to assure the avail-
ability of supplies, to ensure that supplies reach consumers at
reasonable prices, and to increase agricultural productivity.

7.2.3
The commitment to the European agricultural model
remains in place. The unanimous Declaration of Intent made by
agricultural ministers in Luxembourg in 1997 is particularly
impressive. According to this, European agriculture should be:

— sustainable and competitive;

7.1.1
Subsequent Treaty provisions on environmental protec-
tion, consumer protection and cohesion have also played a key
role in shaping the CAP.

— capable of maintaining the countryside and conserving

nature;

7.1.2
The EESC advocates adapting the aims of the CAP set
out in the EC Treaty to today's changed realities. It is of key
importance that the aims of the CAP tie in with the multifunc-
tional role of European agriculture, while meeting the new chal-
lenges.

— capable of making a key contribution to the vitality of rural

life;

— able to respond to consumer concerns and demands
regarding food quality and safety, environmental protection
and animal welfare.

Up till now, the CAP has played an essential and deci-
7.1.3
sive role in the successful European integration process. Moves
towards renationalisation of key CAP elements are not a helpful
response to the new challenges facing European agriculture.
Increasing globalisation and the likely consequences of climate
change call for even more joint action.

It is equally important to refer to the Luxembourg European
Council that took place the same year, which stated that ‘Euro-
pean agriculture must, as an economic sector, be versatile,
sustainable, competitive and spread throughout European terri-
tory, including regions with specific problems’.

7.1.4
The ongoing conflict between objectives which Euro-
pean agriculture is experiencing (see EESC opinion on The Future
of the CAP (11)) will intensify: on the one hand, production has
to meet high standards, and on the other, farms are expected to
be internationally competitive.

7.2.4
However, the EESC is concerned to note a widening
discrepancy between, on the one hand, commitments to the
European agricultural model or to the multifunctionality of
European agriculture, and, on the other, the day-to-day reality of
European farming.

7.1.5
Further liberalisation of agricultural markets (WTO,
bilateral agreements) means even stronger competition. The rise
in extreme weather conditions exposes agricultural production
to greater uncertainty. However, society still expects to enjoy
secure supplies of high-quality and safe food, while calling for
careful management of natural resources, a sensitive approach
to animals and the preservation of beautiful countryside.
Meeting all of these requirements is a constant challenge for the
CAP, as they are only partially addressed by the market, if at all.

7.2.5
The enlargements in 2004 and 2007 further diversified
the range of farm structures and production conditions There is
even greater diversity, and even less of uniformity in agriculture.
In the EESC's view this is not a threat to the European agri-
cultural model as the necessary basis for ensuring the multifunc-
tional nature of European farming.

7.2 The European agricultural model — commitment and reality

The European agricultural model

7.2.1
is part of Europe's
independent approach to social and economic policy. Even if
economic conditions are changing, farmers should be in a posi-
tion to sustainably fulfil the multifunctional tasks which society
expects of them.

7.2.6
In the EESC's view, the European agricultural model's
future prospects will be good only if a balance can be struck
between economic, social and environmental concerns. As the
EESC opinion on The future of the CAP has already noted, it is
illusory to want to have an agricultural sector which:

— can produce under (often distorted) world market conditions

(as far as possible without financial support);

(11) OJ C 125, 27.5.2002, pp. 87-99 — NAT/122.

(12) OJ C 368, 20.12.1999, pp. 76-86 — NAT/028.

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

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

7.2.7
For the EESC it is clear that wide-ranging liberalisation
measures resulting from WTO and bilateral trade agreements
are stepping up competitive pressure. Stringent EU rules and
standards usually entail agricultural production and processing
costs from which third-country competitors are exempt, besides
the cost advantages which they enjoy. These circumstances are
clearly at odds with the multifunctional role of European agri-
culture and are issues of crucial relevance when setting the
future course of the CAP or endowing it with instruments.

7.3 Key CAP instruments will still be needed in future

7.3.1
The objectives set out in Article 33 of the EC Treaty
impose an obligation to act. As the past few years have shown,
we can expect weather conditions to become increasingly
extreme throughout the world. This development strongly influ-
ences agricultural production and is likely to cause increased
market volatility.
to
consider which instruments should be kept and/or developed
further.

the more important

is therefore all

It

7.3.2
The EESC would emphasise that CAP reforms in 2003
did not by any means envisage doing away with key elements of
the CAP over the next few years. It is unlikely that competition
in the European agricultural sector or society's expectations of
agriculture will change over the next five years to such an extent
that the reasons behind the CAP and its instruments cease to be
relevant. On the contrary, the CAP will face new challenges.

7.3.3
This is particularly true of rural development policy
(second pillar). The EESC has repeatedly called for this to be
adequately funded. However, the measures under the second
pillar cannot replace the first pillar measures for market stabili-
sation and the direct payments. The latter will continue to have
an important role in the CAP beyond 2013. Similarly, the EESC
would be against using rural development funds (second pillar)
for measures
(see
COM(2005) 74 final).

relating to risk and crisis management

The EESC reiterates its position that

7.3.4
the necessary
financial resources must be made available for the performance
of Community tasks. It is therefore all the more important, in
preparation for the debate to be held in 2009 on the future EU
budget,
the future
demands that will be placed on an effective Common Agri-
cultural Policy.

the public understands

to ensure that

7.3.5
The EESC has repeatedly called for a well-functioning
CAP. Calls for the abolition of the CAP will remain confined to
a few outsiders. However,
it is important to counter moves
towards renationalisation of key CAP elements, which are
rightly perceived as exclusive Community responsibilities.

7.4 Common market organisations

7.4.1
Experience shows that agricultural markets are particu-
larly vulnerable to price fluctuations. Large fluctuations often
send the wrong signals, resulting in huge losses which are not
in the long-term interests of consumers either.

The EESC feels that the arguments for stabilising agri-
7.4.2
cultural markets presented by distinguished agricultural econo-
mists
in the 1997 study commissioned by the European
Commission (‘Towards a common agricultural and rural policy
for Europe’ (13)) will be all the more pertinent in future:

— a high degree of risk given the dependence of agriculture on

weather;

— a spatially-diffused, atomistic structure of many small busi-
nesses, which have a high proportion of immobile assets
and land, which restricts freedom of manoeuvre;

— fairly rigid dependence on seasonally and biologically deter-

mined development and growth processes;

— the responsibility to regularly supply products consumed

every day.

7.4.3
These reasons for market stabilisation measures have
not become obsolete as a result of developments on interna-
tional agricultural markets since then. On the contrary, we can
expect new challenges. The EESC therefore recommends that in
future all steps towards liberalisation or removal of existing
market stabilisation instruments be closely considered, with
sufficiently in-depth analysis of possible repercussions.

institutional prices (e.g.

7.4.4
The agricultural reforms of 1999 and 2003 represented
significant steps towards liberalisation of the common market
organisations:
intervention and target
prices) were cut, intervention rules were done away with, ware-
housing surcharges were reduced and production-linked direct
payments were decoupled. This reform process was continued
in 2004 with tobacco, olives, cotton, hops, in 2005 with sugar,
and in 2007 with fruit and vegetables. Market organisation
arrangements for wine are currently being discussed.

(13) European Economy No 5/97.

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7.4.5
If the WTO Doha Round were concluded, a new situa-
tion for EU agricultural markets would arise. This would apply
even if the agreement was based on the concessions which have
already been made, e.g. abolition of export subsidies by 2013,
and cuts of between 35 % and 60 % to remaining tariffs.
According to the Commission's calculation, these concessions
would cost European agriculture about EUR 20 billion.

adequate degree of external protection is indispensable. Such
protection must not be undermined by short-term policies; for
example, there is a danger of this happening with the EU's latest
offer to ACP countries (zero tariffs on imports). In future, the
EU should make further
trade concessions for agricultural
products — particularly under bilateral agreements — condi-
tional on those products complying with minimum standards.

7.4.6
In future, the commitment to multifunctionality and
the obligations arising from Article 33 of the EC Treaty will, the
EESC believes, continue to require measures which can:

— counter the risks of

increasing instability on agricultural

markets;

Recent restrictive use of the ‘export subsidy’ market
7.4.10
the proposals to scrap such
instrument shows clearly what
subsidies could mean in future critical market situations. The
EESC expects the Commission to finally conduct a comprehen-
sive analysis of the potential repercussions of scrapping export
subsidies on the EU agricultural system.

— guarantee that setting high standards for production is not
rendered meaningless by allowing imports which do not
comply with EU requirements;

— and help to ensure that a wide range of foodstuffs continues

to be available in the future.

Greater awareness of rigorous standards at all stages
7.4.11
the food production process could help to boost sales
of
revenue. In future, this factor will become increasingly impor-
tant for European agriculture. The EESC is in favour of making
effective use of EU funding to support information and adver-
tising campaigns. It is equally vital for the Commission to adopt
a strong position in WTO talks on adequate protection of
geographical indications in product labelling.

The EESC would point out that for many years, EU
7.4.7
markets have been some of the most open in the world. The EU
is also by far the most open market for imports from devel-
oping and emerging countries. These countries export more
agricultural products to the EU at either low or zero tariffs than
Japan, Australia and New Zealand
to the USA, Canada,
combined. Discussion is needed of agricultural and food
imports produced and processed under conditions which would
be unacceptable in European society.

7.4.8
In the EESC's opinion, Community preference and
effective instruments for market-relief measures, for example in
the form of warehousing, should still be available in future, if
market developments so require. Warehousing also helps to
prepare for crises. No convincing alternatives enabling farmers
to protect themselves against volatile agricultural markets have
yet been found. The EESC calls for possible models, based on
experiences in certain countries such as the USA and Canada
and tailored to European circumstances, to be discussed. We
must ensure that the EU continues to produce high quality safe
food and this will only be possible if farmers receive an income
that enables them and encourages them to stay farming.

The EU has not yet succeeded in including the negotia-
7.4.9
(environmental and social stan-
‘non-trade concerns’
tion of
dards, animal welfare)
in the WTO Doha Round. The EESC
expects the Commission to exert greater pressure for this to
happen in the current WTO talks. Direct payments alone will
not suffice to guarantee high standards of production in the
long term. So long as major differences in production condi-
tions and standards remain in international competition, an

In its opinion on The future of

7.4.12
the CAP, the EESC
discussed the subject of controlling supply in detail. It noted
that quantity-regulation measures can play an important role.
However, there is no doubt that milk quotas have been increas-
ingly undermined over the last few years.

In 2002 a Commission study (14) pointed out that the
7.4.13
phasing out of milk quotas in the EU-15 would cut farmers'
incomes by more than EUR 7 billion. The amount of milk
would increase by 12 % and prices would fall by 35 %. There
would be substantial shifts within the industry and regionally in
milk production. Until
it is clear how these changes can be
compensated for, no final decisions should be taken on milk
production quotas.

7.4.14
According to the decision of the Agricultural Council
of the EU on CAP reform, milk quotas will expire in 2015. The
Commission is opposed to any backtracking on this decision;
nor is there any likelihood of a qualified majority in favour of
extension in the Agricultural Council. Given the importance of
milk production, including for the maintenance of agricultural
activity in numerous disadvantaged areas, a clear picture of the
implications and inevitable consequences of an end to the quota
system is needed. The EESC therefore feels that there is an
urgent need to draw up a programme for regions which would
be especially hard-hit by an end to the milk quota system in
order to ensure continued production there.

(14) SEC(2002) 789, Commission working document ‘Report on milk

quotas’.

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C 44/67

7.4.15
In general terms, without farm and livestock produc-
tion, many naturally disadvantaged regions run the risk of
losing their economic viability. The EESC therefore feels that an
in-depth study should be carried out, by region and by sector,
of the future of farming after 2013, so that the challenges and
changes that the sector will face can be addressed with a degree
of certainty.

Previous production-linked subsidies have already been
7.5.5
85 % decoupled,
in the form of the ‘single farm payment’,
which is conditional on meeting with cross-compliance require-
the Commission has put
ments. The EESC is pleased that
forward proposals to overcome the difficulties which have
occurred in practice.

7.5 Direct farm payments

7.5.1
Since the 1992 CAP reform, direct payments have
become a central and indispensable instrument of the policy,
not least since market revenues alone are in many cases not
enough to ensure an acceptable standard of
living and
continued farming. In doing so, they have taken account of the
fact that farms

— no longer cover their costs for sales of many products as a

result of falling prices;

— by cultivating farmland in compliance with strict production
requirements, often work with much higher costs than in
equivalent production outside the EU, and provide services
in the public interest, in line with society's expectations;

— are compensated for natural handicaps in disadvantaged

regions.

The EESC considers a function-oriented approach to
7.5.2
direct payments and long-term protection for these CAP instru-
ments to be indispensable for the future. In order to secure
general acceptance, any type of direct payment must be suffi-
ciently justified.

7.5.3
The EESC would therefore like a clear distinction to be
made between the various types of direct payment. The direct
payments introduced in 1992 as a result of price cuts will in
future have a function as a payment for services which are not
covered by market prices. They have a different function to
those paid under specific environmental programmes, which are
to continue in future to reward special environmental services
via the second pillar, or to those which are intended to offset
natural handicaps (compensatory allowances).

These direct payments, which have to a large extent
7.5.4
been decoupled since the 2003 CAP reform, currently play a
key role in ensuring the multifunctionality of European agri-
culture, and the EESC sees the importance of this role increasing
in the future. Compliance with strict production requirements,
e.g. due to environmental, animal welfare or food safety consid-
erations, results in costs which many competitors from third
countries are exempt from. Society expects such standards to be
met; however, under the existing competition conditions, these
tasks are insufficiently rewarded by the market. In the EESC's
view, providing compensation through appropriate direct
payments, currently in the form of the single farm payment,
must remain a clear task of the first pillar.

7.5.6
For the future, it is vital that neither the basic idea of
these payments nor their amount are questioned and that an
adequate financial basis remains in place. It is important to be
able to provide society with good and sufficient justification of
such payments. Only in this way can agricultural payments be
maintained at their present level after 2013.

7.6 Rural development policy

7.6.1
90 % of the EU's land area is countryside, with most
land being used for agriculture and forestry. According to Euro-
stat, the food production chain accounts for just 15 % of value
added in the EU, but is the third largest source of employment.

The Commission's newsletter on ‘Putting rural develop-
7.6.2
ment to work for jobs and growth’ (March 2006) noted that
without the CAP, many rural areas of Europe would face major
economic, social and environmental problems. It emphasised
that rural development measures, in particular, can play a signif-
icant role in fostering and maintaining prosperity in rural areas.
The EESC would refer to its opinion on ‘Rural Development/
EAFRD’ (15) which, among other things, makes the following
point: ‘to ensure the economic and social sustainability of these
areas, it is necessary to take into account the contribution of the
Common Agricultural Policy's two pillars to the maintenance
and creation of employment in all the EU's regions, particularly
through the development of
agricultural or
competitive
non-agricultural activity, based on innovation’.

7.6.3
The EESC finds the results of the ‘Study on Employ-
ment in Rural Areas’ carried out at the Commission's request
(May 2006) alarming. The study assumes that the number of
people working in agriculture will drop over the 2000-2014
period by about 4-5 million in the EU-15, and by an additional
3-6 million in the new Member States (including Romania and
Bulgaria).

In view of

7.6.4
The EESC would emphasise that developing a compre-
hensive rural development policy requires a cross-sectoral
its theme-based programming, second
approach.
pillar promotion of rural development has its own role to play
and thus cannot be a substitute for other
instruments to
develop and strengthen rural areas. The EU's employment
strategy is indivisible and must encompass job retention and
creation in agriculture and forestry.

(15) OJ C 234, 22.9.2005, pp. 32-40 — NAT/256.

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7.6.5
The EESC calls attention to a new study by the environ-
mental foundation Euronatur entitled Work and income in and
from agriculture. Using the Hohenlohe region as an example,
evidence is produced that, despite internationalised agricultural
markets, increased competition and concentrated processing, it
is possible not only to preserve jobs in agriculture, but also to
create new ones through diversification in production and
marketing. The targeted use of subsidies can have a significant
economic and structural impact on employment in rural areas.

7.6.6
The EU's rural development policy is directly linked to
the CAP and can be seen as an instrument for supporting agri-
culture and forestry. The EESC feels that the sustainability of this
approach and consistent implementation of both pillars of the
CAP are important objectives. Strengthening competitiveness,
recognising the environmental achievements of agriculture and
forestry, and serving as a bridge to improved rural structures are
strategic elements which are indispensable in complementing
first-pillar CAP instruments.

7.6.7
In formal terms, rural development funding is distinct
from the first pillar in that it has its own fund, thus emphasising
the importance of the policy, which has been revamped as part
of the reform. The results of negotiations on the 2007-2013
financial perspective have led to inadequate funding of
the
second pillar, something which the EESC has criticised in several
opinions. The EESC takes the view that the different functions
of the CAP must be preserved. Any further modulation of first
pillar direct payments must respect this requirement.
this
entails the transfer of funds from the first to the second pillar, it
should be a condition that these funds support measures to

If

Brussels, 25 October 2007.

ensure the multifunctionality of agriculture. This will do a great
deal to help employment in rural areas.

The EESC advocates a substantial increase in funding
7.6.8
for measures under the second pillar after 2013. It is also in
favour of making targeted use right now of current savings on
export subsidies and other market-relief measures generated by
the market situation for projects to support rural areas.

7.6.9
The EESC calls on the Commission to clarify the exact
distinction between the European Agricultural Fund for Rural
Development (EAFRD) and the European Regional Development
Fund (ERDF). The EESC is concerned that the second pillar is
increasingly used to fund every imaginable type of investment.

7.6.10
The EESC is very pleased that Axis 3 of the EAFRD
Regulation can also be used to finance measures from non-agri-
cultural and forestry sectors, but feels that these should have an
identifiable — and not merely theoretical — connection to
primary production. The EESC does not endorse proposals to
finance e.g. the installation of cabling for broadband services or
the GALILEO Project, which could be covered using conven-
tional regional development funds.

The EESC feels

7.6.11
the following consideration
that
should be taken into account when implementing rural develop-
ment measures:
in view of differing requirements in each
Member State, there should be a certain degree of flexibility, in
keeping with the subsidiarity principle. The related national
co-financing of the programmes is a key element of the shared
responsibility for appropriate implementation of the individual
measures.

The President

of the European Economic and Social Committee

Dimitris DIMITRIADIS