Report from the Commission to the European Parliament and the Council on the flax and hemp sector {SEC(2008) 1905}
Date: 2008-05-20
Institutions: European Commission
Subjects: aid system, flax, hemp, processing industry, production aid, report, textile fibre

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 20.5.2008 
COM(2008) 307 final 

REPORT FROM THE COMMISSION  
TO THE EUROPEAN PARLIAMENT AND THE COUNCIL 

on the flax and hemp sector 

{SEC(2008) 1905} 

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REPORT FROM THE COMMISSION  
TO THE EUROPEAN PARLIAMENT AND THE COUNCIL 

on the flax and hemp sector 

1. 

INTRODUCTION 

Article 15(3) of Council Regulation (EC) No 1673/2000 on the common organisation of the 
markets  in  flax  and  hemp  requires  the  Commission  to  submit  a  report,  and  if  necessary 
proposals, to the European Parliament and the Council. The report “shall assess the impact of 
processing aid on producers, the processing industry and the market for textile fibres. It shall 
examine the possibility of extending processing aid for short flax fibre and hemp fibre and the 
additional aid beyond the 2007/2008 marketing year as well as the possibility of integrating 
this  aid  scheme  in  the  general  framework  of  support  for  farmers  under  the  common 
agricultural policy laid down by Regulation (EC) No 1782/2003”. 

For this report the Commission took into account an external evaluation report on the flax and 
hemp sector1, statistical data for which were updated in 2007. The figures referred to in the 
text are to be found in the accompanying Commission staff working document. 

The flax and hemp sector in the EU 

In the EU-27, 105 025 ha of flax was grown in 2006, making up 20% of world flax area. For 
climatic  reasons,  flax  is  grown  in  the  temperate  coastal  regions  of  northern  France  (72%), 
Belgium (15%) and the Netherlands (4%), and to a lesser extent in Poland (2.6%), the Czech 
Republic (2.5%) and the Baltic States (2.4%). 

Production:  flax,  generally  grown  on  farms  producing  the  principal  arable  crops,  is  more 
labour- and capital-intensive than cereals, and requires a rotation of 5 to 7 years. In addition, 
the  retting  process  separating  fibres  from  the  harvested  plant  in  the  field  adds  considerable 
risk to production. Agricultural practices are also more complex than those for cereals. 

Processing: in the EU-27 around 140 processing plants transform (scutch) 635 589 tonnes of 
flax straw (2006) into long fibres (112 914 tonne) and short fibres (61 775 tonne). This equals 
53% of world production of flax fibres. 

Use:  long  flax  fibres  are  used  in  the  textile  industry.  Some  80%  of  EU  output  is  exported, 
mainly  to  China.  Short  flax  fibres  are  used  for  composite  material,  textiles  and  paper  (new 
outlets are developing following novel demand). Further income is derived from the sale of 
linseed and shives. 

The 14 577 ha of hemp for fibre grown in the EU-27 in 2006 equals around 9% of world area 
under  hemp.  Production  is  concentrated  in  France  (55%),  the  UK  (11%),  Romania  (10%), 
Germany (8%), the Czech Republic (7%), and Poland (5%). 

1 

http://ec.europa.eu/agriculture/eval/reports/lin/index_fr.htm. 

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Production and processing: hemp is grown on larger arable farms in the vicinity of a small 
number  of  major  processing  industries.  No  specific  agronomic  or  climatic  conditions  are 
required.  In  2006,  86 685  tonnes  of  hemp  straw  was  processed  into  an  estimated 
22 863 tonnes of hemp fibre. 

Use: hemp fibres are mainly used in the special paper industry (75%), with additional outlets 
for composite materials and insulation material (“novel” demand). By-products (shives for the 
equestrian sector) provide additional income. 

The EU is part of the global market. Both hemp and flax fibre are exempt from import tariffs 
and no export refunds apply. For hemp, specific import rules apply, partly to offer guarantees 
regarding tetrahydrocannabinol (THC) values. 

2. 

DEVELOPMENTS IN THE FLAX AND HEMP SECTOR 

2.1. 

Evolution of the current scheme 

The aid scheme for processors of flax and hemp has been prolonged twice, to allow its review 
to  coincide  with  the  overall  2008  “Health  Check”  on  the  CAP2.  As  early  as  in  2000  the 
Council  decided  to  stop  granting  aid  for  short  flax  and  hemp  fibre  as  from  the  2006/07 
marketing  year  (after  a  transitional  period).  Both  extensions  of  the  scheme  have  confirmed 
this policy, which provides for aid to long flax fibres only.  

The  aid  granted  to  authorised  primary  processors  is  based  on  the  quantity  of  specific  fibres 
actually obtained over a 22-month period from straw covered by a sale/purchase contract. The 
amount of the aid is:  

– 

for long flax fibre: 

– 

– 

EUR 160 per tonne for the 2002/2003 to 2008/2009 marketing years, 

EUR 200 per tonne from the 2009/2010 marketing year onwards; 

– 

for short flax and hemp fibre (containing not more than 7.5% impurities and shives): 

– 

EUR 90 per tonne from the 2001/2002 to 2008/2009 marketing years. 

Member States are also allowed to grant aid for short flax fibres containing between 7.5% and 
15%  of  impurities  and  shives  and  for  hemp  fibres  containing  between  7.5%  and  25%  of 
impurities. 

The processing aid is granted up to a maximum guaranteed quantity (MGQ) per marketing year 
of 80 878 tonnes for  long flax  fibre  and  147 265  tonnes  for  short  flax  and  hemp  fibres.  These 
amounts are apportioned between the Member States as national guaranteed quantities (NGQ). 
Transfers of quotas between long flax fibres and short fibres are allowed, applying a coefficient 
of equivalence that keeps the operation budget-neutral. 

2 

Communication from the Commission to the Council and the European Parliament ‘Preparing for the 
“Health Check” of the CAP reform’ - COM(2007) 722, 20.11.2007. 

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In order to support traditional long flax fibre production in certain areas of the Netherlands, 
Belgium  and  France,  additional  transitional  processing  aid  is  granted  to  authorised  primary 
processors until 2008/2009. 

The current budget for processing aid totals about EUR 21 million for the EU-27. While the 
scheme has provided for stable budgetary development and averted the speculative behaviour 
observed in the 1990s, its administrative and control requirements are relatively complex3 and 
could be simplified. 

In addition, part of the previous support to producers  of  flax  and  hemp  has  been  decoupled 
and included in  the  Single  Payment  Scheme. Coupled aid is granted  to  farmers  for  basic or 
certified flax or hemp seed4. 

2.2. 

Flax: processing industry and market trends 

A  long-term  increase  can  be  observed  with  regard  to  flax  straw  production  in  the  EU 
(figures 1  to  9).  A  total  of  around  140  processing  plants  continue  to  operate  in  the  EU-27. 
With total turnover of  long  flax fibre processing estimated at around EUR 235 million and 
short flax fibre processing at around EUR 32 million (2005), the average size of processing 
companies  remains  small,  with  the  exception  of  some  French  processors.  Most  processors, 
some of which are cooperatives, have strong links to the local economy and tend to be highly 
specialised  and  sometimes  integrated  upstream  (seed  production,  participation  in  flax 
production) or downstream (second level processing). 

Further  transformation  of  flax  fibres  is  largely  located  outside  the  EU.  In  2006,  more  than 
80% of European long flax fibres, mainly used in the textile industry, were exported — 82% 
of  this  to  China.  In  addition  almost  40%  of  short  flax  fibres  are  exported,  91%  of  this  to 
China.  As  the  largest  producer  of  flax  fibres  in  the  world,  EU  fibres  have  been  in  great 
demand  as  a  result  of  the  strong  and  quick  expansion  of  the  Chinese  spinning  industry. 
Exports to China almost tripled between 1999 and 2006.  

Despite  this  strong  export  demand,  the  price  for  long  flax  fibres  decreased  from 
EUR 2 340/tonne  in  2000/2001  to  EUR  1 511/tonne  in  the  2006/2007  marketing  year.  This 
trend  is  mostly  a  consequence  of  the  strong  appreciation  of  the  Euro  vs.  the  US  dollar:  in 
dollar terms, the prices for long fibres only decreased by 10% from 2001 to 2006. 

Short  flax  fibres  are  quite  exclusively  the  co-product  of long  flax  fibre  production.  Hence, 
few  processing  plants  in  the  EU  are  dedicated  to  first-processing  of  flax  “technical  fibres”. 
Nevertheless, considerable employment is observed in second processing of short flax fibres 
and companies trading in by-products. 

Technical applications absorbed 38% of short flax fibre production in 2005 (up from 9% in 
1999). Use of short flax fibre for textiles (30%) is growing, mainly in China. The share of the 
paper industry decreased from 45% to 32%, declining marginally in terms of volume. Despite 
some competition from wood and other natural fibres, the paper outlet remained attractive as 
it can absorb large volumes and does not demand high quality.  

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See  Figure  10  in  the  working  document:  Assessment  of  the  administrative  cost  of  processing  aid  for 
flax and hemp fibres. 
€28.38/100 kg for fibre flax seed, €22.46/100 kg for linseed and €20.53/100 kg for hemp seed. 

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New technical applications for short flax fibres have increased both in volume and in share of 
short flax fibres. Production of composite materials for the car industry is the most advanced 
new  market,  using  18 300  tonnes  (27%  of  all  short  flax  fibres).  Nevertheless,  this  market 
remains  dependant  on  prices  of  substitutes  and  the  ability  to  guarantee  a  regular  supply  of 
fibres. 

Prices of short flax fibres, generally a co-product of long fibre production, are very variable, 
and  range  from  around  EUR  300/tonne  for  the  special  paper  industry,  through  EUR  350-
650/tonne for textile fibres, to EUR 500-600/tonne for composite materials (2005). 

2.3. 

Hemp: processing industry and market trends 

The joint working document shows the decline of the hemp area to less than 15 000 ha, while 
straw  production  remains  relatively  stable.  The  main  scutching  capacity  for  hemp  straw  is 
situated  in  around  10  sites  in  France,  UK,  Germany,  Poland  (wood  and  flax  fibres  for 
insulation materials) and the Czech Republic (fibres for paper industry). In 2006, these plants 
processed 86 685 tonnes of hemp straw into 22 865 tonnes of fibre, of which around 75% is 
used in the paper industry. This traditional market is mature and looks relatively stable in the 
long run. 

Composite  materials  (20%)  and  insulation  material  (5%)  represent  a  growing  outlet.  Hemp 
fibre has qualitative advantages over fibreglass, but production is not high or stable enough to 
make it a major player in the sector. While other new applications have been developed for 
hemp  shives  (cosmetics,  omega-rich  oil)  and  for  the  whole  plant  (concrete,  biomass),  these 
projects remain  small, often lack  competitiveness and currently  remain dependent  on  public 
support. 

There  are  considerable  differences  between  the  prices  of  fibres  used  in  the  special  paper 
industry  (average  of  EUR 360/tonne  in  2006/2007)  and  those  for  technical  applications 
(EUR 500/tonne for non-woven materials and EUR 600/tonne for plastic compounds). In the 
long run the competition from three to four times cheaper wood fibres could seriously affect 
the special papers market. 

2.4. 

Environmental impact of the flax and hemp sectors 

Reviewing  the  environmental  impact  of  flax  and  hemp  cultures,  the  evaluation  study 
underlines  that  flax  and  hemp  cultures  show  considerably  lower  consumption  of  synthetic 
fertilisers  and  pesticides  than  do  alternative  crops.  In  addition,  flax  and  hemp  cultures  have 
positive  effects  on  diversity  in  agro-ecosystems  and  landscapes.  Flax,  and  to  a  lesser  extent 
hemp, cultures are located in some of the most intensively farmed areas of the EU where the 
current trend is in favour of simplifying rotation (and increasing use of chemicals in case of 
replacing  flax  and  hemp  by  cereals).  In  this  context,  fibre  crops  provide  an  “environmental 
break” beneficial to soil quality, biodiversity and landscapes. 

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3. 

ASSESSMENT OF THE PROCESSING AID 

3.1. 

Impact of the processing aid for long flax fibres 

3.1.1. 

Impact on producers 

Processors need to ensure a sustainable supply of flax straw by offering a price generating a 
gross  margin  for  flax  that  is  competitive  with  alternative  crops.  While  flax  production 
generally provides good margins, its relative competitiveness has deteriorated with the recent 
surge  in  cereal  prices.  Gross  margins  for  cereals  exceeded  those  of  flax  in  2007,  whose 
processors were mostly not able to compensate through higher straw prices. Moreover, as a 
result of the heavier and more complex workload, investment needs and the greater weather-
related risks of flax production, even gross margins equal to those of cereal crops may lead 
farmers,  especially  in  the  traditional  regions,  to  abandon  the  crop  and  to  simplify  their 
production system. 

3.1.2. 

Impact of additional transitional aid for traditional areas 

The additional transitional aid to processors of long flax fibres for flax grown in certain areas 
of  the  Netherlands,  Belgium  and  France,  in  order  to  take  account  of  the  special  status  of 
traditional flax in these areas, would have been based on the higher level of support in these 
regions under the previous scheme, until 2000. Originally provided for until 2005/2006, it was 
extended in order to enable farm structures to gradually adapt to the new market conditions. 

The  evaluation  study  concludes  that  the  additional  aid  of  EUR  120  per  ha  for  traditional 
production  regions  in  the  Netherlands  and  Belgium  has  been  important  in  maintaining 
production in these areas. Removal of this additional aid would, according to the evaluation 
study, result in a very significant reduction in, or disappearance of, the area under flax in these 
regions. On the other hand, the study considers the influence of the additional aid of EUR 50 
per ha for certain areas in France and in Belgium to be limited. Removal of this additional aid 
(while  maintaining  the  regular  aid)  would  not  hamper  the  continuation  of  the  production  of 
flax. 

3.1.3. 

Impact on processors and employment 

The  flax  processing  industry  has  become  increasingly  dependant  on  demand  from  China. 
Although  declining  flax  fibre  prices  (mainly  as  a  result  of  the  appreciation  euro/US  dollar) 
were partly compensated by increase in volume, there is considerable pressure on the market, 
partly resulting from decreasing margins in the Chinese textile industry. 

The evaluation study, on the basis of data supplied by the processing industry itself, estimates 
that for a majority of (larger) French and Belgian processors aid accounted for around 35% of 
gross  margins  in  the  years  2002  to  2005  and  that  an  absence  of  aid  would  require  some 
measure of restructuring and reorganisation. However, for a considerable number of smaller 
enterprises,  aid  exceeds  gross  margins.  Although  the  evaluators  estimate  that  an  absence  of 
aid  may  cause  around  half  of  these  processing  plants  to  disappear,  a  restructuring  process 
would allow much of this capacity to be consolidated. 

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Locally, this could have a serious impact on employment. The aid regime has contributed to 
maintaining the level of activity and employment in the traditional production areas (northern 
France,  Belgium  and  the  Netherlands)  and  has  allowed  the  emergence  of  new  industries  in 
some others, including new Members States (Poland and the Czech Republic). The evaluation 
report estimates that of total estimated employment of over 4 050 full-time equivalents (FTE), 
around 2 000 FTE may be lost in the short run, in the absence of specific Community aid for 
fibre crops, specifically as these jobs are generally located in rural areas where agriculture and 
processing are major employers. 

Granting processing aid to primary processors has no significant impact on the profitability of 
European  downstream  industries  (spinning,  clothing,  etc.),  which  have  delocalised  to  South 
East Asia in the past decade. 

Table: Estimated employment in the flax and hemp sector (in FTE) 

Agriculture 

First processing 

External inputs first processing 

Second processing 

TOTAL 

Source: AND International 

Flax and hemp 

850 

2 000 

200 

> 1 000 

> 4 050 

3.2. 

The impact of aid for short fibres 

Hectares  intended  specifically  for  short  flax  fibre  production  are  marginal.  And  as  major 
producing Member States (France and Belgium) have converted considerable quota for aid to 
short  fibres  into  long  flax  fibre  quota,  the  impact  of  the  aid  for  short  flax  fibres  must  be 
analysed  in  combination  with  aid  for  long  fibres.  As  few  specialised  primary  processors  of 
short  flax  exist,  removing  the  aid  would  directly  affect  only  a  number  of  small  specialised 
processing units.  

The  use  of  short  flax  fibres  has  only  slightly  increased  since  1999.  Besides  the  traditional 
outlet  for  specialty  papers,  only  use  as  composite  material  in  the  car  industry  shows 
significant growth. 

Comparing  the  gross  margins  for  hemp  production  with  those  for  alternative  crops  shows 
that without aid for short fibre, margins would be narrower, specifically taking into account 
that hemp production is more labour intensive than alternative crops. This may lead to some 
reduction in the area under hemp. 

But  the  major  market  for  hemp  fibres,  the  specialised  paper  industry,  is  considered  stable. 
This industry offset the decrease in aid in 2001 with an increase in the price paid for fibres. 
Although  it  remains  to  be  seen  whether  a  similar  increase  may  be  expected  if  the  aid  is 
abolished,  an  economic  perspective  without  processing  aid  does  exist  for  hemp  processors 
focusing on the paper industry. Nevertheless, considering the weak financial situation of some 
processors, abolishing aid could affect their continuity. 

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The  small  number  of  processors  focusing  solely  on  the  use  of  fibre  for  new  industrial 
applications could see development potential and their survival threatened in the absence of 
aid.  The  evaluation  study  shows  that  public  support  continues  to  determine  a  large  part  of 
their profits. 

4. 

ISSUES AT STAKE 

The  2003  reform  continued  the  shift  from  product  to  producer  support  through  the 
introduction  of  a  decoupled  Single  Payment  Scheme.  This  was  done  in  order  to  encourage 
competitiveness and market orientation and at the same time increase the transfer efficiency 
of income payments. The Health Check review poses the question whether coupled support, 
despite the overall orientation towards full decoupling, is still pertinent. 

The  additional  processing  aid  for  processors  of  flax  grown  in  traditional  areas  was 
introduced by the Council as a transitional measure, and is scheduled to be abolished. The aid 
has  contributed  to  competitiveness  of  flax  cultivation  in  these  regions  (in  particular  in 
Belgium and the Netherlands), but it should not be continued from the 2009/2010 marketing 
year in view of its transitional character (to allow for gradual adjustment of the sector) and its 
application in three Member States only. 

The objective of the temporary processing aid for short flax and hemp fibres is to encourage 
the  development  of  new  (industrial)  products  and  potential  outlets.  In  view  of  the  above 
analysis, one must ask whether years of support for short fibres have been most effective in 
encouraging  such  development.  The  Council  decided  in  2000  to  phase  out  the  aid  for  short 
fibres, which has been extended for three additional years only to allow an assessment in the 
context  of  the  overall  Health  Check  review.  Project  support  through  Rural  Development  or 
research  programmes  may  be  a  more  cost  efficient  way  to  stimulate  development  of 
competitive renewable products. On the basis of these developments and considerations, the 
specific processing aid for short fibres should not be continued from the 2009/2010 marketing 
year.  

Continuing  processing  aid  for  long  flax  fibres  could  contribute  to  maintaining  employment 
and  economic  activity  in  production  regions.  However,  maintaining  processing  aid  is  not  in 
accordance  with  the  principles  of  the  2003  CAP  reform.  In  addition,  continued  high  cereal 
prices would most likely entail a reduction in production and a loss of environmental benefits 
and employment, which, despite this specific aid, raises questions regarding its effectiveness. 

Therefore full decoupling and integration of the aid in the Single Payment Scheme appears to 
be the best solution5. Similar to the earlier integration of support for hemp and flax growers in 
the Single Payment Scheme,  decoupling  would integrate  the processing aid  budget  into this 
system.  This  option  would  allow  for  considerable  simplification  compared  to  the  relatively 
complex current regime. 

5 

See the Impact Assessment for the Health Check proposal. 

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Decoupling  introduces  flexibility  in  choice  for  producers.  Farmers  will  continue  to  produce 
where  it  is  profitable,  and  adapt  their  production  to  the  market  or  change  to  alternative 
products where it is adequate, while they are still obliged to keep land in good agricultural and 
environmental condition, in line with cross-compliance rules. Overall, decoupling leaves the 
producer  at  least  as  well  off  as  before,  and  most  likely  better  off  as  a  result  of  production 
flexibility and market orientation. 

In  view  of  the  gross  margins  of  alternative  crops  and  the  higher  costs  and  risks  of  flax 
production, it is estimated that the area under flax will decrease. And without processing aid 
the smaller processors especially would face serious difficulties, specifically in the traditional 
production regions. For this reason, gradually phasing out processing aid for long flax fibres, 
together  with  the  possibility  to  apply  Article 69  of  Regulation  (EC)  No 1782/2003,  seem 
appropriate to allow restructuring and modernisation of the industry. 

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