What's in store for E.U. Agriculture?

by Emily Wilson
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In an exclusive interview earlier this year with World Grain, contributor and international grain trade consultant Tom Sewell speaks with the European Union’s commissioner for agriculture, Franz Fischler, who gives his views on a range of issues facing the E.U. agriculture and grain industry, among them the recent BSE crisis, the E.U.’s position on agriculture in upcoming WTO negotiations and what changes he views in U.S. agriculture under George W. Bush’s presidency.

As a result of the large outlays on bringing the BSE (bovine spongiform encephalopathy) threat under control, there is talk of cutbacks in E.U. spending on other programs, including grain supports. How real is that possibility, and what new priorities might come from the BSE outbreak that would have an impact on how other crops are treated?

It is true that the initial budget for the current fiscal year did not take account of the impact of the latest BSE crisis that began in the autumn of 2000 and the budget effects resulting from the consequent sharp drop in demand for beef. In this context, the European Commission took action in December to stabilize the beef market, involving additional expenditure for this sector estimated at about 970 million euros for 2001. These extra costs for beef, together with savings of 245 million euros in other sectors -- due to the continued strength of the U.S. dollar -- were included in a revised agricultural budget agreed in February 2001, involving an increase of about 725 million euros.

For fiscal 2002, the budget has not yet been established. Only if these forecasts prove to be too optimistic, and there is a real risk that farm support costs could not be contained within the ceiling, would purely budgetary considerations require the E.U. to contemplate adjustments in the support programmes for the various agricultural sectors.

Nevertheless, budgetary factors are not the only elements to be considered in formulating agricultural policy. The Agenda 2000 reforms currently being implemented have already marked a further important step towards a CAP that places less emphasis on production-related price support and recognizes the realities of an increasingly globalized market for farm products.

The importance of comprehensive rural development in the E.U.’s member states and regions has been increased, paying particular attention to questions of food quality and safety, animal welfare considerations and the vital role of rural activity in environmental improvement and conservation. I am confident that, against the background of increased awareness of the multifunctional character of the farm sector, the E.U.’s agricultural and rural policy will continue to evolve in this direction.

In Germany, we've seen the agricultural minister changed to a "green party" representative, which is viewed as pointing to a likely shift in agricultural programs to a conservation emphasis, with a negative bias toward so-called industrial, or large-scale, farming. Is that going to prompt any change in how the E.U. supports agriculture?

It is true that there has been a fundamental change in the job agriculture is expected to do. The public today expects more from farmers than the production of food. But the CAP has also changed to reflect this. Two substantial reforms of the CAP over the past decade -- most notably the historic Agenda 2000 reform agreed in 1999 -- have given our agricultural sector and rural economies the tools they need to face the future.

The reformed policy places concerns about food safety, the environment and animal welfare high on the agenda. The emphasis on quality rather than quantity is reflected in the instruments of the reformed CAP.

The incentives for farmers to produce have been substantially reduced. With the 1992 and Agenda 2000 farm reforms, the price guarantees for farmers for the main products have been reduced by 35%. An extra premium for beef producers who do not farm intensively -- the so-called "extensification premium" -- has been introduced.

We now also have "modulation," giving the right for member states to reduce the direct payments for large farms by up to 20% and to use this money instead for additional rural development measures -- an option that Germany has so far chosen not to pursue.

Finally, a substantial part of the agri-environmental measures within member states’ rural development programs remunerates the environmental benefits resulting from organic farming. These are just some of the examples of how the CAP has been reformed to favor quality over quantity.

We are aware of the fact that the process of reforming the CAP is a continuous challenge and that we have not yet gone far enough. In light of this, the European Commission and individual member states will be conducting a thorough analysis of the Agenda 2000 reforms this year. The commission is committed to a mid-term review next year, which will be an opportunity for further improving measures to meet public demands on the agricultural sector.

In terms of the future orientation of farming, some politicians claim that agriculture should go "back to its roots" and do away with big farms. This approach would hit those farmers who can compete on the world market and operate profitably. Jobs in both primary production and the processing industry would be lost.

We must remember that efficient production of farm products is not in itself bad or dangerous, if producers comply with the strict E.U. safety standards. BSE (bovine spongiform enceph) is not a big-versus-small problem. Most of the BSE cases detected in Germany happened on a small-scale farm.

Referring to the term "industrialised agriculture" that you use in your question, it is far from clear what it actually means. If it means increased productivity, it should be remembered that this is a main feature of market economies ¾ not of policy. Higher productivity means a more prudent use of our scarce natural resources. This is not restricted to agriculture but is a general economic trend that has been observed for decades in all sectors.

But regardless of scientific evidence, it is true that the public tends to be sceptical about productivity-boosting production methods. And as we should learn from this crisis, it is consumers who can ultimately influence producers because they decide what sells.

The E.U., joined by Japan, has urged the quick resumption of multilateral trade negotiations under W.T.O. auspices. Pascal Lamy, E.U. Commissioner for Trade, has stressed the E.U. position that agriculture needs special treatment in these negotiations, but also hinted that the E.U. will now favor agricultural programs that aim to support farm income, while giving up on high domestic prices and export restitutions. Do you agree with these points, and what other agricultural positions will the E.U. stake out when the trade talks resume?

Negotiations on agriculture in the WTO have already begun and we are determined to contribute in a constructive way to these talks. Proof of this can be found in the comprehensive negotiating proposal that we submitted to Geneva at the end of last year.

At the same time, we will continue to push for a broad-based round, firm in our conviction that such an approach would facilitate a successful result for the agricultural negotiations. A broad round is equally necessary to reconcile the competing demands of economic growth, better integration of developing countries, environmental protection and social development.

Hard work and steady progress towards reform of the CAP over the past decade stand us in good stead for the agricultural negotiations. The E.U. started a process in 1992 whereby support for agriculture is based on direct payments to farmers rather than product price support. With the Agenda 2000 reforms, we have proved our firm commitment to go further down the road towards less trade-distorting, de-coupled farm support.

This is what my colleague, Commissioner Lamy, is referring to when he talks about supporting farm income, while giving up on high domestic prices and export restitutions.

Today, 70% of the farm budget goes directly to farmers whereas in 1991 as much as 90% of the budget went on intervention measures and export refunds. Export refunds now account for around 10% of the CAP's expenditure, compared to 25% in 1992. As the reforms agreed in 1999 are phased in this percentage and actual expenditure will fall further in the coming years. Similarly, the price guarantees for farmers for the main products have been reduced by 35% thanks to both reforms.

We are fully prepared to accept further steps towards greater trade liberalization but not at any cost. The BSE-crisis has strengthened the E.U.'s position that agriculture is more than just an industry and has to be treated accordingly in the WTO. European agriculture is also about the environment, consumers and food safety.

This is why we will stand firm to defend these non-trade concerns in the WTO talks. The read-out from the talks that have taken place so far in Geneva indicate that our partners now appear to accept that non-trade concerns, including the issue of the multiple roles played by farmers -- what we call "multifunctionality" -- will need to be addressed in the negotiations.

On the specific elements that you refer to, namely domestic support and export refunds, the EU position is as follows. Rules on domestic support should facilitate a continuous process of reform. The structure of the boxes -- blue, green and amber -- agreed in the Uruguay Round, matches this central objective of promoting ongoing and fundamental reform and should be maintained.

On export competition, the European Community's position has been and remains that we will agree to negotiate further reductions in export refunds provided that other instruments that are used to boost exports are also disciplined, specifically the use of subsidized export credits, state-trading enterprises as well as the abuse of food aid.

Regarding market access and, more specifically, tariffs, which is of high importance to the E.U. since it is one of the largest exporters in the world, the E.U.'s proposal is to use the same formula adopted under the Uruguay Round, namely a commitment as to the overall average reduction of bound tariffs and a minimum reduction per tariff line.

As regards developing countries, the European Community proposes that developed countries and the wealthiest developing countries provide significant trade preferences to developing countries, in particular the least-developed. We have shown our commitment in this area with our recent decision to provide duty-free market access to the least developed countries for all products except the armaments industry.

As part of its general policy to promote the sustainable and economic development of countries, the European Community proposes that all developed countries should intensify all forms of assistance to developing countries, in particular in areas of implementation, and making use of the appropriate WTO agreements.

How would you assess the agricultural policies of the Clinton administration in its relations with the E.U., and what changes do you expect from the Bush administration?

E.U. and U.S. policy makers for agriculture share similar concerns. Central to our respective policies is our joint belief in the unique role played by farmers -- for the economy in terms of the food they produce and for society at large via their role in keeping the countryside alive. Neither side is blind to the hardship and challenges that farmers face. We both believe in the need for a safety net.

However, our respective policies do not address similar circumstances. The CAP provides for over 7 million farm holdings; in the U.S., farm numbers total only 2 million. Our policy addresses the needs of farmers that work on holdings that are on average much smaller than in the U.S., as we have about one-third the agricultural land of the U.S.

The trend of farm policy on both sides of the Atlantic has been in different directions in recent years. In the E.U., we continue to move towards targeted support that is delivered by less trade distorting measures, favoring direct payments to farmers over product price support. This shift towards direct aid measures, coupled with strict budgetary constraints, have kept and will continue to keep E.U. farm budgetary expenditures declining in real terms.

A consistent and predictable policy line with no ad hoc adaptations to market shocks characterizes the E.U. situation.

In sharp contrast, the U.S., through emergency packages that are not subject to budgetary restrictions thanks to budget surpluses, has substantially increased agricultural support in 1998, 1999 and 2000. Despite habitual pronouncements on the need for "others" to reduce agriculture support, we have witnessed a surge in ad-hoc emergency bailouts and support that negates market signals.

U.S. direct support to agriculture increased by almost 400% since 1995, from U.S.$7.3 billion in 1995 to U.S.$28 billion in 2000, mainly but not only because of government decisions to increase aid through consecutive farm relief packages. Thus, in 2000, federal direct payments to farmers amounted to U.S.$28.3 billion, or about $14,500 per farm, while the comparable figure for the E.U. was U.S.$26.3 billion, or $3,602 per farm.

Looking at further elements of our respective policies, the E.U. has reduced potential production and exports of grain by over 200 million tonnes since 1993, through its set-aside scheme. This is equivalent to one year's production in the E.U.

Furthermore, virtually all sectors are subject to disincentives to increase production, in the form of production quotas, aid based on historic references or environmental considerations, for example. On the contrary, the U.S. government’s alleged hands-off policy during the Clinton years, in respect of supply management, fed a vicious cycle of overproduction, while providing farmers with market loss additional payments.

U.S. agricultural policies combined with economic factors are responsible for low commodity prices. The U.S. exports this downward pressure on prices with negative implications for all exporting countries and their producers.

These developments mean that policy on both sides of the Atlantic has moved in different directions. At the dawn of a new U.S. administration, I look forward to working with my U.S. counterpart, Secretary Veneman, with a view to building understanding of each other’s goals and policies for agriculture. I hope it shall be a case of "rapprochement" rather than further developments in the tale of "two roads diverged."

Relatively little progress has been made in expanding the membership of the E.U., and we wonder if disagreements on bringing agricultural programs into alignment have anything to do with these delays? Would you describe the progress that has been made, in your mind, in reaching agreement with agricultural interests in the prospective new member countries?

The stakes in the enlargement process are high, from a political and an economic point of view. But on both sides, we are determined to make the effort for enlargement to succeed. This involves careful preparation during the pre-accession period to ensure a smooth accession.

Beyond institutional changes decided by the Nice (France) European Council enabling new members to be welcomed, the E.U. we has already undertaken reform in a number of key policy areas, including agriculture. This should ease the process of enlargement for both the current members of the E.U. and the central and eastern European countries. Agenda 2000 -- the most radical overhaul of the CAP in its history -- has prepared the ground.

This reform of the CAP sends a clear signal to candidate countries as to the way E.U. policy is adapting to new requirements and preparing for an enlargedbigger union. A stable policy environment clearly helps policy makers and all those involved along the food chain to get ready for accession.

What remains then is for the applicant countries to adopt, implement and enforce the acquis communautaire -- the body of existing E.U. legislation.

The current accession negotiations, as well as the so-called "pre-accession" phase, are about ensuring that candidate countries take these necessary steps before joining the E.U. We are contributing to this process through SAPARD -- the Special Accession Programme for Agriculture and Rural Development --which sets out 520 million euros each year from 2000-06.

This initiative aims to contribute to the implementation of the acquis in the agricultural sector and to solve priority and specific problems in the area of agriculture and rural development. The constructive attitude of our partners in the applicant countries to implement SAPARD as quickly as possible testifies to their commitment to the enlargement process.

The learning process it involves will be highly beneficial for candidate countries upon accession in terms of managing European Community funds and running rural development programs. On our side, we have been working hard to ensure that funds can be transferred as soon as the necessary conditions have been fulfilled.

Both the E.U. and the applicant countries’ governments are committed to ensuring that accession occurs as soon as all the necessary conditions are fulfilled. The actual date of accession does not depend only upon the adoption of the acquis by the candidate country and the implementation of the institutional framework needed to apply it.

The political processes of negotiation of the Accession Treaty, and its ratification on both sides must be completed. Last, but certainly not least, if a referendum is held, the electorate of the candidate country must vote in favor of joining the E.U.

You were at one time quite an optimist about growth in export trade in grain and products, and we wonder if the experience of the past decade or so, when total trade has been relatively flat, has changed your views at all on the outlook for exports?

The last decade was, in fact, a decade of improvement for E.U. cereals exports. If we look at E.U. cereals export figures since the Uruguay Round Agreement on Agriculture in 1995-96, E.U. exports have almost doubled, in spite of a consistent decrease of wheat flour and semolina exports.

The perspectives for E.U. cereal exports appear rather favorable over the medium term. The implementation of the Agenda 2000 reform, the progressive recovery in world cereal prices and a sustained import demand are all foreseen to improve E.U. cereal competitiveness and set the stage for a sustained development in E.U. cereal exports over the next five to 10 years.

Obviously, much depends on the exchange rate between the dollar and the euro. Recent developments with the increase in the value of the U.S. dollar vis-à-vis the euro have contributed in a significant way to improving the competitiveness of E.U. cereals, allowing the E.U. to export substantial quantities of cereals without an export refund.

World cereal market prices are expected to remain at rather depressed levels in the very short term due to large global supplies and a relatively weak global demand. The gradual adjustment of supply to low prices and improved world economic perspectives over the medium term, as compared to the most recent years, would provide the basis for a strengthening of world demand and a tightening of stock-to-use ratios as recently seen.

The impact of the expected recovery in world market prices and of the cut in cereal support prices on the competitiveness of E.U. cereals would be strengthened by a relatively weak euro-to-dollar exchange rate. Over the medium term we expect an exchange rate close to parity, which should enable the E.U. to maintain its competitiveness.

These market developments should allow the E.U. to export large quantities of soft wheat without subsidies, thus removing any WTO constraints on the level of its soft wheat exports. A similar situation should occur for durum wheat, the export of which would take place without any export refunds as durum wheat prices would remain substantially above E.U. domestic support price over the medium term.

Concerning the barley market, the growth in world import demand will be closely linked to malting barley and malt. Thanks to the cut in the barley support price, the E.U. should be in a position to take advantage of these favorable market developments, with the prospects for some unsubsidized barley exports over the medium term.

For the campaign 2000-01, we have managed to export about 4 million tonnes or more of barley without export refunds. In contrast, other coarse grain exports may have to be limited to the URAA limits in case their prices remain above world market prices.

In view of the problems with beef, food safety questions loom as increasingly important in agricultural policy making. What is your view of the relationship of food safety to agricultural policy, especially when the former is largely considered a national issue in the E.U., while agricultural policy is conducted at the E.U. level?

Ever since we achieved self-sufficiency in food production, agricultural markets have been demand driven. It is therefore only logical to center agricultural policy around the consumer. A case in point is the recent BSE crisis, where a return to a normal functioning of the beef market was more than ever before dependent on consumers' reactions.

Modern production methods must put consumers first. We need to put quality -- and that covers food safety -- before quantity. At the same time, the recent crisis may be viewed as an opportunity to make it clear to consumers that high-quality foodstuffs come at a price. After all, the push for cut-price foodstuffs is what triggered the scandals in the first place.

The BSE crisis, for the first time, awakened the feeling in society at large that we must press ahead with agricultural policy reform to prevent ruminants being fed on animal proteins, milk being adulterated as in Italy, feedstuffs being contaminated with dioxins from used oil as in Belgium and large-scale subsidy fraud being committed as in Spain. Obviously, these are all instances of abuse or inadequate monitoring of E.C. rules, but it is the common agricultural policy itself that is being called into question.

It is my intention to listen to society in shaping the future CAP. It is for this reason that I, with Commissioner Byrne, launched a debate for a strategic re-thinking of food production and food policy in terms of quality, safety and cost. This is a subject that affects us all -- consumers, farmers, food manufacturers, retailers and politicians.

We will hold a series of round-table debates in the member states on this topic as well as an international conference organized together with the European Parliament.

For individual countries to go it alone is not the answer because at last the barriers at the E.U.'s internal borders have gone. But precisely because of that every country must bear its share of responsibility for the whole.

If something goes wrong in one country the effects are felt in the Community as a whole. That is why we need Community rules, and why everyone must be able to rely on the others to ensure that they are properly applied. The array of rules that have been agreed within the Community to guarantee food safety must be properly implemented in the member states.

Given the lessons learned and knowledge gained in Great Britain with regard to BSE, what factors led to the spread of B.S.E. to France, Germany and Spain?

The European Commission has for years warned of the probability of BSE being found in other member states. On the basis of community-wide inspections in 1996 and early 1997 on the implementation of the feed ban, the E.C. concluded that the presence of BSE could not be excluded in any member state.

Despite this warning, several member states were dangerously complacent in their past insistence that they were BSE-free, and not enough seems to have been done to guard against BSE in those member states. The scientific evaluation of the geographic BSE risk published in 2000 identified in particular Germany, Italy and Spain as countries where there was a likelihood of BSE being discovered despite the absence of reported cases.

What is more, Germany and Spain were among those member states that consistently, even despite a contrary scientific opinion, opposed some key E.U. legislation to reduce the risk of BSE.

Since 1996, the European Commission has been proposing to take out of the food and feed chain all parts of an animal which represent a high risk of carrying the BSE-agent: brain, spinal cord, eyes, parts of the intestines. Removing these specified high-risk materials from the food and feed chain is the single most efficient measure to combat BSE and protect public health.

European Commission initiatives in this regard were blocked for nearly four years because of the opposition of those member states that claimed to be BSE-free. Thanks to the support of other member states, we were finally able to adopt these crucial rules, which took effect on Oct. 1 last year.

Meat and bone meal has clearly been identified as the source of the BSE infection. A ban of feeding to ruminants has been in place E.U.-wide since 1994. But based on the date of birth of BSE cases as late as 1998, it can be concluded that this ban was not respected.

In addition, inspection findings indicate that the effectiveness of the ban can not be guaranteed until very recently in some member states. That is why we have now a temporary total ban on meat and bone meal in place from Jan. 1, 2001 onwards.

There is also the possibility that compound feed might have been contaminated with traces of meat and bone meal in plants where there were no dedicated manufacturing lines.

It is important to put the increase in the number of detected cases in to perspective. The improved surveillance measures now in place, including the use of targeted tests, have surely contributed to this increase.

Member states are now actively looking for cases and they are being found. It is essential that this should continue. The introduction of sensitive new tests, in accordance with an E.C. decision, made it possible to identify cases of BSE which could not be detected by traditional ante-mortem inspections. Better surveillance by national authorities and inspections by the Commission's Food and Veterinary Office on the Community controls in place was also likely to increase the incidence of reported cases.

What steps are being taken to re-install consumer confidence in the safety of the E.U.'s beef supply?

I would like to first point out that prior to the present crisis, the European Commission had already put in place a wide range of measures, such as a ban on the feeding of mammalian meat and bone meal (MBM) to cattle, sheep and goats, as of July 1994; higher processing standards for the treatment of animal waste as of April 1, 1997; active surveillance measures for the detection, control and eradication of BSE, as of May 1, 1998; the requirement to remove specified high-risk materials like spinal cord and brain from cattle, sheep and goats from Oct. 1, 2000 from the human and animal food chains.

To monitor enforcement of these controls, the number of inspections carried out by the Europen Commission’s Food and Veterinary Office has been increased considerably since 1996.

Still, owing to the current crisis, the process of restoring confidence in beef throughout the E.C. will take time, effort and resources. Consumers need to be aware of the risks from BSE, but they should equally be aware that strict measures are being taken to ensure that they are being protected from these risks. This largely explains the range of new measures that have been introduced in recent months, including those which came into force from Jan. 1, such as :

• The suspension on the use of any meat and bone meal in feedingstuffs for all farm animals (i.e. not only ruminants).

• Targeted testing for BSE, with a focus on high risk animal categories and, from Jan. 1, of all cattle aged over 30 months entering the food chain.

• The extension of the list of specified risk materials to include the entire intestine and vertebral column of bovines ; and

• The extension of the ban on mechanically recovered meat from ruminant skull and vertebral column to all ruminant bones.

The extension to the SRM restrictions to imported products with the exception of products from those third countries for which the geographic BSE risk is considered highly unlikely.

In addition, a proposal to tighten treatment standards for ruminant fats is still being discussed. The European Commission is also examining the possibility to extend the testing requirement to all bovines above a certain age, regardless of whether they enter the human food chain, and also to a representative sample of sheep and goats.

On top of this raft of measures, E.U.-wide compulsory beef labelling rules were agreed last year that will enable full traceability of cattle in the E.U. from the stable to the table. This should facilitate a swift and efficient reaction in case risks for public health arise and be particularly reassuring for consumers.

The new provisions apply in two stages: the first stage which entered into force on September 1, 2000, introduced those elements which are readily available at the point of slaughter. For the second stage to apply from January 1, 2002, the beef label will have to include in addition precise information about where the animal was born and reared.

I think that with this complete set of measures, we have come very close to the limits of what can possibly be done to eliminate the risk of transmission of BSE. In fact, it will be very difficult for the European Commission to think of what additional measures, if any, could supplement the present range.

Consumers should feel reassured that everything possible is now being done to ensure that they can eat beef with confidence.

What advice do you have for countries like the U.S. and Canada with regard to protecting their beef supplies from BSE?

If there is one lesson to be drawn from the European BSE disaster, then it should be that mankind must work with nature and not against it. We must not turn cows into cannibals. We must recognize that quality has a price and be prepared to pay a fair amount of money for quality food. One should not try to treat agriculture as an industry just like any other.

The U.S. and Canada have not recorded any BSE cases. The U.S. banned ruminant meat and bone meal in 1997 and has a passive surveillance system in place which does conform to the current international norm (International Epizootics Office). The experience from Europe indicates that the OIE surveillance system does not detect low levels of BSE.

The OIE drew attention to this in a recent notification to the World Trade Organization. The effectiveness of the U.S. feed ban was put in doubt by a recent report from the General Accounting Office, stating that official inspection results revealed deficiencies in the implementation of the feed ban.

In addition, other TSEs, such as chronic wasting disease of deer and scrapie in sheep and goats, are endemic in the U.S. In 1985, an outbreak of transmissible mink encephalopathy was reported in mink after having been fed on meat from "downer cows."

Canada also banned ruminant protein in 1997, and their surveillance system is comparable to that of the U.S. Scrapie was last diagnosed in 1973, but chronic wasting disease is endemic.

In a recent report, the E.U.’s Scientific Steering Committee found that in the U.S. and Canada infection of cattle with BSE is unlikely but cannot be excluded. The detection of a certain risk of BSE being present in native cattle in the U.S. and Canada led the E.U. to adopt a measure requiring the removal of specified risk material from products exported to the E.U.

I would therefore urge American and Canadian society to be vigilant for this awful disease, to improve the enforcement of their feed ban and to take swift action in case BSE is suspected.