Franz Fischler E.U. Commissioner for Agriculture
June 01, 1997
by Teresa Acklin
As the 21st century approaches, the European Union is planning a number of changes that will have significant implications for its agricultural sector. Among the issues are adjustments to the Common Agricultural Policy, the accession of several central European countries and the E.U. monetary union. In his third interview with World Grain, Franz Fischler, E.U. Commissioner for Agriculture, provided updates on the status of these and other issues with Tom Sewell, a consultant to the international grain trade and a World Grain contributor.
Since you spoke with us last year, the United States has implemented a new farm policy that totally separates farm income supports from crop production and grain prices. The U.S. policy also eliminates government involvement in year-to-year planting decisions, both as to the amount of area sown and the specific crop planted.
Please describe your vision of the Common Agricultural Policy of the future. Will CAP reforms follow a pattern similar to the United States? What is your opinion of decoupling grain prices from farm income? What is the likelihood of eliminating or sharply reducing the CAP's intervention supports? Given the recent difficulties of trying to determine appropriate set-aside levels a high set-aside one year contributing to tight supplies, a lower one the next raising concerns about a renewed build-up of stocks what is your opinion on allowing market signals to guide annual planting decisions?
Mr. Fischler: Over the coming years, a number of challenges will influence the structure of the Common Agricultural Policy. Let me summarize them briefly.
New multilateral trade negotiations for agriculture will start in 1999 as a follow-up to the Uruguay Round. We can easily guess that pressure will increase to progress along the lines of the Marrakesh agreement to cut border protection, reduce export subsidies and reshape internal support towards more “decoupled” instruments.
A very significant factor in this respect is the direction taken by the 1996 U.S. farm bill towards decoupled support for crop producers: subsidies are no longer linked to specific crops, nor to price fluctuations. It would be highly desirable for the European Union to have a clear vision of the future direction of its agricultural policy before the new round starts.
On the internal market, supposing a continuation of our present policies and taking into account the (World Trade Organization) commitments we have already undertaken, growing market imbalances are likely to emerge by the turn of the century. A structural surplus already existed for beef before it was made worse by the B.S.E. crisis. Problems will also appear for cereals (in particular coarse grains), sugar, wine and dairy products. Despite an expected growing world food demand, agricultural exports would still rely on subsidies and thus become more and more constrained by our existing W.T.O. commitments.
The accession of Central European Countries (C.E.C.s), which is likely to happen early next century, will bring more pressure to agricultural markets and require important resources for rural development.
There is an increasing awareness of the environmental damage caused by agriculture, in particular towards water resources. But at the same time, the positive environmental role that farmers can play in the stewardship of natural resources and the countryside is being progressively given recognition. In this context, our experience with the agri-environmental scheme is a good example.
The role of agriculture as an economic and social factor of rural development has strongly declined and will continue to decline, but it is still prevalent in shaping Europe's countryside. There is, therefore, scope for embedding agricultural policy in a wider rural policy, as rural society and rural territories remain an essential feature of Europe.
Faced by these challenges, let me sketch out the possible policy options. In the Agricultural Strategy Paper that the Commission presented in December 1995, three different policy options were outlined. Two of them were discarded, the status quo option and the radical reform option. We expressed our preference for further developing the approach followed by the 1992 CAP reform. What does this mean?
As far as our market policies are concerned, it clearly means less reliance on market price support in order to improve the competitiveness of the European agricultural and agri-food sectors;
But beyond the agricultural markets, it means the implementation of an integrated rural policy, at the junction between agricultural market policy, rural development policy and the emerging environmental policy.
The status quo option would in practice make unavoidable a more rigorous supply management and progressive cuts in domestic price levels. On the other hand, the radical reform option, based on the abolition of price support and supply management and their replacement by national direct income support, would introduce too much instability on agricultural markets and bring into question economic and social cohesion.
All these ideas need further elaboration. It is the Commission's intention to present more detailed orientations, together with a broader package of proposals embracing the future of the major E.U. policies and their financing in the post-millennium period. This package is known as “Agenda 2000” and will be presented by the Commission as soon as the ongoing Intergovernmental Conference on the revision of the E.U. Treaty is concluded, which is scheduled for June this year.
WG: World grain prices dropped considerably in the past year, so much so that the E.U. reactivated export restitutions to sell grain at competitive prices. Last year, the reverse situation held, with the E.U. leveling an export tax when prices were at record levels and supplies were tight. In our last interview, you defended both the export tax and restitutions as necessary instruments to manage the E.U.'s agricultural market and indicated they did not violate the spirit or intent of trade reforms under the World Trade Organization.
How concerned are you that E.U. export restitutions might stimulate U.S. use of its Export Enhancement Program and result in a return to the grain trade wars of the 1980s and early 1990s? What would be the effect on the E.U. budget and potential CAP reforms? To what extent will U.S. policy changes to move away from supply management and market intervention lend more weight to its arguments for further reforms under the W.T.O.? How will the E.U. respond to U.S. pressure in this area?
Mr. Fischler: In setting export refunds, the European Union has taken care to ensure that they have been fixed at levels that do no more than enable Community exporters to follow but not undercut world prices. These refunds are necessary because world prices are now below E.C. support levels so, were they not to be paid, our exportable surplus would be offered to intervention.
The United States is not in that position, both because its support prices are lower and because it already has sold the bulk of its export availabilities for this year. I, therefore, should be surprised if the United States decided to reintroduce EEP at present. But in any event, I am sure that the United States will reach its decision in the light of its perception of its own market situation and interests.
I am sure that the United States FAIR act (the 1996 farm bill) will form the backdrop to the position it takes at the next stage of the W.T.O. However, before that stage is reached, there will have been examination in the Organization for Economic Cooperation and Development of specific agricultural policy measures, including, no doubt, the FAIR act. There also will have been a series of discussions in the Agriculture Committee of the W.T.O., which, according to the agreement reached at the W.T.O. Ministerial Conference in Singapore, are designed to help W.T.O. members to better define their negotiating positions. It is too early, therefore, for me to discuss how the E.C. might respond to hypothetical U.S. positions.
WG: Please update us on the status of E.U. membership expansion to include the countries of central and eastern Europe. What progress has been made in the past year in improving agri-culture's structural problems in these countries? In the agricultural sector, what do you see as the remaining impediments to expansion? Which countries do you think are closest to membership and why? What measures are you taking now to prepare for expansion and how do you see expansion affecting the CAP? How do you respond to renewed concerns about these nations' productive potential as a threat to current Member States' agricultural competitiveness?
Mr. Fischler: In the context of the “Agenda 2000” package that I mentioned earlier, the Commission will also present its formal opinions on the accession requests of the ten Central European Countries, which already have Association Agreements with the European Union. Opinions will be prepared for each of the ten countries and will cover all aspects of accession, including agriculture. The European Council will then be in a position to decide on the opening of individual accession negotiations, for the beginning of 1998 at the earliest.
Regarding agriculture, I continue to follow closely the evolution of agricultural structure and markets in these countries, and my services are in the process of updating the reports that were published in July 1995 in order to provide an in-depth insight into the current agricultural situation and prospects of each country.
After a deep recession in the early 1990s, the economies of the C.E.C.s are now recovering. This also holds true for agriculture, but the rhythm of recovery is rather slow, due to the persistence of structural handicaps: the reorganization of farm structures, which is still ongoing; a lack of rural credit; and the inefficiency of the downstream sector (marketing and processing of agricultural products). In general, fears about the combined productive potential of these countries have proved to be largely unfounded, though additional pressure on agricultural markets is likely to occur after enlargement.
Faced with this situation. priority should be given to structural improvement in the C.E.C.s, with two main areas of focus:
the interface between agricultural production and marketing and first processing of agricultural products; and
integrated rural development, mainly at the level of local communities.
Furthermore, I believe that, during the pre-accession period:
agricultural prices in the C.E.C.s should be stabilized, without increasing support too much from current levels;
privatization of the farming sector should be completed and stable conditions created for efficiency, without favoring any particular farm model;
mutual openness and policy coordination within the C.E.C.s should continue, as it should between the C.E.C.s and the E.U.; and
E.U. quality standards should be implemented.
Increased financial support to help the C.E.C.s prepare for accession is also very important, in my opinion. For this purpose, the PHARE program, which was designed in the early 1990s to support the transitions of the C.E.C.s towards a market economy, plays a crucial role.
WG: In the past year, controversy has swirled around the issue of genetically modified crops, specifically the import of Bt maize and Roundup Ready soybeans. In general, which side of the debate do you tend to accept and why? What kind of regulations or restrictions, if any, should be placed on E.U. producers' and processors' use of genetically modified seeds and grains? What is your opinion of the plan to remove the Commission's food safety responsibilities from the agriculture to consumer affairs directorate?
Mr. Fischler: I believe firmly that genetic engineering is a most promising new technology that is capable of bringing important advantages for farmers, food processors and consumers.
I am of course well aware of the reservations held by many people in Europe concerning its development. Provided its proposed uses are properly regulated and are ethically acceptable, I am satisfied that we should welcome the advantages it offers.
However, we must be totally open and fully inform users and consumers so that they can make their own choices. An appropriate labeling of the products of genetic engineering seems to me necessary, not as an impediment to the introduction of this new technology or as a barrier to trade, but as an essential means, together with other forms of information, to overcome these reservations and to gain consumer acceptance.
As far as regulation is concerned, the E.U. already has in place strict horizontal rules for the authorization of the marketing of all genetically modified organisms, including seeds and grains. I am sure that these rules will in due course be further refined and complemented by appropriate adaptation of specific product legislation in the light of experience and as the technology is applied in more and more product sectors.
With regard to the announced reform of the Commission departments dealing with human health, the plan is to separate responsibility for legislation from responsibility for scientific consultation and inspection. It will affect not just my own departments. I have myself been advocating such changes for some time and indeed proposed as long ago as May 1996 the transfer of responsibility for veterinary and plant health inspection to an independent agency.
WG: In our interview last year, you indicated that not all Member States would participate in the euro, or single currency, at least not when it initially is implemented in two years. You also noted compensation distortions would arise between “ins” and “outs.” Assuming that some countries will not participate in the euro system in two years, how would you recommend dealing with any distortions? What other challenges do you foresee in administration of the CAP and how will you address them?
Mr. Fischler: The introduction of the euro will solve the problems of monetary fluctuations for 50% to 80% of the internal trade in agricultural products and the value of the E.U. production, depending on the participating Member States. Furthermore, the euro will probably be used more frequently than previous European currencies within trade contracts. So, it should stabilize some external market prices, depending on the products and the world area concerned.
It is clear that all Member States will not participate in the euro from the beginning. Furthermore, future enlargements of the E.U. will inevitably mean that for some period at least there may be E.U. Member States whose currency does not form part of the euro.
In essence, the problems that will be involved should be the same as those we have known in the past: short-term disturbance in trade after a sharp devaluation, modification of competitiveness in case of repeated monetary depreciations and loss of farming income after a significant revaluation. As far as monetary movements are concerned, before any stabilization, the success of the convergence programs in some Member States may be mirrored in a strong appreciation of their national currencies.
To deal with these difficulties, which are of the same nature as those we have experienced in the past, the same sorts of solutions will be available. We must have in agriculture a conversion rate that follows closely more or less the daily trends in the market rates. In case of tremendous monetary movements, we need some mechanisms to soften their consequences on income and trade.
But the best combination of these mechanisms will probably differ a lot from those used now. Obviously, it depends on the Member States that will postpone their adoption of the euro and on the outcome of enlargement. A large, mainly agricultural country producing excess to export implies many more agrimonetary difficulties than a small industrial one. A lot of diversity may exist in the situation that can be imagined.
The best solution depends also on the progress achieved in the remaining CAP reforms. The impact on agricultural income of the conversion rates of the euro will be much greater on the direct aids granted to the producers than on market prices. This will be especially true where the intervention price is only a safeguard, far below the market prices.
So the future of the agrimonetary arrangements will have to be reviewed before 1999 and the introduction of the euro. But it would not be wise to discuss that point before the latest outlook is known.
Apart from the future agrimon-etary rules, another point may create difficulties with introduction of the euro. For the participating Member States in the single currency, it will be necessary to apply exactly the same prices and amounts fixed in euro.
However, some gaps will exist just before 1999 between the real, fixed rate of the euro in the national currencies concerned and the agricultural conversion rate of the Ecu previously used. These gaps are developing daily. For example, the agricultural conversion rate of the (German) Deutschmark was 2.2% higher than the real rate in the beginning of l996, and it is 0.2% below the rate now.
Thus, on that point too, the best solution can only be proposed when the Member States concerned and the extent of their monetary gaps are known more accurately.
WG: The issue of E.U. vital wheat gluten imports into the United States is still with us. In January, the U.S. Wheat Gluten Industry Council filed a Section 301 petition with the U.S. Trade Representative asking for an investigation. Under the U.S.-E.U. grains agreement of December 1995, the European Union agreed to enter into negotiations with the U.S. government if its exports of wheat gluten to the United States exceeded its average market share, or 17%, during the years 1990 to 1992. U.S. wheat gluten industry officials maintained in their petition that E.U. gluten imports have exceeded that percentage and that the E.U. has failed to negotiate to resolve the issue. If the U.S. Trade Representative accepts the petition and requests negotiations, what will be the Commission's response? If negotiations take place, what recommendations can you suggest to resolve this long-standing dispute?
Editor's note: In March, the U.S. Trade Representative declined to investigate E.U. wheat gluten exports to the U.S., although an investigation of E.U. starch subsidies was initiated. The Trade Representative indicated she would continue to seek information that could form the basis for future action regarding gluten. The Trade Representative also said she planned to pursue consultations with the E.U. regarding wheat gluten exports.
Mr. Fischler: As regards wheat gluten, as you say, the Community has already accepted the obligation to hold consultations, not negotiations, with the United States if its share of the U.S. wheat gluten market exceeds its historic market share. Some technical discussions to begin to elucidate the exact statistical position including the historical market share have indeed, already taken place. In advance of possible consultations with the United States on this issue it would be premature for me to speculate on what solutions might be identified.