Franz Fischler, E.U. Commissioner of Agriculture
July 01, 1999
by Teresa Acklin
In March, all 20 members of the European Commission, in- cluding Franz Fischler, the Commissioner of Agriculture, resigned in the wake of the release of the Report on Allegations Regarding Fraud, Mismanagement and Nepotism in the European Commission. That report, by five outside experts, portrayed an organization where no one took responsibility. While no decisions have been made as to successors, strong indications were that Mr. Fischler may be among those reappointed.
A month after his resignation, Mr. Fischler gave his fifth interview for World Grain. He sat down with Tom Sewell, consultant to the international grain trade and a World Grain contributor, to discuss issues ranging from the euro's affect on the Common Agricultural Policy to the growth of E.U. exports, the Asian situation and trade disputes between the European Union and the United States.
WG: How has the launch of the euro at the start of 1999 affected operations of the Common Agricultural Policy? Has the euro affected the way the Commission administers the program, how decisions are made about intervention and export restitutions, or the way expenditures are managed on agricultural programs?
MR. FISCHLER: The introduction of the euro as common currency among 11 of the 15 member states has not brought substantial changes in the way measures under the Common Agricultural Policy are managed or decided. The only significant difference has been the abolition of the “green rates.” This mechanism, originally introduced to adjust national agricultural prices to currency fluctuations over time, lost its raison d'etre. Since the member states using the euro no longer have varying exchange rates, there is no need for institutional green rates.
The previous common currency unit, the ecu, used by the European Commission for the fixing of prices and of all other common currency values, was replaced at a parity rate by the euro: one old ecu is equivalent to one new euro. Since Jan. 1, expenditures are managed in euros for the participating member states and converted into national currencies for the non-participating member states.
WG: Have there been any special difficulties in adopting the C.A.P. to the non-euro countries, notably the United Kingdom? Do you see different impacts in the euro and non-euro countries as encouraging the latter to accept the euro?
MR. FISCHLER: The green rates I mentioned were part and parcel of an “agrimonetary system,” applicable solely within the C.A.P. In the framework of the agrimonetary system, the green rates were allowed to follow the fluctuations of the respective national currencies, but within upper and lower limits in order to help maintain their stability.
The main difference between the current situation and the old is that in the revised agrimonetary system, operators within the countries that have not adhered to the euro are paid according to the rate of the euro on the day of the operative event usually the day on which the economic purpose of the operation is attained and not on the actual day of payment. This means that operators and administrators have had to adapt their procedures relating to transactions registration and payment. But this has not caused particular problems that I am aware of.
Adopting the euro as a national currency is as much a political choice as an economic one. According to European legislation, any member state of the E.U. complying with the “Maastricht criteria” price stability, with inflation rates close to those in the participating member states; low public deficit; limited currency fluctuations; and long-term interest rate stability can autonomously decide whether to apply for adoption of the euro.
As the euro positions itself on currency markets and the non-participating member states witness the advantages of a common currency, they will hopefully be attracted to “join the club.” For the time being, non-participating member states can, in any case, pay their farmers and operators in euros. Should the U.K. decide to take it up, the modalities can certainly be worked out.
In general, I believe that the euro should lead to greater market transparency and, therefore, more convergence in prices for farm outputs and inputs.
WG: How do you view the heads of state conclusions on C.A.P. reform?
MR. FISCHLER: The heads of state conclusions on C.A.P. reform are unfortunately less ambitious than those of the Council of Agriculture. I believe political and budgetary considerations, together with the fact that many prime ministers had other important priorities, had an important determining influence on that outcome.
There have been reports that reform is postponed, but this is incorrect. The reform is still very radical. Ultimately, we still largely end up at the same point as we would have under the Agriculture Council agreement, but a little later. How serious this will be for farmers, traders and interventions stocks depends largely on the degree of market balance and buoyancy, internally and externally.
This is especially the case for cereals, given that we will initially reduce prices by 15% rather than 20%. In other words, we need a more positive trend in world market prices to ensure exports without refunds than would have been the case if a 20% price cut had been agreed from the outset. Similarly, the decision to apply milk reform from 2005 only will make it harder to maintain our market shares.
WG: Agenda 2000 was proposed as a means of bringing E.U. crop prices into line with world markets. The latter have fallen since your proposals came forward. Do you now expect your market to be at the level of trade in export transactions without restitutions? Are you still optimistic that E.U. grain exports are positioned to enjoy demand growth, which means a rising share of global trade?
MR. FISCHLER: Following the political compromise reached at the heads of state summit, it is now clear that cereal prices will be reduced by 15% rather than 20% as proposed by the Commission, and in two steps instead of one. I truly believe that the competitiveness of E.U. grains on world markets will strongly increase and can reasonably be expected to benefit from increased world demand, particularly as far as wheat is concerned.
The export subsidy limits agreed during the Uruguay Round will be valid until 2001, thus allowing still a number of years for markets to recover. Our aim for the subsequent years is to export grains as far as possible without subsidies and enjoy the freedom of placing ourselves on the world market free from World Trade Organization (W.T.O.) commitments and limitations.
WG: American wheat farmers have reacted to weak prices by three straight years of reductions in wheat plantings. In that same period, E.U. area has been relatively stable. What trend do you anticipate in E.U. wheat area once Agenda 2000 has been approved?
MR. FISCHLER: One of the reasons for the stability in European wheat production has been, and will continue to be, the strong demand for this product in the E.U. Approximately 80% of E.U. wheat production is for internal use.
In recent years, for example, animal feed choices have moved toward an increase in consumption of local cereals, notably wheat, because of their price competitiveness, with consequent lower imports of manioc and corn gluten feed. Over the short term, strong developments in feed demand forecasts point toward a 0.7% annual increase in pig meat production and between 1.7% and 2.1% annual increase in poultry meat production are expected to further increase feed use of cereals, with wheat expected to win the lion's share of this development.
Wheat also enjoys a strong position in E.U. production choices. When a positive rate of set-aside is in force, as permitted under the arable crops regime, the E.U. traditionally witnesses a drop in the production of coarse grains, but a maintenance of wheat area. The current set-aside rate is 10% for the 1999-00 marketing year, compared with 5% during the 1998-99 marketing year. Following this, the reform of the sector calls for a continued set-aside rate in 10% for the following six marketing years. Given the traditional production choices, I expect this to sustain wheat production and maybe increase it.
Finally, the global 15% reduction in cereal prices will lead to a differentiation of grains prices, as is normal in a strong market. Wheat should then regain a higher price by comparison to other grains, thus consolidating its attractiveness for producers.
Over the longer term, European interests lie beyond the E.U. Current forecasts for the short term are not particularly enchanting as both prices and demand are quite low. I expect, nonetheless, that the situation will improve as the crises that have hit Southeast Asia, Russia and the financial markets in South America come to an end. This will inevitably lead to a recovering of prices and of demand.
All leading forecasting bodies point toward an increase in demand for wheat-based foods and for wheat for feed purposes. This will be due partly to the natural increase in world population and partly to evolving dietary patterns in developing and Asian countries toward more western-style diets. By lowering its prices by 15% and continuing to improve the quality of its output, I trust the E.U. will be able to position its wheat on new markets.
WG: Of course a surge in global exports could change this outlook, but so far the Asian economic crisis has brought about a sharp curtailment in consumption and a leveling off in demand in contrast with forecasts of a continuing upward trend. How do you view the Asian situation as changing, and do you see an immediate large increase in import demand?
MR. FISCHLER: There is no reason to believe that the crisis that hit Asian markets over the past years will continue to deepen. On the contrary, I think we can expect Asia to move from the crisis situation at the turn of the century and recover economic stability. It might still take some time before there is a large increase in import demand, but there will be increases.
By the same token, I trust that the crises that have hit other parts of the globe, such as Russia and South America, will also soon come to an end, reestablishing or even increasing trade volumes for cereals. These crises have, in fact, affected E.U. exports in the same way as the Asian crisis.
WG: While there is always reason to hope that trade disputes between the U.S. and the E.U. will lessen as a result of the W.T.O.'s new authority, that never seems to happen. The banana brouhaha in the past year is just another example of how the W.T.O. process does not seem to be working. How do you assess the outlook for future trade disputes being resolved more amicably than in the past, and what suggestions would you make for modifications in the current process?
MR. FISCHLER: Both the E.U. and the U.S. have been the driving force behind many of the tenets of the W.T.O. Together, we have invested much effort in building an efficient and effective W.T.O., notably with regard to the dispute settlement procedure.
The E.U.'s steadfastness on the reform we implemented in the banana sector does not stem from an unwillingness to comply with international trade commitments. It is based on the belief that the reform is in line with W.T.O. requirements and that should there be any contrary advice on the matter, the issue must be settled through W.T.O.-established procedures. Not least because dispute settlements are compulsory procedures.
No W.T.O. member has the right to make unilateral determinations on the lack of conformity of other members' policies or measures, let alone simply proceed to impose sanctions. Unilateral determinations are explicitly prohibited by the W.T.O.
We have given the U.S. every opportunity to resolve the banana dispute rapidly, in the appropriate manner and in full respect of the W.T.O. rules. The choice of the U.S. to shun the multilateral path is regrettable, not only because it jeopardizes several aspects of our mutual trading relations but, more importantly, because it endangers the W.T.O. trading system as a whole.
Contrary to your suggestion, however, I am positive that the W.T.O. processes do not need to be modified. The instruments exist that can make the W.T.O. an effective international system for managing international trade. What is clearly lacking at present is a correct application of the existing rules. We cannot allow this to happen.
If the U.S. were allowed to impose retaliatory measures, it would amount to the W.T.O. approving unilateral approaches. This would represent nothing less than a major defeat for the W.T.O. system.
(Editor's note: Since Mr. Fischler's interview, the W.T.O. ruling on the banana dispute in favor of the U.S. has been received and the E.U. has said it will take the necessary steps to comply. The procedures should be completed by next January, according to an April 19 statement by Roy Abbot, E.U. ambassador to the W.T.O.)
WG: As enlargement of the E.U. comes closer and closer, what preparations is the Commission making for agricultural programs in the countries that will be new members? These nations all have the potential of being producers of surplus wheat and other crops that will seek outlets in western member nations. Are the changes offered by Agenda 2000 sufficient to handle the adjustments that will be necessitated by community expansion?
MR. FISCHLER: In Agenda 2000, the Commission proposed to strengthen pre-accession efforts. The PHARE program, set up in 1989 to support transition toward a market economy, will remain a key channel for E.U.'s financial and technical cooperation with the candidate countries.
Under Agenda 2000, PHARE is set to continue with a budgetary allocation of 1.5 billion euros, although it will focus primarily on institutional building, such as technical assistance, training and exchange of experts, and help in the adoption of the community's underlying legislation, known as the “acquis.” Agricultural projects are also eligible for funding, for instance in the veterinary and phytosanitary sector or in creation of appropriate land registers.
A special accession program for agriculture and rural development has also been proposed for the years 2000 through 2006, with an annual budget of 500 million euros. The program would provide for a variety of measures, including the improvement of holdings, measures in the processing industries and helping quality products find outlets on the market.
The community would furthermore work closely with candidate countries to establish development programs, which would then form the basis for discussions prior to the Commission's approval of a program for rural development. Finally, a pre-accession instrument for structural policies, with a budget of 1 billion euros per year, would finance up to 85% public expenditure into large-scale transport infrastructure and environmental projects.
Regarding your fears of surplus grains flooding onto western markets, it is true that current data indicate that arable production in the candidate countries is rising. In applying to become members of the E.U., the candidate countries have committed to adopting E.U. legislation, including regulations governing agricultural markets. When these countries join the E.U., we will have to manage their production alongside that of the other member states, in respect of international trade agreements and of our export capability. Producers from future member states will be faced with the same production choices and the same market regime as the other E.U. member states.
WG: As gene-modified organisms (G.M.O.'s) account for a growing share of U.S. crop production, with only minimal concern among consumers and environmentalists, the potential for sharp conflict with the E.U. on this issue intensifies. Do you have any recommendations for a process by which this new technology could win the favor of the Commission and of consumers in Europe, or are you satisfied with just trying to keep these products out of the European food supply?
MR. FISCHLER: We see the use of modern biotechnology in crop improvement, as in other areas, as an extension of previously evolved skills. Modern biotechnology alone will not produce better plants. But combined with knowledge from other plant science and microbiological disciplines, biotechnology will develop techniques that could be very powerful in improving agriculturally important crops.
But we also see a growing concern worldwide on the use of G.M.O.'s and possible adverse effects on human health and the environment.
In the E.U., the application of the precautionary principle for the placing of G.M.O.'s on the market is ensured by a thorough, scientifically based risk assessment to confirm the safety of a product for human health and the environment. The Commission shares the view to fully apply the precautionary principle. It is aware of the growing public concerns about G.M.O.'s and addresses these concerns by increasing transparency, proposing harmonized risk assessment and allowing public participation in the decision-making process.
In order to speed up the process in the future, risk assessment evaluation both for safety to human health and the environment and the authorization for the marketing of genetically engineered varieties of plants would be done within the framework of the seed legislation, such as implementing the “one door, one key” principle.
Once consent has been granted for a product at the European community level, the Novel food legislation foresees that the final consumer is informed of the presence of an organism genetically modified, as well as of the food characteristics that may have implications for the health of certain sections of the population, such as allergies, or which give rise to ethical concerns. Then it is up to the consumer to make the choice.
The labeling of genetically engineered food is also necessary to fulfill what has been called the consumers' “right to know,” as recognized by the General Assembly of the United Nations in its Guidelines for Consumer Protection.
The European Commission has set a framework legislation to facilitate the evolution of new technology, but the risks of this new technology must be identified and effectively managed. Failure to exercise caution could lead to serious environmental, economic and social problems. Although momentum is building for immediate results, the impact of potential problems on public confidence could delay or even jeopardize, drawing the potential benefits of biotechnology.
WG: The E.U. has parliamentary elections this year. How do you view the role of the Parliament in setting agricultural policy and do you think that the time is at hand for change?
MR. FISCHLER: In recent years, with the introduction of the Maastricht Treaty and the ratification of the Treaty of Amsterdam, the role of the European Parliament in policy formulation has grown considerably, moving more and more toward a co-decision authority in conjunction with the Council. Indeed, a number of areas that have come under co-decision have a significant impact on the C.A.P., for example, environmental policy, health and consumer affairs.
Regarding the agricultural policy process, it is the plenary session of the E.P. that undertakes readings, debates and, when it feels necessary, recommends amendments to C.A.P. legislative proposals. Specialized committees are responsible for reporting to the plenary session their analysis and opinion of the proposals before the plenary votes upon the recommendations. The Council must wait to receive the recommendations of the E.P. before adopting the proposed legislation. Moreover, the agriculture committee can also produce reports under its own initiative, reports which are then submitted to the Commission and the Council.
Furthermore, the E.P. plays a unique role in the procedure for the adoption of the budget, where it shares its powers as budgetary authority with the Council. It is the president of the E.P. who adopts the budget of the European Union.
In regard to the coming elections, I trust that the close working relations the Commission currently enjoys with the E.P. will continue in the future with the new members of Parliament.