WG interview: Franz Fischler E. U. Commissioner for Agriculture
June 01, 1998
by Teresa Acklin
In his fourth interview for World Grain, Mr. Fischler discusses the upcoming implementation of the European common currency, proposed Agenda 2000 agricultural reforms, E.U. expansion and trade issues with Tom Sewell, consultant to the international grain trade and a World Grain contributor.
With the euro common currency coming into effect at the start of 1999, what adjustments do you expect in intervention pricing under the Common Agricultural Policy, especially as between countries that are participants in the euro and those, like the U.K., that are going to be outside? Will the start of the euro in any way ease the task of the Commission in administering the CAP?
Mr. Fischler: I appreciate that your first question is about the euro and its consequences for agriculture. Indeed, the existence of a policy as integrated as the CAP, with common levels of prices and aids, in the absence of monetary union, has been from the beginning a challenge!
The euro will put an end to this situation. The benefit of the euro for European agriculture will be twofold: firstly, the general positive effects of the euro for the Union's economy, and secondly, the ending of the agrimonetary system for the participating countries and its simplification for the non-participants.
Coming now more precisely to the points that you have raised, I would say that the impact of the euro on intervention prices will be very slight. Do not forget that the agrimonetary system has been considerably improved during the last few years due to the introduction of the single market. The gaps between the “green rates” applicable to intervention prices and the exchange rate are modest and even negligible for most of the currencies.
The task of the (European) Commission in administering the CAP will be easier, but you will agree with me that this is not the most important aspect. I would rather stress the considerable simplification for businesses, which have had to deal with fluctuations of exchange rates between Community currencies, and also sometimes with quick and unpredictable changes in the green rate. In the euro zone, such uncertainties will belong to the past.
WG: How high is the priority you assign to achieving further reform of the CAP ahead of the scheduled approach of new international trade negotiations? There is obviously tension between member governments wanting to delay as long as possible a decision on further reform and those eager to move ahead, primarily for budgetary reasons. How do you believe this will be resolved?
Mr. Fischler: In accordance with Article 20 of the (World Trade Organization) Agreement on Agriculture, negotiations will commence at the end of 1999. The Commission's Agenda 2000 proposals on further reform of the CAP would take effect in 2000. Therefore, the Commission's strategy is clearly that further CAP reform should precede the next W.T.O. negotiations on agriculture.
The Commission is convinced that it is in the interests of the European Community to take these key decisions on further reform in advance of the negotiations, as to do so will reinforce the negotiating position of the Community. I am convinced that the Member States will rally to this analysis. Indeed, a similar strategy has been pursued by the U.S. with the adoption of the FAIR Act.
WG: What are the reductions in levels of support for the individual crops, such as milling wheat and durum, that you propose as part of Agenda 2000?
Mr. Fischler: There is currently one single intervention price for cereals, set at 119.19 Ecu per tonne (U.S.$131.51). This principle of a single price should be maintained in the future.
However, the role of the public intervention on the cereals market should be limited to a safety net in order to guarantee a minimum price to farmers in case of price collapse; but, in any case, the intervention should not be an outlet for our domestic grain. European producers will grow their crops for the market, both internal and external markets. To that effect, the Commission proposed in its Agenda 2000 package to cut the cereals intervention price by 20%, i.e. to reduce it to 95.35 Ecu per tonne (U.S.$105.20) and to abolish the system of monthly increments.
The fixed single intervention price will be valid for milling wheat, for durum wheat and other categories of cereals eligible for intervention purchases. The area payments will be adjusted to 66 Ecu per tonne (U.S.$72.82) from 54 Ecu (U.S.$59.58) in order to compensate for half of this guaranteed price cut.
WG: Is your goal to reduce domestic prices for wheat and other grains in the E.U. to market-clearing levels in line with world prices? If so, what are your expectations about production about the same, decrease or increase, and by how much?
Mr. Fischler: Yes. Domestic prices should be in line with world prices.
Our goal with the Agenda 2000 proposal is to place ourselves in a position allowing the E.U. to participate in the predicted expansion of world trade in agricultural products. We must export our main products without the help of subsidies, i.e. without export refunds, in order to escape from the constraints of the Marrakech Agreement, constraints expressed in terms of limitation of volume and financial envelopes allocated to subsidized exports. Without subsidization, there are no W.T.O. constraints.
In the cereals sector, we expect wheat and wheat flour to be exported freely, without refunds, in nearly all possible cases of combinations of fluctuations of world prices and dollar exchange rates.
For coarse grains, we think that free export will be possible on many occasions, but that internal prices might be too high at certain periods over the campaign. In that case, the E.U. will need export refunds to ship some coarse grains abroad and will make use of them, within the W.T.O. limits, obviously.
Concerning my expectations about production, my answer is that production will adapt to market demand. One might reasonably expect that internal grain consumption will be at least maintained and will probably increase in the case of coarse grain, following the animal feed demand, as we observed in recent years. About exports, we expect an increase in wheat and wheat products exports.
WG: In the U.S., where price supports have been largely reduced to world levels and where income/aid payments are made to growers regardless of crops planted, there have been surprises in farmers' decisions about seedings, particularly in the wheat area falling below expectations. Do you have concerns about possible changes in cropping patterns that will follow your adoption of a similar program?
Mr. Fischler: It is possible that price volatility will be higher in the future. As a consequence, farmers might feel uneasy when thinking of their next cropping patterns. That is just the effect of a more market-orientated agriculture: farmers will decide what to grow in light of expected market prices and market needs.
We do not expect a revolution in cropping patterns apart from the effect of a 0% rate of set-aside because the Agenda 2000 proposal was very cautious in safeguarding the overall balance between arable crops. However, some changes might occur, probably more wheat when exports develop. Those changes are a good thing provided they are driven by the market.
WG: How long will it be before nations of central and eastern Europe become participants in the CAP? There have always been questions about the effects on grain production in these countries in response to support prices near E.U. levels, leading to suggestions that the cost of offering full CAP support to these nations could not be sustained. What is your view of this and of the insistence of some prospective member countries that they must be full partners in the CAP?
Mr. Fischler: I understand your question in the sense of whether the European Union will immediately apply the internal CAP price mechanisms to the central and eastern European candidate countries at the time of their accession to the European Union or whether additional time can be expected for the alignment of prices.
It is correct that this could be a determinant factor for the estimation of cereal production in these countries, but it should be kept in mind that in almost all the countries concerned, agricultural production has undergone a dramatic decline during political and economic changes and that since then, there have been signs of recovery, particularly in the crop sector. Growth in cereal production has and will take place, regardless of accession to the European Union. The degree of this depends, among other things, on the progress of the transformation process, on economic growth and price development in the countries concerned.
To return to the European Union's plans for support policy vis a vis the candidate countries, there is no straightforward answer at this early stage, since there are too many uncertainties involved. The European Commission's proposals for Agenda 2000 have not yet been discussed in detail by the Member States, but as already noted, any decision in the context of Agenda 2000 will make production more market-orientated. On the other hand, prices in the candidate countries will most probably continue to increase. The European Commission will have to closely monitor these developments in order to make conclusions at a later stage.
However, the European Commission's ideas regarding the second aspect of the agricultural support policy, which is the direct payment, are more precise. Under the CAP, direct payments are conceived as compensation for price reductions that have taken place in the European Union in the past, or could take place in the future in the framework of Agenda 2000.
Such payments would not be justified for farmers in accession countries, who would instead encounter prices rises. Moreover, major direct payments to farmers in the candidate countries would involve the possibility of creating a negative impact on other socio-economic groups.
WG: The past year has seen increasing friction between the U.S. and E.U. on food standards and food quality issues. How do you view this dispute as a barrier to liberalized trade? How is it best resolved?
Mr. Fischler: The E.C. and the U.S. have for many years experienced certain difficulties in one sector or another in food trade. Clearly, these problems do not contribute to our common goal of liberalizing trade to the greatest extent possible.
Although it is probably true to say that European consumers are more risk-aversive than their American counterparts, I think that there is a growing realization that we are all seeking the same broad objectives safe food of good quality. Trade problems arise when we find that the measures that we adopt to achieve these objectives are different and incompatible.
In the veterinary area, we have approached this problem by negotiating a bilateral agreement, which was approved by the E.U. Council of Ministers in March. I think that this could be a model for resolving our differences in other areas before they develop into damaging disputes.
WG: European starch manufacturers continue to view the issue of wheat gluten exports to the United States as one of economics and not one of unfair trade practices. What is your reaction to the possible implementation of import quotas on E.U. wheat gluten?
Mr. Fischler: Wheat gluten, as a co-product of the wheat starch industry, does not attract any subsidy or refund, either in the internal market of the Union or if the product is exported to third countries, including the U.S.
The American wheat starch industry suffers from a certain comparative disadvantage in relation to maize starch, which is by far the principal starch source in the U.S. The price of (maize) has almost always been at a discount to wheat, while in the E.C., (maize) has been at a premium to wheat.
The lack of competitiveness cannot be sufficiently offset by the wheat gluten production.
The Commission is currently having consultations with the American authorities to explain and clarify our policy and the market situation for the product involved, with an aim to preclude any implementation of import restrictions for wheat gluten in the U.S.
WG: E.U. flour millers increased their dominance of the global flour market in the past year, while the share of the business enjoyed by U.S. mills has continued to shrink. Have U.S. trade officials explored this matter with you to get to the reason why European mills have been so successful in gaining flour market share?
Mr. Fischler: The world market for flour, for the main exporting countries, was about 6.6 million tonnes in 1996-97. In the course of 1992-93 and 1996-97, world exports were between 5.25 million and 6.6 million tonnes.
The European Union's market share is dominant. However, it has lowered during this period, from 75% to 68% of the world market total. The U.S. export share has equally diminished and today represents 7.5% of the world market for flour. Several factors can explain this fall in U.S. exports.
The main element is a strong increase in the demand for flour on the U.S. domestic market. Between 1970 and 1984, the demand for flour in the United States had in effect increased from 10.5 million tonnes to 17 million, a 65% increase.
The fall in U.S. exports has been caused by the combined effect of the suspension of the (Export Enhancement Program), which led to a lowering of exports particularly to Yemen and Egypt, and the reduction in the volume of food aid, notably gifts to the former U.S.S.R., Latin America and Central America.
A number of countries, and in particular, Turkey, Tunisia, Dubai, India, Sri Lanka, Vietnam and China, have built or are in the process of building mills in order to increase their flour stocks for export. (Those stocks are) often produced from imported grain from the U.S., Canada, Australia and Argentina. A striking example is the remarkable growth in exports over the last few years from Argentina, due to the rapid development of the MERCOSUR (trade agreement) market.
The U.S. and the European Union have fallen victim to this new competition and aggressive pricing. The E.U. has better held on to its market share due to its knowledge of its own industry, its efficient and dynamic logistics and its great production flexibility. As far as the European Union is concerned, it can be observed that Algeria, who used to import large quantities of European durum semolina (approximately 1 million tonnes), has replaced its imports partially by wheat flour.