World Grain interview: Franz Fischler
May 01, 1996
by Teresa Acklin
E.U. Commissioner for Agriculture
In April 1995, World Grain published an interview with Franz Fischler, who had assumed the position of E.U. Commissioner for Agriculture just a few months earlier. During his first year in office, Mr. Fischler and the Commission faced a number of challenges stemming in part from tight global grain stocks and grain prices at 20-year highs and their responses have not been without a certain amount of controversy.
Mr. Fischler recently defended Commission policies and discussed other agricultural issues with Tom Sewell, a consultant to the international grain trade and a World Grain contributor.
WG: The world of grain is totally different from what it was when you first spoke with us a year ago, as primarily reflected in sharply higher world prices and the decision by the European Commission to impose export taxes on both wheat and barley. As you are aware, these levies are worrying to the U.S. government and many grain traders, as well as to European farmers, on several grounds:
They are contrary to the intention of the Uruguay Round aimed at liberalizing trade, whereas export taxes are really not all that different from export subsidies as governmental intrusions in the market. How do you justify these taxes and how long will they be in effect?
Imposition of these taxes seems aimed at shielding the European market from higher world prices, with two negative results: not spurring farmers to increase their acreage and not encouraging feeders to feed less. Why do you want to continue to intrude in this way when the global market is trying to send a signal to your producers and feeders?
There is concern that your action sends a perfectly horrible message to importing nations about their ability to rely on major exporters like the European Union for open market access. While export taxes are different from export embargoes, there's enough similarity to raise that specter. How would you respond to questions from importing nations about your intentions?
Mr. Fischler: The present E.C. export taxes for cereals must indeed be considered as one of the regular instruments that the Commission has at its disposal to manage its agricultural markets. As a matter of fact, it is foreseen as a standard instrument in most of the E.C.'s Common Market Organizations. In this sense, there is indeed a parallel between the taxes and the export refunds.
It is precisely for this reason that I find it difficult to accept the ongoing criticism on the part of the trade against the tax. The Community has been granting export refunds almost without interruption for more than 30 years in order to compensate for the high internal prices. Due to the exceptional situation on the world market, this situation has now changed, and the conditions for triggering the tax are fulfilled. That is how the Common Agricultural Policy works. For me this is very straightforward and entirely logical.
As for the Uruguay Round, I would like to stress that the export tax is in no way contrary to the commitments undertaken by the Community at the international level. The agreement allows us and our trading partners to tax exports in order to discourage them.
Some may argue that the taxes, like all “governmental” market interventions, go against the spirit or the intention of the Uruguay Round and the entire World Trade Organization to liberalize world trade. Personally, I find this approach too superficial. Whether we like it or not, in the daily reality of 1996, substantial parts of the agricultural markets cannot yet function properly without some government intervention.
The Commission and the Council have recognized the problem of tight supplies of cereals on the world market, and the Council has adopted the Commission proposal to reduce the rates of set-aside to 10% for the 1996 harvest.
Incidentally, this decision and the decision to apply an export charge to certain cereals should dampen E.C. market prices for cereals in stock, which will continue to encourage feeders to continue their increased use of cereals.
Finally, on these points, we have not placed an embargo on cereals export. Our actions serve to avoid undermining the world market price, to ensure that exports of E.C. cereals continue and to avoid exacerbating the situation on the European cereals market.
WG: How do you feel about the single currency debate within the European Union and do you agree that agricultural interests should be among the major advocates of a single currency? What message would you tell agricultural trading interests of their need to get involved with the currency question within their national governments?
Mr. Fischler: From a general point of view, the introduction of the single currency is one of the most important goals of the Union for the next few years; personally, I would consider it as even more important than the achievement of the single market.
More specifically, in the agricultural field the single currency is the only means by which we could overcome the agrimonetary problems inherent in the present system. These are essentially due to the fact that the prices and other amounts fixed within the framework of the CAP are expressed in Ecus. Since the Ecu is not a currency, these amounts must be paid in national currencies, and therefore we need conversion rates. These conversion rates, the famous “green rates,” are close to the economic reality, but are not identical to it.
Each modification of a green rate entails immediate change in national currency of the amounts fixed in Ecus. This is a particular problem for agriculture because in the other sectors of the economy, the effects of a monetary development are neither immediate nor do they reflect the whole impact of the monetary system. Those reasons have led to the creation of the agrimonetary system, which is designed to delay and weaken the consequences of monetary change. In this context, the CAP has tried to square the circle in attempting to reconcile three contradictory political aims: avoiding market disturbances, protecting agricultural incomes and safeguarding the financial interests of the Union.
It would bring us too far to discuss this in detail. It is, however, certain that these problems would disappear once the single currency makes conversion rates superfluous. Of course, this is only true for the “ins,” the Member States participating in the single currency. For the others, the “outs,” it will still be necessary to have conversion rates against the single currency which will be used for the fixing of CAP amounts and these rates will create the same problems as the green rates do at present.
In the Member States participating in the single currency, there will be stability of agricultural incomes, and the trade in agricultural products will no longer be exposed to monetary disturbances. One could even expect that in international trade, to a certain extent, the single currency could replace the dollar.
All these positive aspects should incite trade interests to put pressure on their national governments to become involved as quickly as possible with the single currency. But not all Member States will be “ins,” and not all problems will be resolved. In the relationship between “ins” and “outs,” to a certain degree, there will still be distortion of compensation and the consequences will be felt by everybody.
Nevertheless, these remaining problems should provide a good reason for all those involved to make efforts to realize the objective of the single currency as quickly as possible.
WG: You mentioned a year ago the reports that would be issued in 1995 regarding steps needed to be taken to expand the membership of the E.U. to include countries of central and eastern Europe. Would you please summarize the major findings of these reports as regards agricultural programs within the existing E.U. and the transition steps recommended to expanded membership? Do you agree with the main conclusions?
Mr. Fischler: These reports were published in July last year and provide a very good insight into the current agricultural situation and prospects of each country. The reports indicate that concerns about the combined productive potential of these countries are probably unfounded.
The agricultural sector, like many others, has faced enormous difficulties during the rapid transformation to democratic, free market economies. It is true that agriculture plays a much greater role in the economies of the associated countries, employing 25% of their combined workforce, four times the E.U. figure, and contributing 8% of the gross domestic product, compared with only 2.5% in the Union. The value of their gross agricultural product, from an agricultural area of over two-fifths of the Union, is, however, only about 7% of that of the present Member States. Moreover, we expect that the difficulties experienced in privatizing land and assets, which have prevented a real land market and have limited credit and investment, will mean that improvements in production and structure will proceed rather slowly. Indeed, we expect it to take until the end of the decade for the transition to be complete and for production to return to even pre-independence levels.
WG: What, if any, recommendations have been made on the need for changes in agricultural programs in the former Communist Bloc countries? These countries have complained from time to time about their limited access to European markets. Would you advocate an opening of the western markets ahead of membership steps?
Mr. Fischler: Following from what I have already said, it is not surprising that the broad conclusion of the reports is that these countries are currently much less in need of E.U. CAP-style income support measures than of targeted assistance to restructure and diversify their production and food processing sectors, which might facilitate more economic dynamism.
Through the Association Agreements we have arrangements already in place that open the way for more trade. We have found, though, that the preferential import quotas that have been opened are often underutilized. One reason for this is the quality and sanitary level of production. We can neither lower our own sanitary levels and put our own consumers at risk, nor expect them to buy products of inferior quality. It also explains why our own exports of processed foods to the east have increased rapidly and why we are emphasizing the need for structural improvements in the agricultural and food processing sectors rather than other measures.
WG: What plans do you have for implementing these recommendations and what sort of timetable is ahead for agriculture in implementing these changes?
Mr. Fischler: Clearly, it is not possible for me to give timetables for the rate at which product quality and sanitation should improve in third countries, although I must congratulate these countries on the progress they are making. Clearly, I look forward to their accession and the removal of trade controls, but we must keep a cool head and acknowledge the great progress that has also been achieved in developing our mutual relations.
WG: The U.S. government, in establishing a new office to monitor compliance of other governments with various trade agreements, has cited E.U. import policy on grains as one of the areas that needs to be addressed. Would you spell out the Commission position in regards to import levies on wheat if and when world markets again make this a subject of controversy with the U.S.?
Mr. Fischler: In December 1995, the Council of the European Union approved an agreement between the E.C. and the U.S. on grains. Under the terms of the agreement, the U.S. and the Commission will review in the first quarter of 1996 the functioning of the E.C.'s “representative price” system for imports of cereals.
If it appears to either party that the functioning of the representative price system for cereals is materially impeding trade flows between the U.S. and the E.C., the Commission in consultation with the U.S. will examine the problems identified with a view to implementing appropriate solutions. The Commission does not expect that the question of the U.S. exports of cereals to the Community will prove to be controversial in the future.
WG: Imports of large quantities of E.U.-produced vital wheat gluten into the United States at very competitive prices have created severe problems for the U.S. domestic wheat gluten industry. Protests have been made to Brussels and discussions have been ongoing. The Commission is very much at the center of this dispute, and what is your view of its resolution?
Mr. Fischler: The U.S. administration has raised on several occasions with the Commission the question of E.C. exports of wheat gluten to the U.S., claiming that they were undermining the U.S. industry. In response, the Commission pointed out that there were no export refunds for wheat gluten and no direct internal support for this product. Furthermore, the Commission pointed out that the market share of E.C. exports to the U.S. had not increased.
In the context of the agreement on grains concluded with the U.S. in 1995, it has been agreed that if the market share of E.C. origin wheat gluten imports into the U.S. increases in comparison to the average 1990-1992 market share, the Commission and the U.S. government will consult with a view to finding a mutually acceptable solution.
So far, the U.S. has not indicated any need to hold such consultations. A similar undertaking has been negotiated with the U.S. as regards exports of non-grain feed ingredients, including corn gluten feed, to the E.C.
Editor's note: At press time, the U.S. Wheat Gluten Industry Council, asserting that 1995 E.U. gluten imports to the U.S. had exceeded the average 1990-92 market share of 17%, asked the U.S. government to seek formal consultations under the agreement.
WG: Returning to the current status of the world grain market, with a relatively tight supply-demand balance, how do you see this playing out? Could large world crops in 1996-97 bring about a quick reversal from tightness to surplus, or do you expect a change or correction to take longer than that? What adjustments are you making in the CAP to accommodate to these new world conditions and what further changes are ahead?
Mr. Fischler: As regards the future demand balance for cereals, I do not think that it is for me to try to outguess the market. It is clear that this year, high prices are stimulating higher plantings, but much will depend on the weather in the world main producing regions and on demand.
So far as the European Union is concerned, the main policy instrument at our disposal is the level of set-aside. The Commission will make a proposal for set-aside for the 1996-97 crop in July, by which time the size of this year's harvest in the Union and elsewhere in the Northern Hemisphere will be known.