Wrestling with reforms
April 01, 1998
by Teresa Acklin
Proposed changes in E.U. agricultural policy raise potential for huge shifts in crops produced, analysts and commodity groups predict.
A big rise in Europe's wheat production and a fall in output of oilseeds will be one of the main results of the changes to the European Common Agricultural Policy proposed by the Agenda 2000 reform plans, according to some European analysts. Based on the outline proposals released by the European Commission last year, some commentators are predicting that wheat production could rise by 15% to 107 million tonnes annually, while that of oilseeds could fall to 4.5 million a year from 8 million.
The proposals for Agenda 2000 have been drawn up as the next stage in the necessary reform of the CAP to rebalance production, reduce support prices and redirect subsidies towards farm incomes while giving greater support to rural infrastructures and the environment. At the same time the changes must take into account the next stage of the World Trade Organization negotiations in agriculture at the end of 1999 and the enlargement of the European Union to take in central and eastern European countries in the next decade.
The main changes proposed by Agenda 2000 will involve cuts in intervention prices of cereals, beef and dairy products to bring them down to world price levels. Farmers would be compensated by increased area payments for crops and payments per head for livestock.
For arable crops, the Commission is proposing to cut the intervention price by 20% in 2000 and reduce set-aside from 17.5% to zero. Farmers would be compensated for the cut in price support by an increase in the arable area payment from the current level of U.S.$50 per tonne (54.34 Ecu per tonne) to U.S.$60.55 per tonne (66 Ecu) multiplied by the 1992 regional reference yield. The reduction in the intervention safety net is designed to allow most cereals to be exported without subsidy.
To avoid over-compensation as has happened in the past, payments would be reduced if market prices rose higher than expected. The same level of payment would apply to all cereals, oilseeds and voluntary set-aside. There would also be a separate payment for protein crops of U.S.$5.96 per tonne, and durum wheat producers would receive an additional payment of U.S.$316 per hectare in line with the recent changes to the durum wheat regime.
Alongside these changes in the price support levels, the Commission is proposing to combine all existing regulations covering rural development policy under one measure. These would include agri-environmental payments, forestry and early retirement schemes plus structural programs.
Agri-environmental measures would be extended to take in activities such as organic farming and the maintenance of natural habitats. Payments for Less Favored Areas would be switched from a per head to an area basis.
Explaining the background to the proposals to delegates at the Agra Europe Outlook conference in London in February, David Roberts, Deputy Director General for Agriculture in the European Commission, said the proposals must allow the CAP not only to adapt to upcoming major changes in the trading environment but also enable the distinctive European farming model to survive and develop in the new circumstances of enlargement and W.T.O. changes. The CAP must also develop in such a way as to continue to provide environmental services as well as a safe and abundant supply of food, he said.
“It is clear that we need to move towards a more market orientated policy in which production decisions are more based on market signals and less on artificial production stimulation or artificial production restraints,” Mr. Roberts said.
In a paper analyzing the implications of the proposals, Brian Gardner of EPA Associates, Brussels, Belgium, said the main effects of standardizing payments for all crops would be to increase wheat production and cut oilseed output. While the payment for wheat would increase, that for oilseeds would fall from U.S.$170.60 to U.S.$60.55.
This decline would mean the profitability of oilseed rape would be cut by 50% while cereal profits would only fall marginally. This would be likely to lead to the area of wheat increasing by 10% to 15%, cutting oilseed rape production by half to around 4 million tonnes. Sunflower production would also suffer, but the biggest impact would be on oilseed rape, Mr. Gardner said.
Although the switch from oilseeds would be limited by the need for maintaining a cropping rotation, the additional area planted to wheat, plus an estimated annual l.9% increase in yield, would produce a total wheat crop of around 107 million tonnes by 2005, he said. The production increase would leave an exportable surplus of around 43 million tonnes and a total grain surplus of 58 million tonnes, he added.
Providing world prices remained at their present levels, it would be possible to export most of this on world markets without a subsidy, he noted. However, if world prices fell below the proposed intervention floor levels, the European Union would face massive problems of storage and disposal.
FEDIOL, the organization representing seed crushers and processors in the European Union, has warned that the change would worsen the E.U.'s oilseed and protein deficit already running at only 20% self-sufficiency in oils, 50% in oilseeds and 80% in oilmeals. To avoid the imbalance, FEDIOL suggests that the equalization of aid between cereals and oilseeds should be increased in stages and that measures should be introduced to encourage crop rotation.
A similar proposal has been put forward for maize. This grain is also expected to lose a share of production area to wheat because the change in area payments would reduce the profitability of maize compared with wheat in many areas of the European Union. Starch producers support a policy that would allow for special measures to encourage maize production, taking into account its higher production costs.
The Agenda 2000 changes have been generally welcomed by British farmers, but rejected by the French and Germans. Sir David Naish, president of the National Farmers' Union in England until earlier this year, said he accepted that change was inevitable and that Agenda 2000 was a step in the right direction. He said the lower support prices would give access to world markets and that the medium-term outlook for British farmers was good.
However the proposals have been criticized by the agricultural ministers of France and Germany. The German minister, Jochem Borchert, said the 1992 reforms had proved their worth and he did not see any need for further price support reductions. He said he believed the Commission's calculations of rapidly increasing surpluses were very pessimistic and that world demand for grain would keep prices at or above European levels.
Louis Le Pensec, the French Minister of Agriculture, said it was wrong to make changes in the CAP in advance of the next round of W.T.O. talks. He said the French government would argue for recalculating the aid system so that less favored regions qualified for a higher level of aid than the more profitable grain farmers.