Brussels, 08/07/2002 (Agence Europe) - On Wednesday, the European Commission is to adopt three documents drawn up under directions from Commissioner Franz Fischler. This will allow it to establish its strategy on mid-term review of Common Agricultural Policy (CAP): - a central communication giving details of the main guidelines for "reform" (before adoption in September of the legislative proposals); - another communication on the common market organisation for rice (with the "Everything but Arms" initiative as a backdrop in favour of developing countries); - and a discussion report on the future of the milk quota regime. The Commissioner will present these documents to the European Parliament the same day then, on 15 July, to the EU Agriculture Ministers. According to the first data available to the Commission, the changes envisaged in this policy would allow savings for the Community budget by way of EUR 200 million annually.
In addition to the measures proposed in the different sectors such as cereals, rye or durum wheat (for details see EUROPE of 29 June, p.8), we recall that the Commission mainly plans to simplify the direct aid regime and to make it more sustainable by introducing a single payment for each farm which would be de-coupled from production. The payment of these funds would be conditional upon respect of standards relating to the environment, animal welfare and food safety. To verify compliance with these standards, the Commission proposes to set in place a Community audit system for farms, which would be compulsory for farms that receive over EUR 5,000 annually in direct aid. In order to release funds in favour of rural development policy, the Commission proposes to reduce direct aid annually by 3% (that is, nearly 20% over a six-year period) except for farmers receiving less than EUR 5,000, and to establish a ceiling of EUR 300,000 in aid for each farm. The transfer of funds towards the second CAP pillar would be according to the principle of aid modulation, which would become compulsory. We would specify that the next EU Member States would be dispensed from this principle of modulation from the outset. It would only apply to them from the time they receive 100% in direct aid, that is, in 2013. The new measures intended to strengthen rural development policy include the possibility for Member States to pay farmers aid on a sliding scale (200 euro per hectare at most the first year) for the implementation of standards required in relation to the environment and food safety. This kind of aid could be paid during more than five years.
The Commission recalls that the situation on the rice market is characterised by considerable public intervention storage representing a quarter of annual production. "The gradual implementation of the customs duty reductions in conformity to the Everything but Arms initiative will result in a dramatic deterioration of the balance of the rice market at the end of this decade", the draft communication reads. The Commission therefore proposes: - a 50% reduction of the intervention price in 2004/2005; - the introduction of a private storage system that would trigger into action off when the market price falls below the base price; - and this fall in price would be offset by aid of 177 euro per tonne, in addition to the current payment of 52 euro/tonne.
Four scenarios for the future of the milk sector:
In its report on the future of the milk quota regime after 2008, the Commission proposes to launch the debate on the basis of four possible scenarios:
1) Status quo (no further measure in addition to those foreseen by Agenda 2000, namely reduction of 15% in three equal instalments, from 2005/2006, of the intervention price of butter and powdered skimmed milk). This price reduction would be offset by direct aid of 5.75 euro per tonne of individual quota in 2005; 11.49 euro in 2006; 17.24 euro in 2007 and a 1.5% rise in quotas in three stages also. According to the report, this solution could bring exports of butter and also of cheese down further.
2) Repetition of measures foreseen under Agenda 2000 (15% reduction in intervention prices for butter and 5% for powdered milk, in three stages from 2008/2009, offset at 58% by aid and accompanied by a 3% rise in quotas in three stages). This scenario would considerably increase the budgetary burden because of the supplement for direct premiums.
3) Establishment of a double quota system (an "A quota" corresponding to domestic demand and a "C quota" open for unsubsidised exports). The Commission expresses doubt about the compatibility of this solution with the rules of the WTO and considers that such a system would require control and administration of quotas and milk distribution that are far more complex than today and which would be largely under the responsibility of the operators in the sector themselves.
4) End to quotas (leading to a drop of around 25% in intervention prices and in compensation, a set direct aid de-coupled from production and equal to the double of the bonuses forecasted in the 2000 Agenda). The Commission recognises that this scenario could lead to a sharp fall in prices, which would not be comprehensively compensated, in terms of agricultural income, by way of development in demand for cheaper milk. Such liberalisation would have consequences that would be far-reaching but difficult to appreciate.
The Commission then analyses the possible consequences of the four recommendations on producers' income. In the current status quo, market friendly perspectives and price stability in milk would enable income in the sector to improve by more than EUR 2 billion by 2015 instead of 2008. Direct bonuses to producers would be maintained at their current level until 2008. The second scenario would consist of (a repeat of Agenda 2000), and an expected fall in revenue by EUR 700 million (between 2013 and 2008) as a consequence of falling milk prices. But subsidies (almost EUR 2 billion in 2013), overall income in the sector would increase by around EUR 1.2 billion. Setting up a system of double quotas could increase farmers' income by more than EUR 800 million if Agenda 2000 bonuses stay the same. If quotas were ended there would be a spectacular fall in income (EUR 7.3 billion between 2015 and 2008. Increasing subsidies estimated to be around EUR 3 billion would reduce the decline in income, which would be EUR 4.4 billion.