Agricultural integration strategy for the EU's new member states

by 5m Editor
6 February 2002, at 12:00am

The European Commission has set out its strategy for dealing with the EU's enlargement negotiations on agriculture: direct payments to farmers and the level of production quotas for the new member countries once they join the EU in 2004. To ease the problems of transition in rural areas, and to encourage the necessary restructuring of the new member states' agricultural sectors, the Commission proposes to beef up financial support through an enhanced rural development policy. Given that immediate introduction of 100% direct payments would serve to freeze existing structures and to hamper modernisation, the Commission favours a gradual introduction of direct payments over a transition period of ten years: for 2004, 2005, 2006 direct payments equivalent to 25,30,35%, reaching 100% in 2013. According to the proposal, this aid could also be topped up with national funds. The new member states would however have full and immediate access to Common Agricultural Policy (CAP) market measures, such as cereal intervention.

In order to ensure simplicity and to ensure adequate controls from the first day, the Commission has proposed a simplified direct payments system for the first three years, with the option of to prolongation for two more years. The new member states should have the option of granting direct payments in the form of an area payment, de-coupled from production and paid per hectare. The Commission also proposes to determine production quotas for sugar and milk on the basis of average production over the years 1995 to 1999. Today's strategy is fully compatible with the expenditure ceilings for enlargement agreed by the Berlin European Council in 1999 and with the EU's WTO commitments, including the EU's agricultural negotiating position for the WTO Doha Development Agenda.

Franz Fischler, EU Commissioner for Agriculture, Rural Development and Fisheries commented : "This is a fair, balanced and reasonable package. Our strategy makes sense in economic, ecological and social terms. It ensures that EU money is well spent in boosting the necessary restructuring process in the new member states. And it makes sense, because we fully respect the Berlin financial ceilings. Compared to the 15 current EU countries, we are prepared to give a 50% rural development top-up to the new member states for a comprehensive, sustainable rural development policy. We have to live up to our responsibility. If we do not help to modernise agriculture and diversity employment in rural areas, agricultural restructuring will produce a spiral of growing unemployment and destabilised communities. It would be counter-productive to grant 100% of direct payments immediately.

That would only slow down restructuring, and it could prove socially divisive. We therefore propose introducing direct payments initially at a much lower, safety net level to provide a measure of stability in incomes. It is clear that after the transition periods, there will be one CAP for all EU members, and not a two-tier farm policy. Let's face it: a larger EU costs money. Turning the debate on enlargement into a pure "piggy-bank operation" is simply not good enough. If the member states live up to their commitments, the costs are manageable."

What are the financial implications?

The Commission's approach fully respects the financial framework for enlargement, as decided by the Heads of State and Governments in Berlin.

An enhanced rural development policy to incite change

In order to tackle to structural problems in the rural areas of the new member states, the Commission advocates an enhanced rural development strategy, broad in scope and in comparison to the funds available for the existing EU countries beefed up in money terms. From Day 1 upon accession, a range of rural development measures would be co-financed at a maximum rate of 80% by the EU (see below).

A special measure to make semi-subsistence farms viable

In the candidate countries many "semi-subsistence farms" persist, which produce for own consumption, but market the larger part of their production. To help to turn them into commercially viable units a specific measure for semi-subsistence farms is proposed. This measure should take the form of a flat rate aid of € 750 maximum. Payment of the aid should be conditional on submitting a business plan demonstrating the future economic viability of the enterprise. The temporary income support would serve to alleviate cash flow constraints and household income difficulties as further restructuring is undertaken to ensure the future of the holding.

Rural development measures eligible (max. 80% EU financed)

early retirement of farmers support for less favoured areas or areas with environmental restrictions agri-environmental programmes afforestation of agricultural land specific measures for semi-subsistence farms setting up of producer groups technical assistance

Additional rural development measures(2) will be financed from the Structural Funds (EAGGF Guidance sector).

A gradual increase of direct payments

The Commission's approach is to set the starting level at which direct payments would be granted for 2004 at a rate equivalent to 25% of the present system, rising to 30% in 2005 and 35% in 2006. In a second step after 2006, direct payments would be increased by percentage steps in such a way as to ensure that the new Member States in 2013 reach the support level then applicable.

The Commission took several factors into account: If direct aids are introduced too quickly in the candidate countries, there is a significant risk that badly-needed restructuring would be slowed or even stopped, creating a vicious circle of low productivity, low standards and high hidden unemployment. High levels of direct payments would be likely to consolidate existing structures in a period which should be one of rapid restructuring. For semi-subsistence farms in particular, high payments would consolidate a type of production based on private consumption by ensuring its viability. There would be little incentive to invest this aid in production or alternative activities, objectives in all cases better targeted by rural development programmes. Excessive cash injections through direct payments in favour of specific segments of one professional group would risk creating considerable income disparities and social distortions.

The possibility for national top-ups

Where the national aid granted prior to accession was higher than the direct CAP payments under the phasing-in approach, this could lead to economic problems for the farmers concerned. Moreover, accession to the EU would be made responsible for a reduction in agricultural income support. To avoid these undesirable effects the new Member States should be given the option of complementing direct aid up to the level applicable prior to accession, provided that the total support does not exceed the level of direct payments in the existing EU member states. Such national top-ups would need to be approved by the Commission.

Simplified implementation of direct payments transitional and optional

Under the simplified system, the new Member States should have the option to grant direct payments during a limited period in the form of a de-coupled area payment applied to the whole agricultural area. On the basis of its total envelope of direct aids and its utilised agricultural area, an average area payment would be calculated for each country. All types of agricultural land would be eligible for the payment. The minimum size of eligible area would be set at 0.3 ha.

The approach should be optional and transitional. The simplified scheme would be available for three years, renewable twice by one year. Controls of payments would be effected by a simple physical control of land, through, in principle, the Integrated Administration and Control System (IACS). At the end of the transitional period, the new Member States would enter the regular system of direct income support in the form then applicable.

If the necessary management and control structures do not function properly at the end of the scheme's application period, the simplified scheme would continue to apply and the annual increase of the direct payments rate under the above approach would be frozen until the problems are solved. It should be stressed that this simplified system is not an alternative to IACS, but rather a limitation of IACS application in the early years to simpler arrangements for direct payments.

There are a number of advantages to this approach. Implementation would be simple, and easy to verify, reducing the possibilities of irregularities. This would provide time to consolidate in particular the IACS system for direct payments. At the same time it would reduce adjustment effects: changes in support levels would be more homogenous and pressures towards intensification and environmental damage would be attenuated. Finally, it would facilitate the access of smaller farmers to EU funds.

Production quotas based on recent reference periods

As a general principle, the Commission proposes to determine agricultural production supply management instruments, such as production quotas on the basis of most recent historical reference periods for which data are available, from 1995 to 1999. Statistics from the candidate countries for a recent period are more reliable than those of the pre-transition period and better reflect the adaptation of production structures. This does not imply that this five-year period would be used uniformly for all schemes concerned. It should rather serve as the time frame within which the most appropriate reference period for each scheme would normally be chosen. As for milk quotas, the Commission proposes to use production figures of the years 1997-1999. Where appropriate, it can be considered to take account of exceptional conditions such as natural disasters or significant market disturbances.

(2) Investment in agricultural holdings, aid for young farmers, training, other forestry measures, improvement of processing and marketing, adaptation and development of rural areas

Source: European Union, January 2002