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IP/03/1285

Brussels, 23 September 2003

Agricultural reform continued: Commission proposes sustainable agricultural model for Europe's tobacco, olive oil and cotton sectors

Today the European Commission has put forward proposals for a fundamental reform of the common market organisations (CMO) for olive oil, raw tobacco and cotton in line with the reform of the common agricultural policy (CAP) decided by the Council in June 2003. For these 3 sectors, it is proposed to transfer a significant part of the current production-linked payments to the decoupled single farm payment scheme, the key feature of the future CAP. As was the case in the June 2003 CAP Reform, this payment as well as other direct payments will be linked to the respect of environmental and food safety standards through cross-compliance. To facilitate a sustainable policy for the raw tobacco sector in the future, the Commission proposes a phasing out of the current regime over three years, a decoupling of the existing tobacco premium, a phasing out of the Community Tobacco Fund and the setting up of a financial envelope for restructuring tobacco-producing areas. In the olive oil sector 60% of the production-linked payments for the reference period would be converted into new entitlements to the single farm payment scheme. Member States would retain the rest for the granting of an additional direct payment for low output and marginal olive groves and for quality policy. For cotton, 60% of the producer-support expenditure per Member State would be transferred as new entitlements to the single farm payment scheme whilst Member States would retain 40% for a new direct area payment to producers. The balance with the cotton expenditure for the reference period would finance inter-branch organisations and restructuring in cotton-producing areas. The reform is expected to bring better market orientation, environmental benefits, enhanced competitiveness and more stable income for farmers, due to the higher transfer efficiency of decoupled payments.

Commenting on the proposals, Commissioner for Agriculture, Rural Development and Fisheries, Franz Fischler stated: “These proposals are another essential step towards an efficient and sustainable farming policy in Europe. Building on the June 2003 CAP reform, we are now effectively rounding off the move away from product support towards income support for our farmers. This major shift in our farming policy will allow us to transfer the direct payments more efficiently. This should improve farmers' incomes. The more sectors we include in the single farm payment the greater the economic and administrative benefit, in terms of simplification, will be."

Joint reform framework of the 3 proposals

Today's communication stems from the declaration made at the Luxembourg Council in June 2003 when political agreement was reached on the fundamental reform of the CAP and the Commission was given the mandate to submit in autumn 2003 reform proposals on the CMOs for olive oil, raw tobacco and cotton. The proposals are based on the objectives and the approach of the June 2003 CAP reform, namely: enhanced competitiveness, stronger market-orientation, improvement of the environment, stabilised incomes and a higher regard for the situation of producers in Less-Favoured Areas (LFAs). As in its July 2002 Communication, the Commission's proposals establish a long-term policy perspective for these 3 sectors in line with their present budgetary envelope and the new framework for agricultural expenditure agreed at the Brussels European Council in October 2002. Also these proposals give priority to “farmers' income” as opposed to “product support” through the transfer of a significant part of the current production-linked payments to the single farm payment scheme, as from 1 January 2005. They make these payments subject, as is the case with all CAP direct payments, to the same statutory EU environmental and food safety standards, through cross-compliance, and rules of good agricultural and environmental practice,as well as to the modulation and financial discipline mechanisms. However, the reform proposals take account of the fact that the three sectors are characterised by a concentration of their production in regions notably lagging behind in their economic development. In addition, all three sectors are charactrised by differences in the present market regimes, and in the problems and long-term priorities they face. Therefore, different solutions are also envisaged in the proposed coupled part of their support.

The reform proposal for raw tobacco

The Commission's reform proposal for raw tobacco is based on the Extended Impact Assessment of the EU raw tobacco sector, regarding a sustainable policy-approach for the sector, in the context of the EU strategy for sustainable development, agreed at the Göteborg European Council in June 2001. The proposal envisages a three year phasing out of the current regime. This entails a step by step decoupling of the existing tobacco premium, accompanied by a phasing out of the Community Tobacco Fund and the setting up, within the second pillar of the CAP, of a financial envelope for restructuring raw tobacco producing areas.

During the phasing out period the Tobacco Fund will continue to be used to support anti-smoking campaigns. The Commission is committed to continue to support these activities despite the diminishing tobacco subsidies.

Tobacco quotas would need to be maintained to fix the envelope of that part of the tobacco premium not yet decoupled. Consequently, during the transitional period, any production beyond these quotas would not receive the corresponding coupled premium. At the end of this 3-step process, that will last three years, the current raw tobacco common market organisation would no longer apply. The proposed reform would begin with the transfer of all or part of the current tobacco premium into entitlements for the single farm payment. While this transfer would be complete for a producer's first 3.5 tonnes of production, for the following part between 3.5 tonnes up to 10 tonnes, 80 % of the current tobacco premium would be incorporated into the single farm payment. The remaining 20 % would feed the proposed restructuring envelope. For the part above 10 tonnes the current tobacco premium would be decreased by one third at each step. In the first two steps, this amount would be evenly divided between a transfer to the single farm payment and to the restructuring envelope.

However, in order to avoid any major changes in income at agricultural holding level, in the last step only one third of the transferred tobacco premium would be converted into single farm payment entitlements, the remainder being transferred to the restructuring envelope.

With full implementation, this reform process would re-distribute more than 70 % of the current tobacco premium to the single farm payment and at least 20 % to the restructuring envelope. This re-distribution would correspond to an allocation, on average, of € 6,900 per family Annual Working Unit (AWU), through the single farm payment. The Extended Impact Assessment of the EU raw tobacco sector can be found at

http://ec.europa.eu/agriculture/publi/reports/tobacco/index_en.htm

The reform proposal for olive oil

The proposal foresees the conversion of the existing production-linked direct payments in the olive oil sector into direct income support, through the creation of new entitlements to the single farm payment for farmers, in addition to those arising from the June 2003 CAP Reform. It is proposed that 60 % of the production-linked payments for the reference period, should be converted into entitlements to the single farm payment for holdings larger than 0.3 ha. Smaller holdings would have their payments completely decoupled.

To prevent a possible disruption to olive tree maintenance, which in turn could lead to degradation of land cover and landscape or negative social impacts, Member States would retain the rest of the production-linked payments for the reference period, for the granting to producers of an additional olive grove payment, calculated on a per hectare or per tree basis, to ensure the permanence of olive trees in marginal areas or low-output olive groves. For simplification, the olive grove payment would not be allocated below € 50 per aid claim.

The Commission also proposes that the current private storage measures for olive oil should be kept intact, as a safety net mechanism, but that the refunds relating both to export and to manufacture of certain preserved food should be repealed. In order to support the sector during the adaptation to the evolving market conditions, existing quality and traceability measures should be reinforced. The financing of the present olive oil control agencies would be ended beyond 1 November 2005.

With this proposal the Commission meets its obligation to present in 2003 a proposal to the Council, which will decide on the common organisation of the market in oils and fats. The new CMO will replace the current aid scheme as from 1 November 2004.

The reform proposal for cotton

The Commission proposes to transfer the part destined to producer support of the EAGGF expenditure for cotton during the reference period, into the funding of two producer-income support measures for farmers, namely, the single farm payment scheme and a new production aid, granted as an area payment.

60 % of that producer-support expenditure would be transferred per Member State to the single farm payment scheme, in the form of new entitlements. Thus, cotton producers should be able to respond better to future market evolutions and requirements.

To prevent production disruption in production areas with a high economic dependency on cotton, Member States will retain 40 % of the producer-support expenditure during the reference period, for the granting to producers of a new area payment per hectare of cotton.

The new area payment would be given for a maximum area of 425,360 ha (340,000 ha in Greece, 85,000 ha in Spain and 360 ha in Portugal) and would be proportionately reduced when payment claims exceed the maximum area of a Member State. It could be differentiated on the basis of specific criteria, relating to the participation of producers in an inter-branch organisation which would be approved by Member States and subject to controls. A maximum of half of the area payment to members of an inter-branch organisation could be determined according to inter-branch scales, rewarding production deliveries in quality and quantity terms.

The activities of each inter-branch organisation would be financed by its members and by a Community grant of € 10 per hectare. That support should be around € 4.5 million. The balance with the total market expenditure for cotton will be included in a restructuring envelope for cotton areas. This last envelope of around € 100 million would be shared between Member States according to the average area eligible for aid over the reference period. It would become an additional financial instrument within the second pillar of the CAP and will fund rural development measures. It may be used either for more beneficiaries, more measures, or even an increased aid intensity of existing rural development measures.

Benefits of the reform

The reform of the raw tobacco, olive oil and cotton sector are expected to bring better market orientation, enhanced competitiveness and more stable income for farmers, due to the higher transfer efficiency of decoupled payments. Including the olive oil sector in the single farm payment scheme will enhance a positive image in terms of transparency, consumer confidence and the provision of environmental and landscape benefits to society. For the EU cotton sector, this reform would bring coherence and transparency in the application of EU legislation covering production standards, and would counter the criticism of the trade-distorting impact of the current "deficiency payment" mechanism in the EU cotton regime.

Budgetary implications

Consistent with the objectives and approach of the June 2003 CAP Reform, the proposals for raw tobacco, olive oil and cotton are budgetary neutral compared to past expenditure.

The Communication "Accomplishing a sustainable agricultural model for Europe through the reformed CAP - the tobacco, olive oil, cotton and sugar sectors", adopted by the Commission today, is available on the internet at:

http://ec.europa.eu/agriculture/capreform/com554/index_en.htm

Further details on CAP reform can be found at

http://ec.europa.eu/agriculture/capreform

Background information on the overall outlook of the three sectors (how the 3 CMOs work, the situation in the EU, trade, etc.) can be found in MEMO/03/182


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