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SPEECH/00/164

Dr. Franz FISCHLER

Member of the European Commission  responsible for Agriculture, Rural Development and Fisheries

Challenges of Enlargement for the Agricultural Sector

AGRIBUSINESS FORUM

Sofia, 05.05. 2000

Ladies and Gentlemen,

I welcome the opportunity - at this meeting in Sofia to speak on the challenges for the agricultural sector and for the agricultural policy arising from the enlargement of the European Union.

I would like to begin my speech by taking a closer look at the current political and trade framework and the associated challenges not only for the candidate countries but also for the EU. Then I will address the need for investment in agri-business to ensure essential structural change and sustainable rural development, which would include the creation of alternative income possibilities.

Finally, in the last part of my speech, I will outline the instruments and financial resources, provided by the EU especially for the agricultural sector.

I. Part: Political and trade framework and associated challenges

At present, in Europe we are facing and giving shape to an important historical process. Some just call it "Enlargement", but I tend to say, we are in the process of "Uniting Europe". Of course we expect, that the Union offers economic opportunities for investment, growth and wealth, but it is also a chance for more peace in a Europe of common values. Let us not forget these joint objectives during the course of the membership negotiations, even if they tend to be difficult at times.

Uniting Europe has always meant sharing problems and solutions. This was true for the Europe of the Six, and it will equally be true for a Europe of twenty or thirty members. Of course we know, that the process of Uniting Europe can be a difficult process. As far as the enlargement negotiations are concerned, we are now moving to a phase with the so called "Luxembourg Group" where we are opening the more difficult chapters, such as agriculture, which will need more time to be negotiated. But we have known these problems from the very beginning, and we always underlined that speed and quality in preparing enlargement must go together.

Importance of Trade in the Agricultural Sector

The agricultural sector plays a very important role in the economic life in most candidate countries. In 1998, the agricultural production in the 10 Central and Eastern European Countries on average had a share of ~7% of the GDP; in Bulgaria it reached even 18.7 % in the same year. The agricultural, as well as the overall, production potential, will increase dramatically after joining the union. Of course, this will take some time, and most Central and Eastern European Countries will first have to overcome severe structural handicaps. But the potential is there, and in the long run, with all the support offered by the CAP, farmers will use it more and more efficiently. The new member states will have the same rights and opportunities to develop their long-term agricultural potential as the present members. This production potential offers considerable economic opportunities to the agrI-food-sector in these countries.

The EU is not only the largest importer of agricultural products in the world it is also the major trading partner of all applicant countries. For their part, the candidate countries are the EU`s second major trade partner after the US. Therefore, complete integration into the single market should create new market outlets for products from Central and Eastern Europe.

Negotiations for Additional Trade Concessions for Agricultural Products

Ladies and gentlemen, we have realised the importance of trade relations between the CEECs and the EU in the agricultural sector. Therefore, one of the major topics in the current bilateral discussions between the EU and the candidate countries is the question how the trade in farm products, which are subject to import duties on both sides, can be liberalised progressively. Candidate countries are keen to have better access to EU markets. Better access will improve their competitiveness, ahead of their full accession to the EU, by encouraging agricultural production and food processing capacities to adjust to the requirements of the common market.

Applicant countries are also requesting the EU to stop subsidising exports to their markets. On the other hand by progressively opening the market of candidate countries before accession competition shocks after accession could be avoided. For all these reasons, the Council authorised the Commission in March 1999 to open negotiations with each of the CEECs in order to reduce tariffs on agricultural products.

For products, such as pig meat, poultry, cheese, or eggs, a bilateral and progressive liberalisation of trade, including diminishing export subsidies, is being negotiated. The negotiations are termed the "double-zero-approach", which means: no duties or export subsidies on either side within certain trade quotas. The initial tariff quota volumes should be at least equal to the traditional trade volumes and to increase annually by a substantial rate. Therefore, after a few years, the conditions of free trade would be reached. With Estonia we have already come to an agreement on the double-zero-approach. Also the negotiations with Hungary were concluded in April and I am convinced, that others will follow soon.

Challenges of the Union

Of course, the enlargement represents challenges not only for the Candidate Countries, but also for the EU. It is evident that this process is profoundly going to affect the institutions, the policies and the identity of the EU.

Therefore, it is essential that all European institutions and authorities discuss and accept substantial adaptations and changes in the Union. In my personal view, there can be no enlargement without considerable improvements in the EU decision-making process. When the number of member countries rises above 20, unanimous decisions will become virtually impossible. It is the task of the Intergovernmental conference to find a solution for an efficient decision-making process under the new circumstances. The Intergovernmental conference has already started in February to prepare the grounds for stronger EU institutions.

We must not forget that the enlargement of the Union and the institutional reforms concern the representatives of the member states as well as all citizens. Therefore, the line of European development must be clear, transparent and understandable for everybody. Otherwise, the European project, our project, cannot succeed.

But for the candidate countries, legal and administrative challenges are equally great. The full benefits of membership can only be achieved if both legal and administrative challenges are met: On the one hand, the candidate countries will have to face the obligations of membership, that is to say, the legislation of the EU, the so called "Acquis". On the other hand, they must develop their administrative capacities in order to implement complex policies such as the Common Agricultural Policy. With regard to the economy, candidate countries need to develop fully functioning agricultural markets as well as functioning upstream and downstream sectors.

Land/market/Structures

Furthermore, for structural reforms of farms, necessary in several candidate countries, a functioning market in land is required. Besides other factors the rate of structural change will depend on the emergence of functioning land markets. So far this has been slowed down by the delay in the definitive settlement of property rights in most countries and limitations on the acquisition of land in certain countries. But a functioning land market is also essential to facilitate investment in rural areas in different sectors. That goes as much for national investors as for investors from other EU-member states.

Without all these reforms the CEEC's will not be able to compete effectively within the EU and its single market. The current negotiations on Accession are about ensuring that candidate countries take the necessary steps to meet these challenges before joining the Union.

II. Part: Investment in Agri-Business

I have already emphasised the importance of general political, administrative and trade developments. But for a successful accession, there is also a need for specific measures and investment. With regard to agriculture and the agro-food industry, there are several areas of particular significance:

As I mentioned before, candidate countries need to develop fully functioning markets in agriculture as well as functioning upstream and downstream sectors. Equally important, particularly in the food processing industry, is the capacity to cope with competitive pressures and market forces in the Union.

Most CEECs are still facing overcapacity and restructuring problems in the first processing stages such as milling, slaughtering and milk processing. A significant part of the stock of equipment will have to be modernised. Foreign direct investment tends to concentrate on the higher value added sections of the food industry such as beverages, tobacco and confectionery as well as the sugar industry. Candidate countries need to find ways of consolidating their agri-food chains all the way back to the farm-gate, especially in sectors where they have the possibility of developing competitive strengths.

Quality, food safety and consumer confidence are, in the meantime, at the core of agricultural and agro-food policies. Considerable investment in veterinary and phyto-sanitary structures is required if farmers and the processing industry in applicant countries are to reach their full potential.

All candidate countries are experiencing extensive structural changes; this applies to the agricultural and processing sectors as well as to factor markets. The development of markets must be supported by appropriate policies. One must concede, however, that the inevitable changes will create winners and losers in the economy. In some countries, this may cause considerable strains and pressures if appropriate flanking policies are not put into practice. This must be acknowledged. Candidate countries will be joining a common market; that is to say: there is only one market for agriculture, and the same applies for any other sector. That is why our common progress towards accession and this single market must include further progress in agricultural trade.

Finally, candidate countries will need strategies for rural development and sustainable agriculture in order to encourage a well-balanced development of rural areas and communities and to cushion the structural change in agriculture. Eastern Europe has areas of countryside of great cultural and natural value. The realisation of the economic potential of Eastern European agriculture must not be accompanied by social dislocation and environmental damage.

Organic Farming

Ladies and Gentlemen, in this context we should not forget the increasing importance of the organic farming sector, which is currently one of the most dynamic sectors in agriculture in the European Union. Demand is increasing in the European Union, North America, Japan and Australia. And of course, we expect the same for the candidate countries over the coming years. On average, over the last 10 years, the acreage used for organic farming in the 15 countries of the EU has increased annually by around 30 %. A similar increase has occurred in the candidate countries with the growth rate even exceeding 30 % annually in some cases.

Ladies and Gentlemen, we should not forget however, that it requires a lot of effort and time to market organically produced food products to the consumer. That is the case in Bulgaria as well as in any other country, where the preference of consumers for organic food is not yet very strong. Of course, the demand for organic products will develop differently in the individual countries. Therefore, besides national marketing structures, the export of organic products to the EU will play a substantial role in your countries.

III. Part: Financial Resources

Having mentioned the need for change, I will now turn to another need, the need for capital. The EU uses different instruments to provide financial support. The total amount of pre-accession financial support so far amounts to 21.8 billion Euro for the period of 2000 2006. This is the first time, that candidate countries will receive such support before joining the union.

In the agricultural sector accession will be facilitated by the recent agreement of Agenda 2000 and the new SAPARD instrument. The purpose of SAPARD is to help the countries to overcome structural problems with timely assistance in the form of specific rural programs. SAPARD management will be organised in a completely decentralised way. This instrument can be seen as the equivalent of the new 2nd pillar of the CAP the rural development policy. This is intentional. SAPARD will be an important initial process in preparation for applying the EU´s rural development policy post accession.

I see SAPARD as a prime example of our strategy to concentrate efforts on investment for the improvement of competitiveness and for sustainable rural development. The future of rural areas lies not only in agriculture, but also in alternative income possibilities !

The impact and the success of this instrument depends on the one hand on the available budget, but on the other hand, on the quality and design of the specific programs. Regarding the budget, the total indicative allocation is 520 million Euro per annum over a seven year period. From this point of view, SAPARD is the most important pre-accession instrument for the agricultural sector. All plans have to be formally checked and approved by the Commission within 6 month from the date of receipt. However, the quality of the programmes remains to be seen after the implementation of the specific development plan by every single candidate country.

There are other important financial support schemes for the pre-accession process.

The first is the PHARE programme, which continues to be the main channel for EU financial and technical support for the CEECs. The total PHARE budget amounts 1.5 billion Euro per year for the 2000-2006 period, 70 % of which will focus on investment support, and 30 % on the formation of different institutions .

Equally important is the Instrument for Structural Policies for Pre-Accession, called ISPA. With a budget of 1.040 million Euro per year, this instrument is meant to finance environmental projects and investment in transport infrastructure.

The ISPA-budget should not be used exclusively for large-scale urban projects. There should be a well-balanced allocation between rural and urban regions. The available resources should be used to strengthen regions economically to enable them to flourish alongside stronger regions.

We must be aware of the great danger of depopulation in rural areas, which may result from an over-emphasis on urban development. Very high economic and social costs may result both in rural areas and in cities, if rates of development are too uneven.

Ladies and Gentlemen, equally as important as the balance between urban and rural regions, is the balance between large and small projects. This applies not only for ISPA, but also for all other instruments.

Of course, the linkage or network of different projects financed by various sources is also of great importance for successful rural development. A good example of cross-border, transnational and interregional co-operation is the INTERREG Community Initiative on the EU side. For INTERREG III 2000-2006 a total of 4.9 billion Euro is made available in the long-range planning period. The partner projects in the candidate countries can be financed by PHARE or PHARE Cross-Border-Cooperation.

My colleague Michel Barnier has stated, that this initiative aims to help to bring people and communities closer together and lay the basis for a successful enlargement of the union.

I consider this type of co-operation as particularly important. Whether with INTERREG or other initiatives, such as LEADER+, we promote in part transnational co-operation between LEADER+ beneficiaries with partners following the LEADER approach in the CEECs. In EU Member States numerous experiences exist concerning the planning and the execution of development projects for rural areas. Of course, the degree of success differs among the projects. We should not fail to use these experiences in order to transfer positive approaches and to avoid undesirable developments in the future.

Ladies and Gentlemen, let me conclude with some general remarks:

Since there are, however, no general solutions, the candidate countries are requested to find individual ways. The assistance of the EU is a substantial component for the creation of competitive structures and additional jobs in rural areas. However the work must still be done within the countries!

One thing should not be forgotten: Successful rural development must be sustainable rural development. Besides the economic and social dimension, the environmental dimension is of great importance. This should always be taken into account for all efforts in the future.

In the future, for European agriculture the keywords will be competitiveness, multifunctionality and sustainability. European agriculture delivers public goods, that is to say, it preserves and protects the rural landscape and environment, sustains rural areas, their economies and their infrastructure.

The failure of the Seattle Ministerial has demonstrated very clearly, that a pure liberalist approach to agriculture cannot alone succeed. Civil society does not accept that agricultural goods are dealt with in the same way as industrial goods. That applies for the present and future Member States and, in the medium term, for all other countries.

Of course, in the ongoing process of enlargement there are still a lot of questions to ask and to answer. But let me close with the words of a German author: when no more questions are asked, the irresponsibility begins.

Thank you for your attention.


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