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SPEECH/00/75

Dr. Franz Fischler

European Commissioner responsible for Agriculture, Rural Development and Fisheries

A new CAP for a new century

19th European Agricultural Outlook Conference

London, 9-10 March 2000

Mr. Chairman, Minister, Ladies and Gentlemen,

Thank you for giving me the opportunity to discuss the future development of our Common Agricultural Policy with you. To do so, we will have to examine the new challenges arising from globalisation of agricultural markets, the new round of world trade negotiations and the enlargement of the European Union. Furthermore, the multi-functional European farm sector as well as the food industry will have to continue to adapt to growing requirements of the consumer and the society as a whole. Sustainability has become a crucial social interest where agriculture has to take a particular responsibility.

Let me start my presentation with some remarks on globalisation and trade liberalisation.

Globalisation

The international or global orientation of our economies and of the agri-food sector in particular is not a new phenomenon. Trade in agricultural products started when the first farmer produced more than his own consumption. And the starting point of globalisation can be found already in the 19th century with the first attempts to build up an international transport and communications network. What makes us debate the advantages and disadvantages of globalisation is the dramatic acceleration we have experienced in recent years.

Let me give you just three examples: First, the increase of world trade flows. Since the 1950's, world trade has increased by an annual average of more than 6 %, although production has only increased by 4% per year, both measured in aggregated values.

Trade of agricultural and food products represent a share of 8 percent of total trade. UN statistics showed that, the value of agricultural exports has more than tripled during the last decade. This is despite the effects of the Asian and Russian crises. In 1997 we had reached even higher values of agricultural exports than is the case now.

A second indicator of globalisation is the increase of international capital mobility. Foreign direct investment of OECD countries increased from around 50 billion Euro in 1985 to more than 380 billion Euro in 1997. The food industry has, naturally enough, been involved in this growth.

The development and growth of multinational enterprises is thus a third element of globalisation. Several food products and drinks are now available world-wide. However, the vast majority of food manufacturers has not yet entered the global market place. Indeed, regional products appear to be becoming more and more highly prized by consumers and local markets are becoming fashionable again.

Globalisation may not be a new phenomenon, and a more limited one than often believed but it is growing again.

Not for the first time, we see that we live in a world of contradictions, with both increasing globalisation and fragmentation, increasing competition but also increasing concentration.

Clearly, the precondition for making use of the new opportunities has been, and is, to liberalise trade and to open the markets in the framework of the multilateral trade negotiations. For agriculture, the Uruguay Round was crucial to speed up the integration of agricultural trade into the global economy. But another precondition is that we must deal with anti-trust matters on a global scale as the Union has proposed for the Millennium Round, to which I now turn.

WTO negotiations

Agricultural trade is of particular importance to the EU which is the world's biggest importer and second biggest exporter of agricultural products. The EU has every intention of ensuring that the development of this trade is based on clear, acceptable and sustainbale international trade rules. We showed this in Seattle. We, Europeans, were constructive and put forward many good ideas. Nevertheless, Seattle failed to start the Millennium Round. There are some lessons to be learned from this experience:

Firstly, as we enter the 21st century, world trade is no longer just the domain of the industrialised countries. Today 80% of the WTO members are developing countries, underdeveloped countries or countries undergoing the transition from a centralised to a market economy. These countries must be involved more closely in WTO decision-making. This is no more than their right. They will rightly insist upon it.

Secondly, the general public continues to be concerned, indeed worried, by the impact of globalisation on the environment, health, social standards and cultural diversity. The European model of agriculture based on multifunctional farming addresses these relatively new issues, and thus offers a more future-oriented perspective for agriculture than mechanical calls for a total liberalisation of farm trade. Understanding multifunctionality as a synonym for protectionism and unfair competition may suit the negotiating tactics of some of our WTO partners. It even suits certain academics and dare I say it journalists. But whether deliberate or not, it is a clear misinterpretation of European agricultural policy and its efforts to deliver what both farming and society expect from it.

With Agenda 2000 the EU has shown its willingness to reform the CAP. Multifunctionality is the word we have found in Europe to describe the fundamental link between sustainable agriculture, food safety, territorial balance, maintaining the landscape and the environment and what is particularly important for developing countries, food security. When I read the recent speeches of my friend Dan Glickman, the US Secretary of Agriculture, I am struck by the extent to which thinking either side of the Atlantic is converging. I am not saying that we have reached the point where we could happily read out each others' speeches. But on the other hand I would suggest that this recognition of agriculture's wider role and responsibility, whatever we choose to call it, is a rare example of politicians claiming paternity rather than denying it!

Thirdly, the legitimacy of WTO decisions must be more clearly demonstrated and the decision-making process made easier to follow. Transparency must be increased.

We should not forget that, in democratic societies, citizens' and consumers' concerns are the backbone of markets and political actions. Let us take the European discussion on food safety as an example.

Experience in recent years has profoundly coloured the judgement of European consumers. In saying this I make no value judgement myself. I do not say that it is for good or for ill. I am simply stating a fact. Although public policy has consistently tried to stabilise and enhance the high level of food safety in Europe, nevertheless consumer confidence remains a delicate and tender plant. Trade and safety standards that do not recognise this are based upon a false assumption and so serve nobody's long term interest.

Concerning GMOs for instance, we have developed a different procedure for approval than in the US. Furthermore, the EU regulatory framework applying to GMOs is currently under revision, which will require a certain time to find common ground between the various stakeholders involved. How far should precaution go? Is no proof of significant health risks enough as producers tend to believe in order to authorise a product, or is it more appropriate to demonstrate first that there are no significant health risks? My view is that we need a comprehensive debate on this sensitive issue to find a consensus which is broadly accepted.

On the international stage, I hope that the Biosafety Protocol which has recently been agreed in Montreal will allow for greater transparency and acceptance in transboundary movements of Living Modified Organisms. If the US ratified this multinational agreement, the potential for conflicts would be largely reduced.

As far as the immediate future is concerned, agricultural negotiations are now scheduled to start on 23rd of March. They will be based on Article 20 of the WTO Agreement on Agriculture, which strikes the right balance between progressive reductions in support and protection and what is called "non-trade concerns".

The EU will continue to aim for a broad based agreement, as it will leave all WTO partners more room for manoeuvre in the context of a global package. Since all WTO members seem to agree that trade liberalisation is economically beneficial, it should be clear that a liberalisation of many sectors is more beneficial than that of a few.

The central elements of the built-in agenda relate to market access, export support, domestic support, in particular blue box and green box, and the peace clause. The Community will seek to share in the expected expansion of world trade in agricultural products. However, for the Union it will be essential to ensure that progress in trade does not damage the multifunctional role of agriculture and the legitimate concerns related to food safety and quality.

CAP reform: Agenda 2000

Strengthening all functions of agriculture, the economic, the environmental and the rural function is indeed the objective of our Agenda 2000 reform. The reform increases market orientation of the agricultural economy as a precondition for a vigorous European agri-food sector and strengthens structural, environmental and broader rural development elements as a second pillar of the CAP. The main tasks for the coming months and years will be to implement and manage the reformed CAP in co-operation with European, national and regional institutions.

On the market side, Agenda 2000 will increase competitiveness internally and externally in order to ensure that the Union's producers participate in the positive demand trends we expect world-wide.

From 2003 onwards our market experts expect world market prices for soft wheat to fluctuate above the EU support price. This development should allow the EU to export without refunds. In contrast, coarse grain exports would still be severely limited by the Uruguay Round agreement.

For some sectors questions remain as to whether the Berlin compromise will be sufficient to achieve the objectives envisaged in my original proposals. In the beef sector, for instance, a balanced EU market is likely to be achieved over the medium term, with continued cyclical movements. Nevertheless, the prospects for unsubsidised beef exports remain limited, even after the reform.

Even more so in the dairy sector, the postponement of the reform until 2005/06 may constrain EU cheese exports and potentually result in increasing intervention stocks of butter and SMP.

Our new forecasts show clearly that in parallel with the implementation of Agenda 2000, it will be necessary to monitor and analyse with care the developments on agricultural markets, as well as the development of farm income, the environment and rural areas. Several reports or mid-term reviews are provided for by the Berlin Summit decisions within the next years. These will provide the fixed points in a process of careful and constant surveillance of the outcome of reform.

Rural Development/Environment

Improving competitiveness requires structural adjustment and may even lead to further decline in agricultural employment. In this situation it will be vital for many rural regions to adapt their economies. Agenda 2000 identified rural development as a major challenge for the future and so reinforced three main objectives for EU rural development policy. It should facilitate the structural adjustment of the farm sector, favour the integration of environmental concerns with agricultural activity and promote the diversification of on- and off-farm activities. Agenda 2000 has brought all relevant measures into one policy framework.

With Agenda 2000, no rural area will be excluded from rural development support. Decentralisation and increased flexibility are the guiding principles for the future. It has been for the Member States to present proposals for rural development at the most suitable regional level. Member States and regions were asked to choose those measures which best meet their needs and priorities from the range of options provided by the new rural development regulation. The Commission services are currently analysing the plans in order to avoid any delay for the implementation. Overall, a key aim of the reform is to maintain and further develop agricultural incomes and a number of studies show we are on the right track.

Enlargement

Let me now turn to another field of EU policy where Agenda 2000 has prepared the ground: the enlargement of the Union. So far no date for accession has been fixed, but the new financial perspectives foresee the possibility of first accessions from 2002 onwards. The reform of the CAP sends a clear signal to candidate countries as to the direction in which EU policy is adapting to new requirements and preparing for a bigger Union. A stable policy environment clearly helps them to prepare for accession.

In December last year, the Helsinki European Council decided to open accession negotiations with all candidate countries in central and eastern Europe and with Cyprus and Malta. This is an historic opportunity to unite Europe on the basis of shared ideas and common standards. But to seize this opportunity we need to convince citizens everywhere in Europe, inside and outside the EU, that the effort they must make is worth it. Nowhere is this more true than in agriculture.

Enlargement offers considerable opportunities to the candidate countries in helping them to make efficient use of their agricultural production potential. Of course, taking into account the many structural handicaps most Central and Eastern European countries still have to overcome, this potential will not immediately be used to the full. However, our most recent status quo projections highlight the expected developments on CEEC agricultural markets. The projections are basic scenarios which assume a situation of non-membership until 2006. Of course, this is a pure working assumption to facilitate the projections.

Let me summarise the main results: Assuming only a slight overall increase in cereals area (but including a significant increase in Poland) and a continued increase in average yields, the total cereal production is expected to increase to almost 90 mio. t in 2006. Domestic use will also increase but at a lower rate. Thus we expect an increasing amount of cereals available for export, reaching a net surplus of 8 or 9 million tonnes in 2006. This has to be seen in the light of cereals stocks of about 40 to 45 mio t expected for the EU15 during the period 2000 to 2006.

For oilseeds we expect a decrease in area but a total production of about 5.7 mio t in 2006 which is similar to the 1999 record crop.

In the milk sector an increase in production and a slightly lower increase in consumption would increase the net export balance from 2.3 mio t in 1999 to 2.8 mio t in 2006. The potential export quantities are mainly expected to arise in the Czech Republic and Hungary.

The production of beef and veal in the CEECs is strongly linked to the dairy herd. Total beef and veal production is expected for 2006 to be at the same level as in 1998. With increasing consumption several applicant countries could become net importers of beef.

For pig meat we expect that the CEECs, in particular Poland and Hungary, will continue to be net exporters while net exports of poultry may decline until 2006 for most CEECs.

We should be clear that new member states must have the same right to develop their long-term production potential as existing members. However, to reap the full benefits of membership there are economic, social, political and administrative challenges to be met. The current negotiations on accession are about ensuring that candidate countries take the necessary steps to meet these challenges before joining the Union.

At this stage it is clear that the most controversial issue is the subject of direct payments, which were introduced to offset losses of income as a result of the reductions in price support. To my mind, simply to transplant the system of direct payments to the central and east European countries would be to ignore the specific challenges there.

An immediate introduction of our system to new member states would provore macroeconomic distorsions and could lead to social tensions. At the very least, it could induce a reluctance to change, hindering the development of sound agricultural structures. It would be better to help the rural economies of the countries concerned overcome their existing structural handicaps through well targeted development policies and transitional support for the worst off. This is a discussion that we are yet to have. On our side, we have consistently argued that available resources would be used most effectively for rural development and restructuring.

I would be the last to accept a two-speed Common Agricultural Policy. But we may nonetheless be confronted with the risk of a two-speed European agriculture. Without the necessary structural reforms many sectors in candidate countries will not be able to compete effectively within the single market. We must ensure that we can deliver the promise of membership of the single market and the CAP.

We will, where necessary, as in previous enlargements, consider transitional arrangements. And in the case of agriculture, I think they will be necessary. Obviously after a transition period, the common agricultural policy must ensure equal entitlement for all.

Conclusion

Ladies and Gentlemen, a few words in conclusion:

    As a major exporter and importer of agricultural products, the EU has a substantial interest in ensuring the success of a new round of trade negotiations. These must focus on a broad agenda if the outcome is to have any significant impact on the global economy. We will have to work hard to make the outcome acceptable to the various interests represented at the WTO table.

    The Agenda 2000 reform responds to consumers' expectations, sets forth a clear policy framework for producers, promotes competitiveness on internal and external markets, puts special emphasis on sustainable production and on improving living conditions, and introduces a new way of sharing responsibility with the Member States. In a nutshell, the objective is to strengthen the multi-functional role of agriculture in Europe. This objective requires a certain financial commitment and it will require some serious work of negotiation at the international stage.

    Enlargement will not be easy, but with Agenda 2000 it will be much easier than before. The Community will soon present its reactions to the negotiation positions of a first group of applicant countries. Negotiations on the agricultural positions are scheduled to start this June. Given the budgetary constraints, the money available must be used in the most effective way possible in the new Member States to facilitate convergence, in every sense, towards the EU. We must all prepare ourselves for operating a CAP that is common to agriculture throughout a wider EU and serves the interests of all its citizens.

Ladies and Gentlemen, thank you for your attention.


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