EU Trade Commissioner
NFU Annual Conference
In this speech given in Birmingham on Monday 27 February, at the UK National Farmer’s Union Conference, EU Trade Commissioner Peter Mandelson answered critics of the EU’s policies in the Doha trade talks. He set out his benchmarks for a balanced outcome to the Doha round, describing the reasons why he believed a successful outcome was in the interest of British and European farmers.
To those who thought that the combination of reforms to the CAP and the opening of market access in Doha were bad news for farmers, Peter Mandelson explained that the future of farming in the European Union was high-value added: “my job as Trade Commissioner is to cut the deals that offer Europe a sustainable future as a top-quality, knowledge-intensive, innovation-leading, provider of industrial goods, services and food”. Farmers in the EU stood to gain from the Doha Round exactly because they produce the high quality, value-added goods that currently suffer high tariffs.
He pointed out that European policies were not the sole determinant of fair prices for farmers. Entering the debate on whether farmers could reap the benefits of their high-quality produce in supermarket dominated markets, Mandelson said “The question of undue monopoly power in the supply chain is undoubtedly a real issue, which competition policy could address.”
Mandelson also replied to those who thought that agricultural reform ought to go further and faster in the interest of poor developing countries. “We should have no truck with the argument that the only thing that stands in the way of “making poverty history” is the Common Agricultural Policy. I want to make world poverty history but trade justice cannot be equated with big bang agricultural liberalisation, and with it, a race to the bottom for EU agriculture and a free market mayhem that would gravely damage the interests of some of the poorest countries in the world.”
Concluding, Commissioner Mandelson said that “Reform must continue. But it must take account of broader societal and non economic interests. And it must be paced to allow adjustment at a speed people can cope with. I want the EU and its Member States to cooperate with the farming industry to start thinking ahead.”
Reform must respect the unique nature of the farming sector “as the custodian of the countryside”. Mandelson said that the offer already on the table in Doha round bound into WTO rules the 2003 CAP reform that was underway and was designed to “ensure that as far as possible change is managed with maximum predictability and in a phased way”.
Europe would not consider re-visiting its agriculture offer unless there was something meaningful and positive on the table in return. “If people think they are going to get something for nothing out of the EU, they can forget it.”
Changes in trade driving farm reform
Your invitation to me to speak today is very welcome. I am an urban-born and bred, country-sider by choice. I know a little of the tough conditions in which you earn your livelihood, and how this is deeply affected by public policy, including trade policy.
As Europe’s chief trade negotiator, it’s right that I am here. It’s right that I should be accountable.
In the world trade talks, I and Mariann Fischer Boel have to negotiate the best possible deal for the whole of Europe and that involves a difficult balance.
Agriculture fits into a web of different trade interests – and trade offs.
Consumers who want the best possible combination of value, quality and price. Manufacturers of industrial goods who are desperate to gain access to new emerging markets in Asia and Latin America and who want to see a reduction in high tariffs and impossibly protective rules.
Service providers in banking, insurance, telecoms, construction, transport and retail who can offer fast-developing countries the hard wiring they need for growth, but who often find themselves shut out and discriminated against in favour of local interests.
Innovators who want their intellectual property protected against copying and straight larceny. Producers of speciality goods with famous local brand names anxious to stop competitors elsewhere trading on their brand.
Farming is a vital component of this balance. It not only provides the security of our food supply. It holds a special place as the custodian of our countryside – the trustee of our natural heritage – for future generations. But it is still only one component. That is a fact of my life and of yours.
In sum, as China becomes the industrial workshop of the world, India a great service provider, Brazil the most competitive supplier of bulk commodities, my job as Trade Commissioner is to cut the deals that offer Europe a sustainable future as a top-quality, knowledge-intensive, innovation-leading, provider of industrial goods, services and food – because that’s the only value-added future on offer.
That doesn’t mean abandoning whole industries and sectors to the onward march of overseas competition. But it does mean constant adjustment within every sector as the conditions of competition change.
One thing you don’t need is a long lecture from me about adjustment. You know all about having to adjust. You are going through difficult adjustments right now. Farm incomes have fallen. Foreclosures have risen. The introduction of single farm payments has not gone as smoothly as it should. It’s been a pretty difficult and bruising year. As usual. I know because, with Brussels an hour earlier than UK time, I tend to get up to Farming Today as the introduction to my daily routine.
To many, agriculture has been pitched into a state of permanent revolution to which there seems no end: McSharry reforms of the ‘90s, Agenda 2000, the 2003 CAP Reform. November 2005 saw the much-needed reforms of the sugar sector and our reform agenda will continue into 2006 when we will present proposals to reform the wine and the fruit and vegetables sector.
Add to this mix, the ever-present memories of the BSE crisis, now the threat of Avian flu, and even those of us with no direct experience of our own can get an idea of how tough farming can be.
The direction of change, though, is stable, despite the inevitable turbulence. The key word of the current CAP reform is decoupling. By the time the reforms are fully up and running, around 90 % of direct payments to farmers will be decoupled from production. This is a major achievement. Farmers will have a predictable source of income. But unlike the past you will have every incentive to react to market signals and to shift production away from bulk commodities where Europe simply cannot compete in the long run with third country producers in Brazil, Argentina or elsewhere.
Trade policy is one important driving force behind this reform agenda but is not the only one. European farming would have had to change in any case.
Market regimes with permanent surpluses were simply not sustainable. And if the farming world hadn’t recognised that, finance and treasury ministers would have called time in due course.
And you have to serve new types of consumer. Inexorably, we have been moving into a world of more discerning, quality conscious, environmentally and risk aware consumers and this has revolutionised the food market.
So of course have the retailers. I tread warily into areas of controversy. But when people complain of the squeeze on farm incomes, we should look to all factors and not just the reforms to the Common Agricultural Policy. The question of undue monopoly power in the supply chain is undoubtedly a real issue, which competition policy could address, along with other policy instruments.
But since the Uruguay Round that Leon Brittan, my distinguished British predecessor in this post concluded on Europe’s behalf, agriculture has become subject to the multilateral disciplines of the world trading system. This in turn was an early harbinger of our changing world, as we began, back in the 1990s, to move to a more open set of trading arrangements for food.
The need for balance in the Doha Round
Inevitably change will continue. Let me offer some benchmarks – some fixed points – as we enter the end game of the current Doha world trade talks.
First, it is my firm belief that Europe wants, and needs, a sustainable agricultural sector in the future. Our policies must secure this. The rationale for a CAP may no longer be what it was when the system was established: but there is still a rationale and I will return to this point at the conclusion of my remarks.
Second, there will be further change in the farming industry linked to the outcome of the Doha Round. That change is programmed in to the CAP reforms that are already underway and the Doha offer we have made on the basis of them. But we will ensure as far as we can that this change is managed with maximum predictability and in a phased way.
Of course, as we have indicated, we are ready to pay into this Round by lowering our tariffs, including in our “sensitive products”, and by stripping out 70% of our domestic subsidies that distort trade.
Our October agriculture offer is a serious one. And as I agreed in Hong Kong, we are ready to eliminate our much-criticised export subsidies completely, by 100%, with an end date of 2013, as long as others deal with their own export subsidisation,
The combined impact of these proposals will be to provide substantial new market access and to lower production in many agricultural sectors. I know this comes at a real economic and political price in Europe in lost jobs and livelihoods. European agriculture – dairy, cereals, poultry, beef and much besides – will contract and there will be a significant loss of revenue and employment. So it is costly to European farmers, and those, at home and abroad, who are demanding more of us need to understand just how costly.
Exports to the EU from countries like Brazil have already doubled in the last 10 years, and our trade deficit in agriculture with that country alone has grown to over €8 billion.
So we have shown commitment and ambition in this Round. It is now up to our partners, including the advanced developing countries, to show how they will contribute to enhance market access across the board. What has been put on the table so far by others is not sufficient.
My third Doha benchmark is that Europe will not consider re-visiting its agriculture offer, within the existing negotiating mandate, unless there is something meaningful and positive on the table in return. I have to balance Europe’s interests as a whole. I want an outcome for the Doha Round that offers real gains in market access for European producers in return for others gaining access to our markets. If people think they are going to get something for nothing out of the EU, they can forget it. That is not my definition of a multilateral negotiation.
Europe will not contemplate the Doha Round being concluded on the basis of "real cuts by Europe, paper cuts by others". We need balance and parallel efforts by all apart from the least developed countries.
Last week, I was in Washington reviewing progress in the Doha Round with my US counterpart Rob Portman. On a welter of different issues, we share common ground and I am glad that, on agriculture, their depression-era farm subsidies are facing reform. For too long, as Europe has got its reforms underway, decoupling spending and reducing export refunds, the US has continued to over-subsidise rice and wheat production, only to dispose of surpluses onto world markets as food aid.
The US farm bill is set to shoot through the roof this year. A promise by the United States government that Congress will reduce domestic and export support in agriculture on an unquantified basis at some unspecified point in future does not provide an adequate answer to our calls for change.
The same goes for Australia, Canada and New Zealand in respect of their export monopolies. We need these partners to show the same commitment to reform, and to bind this clearly into the WTO, that we are showing in agriculture.
I do not under-estimate the complexity and political sensitivity of these reforms for anyone. But that is why Europe’s farmers are not going to pay upfront while the rest of the world stands back and reaps the benefit.
The fourth benchmark is that we should have no truck with the argument that the only thing that stands in the way of “making poverty history” is the Common Agricultural Policy. I want to make world poverty history. I want the Doha Round to make a real contribution to that and believe it can. But I am not going to be swayed by a lazy political correctness into giving ground in agriculture simply because this will please a vociferous lobby that has misunderstood what is really needed to tackle world poverty.
Trade justice cannot be equated with a big bang agricultural liberalisation, and with it, a race to the bottom for EU agriculture – and a free market mayhem that would gravely damage the interests of some of the poorest countries in the world.
World Bank research is sometimes cited to support the argument that the greatest benefits the Doha Round offers for developing countries will come from freer farm trade and, overwhelmingly, from lower tariffs.
Their hypothesis is wrong. The bulk of benefits from agricultural liberalisation will go to the developed world, which has the capacity to exploit it, and to a few highly competitive developing country exporters. As for the poorest developing countries, who will lose out as tariffs come down, the costs of eroding their existing preferential arrangements do not even figure in the Bank’s analysis. The Bank’s hypothesis is also wrong in simply attributing increased market access to lower tariffs: it leaves out the role of reduced domestic and export support which, arguably, has just as important an effect in creating new market space for others’ exports.
Moreover, industrial goods represent more in existing and potential trade for developing countries than farm trade. The gains for them from services liberalisation and trade facilitation are also potentially very high, and higher than from agriculture.
The CAP’s critics should also not forget that the EU has already granted completely free, 100% access to all products from the least developed nations, and for most of the exports of other developing countries as well. The EU is by far the largest importer of food from developing countries. We take in much more than all the other OECD countries put together – the US, Canada, Japan, Australia included – both in volume and on a per capita basis. And of course, the EU is by far the largest aid donor to Africa.
European farmers need a successful Doha Round
So, with these benchmarks, this is how I am approaching the end game of the Doha Round – with ambition and commitment, but also with realism and a sense of perspective. Let me emphasise, though, there are real benefits for European farmers from a successful balanced Round. If we can cement our 2003 CAP Reform in multilateral agreements, it offers farming more security and stability – legally and financially – for years ahead. This is particularly important for the green box which must – as a result of the Doha Round – remain secure and untouched.
In addition, farmers in Europe stand to benefit from lower barriers to trade in agriculture in the rest of the world. Why? Because our exports to the rest of the world are high-quality, high-value added products.
There is already a positive trend in EU production in key sectors like cereals, fruit, butter and dairy produce. Exports have increased by more than 5% per year recently. With many key economies, including the US, we have a surplus in agricultural trade. But at present there are some formidable trade barriers our exporters have to contend with. Ask the food manufacturing industry. Ask any EU exporter of fine cheeses, or talk to EU wine exporters.
Not only are our Geographical Indications subject to misuse around the world, there are often higher tariffs for processed foods simply to protect jobs in industry. It will benefit the European agricultural processing industry if we lower these tariffs in the Doha Round.
On Geographical Indications, negotiations are making slow progress. Nevertheless, our trading partners must by now understand that progress on this is key for the EU to be able to sign up to a final deal. Furthermore, Geographical Indications are becoming much more of a world-wide concern, not just a European pre-occupation.
The CAP’s future
Let me conclude by coming back to some wider observations about the CAP which I feel is sometimes misunderstood or misrepresented in our own country.
I agree with those who say that we cannot continue to spend 40% of the Community budget on agriculture. This does not make sense at a time when our economic future depends on higher education, research and development, faster innovation and a modern social policy to give everyone a chance to fulfil their potential.
But this does not mean that the CAP is obsolete. Agriculture is an economic sector that cannot be treated like all others. It is too intimately connected to wider issues such as the environment, food security, the future of the countryside and our distinctive rural way of life.
Reform must continue. But it must take account of broader societal and non economic interests. And it must be paced to allow adjustment at a speed people can cope with.
I want the EU and its Member States to cooperate with the farming industry to start thinking ahead. How can we help you to adjust to change on one hand, while providing the necessary stability on the other? The best way to manage change is to join in steering it from the start. Just as the NFU played an important role in paving the way for the 2003 reforms, I hope we can count on you again to shape the future of European agriculture as we start preparing for and looking beyond 2013. With that broad compass in mind, let me thank you again for inviting me here today, and for the privilege of addressing you.