Monday, December 15, 2008

Dairy quota row highlights industry divisions

Commissioner Mariann Fischer Boel's proposal for five annual dairy quota increases of 1 per cent each, adopted unchanged by farm ministers, is under attack from two sides. The Commission believes that this is a sure sign that it has negotiated a fair middle path through a morass of conflicting objectives. A less charitable interpretation would be that the needs of an internationally competitive industry have been partially sacrificed to those of marginal farmers with political clout.

What is at stake here is a deeoply divided industry. Parts of the European milk sector, largely found in Northern Europe (although also in Italy's Po Valley) is an efficient, hi tech branch of the food industry that is well capable of competing on the international market and has a strong export orientation. But there are also a lot of marginal dairy farmers who are conservative in outlook and manage to 'get by' economically with the help of political protection. This is given to them by groupings like the CSU in Bavaria.

Member states in the north and west of Europe, especially the UK and Denmark, have criticised the Health Check accord as a missed opportunity to set the EU dairy industry on the road to a prosperous and expansionist future. Member states to the south and east have lamented the prospect of more milk coming on to the market at a time when dairy farmers' incomes are coming under sustained pressure.

Kirsten Holm Svendsen, policy director of the Danish Dairy Board, commented, 'Restricting milk production in Europe will only generate higher support volumes from non-European dairy nations. Thus, by refusing to liberalise dairy production, the EU gives up the expanding European dairy market to the Brazilians.'

The Danes are also concerned that the new support mechanisms available to dairy producers under 'Article 68' of the Single Farm Payment regulation will allow member states to effectively re-introduce coupled support of the dairy sector, with a consequent distorting impact on competition.

The possibility of creating a new coupled dairy cow premium from 2010 is regarded as a negotiating victory for Austria. Outgoing Austrian farm minister Josef Proll said that the biennial reviews of the milk market would allow the Commission to put the planned quota increases in hold if there were to be any risk of exceptional market disturbances - or even to cut quotas. Thus, even modest steps in the direction of market liberalisation could be threatened.

Wednesday, December 10, 2008

Auditors roast cross-compliance policy

The European Court of Auditors has published a strong critique of the way that cross-compliance policy, a key element in the reformed CAP, is executed by the Commission and the member states.

The Court carried out an audit in 2008 of the cross-compliance policy at the Commission and in seven Member States representing the diversity of agriculture across Europe. In the report which it recently adopted, the Court concludes that the objectives of this policy have not been defined in a specific, measurable, relevant, and realistic way, and that at farm level many obligations are still only for form’s sake and therefore have little chance of leading to the expected changes, whether reducing the size of payments or modifying farming practices.

More precisely, the Court finds that:
􀂃 the Member States have not translated all the cross-compliance standards into obligations applicable at farm level.
􀂃 monitoring whether these obligations are being respected is weak and in some cases non-existent. One of the reasons for this is that the checks are largely carried out during the summer months and a significant number of obligations relating to agricultural practices which occur during other seasons and cannot therefore be properly checked.
􀂃 the minimal reduction in direct payments seen to date stems both from monitoring weaknesses and an inadequate system of sanctions. For example, the audit found no breach of cross-compliance after carrying out 11 633 checks of the Birds Directive and 14 896 checks of the Habitats Directive over two years in four Member States.
􀂃 the introduction of cross-compliance has weakened key elements of the control and sanction system for rural development. In addition, the separation between cross-compliance and agri-environmental measures is not always clear.
􀂃 the data sent by the Member States to the Commission are unreliable and overestimate both the rate of monitoring of farmers and the farmers’ compliance rates. The Commission’s system for monitoring these data is incomplete and suffers in particular from the absence of performance indicators and baseline levels.

Overall, the Court considers that cross-compliance is a vital element of the CAP but concludes that it is not effective as currently managed by the Commission and implemented by the Member States. It states, 'If the public authorities wish cross-compliance to achieve its full effect, they must define specific and measurable objectives which can be translated into obligations that are controllable at farm level. The Court therefore recommends that the applicable rules should be simplified, clarified and prioritised.'

Tuesday, December 09, 2008

The Estonian vision

A charming young Estonian woman greeted me at the European Parliament yesterday when I went to give evidence to the Agriculture and Rural Development Committee (of which more in due course). Of broader significance Estonia is orobably the only new member state with a clear concept of how the CAP should evolve. This is outlined in an Agra Focus interview with farm minister Helir-Valdor Seeder.

Estonia's view is that reform has not gone far enough and believes that we need a significantly reformed CAP. Seeder's view is that 'the system of direct aid today is innovative in its form ... but in practice it is the factual continuation of the 1992 MacSharry reform where farmers were compensated for the internal market price drop.' He argues there should be a continuing base payment to farmers to compensate for the EU standards they are obliged to follow.

However, more payments should be targeted. He sees the future in terms of a Common Rural Policy which should be open to entrepreneurs in rural areas, but 'should not be a cartel for the farmers club.'

He argues that price volatility requires a single intervention mechanism that would enable the EU to offset the negative effects of extreme temporary price drops. However, why not deal with this through some kind of insurance mechanism that had EU backing? It would be less market distoring.

Tuesday, December 02, 2008

More bids to grub up vineyards than expected

The scale of bids to permanently dig up vineyards under the first year of the grubbing-up scheme set up under the wine reform has surprised the Commission. They have been obliged to reduce each application by 54.1 per cent as a result. Bids across the EU for just under 160,000 hectares have been reduced to just over 73,000. The total budget for the first year of the grubbing up scheme was €464m.

The applications cover 4.2 per cent of the European Union wine area. but as mich as 12.7 per cent in Cyprus and 8.9 per cent in Spain. These countries perhaps have relatively high proportions of lower quality wines while Cyprus is a recent entrant to the EU and will have not been able to take advantage of earlier schemes. 91 per cent of the funds have been allocated to Spain, Italy and France.

Europe continues to face a challenge from the new wine producers of Australia, Chile, New Zealand and South Africa, particularly in relation to medium quality 'drinkable' wines.