CIAO DATE: 06/06

European Affairs

Fall 2005

 

Agriculture

EU Farmers Will in Future Look to the Market, Not to Subsidies

By Mariann Fischer Boel

 

As has been evident in the Doha Round of international trade negotiations, the European Union and the United States do not always see eye to eye on farming and global trade. But when we disagree, our debates are between friends – and they are healthy. Such exchanges remind us that there are vigorous traditions not only of farming and trading, but also of free thought, on both sides of the Atlantic.

Any assessment of agriculture in the European Union has to start with the ground-breaking reforms in farm policy approved in 2003 and 2004. I spend so much time talking about these dramatic changes in Brussels that I sometimes imagine the whole world must know that the EU's Common Agricultural Policy (CAP) has been reformed. Unfortunately, the realist in me says otherwise. Even in Europe, many politicians, media commentators and citizens do not know about the reforms. So it is quite possible that the message has not yet reached the right parts of Washington, let alone the Mid-West!

Nevertheless, the policy shift has been fundamental. The central element is a new kind of subsidy to farmers called a “single farm payment,” which is based on historical subsidy receipts and land areas, rather than on current production. Farmers do not have to produce specific products to receive these payments. But they do have to meet demanding standards of environmentally friendly land management, and of public and animal health. This new link between subsidies and farming practices is called “cross-compliance.”

We have switched from support for production to support for farmers. We are giving farmers a new freedom to look for the best returns available on the market. Public money is no longer one of the main variables influencing production choices. Instead, these funds pay for the public goods and services we want – an attractive, healthy environment and a high standard of food safety. All this has huge implications for one of today's main challenges – the battle to add more value in the production of food.

For the foreseeable future, there will be a large international trade in bulk farm commodities, which will usually make money, at least for some. People around the world will always need to eat staple foods. And the oceans will continue to be criss-crossed by ships carrying grain from the Americas or butter from Oceania. But as trade agreements apply downward pressure on import tariffs, not everyone can be a winner in the bulk market. At the same time, other markets are opening up, as wealthier populations are prepared to pay premium prices for high-quality, better-tasting food and improved production methods.

The European Union, with its enormous range of specialized products, has a tradition of catering to such markets and wants to build on that experience. Indeed, many of Europe's smaller farms will probably have to do so if they are to stay profitable. The recent CAP reforms are designed partly to help the European Union keep a sharp competitive edge in the high-quality market. With single farm payments providing basic income security, farmers should no longer be chasing subsidies but focusing on developing more of the innovative products that consumers want. Instead of keeping one eye on support programs, they should have both eyes on the market.

Of course, this is not as easy as it sounds. I believe that our reforms are putting both farmers and the agrifood business on a firmer competitive footing. The problem is that while we are encouraging the EU farm sector to fight hard in added-value markets, some of our trading partners are trying to disarm us of one of our most effective weapons. I am referring to geographical indications (“GIs” for short) – food and drink terms such as “Parma ham” or “Rioja wine” that carry the name of a place and evoke particular traditions and qualities. GIs are one of the thornier issues in the agricultural section of the Doha Round talks because, while we like them, some other countries do not.

“Wealthier populations are prepared to pay premium prices for high-quality, better-tasting food”

It is important to understand that the European Union is not simply trying to be difficult in making a fuss about GIs. Many of our farmers and food and drink producers believe their well-known traditions and associated products provide one of their best hopes for competing internationally on the basis of quality rather than through subsidies. But they can do so only if those names cannot be unfairly copied. Europeans think it makes obvious sense to insist that champagne should come from the Champagne region, and the issue should not be treated as a mere sideshow in the Doha negotiations.

The push for greater competitiveness and added value also forms part of the European Union's overall rural development policy, which is both wide-ranging and deeply important to the Union's well-being. The policy is important because about 90 percent of our territory is rural, and around half our population lives in the countryside. We cannot marginalize these people in our policy-making. And the approach is wide-ranging because we face very different challenges from country to country and from region to region. The challenges are reflected in a recently approved blueprint for EU rural policy from 2007 to 2013, which defines the broad areas in which we need to act. These are the competitiveness of farming and forestry, land management, diversification of the rural economy and improving the quality of life in rural areas.

“We should pay those who make special efforts to keep the countryside beautiful”

In many of the central and eastern European states that joined the European Union in 2004, we must put a high priority on upgrading the structure of farms and the farming sector. Some of these farms will prosper in the European Union by their own unaided efforts. Many will not survive, whatever we do. But there are a large number in the middle that can do well if they receive temporary help from public funds to make up for lack of investment over the last few decades. The alternative is to allow rising rural unemployment to drive people into over-crowded cities.

Other EU member states are more concerned about relieving pressure on the environment and preserving the countryside. The environment has been moving up the European Union's agenda in recent years, and our agricultural and rural policies address it in several ways. One of these is the above-mentioned concept of “cross-compliance,” under which farmers receive subsidies only if their land management and public and animal health practices are environmentally friendly. This should set a baseline for environmental behavior in farming, food security and animal welfare.

In addition, we believe that extra public money should be available for farmers, foresters and land managers who go beyond the baseline and make special efforts to look after the landscape and keep it beautiful. This is a question of public amenities, to which most people wish to have access, but which the market cannot easily provide. So within our rural development rules, member states can offer various kinds of rewards for taking care of the countryside.

We also want to help provide businesses and homes with the infrastructure and services they need. Many people and companies, for example, are dissuaded from moving to rural areas by the lack of broadband connections or the absence of local banks. Public funding can help to assemble the critical mass of basic services required to make life in the countryside viable.

We like to run rural policy at the lowest administrative level possible. Our talented experts in Brussels cannot be expected to foresee every detail of the problems facing farmers in northern Finland or new companies in rural Portugal. On the other hand, this hands-off approach can create its own problems. In the past, there has sometimes been an imbalance across the European Union as a whole – with some countries focusing heavily on the environment, while others have put priority on restructuring and neglected other tasks. We are certainly not, of course, aiming for total symmetry. But we hope to ensure general consistency by setting overall goals and linking them to rural programs in individual member states.

As we seek to protect the European environment through enlightened land use and management policies, we are aware of wider environmental concerns, such as climate change, which also have links with farming. On both sides of the Atlantic, experts and policy makers are thinking about alternatives to fossil fuels, whether we believe they will last another 50 or 500 years. It is sensible policy, not a fashionable distraction, to develop the use of bioenergy and biofuels, and the European Union has set itself some demanding targets. By 2010, we want 12 percent of our energy consumption to be supplied from renewable sources and 5.75 percent of our transport to run on biofuel.

There has been encouraging progress in the EU bioethanol sector. New plants operating at the cutting edge of technology have opened in several member states. The market is modest for the time being, but demand is growing and the know-how is there. Agriculture has a contribution to make. I hope that it will become more attractive to grow energy crops over the next few years as technologies and markets develop. Our farm policy reforms are freeing farmers to seize market opportunities as they appear. And there is an additional, temporary sweetener: under certain conditions, a special aid of €45 per hectare will be granted for the production of energy crops. We believe this is the right kind of incentive to help the sector through its early growth stage – although we shall have to see how it works in practice. The Commission will report on the success of the energy crop subsidy by the end of 2006.

“On both sides of the Atlantic, experts are thinking about alternatives to fossil fuels”

Meanwhile, outside experts are looking at action within the CAP to promote bioenergy, and the Commission's Agriculture and Rural Development department is leading an investigation into the prospects for biofuels, the results of which are expected early in 2006. I fully expect this study to point to huge potential benefits in the future. Agriculture must play its part by supplying raw materials, by helping to widen the range of alternatives to unpredictable fossil fuel supplies and by showing that farmers can still provide what the public needs.

Mariann Fischer Boel is European Commissioner for Agriculture and Rural Development. She was previously Danish Minister for Food, Agriculture and Fisheries, and before that chaired the Danish Parliament's Fiscal Affairs Committee, the Trade and Industry Committee and the Food, Agriculture and Fisheries Committee. She served on the Liberal Party's General Council and the Management Committee of the Parliamentary Liberal Party, and was a Member of Parliament for the Funen County Constituency.