AGRICULTURE AND ENVIRONMENT BIOTECHNOLOGY COMMISSION
A PAPER BY JOHN GILLILAND
Drivers for change in European Agriculture: -
A desire for a speedy resolution of the Doha Development Round, of the World Trade
Organisation (WTO).
EU enlargement in May 2004, from 15 to 25 Member States, bringing in
approximately
200% more farmers and 50% more agricultural land into the EU.
The financial capping of the 1st Pillar of the Common Agriculture Policy (CAP) in
October 2002, for the period post 2005 regardless of the cost of EU Enlargement.
A desire to make the 1st Pillar of the CAP more accountable and transparent to the
need of EU Tax Payers, focusing on the environment, animal welfare, food safety and food
quality.
Progress to date: -
A. The conclusion of the Mid Term Review (MTR) of the CAP in Luxembourg at the end of
June 2003, with a menu of options to try and achieve the above. They are summarised into
the following headings: -
Financial discipline – A facility to top slice all direct payments to farmers to
balance the CAP Budget
Compulsory modulation – Starting in 2005 all direct payments to farmers will have
5% removed, rising to 7% by 2007, to further fund the 2nd pillar of the CAP, Rural
Development. This includes items such as agri environment, animal welfare, food quality
and food safety. The UK is still to consult and decide on whether to impose additional
voluntary modulation on UK farmers, as is currently the case, but not in operation in any
other EU Member State (except Germany from 2003).
Decoupling – A principal, mainly driven by the EU’s desire to demonstrate their
willingness to remove Global Trade Distortion and allow for an eventual WTO deal. It involves
the decoupling of support to EU farmers, which is currently paid through the market place,
to a ”single farm payment”, regardless of how extensively or
intensively the land is being used, as long as the farmer can demonstrate cross
compliance.
Cross compliance – A principal, mainly driven by the EU’s desire to demonstrate to
EU tax payers that they are actually getting what they have asked for i.e. protection of the
environment, animal welfare and the embracing of better food quality and food safety. In
real terms farmers will have to demonstrate that they are complying with 18 EU Directives
that embrace the ethos of the above. Member States will be incentivised to enforce cross
compliance by letting them maintain 25% of the fines that will be removed off farmers’ direct
payments, if non-compliance is found.
Timescale for implication of MTR of the CAP ranges from the 1st of January 2005 to the 1st
of January 2007. On top of this, Member States can choose from a menu of partial decoupling
options, if they do not want to implement full decoupling. As a result, many commentators
have stated that MTR has gone along way to renationalise the CAP. At time of writing, both
the United Kingdom and the Republic of Ireland will fully decouple from the 1st of January
2005. Less certainty is known of other Member States, both when and whether they will fully
decouple, with France saying it wants to hold off to January 2007 and retain some coupled
elements within the livestock sectors.
B. The failure of the WTO talks at Cancun, Mexico, in September 2003, which were to
mark the mid way of the Doha Development Round, through the signing of heads of agreement or
back bone of a deal, which was to be completed by December 2004.
The main areas for negotiation in the Doha Round are primarily agriculture, but also include
issues such as the Singapore issues, which look at issues such as transparency in Government
tendering, IPR, opening up of financial markets etc. The overall aim of this WTO Round is to
try and recorrect the bias from Developed Countries to the Developing Countries. The WTO now
contains 147 Countries, all of which were represented in some shape or form at Cancun.
In preparation for Cancun, the EU Commission accelerated the reform of the CAP through the
MTR. Secondly, it negotiated a unique trade deal with the 46 least developed countries, under
“The Everything But Arms Deal.” This deal allows these countries to have unlimited free access
to the EU with any indigenous products, bar armaments. Currently the EU is importing more from
these countries than all the other trading blocks put together. To meet this commitment fully,
the EU must reform its sugar policy. EU Agriculture Commissioner announced the start of this
process in October 2003. One clear observation from Cancun was that most observers and many
other member countries of the WTO, did not either know or understand the beneficial outputs of
both the above deals.
The main areas up for negotiation in WTO, on Agriculture, were Trade Distortion of internal
agricultural market supports; Export refunds and Credits; and Market Access.
At Cancun, the EU Commission offered the next poorest countries a deal to give them market
access to the EU, for their sensitive commodity products. These were mainly sugar, rice and
cotton. The latter two are particularly a problem for the USA, whose latest Farm Bill puts
them greatly at odds to finding a final settlement to the Doha Round.
A draft compromise paper was tabled on day four at Cancun, to settle the Agriculture
debate. Most participants believed that this was a basis for a final settlement, but
unfortunately the Chairman did not allow this to happen, as he moved the debate onto the
Singapore issues. Alas, this was one step to far for many developing countries and the talks
collapsed before returning to Agriculture. This was confirmed at the recent CBI Conference,
when Patricia Hewitt, Trade Secretary in the UK, debated WTO with the South African Trade
Secretary and the Director General of the WTO. All three confirmed that they were close to an
outline deal in Cancun, on Agriculture and would be doing their collective best, when they
all get around the table in Geneva, on the 15th December 2003 to restart the negotiations and
try and find a speedy resolution.
C. The potential impacts of a final WTO deal and the Mid Term Review of the CAP,
on UK Agriculture.
UK Agriculture is particularly exposed in several areas. Under the Everything But Arms
Deal, UK sugar industry will struggle to compete at World sugar prices. If an end date for
the removal of export refunds and opening up market access to dairy, beef and lamb products
is agreed in a final WTO Deal, bearing in mind that none of the aforementioned products can
be produced in the UK, at globally competitive prices, then the UK will see fundamental
negative impacts in the agrirural economy and society, with unknown impacts on the
environment.
Some conclusions can be drawn: -
I) UK Agriculture will be exposed to considerably more volatility in prices.
- II) With the introduction of decoupling farmers will respond far quicker and more
dramatically to these market signals.
III) Farmers will look at alternative land uses to find new income streams.
IV) The food processing industry will struggle to adjust to such volatility in supply of
raw material.
V) The Second Pillar of the CAP, Rural Development, will struggle to find the budget to
make up the difference to allow the Rural Economy to thrive, as ancillary industries to
agriculture, like machinery dealers, local merchants etc will struggle to adjust.
VI) Further acceleration of farming families leaving the land, will question whether there
will be enough human resource, working the land, to meet the increasing public demands for
habitat management.
VII) With adversity brings opportunities. New rural entrepreneurs will appear. Any
future support to farming families should be given in the form of mentoring their abilities,
so that they can develop new innovative businesses which are truly sustainable i.e. with the
environment, be profitable and allow the rural community to prosper.
