Michigan State University Extension
Extenstion International Trade Res. - 10179502
03/31/96
The EU Council adopted the 1995/96 package of farm prices on June 22, a full 4 months after the Commission submitted its proposals. Reaching full agreement required extensive bilateral and multilateral negotiations, and a number of concessions to individual member states. The June Council meeting also addressed new agrimonetary measures, the welfare of animals in transit (see accompanying articles), and changes in the environmental set-aside program.
This was the first package to be debated with three new member states, and covers the last of the 3-year implementation period for CAP reform. The package included an overhaul of the cotton regime, but no important changes were proposed for other commodities, reflecting the ongoing process of reform.
The Commission's proposals contained two controversial elements, both rejected by the Council. The first was a 2-month reduction in the intervention period for grains. The Commission suggested opening intervention 2 months later (it runs from August to April in the south and from November to May in the north). The shorter period would increase the importance of the open market, and make intervention more of a safety net.
The Commission also proposed a 2-percent cut in the butter price. The butter price was reduced 5 percent under CAP reform, and another 1 percent as part of the 1994/95 price package. EU butter consumption has been declining since the mid-1980s, and the Commission wanted to improve butter's competitive position against substitutes such as margarine.
Cotton Regime Reformed: The EU has always limited the quantity of cotton production it supports through a Maximum Guaranteed Quantity (MGQ). The penalties for exceeding the MGQ were not severe, and cotton production has consequently expanded. The EU has increased the MGQ a number of times.
The recent reforms increased the MGQ again, to 1.013 million tons of unginned cotton, up from 701,000 tons. The MGQ is divided between Greece and Spain, the major producers. Greek cotton production is limited to 782,000 tons, and Spanish production to 249,000 tons. These levels are close to current output. Despite the increase in the MGQ, expenditure should not increase. To respect its GATT commitments, the EU will keep expenditure on the cotton sector at the 1992 level. To remain within the spending limit, the penalties for exceeding the MGQ will be more severe.
The price package contained a number of concessions to individual member states to secure their agreement. Austrian durum wheat producers may receive a payment of 138.86 ECU per hectare on up to 5,000 hectares. The Portuguese and Spanish governments will be allowed greater flexibility in making payments to their producers harmed by the long drought. Aid to France's wine producers, previously rejected by the Commission, will be permitted after being approved by the Council. Pressure from the Irish prompted the Commission to allow advance payments of male bovine premiums, and to take action to improve sheepmeat prices.
Set-Aside Modifications: A further modification to the EU's set-aside program was adopted along with the price package negotiations. A number of environmental set-aside and reforestation programs were created as part of CAP reform. Previously, area entered into these programs could not be counted toward the farmer's set-aside requirement. The Council agreed to allow farmers to use some of this area to fulfill the set-aside obligations under the arable crops regime. The EU estimates that up to 2 million hectares of land could be affected by this change.
Not all the area in environmental set-asides will qualify. To meet the set-aside requirement, land in an environmental program must also qualify for CAP reform payments. Land under permanent pasture, permanent crops, forest, or non-agricultural uses before 1992, which is not eligible for the per hectare payments, cannot be used to fulfill the set-aside obligation under the arable crops regime.
The change could allow some farmers to increase their planted area without violating their set-aside obligation. However, their decision will depend on the payments they receive for the two types of set-aside. For that area that qualifies as both environmental and arable crops set-aside, they will receive the lower of the environmental or the set-aside payment. The EU has specified that the current spending ceilings on the environmental set-aside cannot be exceeded or increased.
Each holding will be limited in how much environmental set-aside area can apply toward the set-aside obligation. Farmers in some regions may not benefit from the change. Member states need not implement the modification in regions where there is a constant danger of exceeding the base area.
The change was first proposed by the United Kingdom in 1993, as a way to make the environmental set-aside more attractive, and is the latest in a series of modifications over the years. Previous changes increased the per hectare payment, increased the set-aside options to include rotational, non-rotational, mixed, and voluntary set-aside, and allowed producers to pay other farmers to set aside on their behalf.
The Commission was asked to consider a further modification to the set-aside. The extraordinary set- aside is an uncompensated set-aside imposed on participating farmers in regions where the base area is exceeded. Some member states, principally France, felt that the extraordinary set-aside should not apply if the base area were exceeded because of an increase in the voluntary set-aside.
The Commission agreed that there could be problems with applying the extraordinary set-aside, but that some constraint on expanding area was clearly necessary. The area enrolled in the set-aside has increased, but so has the area planted to eligible crops. Additional flexibility in the set-aside program could further erode its effectiveness as a production control measure.