Speech to Members of the Parliament of Luxembourg



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Luxembourg, 23 October 2007

[Honourable Members of the Parliament of Luxembourg],

I'm very grateful to the Parliament of Luxembourg for its kind invitation to speak here today. As a former member of the Danish parliament, I always get a special feeling when I enter a national parliament. It gives me a good opportunity to follow up on the very informative and pleasant visit which I made in May this year to a number of your beautiful Mosel vineyards. I will say a few words on the issue of wine a little later.

In general, policy on agriculture and rural development is a very hot topic just now.

Look at all the things that happened over the summer. We saw floods in the north of Europe, and terrible drought in the south. We saw rocketing prices for cereals and dairy products. And we saw furious debates in the media about the role of supermarkets in setting food prices for consumers.

All these things have got people talking. And amongst the talk there have been suggestions about how we should respond in terms of policy.

Some people think that we should "go further" along the road of reforming agricultural and rural policy – whatever "further" might mean in this case. Others seem to think that we should go back on what we have already done.

In this atmosphere, I have to avoid knee-jerk reactions. It's time to keep a cool head and take a steady look at where to go next.

Over the last few years, we have been doing very valuable work in the Common Agricultural Policy:

We have been implementing the Single Payment Scheme – to give farmers economically rational support, and to free them to base their production decisions on the market.
We have been implementing cross-compliance – to put standards expected by the public at the heart of the CAP.
We have been improving our approach to rural development and preparing the various rural development programmes – to help put farms, the countryside and our rural communities on a sound footing for the future.
And we have been bringing more and more agricultural sectors under the umbrella of the 2003 CAP reform, most recently sugar and fruit and vegetables.
It's time to build on this work.

Why make adjustments now? Because we can see more clearly how the 2003 reform is working out in practice. Because we now live in a European Union of 27 Member States, not 15. Because international markets are developing. And because new challenges are emerging.

This is where the so-called "CAP Health Check" comes in. Through the Health Check, we need to make sure that the reformed CAP is meeting our expectations in the changed environment – as effectively, efficiently and simply as possible.

The countdown to publication of the Commission's initial proposals doesn't have far to go: as you know, we will adopt a "communication" on 20 November.

But in the meantime, I can sketch out some of the key themes.

First, we will look again at the workings of the Single Payment Scheme.

It may be appropriate to raise the level of decoupling of direct payments from production.

Also, we should reflect on the longer-term implications of the "historical" model of the Single Payment Scheme, and ask ourselves whether some Member States could move further towards a model with a "flatter" rate.

Upper and lower limits on direct payments might hold advantages. 0.3 hectares corresponds to a goat in the backyard. Let's a have a real discussion about this!

Cross-compliance will be back under the microscope. We certainly can't water down the principle, which is essential if we want to keep public support for direct payments. Farmers need to deliver benefits for society. However, to follow on from work already done, we must examine how well cross-compliance is addressing society's demands in practice.

We will take a fresh look at our various market measures in the CAP, such as intervention.

The future of arable set-aside has provoked a lot of discussion. The former market management role of set-aside no longer exists in the era of decoupled payments. However, if we did abolish it, we would have to assess the impact on the cereals market, and find ways of keeping the environmental benefits which set-aside has provided.

At this point, let me comment briefly on the recent increases in cereal prices.

A range of causes lie behind the increases. Let me kill the idea that the blame should be put on bioethanol. We use less than 2 percent of our cereals for this.

Particularly important is the growing demand in countries such as India and China. There has also been drought in Australia.

There is no reason for a loaf of bread suddenly to become unaffordable in the shops – because cereals rarely account for more than 4 per cent of the consumer price of bread.

At the agricultural level, having introduced more market-responsiveness into the CAP, we must now let the market send its signals to producers.

However, I have taken two additional, pragmatic steps.

European Union Member States have already agreed to set at zero the rate of obligatory set-aside for the 2008 harvest. This ought to bring us at least an extra 10 million tonnes of cereals.

I have also proposed to suspend all import tariffs on cereals. And we have introduced a private storage aid scheme for pig meat.

Needless to say, we will continue to watch the market closely.

Another sector in which people have been watching rising prices with anxiety or with frustration is the milk sector.

What we have been seeing can only make me more convinced that the milk quota system must end in 2015, as I have clearly signalled.

The discussion about milk quotas is no longer about whether to abolish them, but how – in other words, what intermediate steps to take between now and 2015. This will be a topic for the Health Check – especially after the Commission finalises its report on the dairy market before the end of the year.

I know that some Member States are particularly worried about vulnerable areas where dairy production is especially important. This issue, too, is likely to receive attention in the Health Check. My idea is a soft landing, increasing slightly the milk quotas.

At the same time, the Health Check will consider how we should face up to a range of challenges through rural development policy.

An existing challenge is that of managing risk.

New challenges include:

fighting climate change, and adapting to its effects;
managing water more efficiently; and
making the most of the opportunities presented by bio-energy.
As these challenges will make heavy demands on our rural development policy, we need to channel more money into it. Before 2013, the only sensible way of doing this will be to raise the level of compulsory modulation. Today we have 5 percent compulsory modulation but I would like to increase this to solve some of the upcoming problems.

*****

The Health Check will cover the CAP as a whole. But of course, of particular interest in Luxembourg at the moment is progress in the debate about reforming the European wine sector.

Let me say straight away that I am doing my best to take into account the individual needs of national and regional wine sectors.

From this point of view, it was very useful – and a great pleasure – to taste the best of Luxembourg's wines in May, and to take a tour through the beautiful scenery of the Moselle valley.

I'm very glad that your wine sector is in such good shape. I know that you have a clear focus on competitiveness. I share that focus. It's what we need for a European wine sector which has been losing ground on world markets for many years. If we walk through supermarkets, we can see that wines from third countries are gaining more space.

As my proposals for reforming our common market organisation for wine are well known – but not always well understood – I would like to focus today on a limited number of points. And with regard to each of these points, I want to correct the "nightmare scenarios" which some people have been describing.

The first element of the nightmare is that vine plantings will supposedly run out of control and swamp the wine market if we abolish the current system of planting rights.

I have heard this analysis again and again. It's wrong. It doesn't take account of all the arguments.

If we abolish our current trade-distorting market measures, as I have proposed – in other words, subsidised distillation schemes and export refunds – then vine plantings will be regulated by the market. There will be no artificial outlet for wine which has no buyers.

In this situation, no vine-grower who is a serious businessman will plant more vines without being very sure that he can actually sell his produce.

Let's look at the benefits of a system with greater freedom.

It would focus the minds of producers more clearly on what customers want.

It would allow successful producers to build on their success.

And it would let in newcomers with fresh ideas.

I understand concerns about what would happen to geographical indications (GIs) in a liberalised system. But Member States already have tools available to control the use of GIs; they would retain these. I'm also open to the idea of making new tools available.

I have heard arguments that we should "wait and see", then decide in 2012 or 2013 whether to extend the planting rights system or abolish it.

I'm not convinced by them. In the European Union, the "wait and see" argument tends to be replayed year after year, and it becomes a recipe for long-term inaction. It will always take a certain courage to bring greater freedom to the wine sector. But the arguments of principle in favour of it are strong.

So we need to set out clearly towards that goal. But very importantly, we also need to provide the right accompanying measures. I would be open to have a discussion, but planting rights need to go.

This brings me onto the second image in the "nightmare scenario": bulldozers attacking beautiful vineyards en masse to put into motion my proposed grubbing-up scheme. Again, let me dispel this image.

The grubbing-up scheme would not be a form of the command economy at its most brutal. It would be purely voluntary. Some wine growers would like to have this scheme in place rather yesterday than tomorrow. If all producers in Luxembourg are doing well, they may have no need to use the scheme – and certainly, no one will be forced to use it.

The scheme would be there for those who wanted it. If producers felt that they could not make a profit in a more competitive system, the scheme would give them an honourable way out. It would give them money in the bank with which to switch to another activity, or retire.

It would also help smooth a path towards market balance, so that the end of the planting rights system would not come as a shock.

The grubbing-up scheme would essentially be about individual choice. However, I have taken very seriously the concerns of Member States about the possible economic, social and environmental impact if too many producers in a given area choose to grub up. This is why I am proposing the following safeguards:

First, a Member State could declare that vineyards on mountains and steep slopes were ineligible for the grubbing-up scheme.
Secondly, it could invoke environmental reasons to declare other areas ineligible – up to 2 per cent of its total national planted vine area.
Thirdly, it could discontinue access to the scheme once the area grubbed up reached 10 per cent of its total planted vine area.
This ought to do justice to Member States' legitimate concerns – including those of Luxembourg.

The final element of the mistaken nightmare scenario is that chaptalisation is banned, and there is nothing to replace it. I do not underestimate the difficulties in this area.

Let me be honest: this is a very difficult area of the reform debate. But there are reasons why I have held my ground on this issue.

Our approach to enriching wine is traditionally based on balance between northern and southern Europe. Northern producers generally use sugar; southern producers generally use must. Enrichment with must costs more, so for many years we have paid support for this kind of enrichment.

This support must stop. It goes against the direction that the Common Agricultural Policy is taking, and it is not WTO-friendly.

That means that we are asking southern producers to make a sacrifice. But in a reform which will apply to the whole of the European Union, everyone has to share both the gain and the pain. In this case, to balance out the pain, and conserve the balance between north and south, I think we also have to abolish chaptalisation.

However, this would not mean the end of wine enrichment in Luxembourg. It's perfectly possible to use must instead. And very importantly, under rural development rules, investment aid is available to convert from one method of enrichment to the other.

Overall, let's leave behind these nightmare images about reforming the wine sector. There are so many positive things that my proposals offer:

greater freedom to make a profit;
a way out of the sector for those who need it;
generous "national envelopes" for country-specific support measures;
a large promotion budget...
and much more. I suspect that businesses in many other economic sectors would love to have access to this kind of package.

*****

In conclusion, I say again that there's a lot to talk about just now in agricultural and rural policy. And some of the talk can become more precise once the Commission's communication on the Health Check is finalised and made public.

In the meantime, it's over to you to do some talking: I'm ready to take your questions.

Thank you.


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