Presentation of the Health Check at the Agricultural Committee of the European Parliament



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Brussels, 20 November 2007

[President, Honourable Members],

As always, it's an honour to address this Committee, and I'm pleased that this meeting will effectively be my launch pad for explaining the Health Check of the Common Agricultural Policy.

To start with let me make three points to clarify what the Health Check is about.

First, the Commission does not see the CAP Health Check as a "new reform". The reforms of recent years give us a good foundation to build on, and our current objectives are valid.

Nevertheless, the Health Check is more than "fine-tuning". The CAP must keep meeting its objectives as well as it could – in a larger European Union, and in a shifting international context. Four years on from the key reform agreement of 2003, we are much better placed to check on this.

Therefore, secondly, the Health Check is a policy initiative in its own right, which will cover necessary adjustments and simplifications for the period 2009 to 2013. However, at the same time, it is also a stepping-stone towards the Mid-Term Review of the European Union's Financial Perspectives – which will examine priorities for after 2013.

Thirdly, today only fires the starting gun for the Health Check. There are questions in the communication. I don't have all the answers here in my handbag! Yes, I have put forward a number of ideas – sometimes in detail – but I'm looking forward to a full discussion in the months ahead.

Market support instruments

The Health Check communication is based around three questions.

People say, "First things first", but in fact I'm going to start with the second question in the Health Check communication, which is this:

How can we make market support instruments still more relevant in a European Union of 27 Member States and a world that is more and more globalised ?.

The importance of this topic could hardly be clearer just now. Commodity prices are rocketing. This year has seen pasta boycotts in Italy and food riots in Mexico. The food price index of the Food and Agriculture Organisation is at its highest level since it was launched in 1990.

So we need to ask: to what extent do our market instruments have a valid purpose, and to what extent do they fit in with our need for a market-oriented farm sector?

These questions refer to a number of different instruments.

I have already signalled clearly that export refunds are now entering their twilight years. Within the Doha Round of world trade talks, the European Union has offered to phase them out by 2013. But whatever happens to the Doha Round, export refunds don't have a place in the CAP toolbox of the future. They don't encourage a competitive mind-set and there is strong public opposition to them.

Starting out from this principle, we need to phase them out in the right way, taking into account the needs of various sectors.

What about intervention?

The vital point here is that intervention must be a genuine safety net. We should not be using it to set market prices.

With regard to cereals, we should consider carefully whether wheat intervention could act as a safety net for the cereals sector as a whole.

This approach would allow other cereals to find their natural price level, but would also allow the Commission to respond to crises.

The debate about set-aside is well underway. I repeat my essential argument: this supply management measure is obsolete in the era of decoupled payments. Abolishing it would simplify the Single Payment Scheme and give farmers greater freedom to respond to market demand.

On the other hand, we should take steps to preserve the beneficial environmental side-effects which set-aside has brought. An obvious way of doing this is through targeted rural development measures.

The last market mechanism to be examined is production quotas – especially milk quotas.

Here, it's time for the debate to move on. Under our current Regulations, the milk quota system will expire in 2015. We will not renew it. This should now be taken as read, so that we can concentrate all our efforts on the next issue: how to give the sector a "soft landing".

What do I mean by a "soft landing"? Simply this. The quota system has profoundly affected the way the sector does business. Just switching it off at midnight on March 31, 2015 is not the best recipe for a smooth transition! So in the meantime, it's in the sector's interests that we all prepare for a world without quotas.

I strongly believe that increases in quotas should be part of the package. This will let in some fresh air and allow expansion for those who want to expand – but we must do so without cutting the legs from under the market.

A point which has often been raised is that there are certain areas in the European Union – especially but not exclusively mountainous areas - which depend very heavily on dairy production, because no other economic activity would be viable for them. Without the quota system, they could face serious problems.

There is more than one possibility for assisting them. One is through rural development policy. Another could be to set up specific support measures under a revised "Article 69" – a topic which I will explain in a moment.

The Single Payment Scheme

Now I come to my second topic – how to make the Single Payment Scheme more effective, efficient and simple.

Essentially, I would like to build on the success of the Single Payment scheme, which is giving a real lift to the competitiveness of our farm sector.

We need to look at the implications of some models for applying decoupling.

Within the Single Payment Scheme as implemented by Member States – especially in the so-called "historical model" - there are significant differences in some Member States between the decoupled payments received by different farmers.

Some national governments would like to reduce these differences within their territory. This is partly an issue of fairness; it's also an issue of public acceptance of the payments, because in the long term nobody will understand why the differences in payments are exclusively due to the production decision that a farmer took during the reference period 2000 to 2002 – or even due to decisions taken in that period by one of his predecessors!

Reducing the differences would involve averaging out payments to a greater extent than at present - either within regions, or within a given Member State as a whole, but not across the whole European Union.

This is what we mean by "allowing MS to adjust their chosen model towards a flatter rate".

I believe we should allow Member States to do this for the period 2009 to 2013.

Regarding Member States which currently apply the SAPS system and have to switch to the Single Payment Scheme by 2010 at the latest, we should consider allowing them to keep using the SAPS until 2013. This is because it would be difficult to justify to these Member States that they have to switch to the Single Payment scheme by 2010, only to switch back to a kind of flat-rate system by 2013.

We also need to look at the exceptions to the principle of "full decoupling" which are still allowed. Where we have applied full decoupling so far, it seems to have worked well. So where there are still exceptions, we should review these case by case looking into the potential risks from a move into full decoupling and the possible alternatives at regional level. We should keep partially coupled support only where it's the best way and the only way of avoiding significant economic or environmental problems. Overall, I believe we should take further steps towards full decoupling for all sectors in all Member States.

There is also considerable scope to simplify the Single Payment Scheme in other ways.

Just as examples: we could slim down the number of types of entitlement to decoupled payments, and simplify the rules about transfer of entitlements and the national reserve.

As you know, another aspect of possible plans for the Single Payment Scheme has sparked a blazing controversy: a possible upper limit on the decoupled payment which any given farmer can receive.

We are raising this issue partly because the public raises it again and again. Where large payments are made, is this the best use of the money that we have available? Again: we have to ask the question.

Please bear in mind that the possible thresholds and percentage reductions quoted in the Health Check communication are only examples to illustrate the principle of a system of graded reductions. We're a long way from proposals!

Please also bear in mind that we might have to differentiate between multiple-owner farms with many workers, and single-owner farms with few workers.

The possibility of establishing a new lower limit on direct payments is less controversial. But let me clarify something. Small claims from genuine farmers should still be paid. What we want to take out of the system are pseudo-farmers, for example, the claim made by a dentist who keeps a horse on a patch of grass behind his house.

I want to take another look at so-called "Article 69" measures. This article allows Member States to top-slice decoupled payments and spend the money on particular projects in a given sector. I think we could make the rules even more flexible to help meet new challenges.

This would be highly relevant for dairy farming in economically fragile areas – as I mentioned earlier.

Also in connection with the Single Payment Scheme, we will continue our work on cross-compliance.

I say "continue" because we have already taken successful first steps. Earlier this year, the Council gave its backing to a Commission report on cross-compliance which dealt mainly with issues of control and sanction. I am looking forward to seeing this Committee's report on the proposed follow-up measures, and I wish to thank you for this support for a quick implementation of the proposals.

Within the Health Check, I intend that we should examine mainly the scope of cross-compliance. Only fundamental obligations should be covered. This may mean stripping out some existing provisions – but it could mean adding a few others, if anything essential has been left out so far.

Other challenges

Now I move onto the third and final question in the Health Check communication: What more can we do to meet a range of other urgent challenges?

We have identified five of these:

managing risk;
fighting climate change, and adapting to its effects;
managing water more efficiently;
making the most of the opportunities presented by bio-energy; and
preserving biodiversity.
Each of these topics is extremely important and could fill a speech by itself. But this morning I will highlight the most essential points.

On risk management: we're not talking about establishing a new scheme at the level of the European Union. We're talking about allowing risk management measures within rural development, and asking ourselves whether we will need to go further than this.

On climate change: farming is already making a strong contribution to the fight against climate change, but we must do more. And it's equally important to adapt to climate change – because farming is exposed, and the storm is already on its way, so to speak.

On bio-energy: of course, the debate about this topic has really taken off in recent months. What I will say here is that we must ask whether the current energy crop scheme is still justified given that the biofuel market is already stimulated by the fixing of the compulsory 10% target. Furthermore I believe that we need to push harder on second-generation biofuels. This is essential in order to move on as soon as possible from the discussion about competing uses of agricultural land: food and feed "versus" energy.

Meeting all these challenges will have a price tag attached. And the best channel through which to act is almost certainly rural development policy. This is why I'm suggesting that we make annual increases of 2 per cent to compulsory modulation, to take effect in budget years 2010 to 2013 (for an overall increase of 8 per cent). Real action needs real money to back it. It goes without saying that any increase in compulsory modulation will be matched by a reduction in voluntary modulation in those Member States which apply the voluntary modulation.

Conclusion

This concludes my initial comments on the Health Check, and I'm very much looking forward to the contribution of the European Parliament in the months ahead.

Let me emphasise once again that, although we are indeed carrying out a "Health Check", this doesn't mean that the patient is in a bad state.

I believe the CAP is basically in good shape. The heartbeat is coming through loudly and strongly.

But let's remember that we expect the CAP to work very hard for the good of the European Union, in so many ways.

A safe food supply; a beautiful countryside; a competitive farming sector; lively rural communities: you will find all of these things in the CAP's job description.

The CAP will continue to work hard to help give us these things. But it must also work as intelligently as possible – and sometimes sharpen up its methods.

The Health Check is intended to achieve just that.

Thank you for your attention, and I'm ready for your questions.


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