I welcome this opportunity to speak on the proposals which were unveiled by the European Commission last July for the reform of the Common Agricultural Policy in the framework of Agenda 2000. These outline Commission proposals, present challenges and opportunities and constitute the most important issue facing Irish and European agriculture.
The proposals are designed to address the implications of enlargement of the Union to include ten Central and East European countries and Cyprus, and analyses and forecasts of world agricultural markets which suggest that surpluses could re-emerge on the Union market, particularly in the light of further possible trade liberalisation resulting from the next round of WTO negotiations.
In June l993 the Heads of State and Governments of the member states decided the ten central and east European countries could in principle join the Union if they fulfilled the economic and political conditions associated with membership. The Commission has examined the structures in these applicant countries and recommends in Agenda 2000 that Poland, Hungary, the Czech Republic, Slovenia, Estonia and Cyprus can meet the criteria for entry in the medium term. The remaining five applicant countries are unlikely to meet the criteria for some time. The Commission recommends that accession negotiations should begin next year with the six countries which can meet the criteria for entry in the medium term while negotiations with the remaining five countries can commence as soon as they are ready. The European Council will make a decision on the Commission's recommendations when it meets in Luxembourg next month.
With enlargement, the number of consumers will rise by 100 million to around 500 million. Consumers in central and eastern European countries have, on average, only one quarter of the purchasing power of the average EU citizen and average expenditure on food still represents for them a far higher proportion of total household expenditure.
Agriculture plays a much greater role in the economies of these countries. More than 20 per cent of their workforces, on average, are employed in agriculture, compared to an average of 6 per cent in the EU which in recent years has done a great deal to facilitate their integration. Serious problems remain to be tackled, particularly in relation to the structure of primary agriculture and the food processing and marketing sectors. That is why the EU is offering technical assistance and advisory services.
In spite of the structural deficiencies throughout the agriculture and food sectors in these prospective new members of the EU, it is clear they have enormous potential to increase food production. While it is difficult to predict precisely when this will occur, one thing is clear — it will happen. The EU must take account of this fact as it looks at policy adjustments into the next century.
The Agenda 2000 proposals have been considered by the Council of Agriculture Ministers in recent months. At its most recent meeting last week, the Council agreed on conclusions for submission to the European Council which is due to meet in Luxembourg next month. Spain disagreed with that part of the conclusions dealing with the Agricultural Guideline.
Among the conclusions were that the model of European agriculture must be versatile, sustainable and competitive. It must be capable of conserving nature and responding to consumer concerns regarding food quality and safety, environmental protection and the safeguarding of animal welfare. This model of European agriculture would serve as a reference point for the thrust of the applicant countries' agricultural policies and provide a powerful force for integration in an enlarged Union. The long-term outlook for the main agricultural markets given in Agenda 2000 was an acceptable working hypothesis and, without reform, significant surpluses could emerge. In those circumstances, the reform process which commenced in 1992 should be continued and deepened. The framing of a rural development policy had an important role to play in preserving and creating permanent jobs on and off farms. Agricultural regulations and procedures should be streamlined with more subsidiarity for member states — the arrangements to be established should not distort competition nor lead to renationalisation of the Common Agricultural Policy. It is important to have adequate and suitable resources available to complete the reform process and achieve the desired model of European agriculture and to retain the Agricultural Guideline, as a ceiling, in principle and as presently calculated. The Commission should frame its proposals as quickly as possible on the basis of this agreed approach. The Commission is expected to table detailed proposals in the first quarter of 1998 in light of the outcome of the European Council.
Any estimate of the net effect of the Agenda 2000 proposals on Irish agriculture has to be regarded with extreme caution and is crucially dependent on future market prices which are notoriously difficult to forecast. Even if it is assumed that market prices for the three commodities concerned — beef, milk and arable crops — will fall by the precise amount of the proposed reductions in support prices, difficulties will still be encountered in arriving at a reliable estimate. There is the question of which rate should be used for the conversion of ecu values to Irish pound values; the difference could be as big as 8.5 per cent between the two extreme options available. There is also the simple fact that the Commission's proposals are incomplete and the crucial details which could affect significantly their impact are unknown. For example, we do not know what proposals the Commission will make, in the form of measures, to encourage extensification or environmental preservation and enhancement.
With these qualifications, the net effect of the proposals on prices and premia could be a loss of the order of £125 million a year. This tentative estimate is based on what is known of the proposals on market supports; it does not take account of the effect of changes in Ireland's receipts under the structural heading where the Commission's proposals are less developed.
It is my intention, between now and the emergence of the Commission's detailed proposals and in the subsequent negotiations that will follow at the Council of Ministers, to ensure that not alone will losses not accrue for any sector of Irish agriculture but that the final outcome will be positively advantageous for Irish farmers individually and provide a platform for the further development of the food industry.
I wish to discuss briefly the main areas of interest to Irish agriculture in Agenda 2000. Before dealing with the main elements I wish to set down a number of principles which will govern my approach in the forthcoming negotiations: first, farmers' incomes and the economies of rural areas will have to be protected — this will require, among other things, full and permanent compensation for price reductions; second, the system of compensation will have to be fair and equitable — the economic interests of member states in the product areas concerned will have to be fully respected and one type of production should not be disadvantaged by reference to another; third, the system of compensation should be defended vigorously in the next round of World Trade Organisation negotiations.
In general terms, the Commission has proposed that the support price of beef should be cut by 30 per cent, that the various beef premiums, including a new beef premium for the dairy herd, should be increased and that intervention should have a reduced role. These proposals follow the route charted by the MacSharry reform proposals in the beef sector and would result in a balanced EU beef market based on increased domestic consumption and greater penetration of non-EU markets without the aid of export refunds.
These proposals are of crucial significance to us given the central importance of beef production to the economy. It accounts for over one third of agricultural output. We export some 90 per cent of annual output, making us the largest net beef exporter in the northern hemisphere. Given our dependence on export markets we are uniquely sensitive to the nature of EU support arrangements. This was clearly demonstrated when the latest and worst BSE crisis broke in March 1996.
While Ireland accepts the need for reform we have a number of serious concerns which have been expressed at the EU Council of Ministers. The litmus test not alone for Ireland but for all member states is whether the Commission's proposals, if implemented, will restore balance to the market and sustain producers' incomes.
The proposals are designed to increase beef consumption in the EU by reducing prices, while at the same time enabling beef to be exported to third countries, the South East Asian market in particular, without subsidies, thereby avoiding WTO constraints on subsidised exports. Beef consumption in the EU should increase if the price is substantially reduced but it is difficult to predict by how much. It is also debatable whether the EU can achieve the level of export market penetration envisaged with the level of price cuts proposed. Much will depend on the price structures and production potential of the EU's major competitors. Given the uncertainty, the future EU beef regime must retain an adequate safety net. Reliance on aids to private storage, as envisaged by the Commission, would not be adequate in difficult market circumstances and where major market imbalance remains a threat.
Another key element for consideration, in relation to the future direction of the beef regime, is the maintenance of a reasonable income for European beef producers. I will be seeking to ensure they are compensated for any cut in price. The final agreed package must ensure that extensive grass-based systems are not disadvantaged as against the more intensive bull producing systems in the EU. The proposed increases in premiums, as they stand, are biased in favour of intensive beef production. It would be a mistake to maintain that bias in the final package. Extensive methods of beef production which are environmentally friendly must be encouraged now more than ever. I note that the Commission will reflect on how incentives to production can be improved. I await its detailed proposals with interest. In addition to seeking enhanced arrangements for extensive production, we shall be seeking appropriate measures to safeguard heifer beef production which would be endangered by a 30 per cent price reduction.
Under the reform proposals, while premiums will play an increasing role in beef producers' incomes, I am concerned that the level of efficiency at farm level remains relatively low in comparison with other sectors. Teagasc has shown there is major scope for improving incomes through the efficient utilisation of grass and the use of high quality silage leading to enhanced animal performance and reductions in the cost of beef production. In a trading environment where prices will continue to remain under pressure it is incumbent on producers to improve their level of efficiency.
The outline framework for reform of the dairy sector in Agenda 2000 is: an extension of the quota system until the year 2006; an improved flexibility and simplification of the common organisation of the market; a gradual decrease in support prices by an average 10 per cent over the period and the introduction of a yearly direct payment of 145 ecu for dairy cows, adjusted to average yield, in addition to a payment of 70 ecu per cow in respect of the dairy herd's contribution to beef production.
The Commission claims that its proposals represent a cautious approach and that such an approach is justified because expected market developments do not require extreme measures. However, the Commission clearly indicates that, in its view, the present system, with its intrinsic rigidities, cannot last forever.
Despite the rigidities associated with strict supply control, the quota regime has largely benefited the dairy sector since 1984. In general, the operation of the quota has maintained high income levels among dairy farmers. Of equal importance to Ireland is the role that the milk quota system plays in maintaining viable farming activity in less advantaged rural areas through instruments like restructuring and the temporary leasing scheme as well as ring fencing quota in these areas. In general, the quota system has been a successful tool of economic development in rural areas. For these reasons, I agree with the Commission's analysis that there is no immediate need to make changes to the quota regime. If change is required, it would be preferable to signal it well in advance to allow the EU dairy sector and individual producers to adapt and assist longer-term planning. Commission analysis suggests that the world market for certain dairy products is expanding. I broadly share this view and believe this will continue to be the case in ensuing years. It is commercially and economically important that the European Union maintains a strong presence in that growing market. Any retreat from this position over time would seriously undermine the long-term viability of the European Union dairy sector. Any changes to the current system designed to enable the European Union to enhance its presence on world markets should not result in a worsening of the income of dairy farmers. Therefore, an overriding principle is that any price reductions, or other changes having an adverse effect on price, should be accompanied by an appropriate direct aid system. While this principle is explicitly accepted in the outline proposals, detailed clarification is still required on the actual level of, and mechanisms for, compensation likely to be paid across member states.
In relation to the arable crops sector, the key element of the Commission proposals is a reduction of 20 per cent in the intervention price with only half of this being compensated for by way of an increase in area aid payments. The new rate of aid would be 66 ecu per tonne applicable to all crops including oilseeds, linseed and protein crops and also to "set-aside". It is also proposed that these payments would be reduced if market prices remain at a higher level than currently foreseen. A top-up of 6.5 ecu per tonne is proposed for protein crops. Aid for silage maize and other silage cereals would no longer be payable. The standard rate for "set-aside" would be set at zero instead of the present 17.5 per cent. Voluntary "set-aside" would be allowed and the "set-aside" areas would receive the non-crop specific payment rate of 66 ecu per tonne. Penalty "set-aside" would be abolished.
The Commission's proposals stem from its analysis that intervention stocks are expected to reach some 58 million tonnes by the year 2005-2006 unless some reform of the sector is undertaken.
While the predicted growth in world demand and price trends would facilitate the disposal of increasing quantities of cereals without export subsidies on the world market, one cannot escape the conclusion that there is indeed a clear risk of a return to substantial levels of intervention stocks with resultant strains on the EU budget and its capacity to fund adequate levels of support for farmers in all sectors. However, if the Commission's response is to be accepted, price reductions must be fully compensated so that growers' incomes are not reduced.
Mainstream agriculture will remain crucial to the economic and social fabric of rural areas for the foreseeable future and, therefore, market policies will remain of the utmost importance. However, other measures are required to enable farmers and rural dwellers to enhance their incomes and thus enable them to remain in rural areas. Therefore, given past trends in numbers employed in agriculture, the proposals for an increased emphasis on rural development in Agenda 2000 are necessary and welcome.
I also support the idea of integrating environmental goals into the CAP and the best way forward in this regard is the strengthening and extension of existing measures aimed at maintaining and enhancing the quality of the environment in general. Budgetary resources will need to be made available for targeted agri-environmental measures and for the maintenance and promotion of low input systems as it is unrealistic to expect farmers to produce quality food in an environmentally friendly manner while ignoring the cost factors and effort involved.
The CAP has already been subject to extensive reform which is set to continue. It is in the interests of Ireland and other member states that European agriculture should become more competitive on world markets and developed on a sound, stable and sustainable basis. However, it must also be done in a way which ensures that the principles of the CAP — the cornerstone of the European Union — are preserved, that the interests of member states are taken into account in a balanced way and, above all, that the incomes of farmers and the viability of rural communities are fully protected. While the general direction of the reform has been put forward by the Commission in Agenda 2000, I stress that a huge amount of work at all levels of the decision making process will take place before final decisions can be taken. That is why I am initiating a process of consultation so that Ireland's input to the negotiations can be based on the widest, best expertise available and on the views of those who have a direct stake in the outcome of these negotiations.
We are in the process of setting up four consultative groups, one each for beef, milk, cereals and rural development, on which we shall invite farmers, processors and others with a direct interest, in addition to academics, to serve. These groups will remain in existence for the duration of the negotiations. I expect an expert input from them so that the strongest possible case can be advanced in defence of Irish interests.
I am glad the House is being given an opportunity to debate these very important proposals. I look forward to a constructive debate and assure Members that, as I prepare for the next phase of negotiations, I shall be happy to take on board any suggestions they may put forward which would be of assistance in advancing the interests of Irish agriculture and of rural areas generally.
