I am delighted to have the opportunity to present to the House the outcome of the negotiations on the mid-term review of the Common Agricultural Policy which were concluded in the council of Ministers in Luxembourg last week.
The Commission's proposals for the mid-term review of Agenda 2000 were the subject of negotiation for almost a year. Outline proposals were presented by the Commission in July 2002 and the more detailed proposals were published in January 2003. The proposals comprised the most radical reform of the Common Agricultural Policy since its foundation and have been the subject of detailed analysis and intense public debate both here and throughout the EU. The Council of Ministers has debated the proposals at each of its meetings this year. During the course of the negotiations, my officials and I had close consultations with all the farming, food processing and other representative bodies, mainly through consultative groups which I set up for this purpose. The issues and concerns have been identified and have been well known for some time. The fact that the negotiations in the Council continued for a full year is indicative of the complexity of the proposals but also of the difficulties facing Ministers in reaching a decision.
My position on the Commission's proposals was well known. My objectives in the negotiations were to safeguard the benefits to Irish agriculture and to rural economies achieved under the Agenda 2000 agreement and to ensure the best possible level of support and protection of our production base into the future. The agreement which was reached last week in the Council was the culmination of a long negotiating process and was an acknowledgement by all Ministers that it was time to end the uncertainty about the future policy framework and to conclude the process.
I am convinced that an objective and fair-minded examination of the outcome of the negotiations will establish that I have been successful in achieving my objectives and in defending the best interests of Irish agriculture. The final outcome contained substantial modifications to the Commission's initial proposals and represented a balanced agreement and a successful outcome to the negotiations from Ireland's point of view. The agreement will reshape the Common Agricultural Policy and secure its future by making it more relevant to modern society and to modern consumer demands. This is the only way forward. We have the opportunity now to exploit the new situation to full advantage. I am sure the details of the agreement are well known at this stage but I will outline them briefly for the House.
The decoupling of direct payments from production is a fundamental change to the Common Agricultural Policy and, not surprisingly, the Commission's proposal for full decoupling was the most contentious issue throughout the negotiations. In the end, the Council agreed to amend the proposal for full decoupling and to give member states a number of options which will allow them to implement decoupling in a manner best suited to their requirements. Full decoupling across the board remains as an option if member states wish to pursue that possibility.
Besides full decoupling, last week's agreement provides for other options in relation to cereals, beef and sheep meat which allow for various forms of partial decoupling. Some of the options include up to 100% coupling of the suckler cow premium, up to 100% coupling of the slaughter premium and up to 75% coupling of the special beef premium. The sheep premium and the supplementary ewe premium may now be either fully or 50% decoupled.
Furthermore, amounts up to 10% of a member state's direct payments may be allowed for the purpose of encouraging specific types of farming which are important for the environment and to improve quality and marketing. Among the major advantages of the new arrangements is that we now have a menu of options which will reduce the paperwork and red tape associated with direct payments and which will allow farmers to respond to market demands without the need to engage in production in order to qualify for direct payments.
From the point of view of the forthcoming World Trade Organisation talks, the new arrangements will enable the EU to take the initiative in the current negotiations and to negotiate from a position of strength. Decoupling and partial decoupling will enable a substantial proportion of direct payments – depending on the choices to be made by member states – to qualify as domestic support which has "no or at most minimal trade-distorting effects or effects on production"– the so-called Green Box. This has the advantage of protecting them from challenge in the WTO negotiations. I have made it absolutely clear that the outcome of the mid-term review represents the bottom line in so far as the WTO negotiations are concerned and that I will not agree to a new WTO round which requires further reform of the Common Agricultural Policy. The outcome of the negotiations on decoupling has, therefore, been most satisfactory from Ireland's point of view.
During the coming weeks I will be consulting with the social partners with a view to introducing the model best suited to Irish requirements from the point of view of maximising efficiency, competitiveness and protecting the rural economy. I will also invite submissions from wider interest groups and the public generally before reaching a conclusion. I intend to keep the arrangements under close review, particularly in the light of the facility under the agreement which provides for a review by the Commission of the operation of the new arrangements after the first two years, with a view to dealing with its possible impact on structural reform and markets.
I am particularly satisfied with the outcome which I secured in regard to degression and modulation. The Commission's proposals represented a serious threat to the level of direct payments in Ireland, which are of such crucial importance to farm incomes. I opposed strenuously the proposed reduction of up to 13% in direct payments to meet future financing needs – the degressivity proposal. The removal of this automatic system of annual reductions in direct payments was a major achievement. The compromise which was agreed requires the Council to review from 2007 onwards the financial situation annually and, if budget deficits arise, to take necessary action. This is a more responsible and reasonable approach.
In addition, the proposed rate of modulation has been reduced from 6% to 5% when fully operational and we also have the retention of the €5,000 franchise or exemption which will ensure that almost half of Irish farmers will not have modulation applied to them. My objective in ensuring that modulated funds are retained in Ireland for rural development measures has also largely been achieved. Modulation will commence in 2005 at a rate of 3%, rise to 4% in 2006 and continue thereafter at 5%. Ireland will retain 85% of modulated funds and, of the €40 million modulated, €34 million will stay in Ireland. The resultant net reduction of €6 million per annum represents only 0.5% of the €l.3 billion in direct payments which are currently paid annually to Irish farmers.
The outcome was a major improvement on the original proposal, where the combined effect of modulation and degression would have resulted in €464 million being siphoned off direct payments over the period 2006-2012. Those who criticised last week's decision have been very quiet on these elements of the outcome.
Much has been made of the decision in relation to the dairy sector. Last week's decision provides for a cut of approximately 4% beyond the level already agreed in Agenda 2000. In contrast to the original proposal for an additional 10% reduction, we got the reduction in intervention reduced to 4%. In addition, while the original proposal provided for compensation for the intervention price reductions at the same level as applied in the Agenda 2000 agreement, a rate of 56%, I managed to secure compensation of approximately 80% for the additional intervention price reduction of 4% which was agreed.
The potential losses to the dairy sector from the net effect of the 4% intervention price reduction and the increase in the dairy cow premium amount to less than €14 million a year or 1% of the farm gate value of milk output. The additional 4% will amount to a 6 cent reduction per gallon equivalent. Of that 6 cent per gallon equivalent, 5 cent will be compensated for through the dairy cow premium. The reduction is therefore a 1 cent per gallon equivalent. That reduction is intervention and if our co-ops and co-op plcs do not rely on intervention they do not have to suffer the loss at all. Obviously, the intervention price reduction will only have effect if product is sold into intervention. If product is sold where it should be sold – on the market-place – there may not be any loss at all. Depending on market prices, there could be substantial gains.
The agreement demonstrates again, emphatically, that the dairy industry must realise that sales to intervention are not the way to build a viable industry capable of remunerating its farmer suppliers adequately for its raw material. The industry must adjust to that reality. A few statistics illustrate where we are and what we have to do. In the past four years, Ireland has accounted for between 27% and 35% of EU butter intervention intake compared to our 8% share of production. The figures for skimmed milk powder are similar. Our reliance on bulk, commodity products is way out of line with, for example, Denmark and the Netherlands. Whole and skimmed milk power contribute 50% of Irish total production of dairy products compared to 23 % in Denmark and 15% in the Netherlands.
We must keep in tune with the modern consumer. If the late Henry Ford, and his company, had continued to make Model T cars and expected taxpayers to keep them in storage for him, he would have been out of business many decades ago. Similarly, if modern IT companies continued to make electric typewriters and expected taxpayers to store them and then, possibly, offload them to unfortunate third countries, it would not make for a credible future for the industry and nor is it credible for the dairy industry to insist on converting milk into products for which there is no market. It cannot expect taxpayers to pay for the storage and then offload them either onto the EU market where they will depress prices or onto third country markets which will cause mayhem for those unfortunate countries.
Notwithstanding the objective of reducing dependence on commodity products and on intervention purchases, I insisted that a reasonable period should be provided for the dairy industry to reorientate itself to a lower level of intervention availability. The original Commission proposal was for a ceiling of 30,000 tonnes per annum on intervention intake of butter and this would have been disruptive in the short term. I secured agreement, against enormous opposition and without support from any ministerial colleague in the Council, to have the intervention limits for butter improved significantly. The final agreement increases the ceiling to 70,000 tonnes initially, reducing over five years to 30,000 tonnes.
The Danish and Dutch Ministers were aghast that an Irish man would look for this level of intervention intake as they have similar industries to ours. The Danes are further from our nearest market, the UK market, yet they do not depend to the same extent on intervention. Nonetheless they did not demur and allowed my proposal to stand. It is 2003 and one would expect a modern food industry to have regard for the consumer. The five year lead-in time gives our dairy industry time to get nearer the consumer. However, the situation is urgent and the industry owes it to suppliers to ensure they get the best return and owes it to the taxpayers to ensure there is less reliance on intervention.
The new dairy cow premium will not be decoupled until the reform in the sector is completed thereby favouring active producers. Overall, I am convinced that the agreement is most satisfactory given, in particular, that the milk quota regime has been extended to 2015. A small price of approximately 1 cent per gallon was paid in terms of intervention price reductions for that objective which will play a major role in supporting the milk price until 2015.
The original proposal for a reduction of 5% in the intervention price for cereals was unnecessary in view of trends in world market prices. I argued that the intervention price for cereals should remain unchanged. This was agreed and the Council also decided on a partial retention of the monthly increments. I also managed to secure the dropping of the original proposal for ten year obligatory non-rotational set-aside, which would not have been suitable in the Irish situation. The new arrangements on set-aside are more workable in Ireland and allow for further set-aside obligations as market needs arise.
Some spokespersons have said that this was really a French intervention and achievement. The French were interested in cereals but we kept close to them. If one goes into a Council of Ministers meeting with four votes out of 87, one must create alliances with other countries. To the benefit and advantage of the Irish economy we have worked closely with the French over the years particularly in these negotiations.
I had been concerned about the overall impact of the Commission's proposals on young farmers and was anxious to secure the best possible terms and conditions for them. The strengthening of support available to young farmers by way of a special new incentive under the proposed rural development measures is another very positive outcome. The maximum support for young farmers undertaking investments within five years of setting up has been increased from 55% to 60% in less favoured areas and from 45% to 50% in other areas.
I also negotiated changes for young farmers which include the more equitable calculation of single payment entitlements for those who entered farming during the reference period, flexibility to create a national reserve using up to 3% of established entitlements, with the possibility of ring-fencing a certain percentage of entitlements for young farmers who commenced farming activity after 31 December 2002, and the possibility of allowing young farmers who inherit farms to inherit also any entitlements established by the retiring farmer.
Other changes secured during the negotiations are that the farm advisory system or farm audit will now be voluntary for all farmers, the national reserve may be used for certain early retirement cases and special payment entitlements for certain dairy and other farmers can be traded in the same way as single payment entitlements.
It is important that we await the legal text of the agreement. We have not yet received it because the legal services of the Commission are working on it and it will take another few weeks and will, I hope, be with us at the end of the month. Hereditary and trading entitlements will be critically important and we need to see the text before we can enter into serious dialogue with social partners in regard to the way forward.
In these negotiations, my objective was to preserve the benefits of the Agenda 2000 agreement for Ireland and I firmly believe that that objective has been realised. The agreement also has huge potential benefits in terms of reducing substantially the administrative and bureaucratic burden for farmers and the Department alike, while allowing farmers freedom to farm and to respond to consumer demands and signals from the marketplace. The new policy framework will ensure, therefore, a more market-orientated and sustainable agriculture and food industry which will be to the benefit of consumers and producers alike.
The package as agreed has a balance within it which repositions the CAP in the modern world. In the longer term, I believe that it will be seen as safeguarding its future. We are highly dependent on a strong and viable CAP and we are not serving our own interests if we bury our heads in the sand and ignore the external threats and challenges.
The options for decoupling direct payments will, as I have said, allow such payments to be made secure from challenge in the WTO. As a consequence, the contribution of direct payments to farm incomes and therefore to the rural economy will be safeguarded in a manner not heretofore achieved. I do not believe that the level of criticism of the agreement, which is concentrated on one element only, is in any way justified. In an effort to substantiate their case against the milk element of the agreement, certain spokespersons have resorted to misrepresentation. They have added the intervention price reductions agreed as part of Agenda 2000 to the 4% price reduction now agreed.
Even if it were legitimate to add these two price reductions together, these spokespersons would still be misrepresenting the facts, since they have failed to add in on the positive side the benefits of the 2.8% or 32 million gallon increase in Ireland's quota which was part of Agenda 2000. That quota increase valued at the price being paid currently for restructured milk quota is €45 million per annum. However, this benefit has been ignored by those who are intent on distortion to suit their misguided purposes. I use the word "misguided" because it is far from clear who benefits from distortion of the facts. The confidence of Irish farmers, and particularly young people contemplating a career in farming, can be severely dented by such distortions. It is disheartening that those who should show leadership in agriculture seem intent on spreading despondency and despair.
Following last week's agreement, I believe that we can look ahead with confidence and plan for the future in a stable policy environment. Those who continue to preach doom and gloom undermine confidence and do no service to our farmers, particularly those young people contemplating entering farming. There is a future for them and my priority now is to manage the transition from the old to the new regime so as to ensure a smooth transfer and enable Irish agriculture to exploit the new opportunities to the full.
There is a substantial amount of direct support for farming –€1.3 billion annually in direct payments and €1.6 billion annually when the REP scheme and the farm retirement scheme are taken into account. For our size of economy that is substantial as it represents about 60% of farmers' incomes which is now secure because the CAP has been preserved. Those direct payments have been safeguarded from challenge in the context of the world trade talks.