June 2001

The following is the text of a lecture that will be given by Struan Stevenson MEP to a series of meetings in Germany, organised by the Deutsch-Englische Gesellschaft.

Deutsch-Englische Gesellschaft Lecture Tour
18-22 June 2001 Heidelberg, Frankfurt, Leipzig, Berlin.

REFORM OF THE CAP AND THE CHALLENGE OF ENLARGEMENT

INTRODUCTION

It is a great privilege to have been invited to undertake this lecture tour by the Deutsch-Englische Gesellschaft. Apart from my delight at meeting many members of your organisation, it is also a great opportunity for me to broaden my knowledge of your wonderful country. I have, in fact, visited Germany many times. On four separate occasions I was invited here by the Konrad Adenauer Stiftung, touring parts of East Germany before the Wall came down, including Weimar, Halle and Erfurt. On another occasion we visited Coburg, to view the East German border fortifications that cut a sinister swathe through the forest there.

After the Wall fell, the Konrad Adenauer Stiftung invited a group of us back to Berlin to see the progress being made following reunification. And in my previous existence, prior to being elected, I had a PR Company in Scotland and one of my main clients was in Berlin, so I found myself having to visit on at least a dozen occasions. I love Berlin and just hope that it's current money problems can be quickly resolved. Margaret Thatcher once famously said, "Pennies do not come from heaven. They have to be earned here on earth." Sometimes the people who run our cities forget that.

But money aside, I always find the people of Berlin friendly and the politicians confident, as well they should be, in the re-born capital of a reunified Germany with the beautifully refurbished Reichstag. Indeed, when enlargement of the European Union takes place shortly, Berlin will be positioned right at the heart of the new EU, a vast single market with a population of 500 million people, stretching from Finland to Greece and embracing the former Soviet satellites of central and eastern Europe. This new economic giant will dwarf even America.

But in the words of your great poet and dramatist Goethe, "The world is empty if one thinks only of mountains, rivers and cities; but to know someone here and there who thinks and feels with us, and though distant, is close to us in spirit - this makes the earth for us an inhabited garden."

This is why I congratulate the Deutsch-Englische Gesellschaft for your work in furthering good relations between our two countries. As some of you may know, William Hague recently signed a joint declaration with Friedrich Merz on "A New Constitution of Liberty and Responsibility." The constitution explores some of the challenges that face Britain and Germany in a world shaped by globalisation and goes on to illustrate the breadth and depth of our shared approach to these challenges. As you know, William Hague has now announced his resignation as our Party Leader, following Labour's second landslide at the General Election ten days ago. I hope that whoever takes his place may continue to foster strong links between Germany and the UK and that my lecture this evening can contribute in some way towards this shared agenda.

THE COMMON AGRICULTURAL POLICY

Now let me turn to the subject of my dissertation this evening.

The CAP is a monolith. It currently devours more than half of the entire funding of the European Union. Despite a guarantee to protect the welfare and improve the income of EU farmers contained within the Treaties, in reality, agriculture is in crisis. Now looming enlargement of the EU, together with the rapid development of globalised trade, look set to exacerbate further the crisis. How will EU farmers adjust to the new reality?

Agriculture is under enormous pressure at the present time and nowhere more so than in the UK. In my country, net farm incomes have fallen disastrously during the past year to an average of around £3,800 (6000 Euros) with hill farmers earning a fraction of that sum. The BSE crisis, the swine fever outbreak in late 2000 and the disastrous foot and mouth outbreak, coupled with the strong British pound and the weak Euro, have seriously damaged the UK farming sector. The past five years have witnessed a collapse in farm incomes to levels almost reminiscent of the earlier part of the last century.

A recent National Farmers Union survey of more than 5000 farmers painted a stark picture of life on a knife-edge, with the majority of farmers desperate to get out of the industry but unable to afford to retire. The capital value of their assets has been overtaken by the size of their bank borrowings.

More worryingly, 66% of farmers' children said that they had no intention of following their fathers and mothers into the family farm. The long hours, burgeoning bureaucracy, dire financial returns and gross instability of the industry have completely overwhelmed them. The burning pyres of more than 4 million animals slaughtered during the foot and mouth epidemic was for many farmers the last straw. Everywhere in the industry one sees a picture of stress, worry, overwork and depression.

And the UK agricultural industry is not alone in suffering under the CAP. Add to this equation the on-going difficulties involved in resolving international trade disputes under the WTO, together with the looming enlargement of the European Union and you can understand why many EU farmers face a sombre backdrop against which they must judge the industry's future. Those who will survive must chart a new way forward. That is why the mid-term review of the CAP, due next year, will now become a vehicle for wholesale reform.

Many farmers regard EU enlargement as a threat. They consider it likely that the accession of up to ten East and Central European countries to the Union will trigger an end to farm subsidies, dairy quotas, set-aside, intervention and a plethora of agricultural support mechanisms. They feel that structural funding will drift inexorably from the West to the East and that the new Member States will use their growing economic prosperity and increased productivity to flood the West with cheap produce.

There may be some truth in this; however, EU enlargement will provide many benefits and opportunities as well as challenges for the EU farm sector. But it is only one of the forces now driving the need for radical reform of the CAP. The BSE and foot and mouth crises have seriously undermined consumer confidence. There have been dramatic falls in meat consumption - up to 50 or even 60% in some Member States. Clearly, a new direction has to be found if the EU agricultural industry is to survive.

THE COST OF THE CAP

The unravelling of the bloated CAP will be an enormous task and exposure to the full blast of market forces will have a huge impact on a farming sector long grown accustomed to a cushion of grants and subsidies. But we cannot afford to duck this issue any longer. The CAP now devours 49 billion Euros each year; much of it still spent on storage and distribution of food surpluses and market protection measures. The CAP accounts for roughly 80% of all agricultural subsidies worldwide and yet it has left a trail of destruction and impoverishment in its wake. 50 years of manic regulation, red tape, market distortion and grand illusion has ended in the blazing bonfires of diseased livestock which we have seen in Britain, France, The Netherlands and Ireland. The CAP is a cartel, more reminiscent of an old Soviet 5-year plan, but even more bureaucratic. It all has to change. EU farming will need to become lean and mean to thrive and prosper in the new competitive marketplace.

The CAP was originally created with the goal of increasing agricultural productivity, to ensure that citizens of the EU could be properly fed and never again have to confront food rationing. Unfortunately, the policy was a victim of its own success to the extent that it soon had to be redesigned to help manage the problem of over-production in almost every sector. The first response was to clamp down on supply by means of quantitative restrictions or quotas.

More recently, the CAP embarked on a new approach based on two core elements: lowering institutional prices for key products and offsetting the impact of these cuts on producer incomes by means of direct payments.

In other words de-coupling subsidy from production, in line with WTO regulations.....or, to put it another way, subsidising the shepherd rather than the sheep. The trouble is, while the European Commission has rigorously applied the policy of de-coupling in the livestock sector, in the arable sector and particularly in the Southern Member States, production-linked subsidy is not only still the order of the day, it is also being actively promoted by the European institutions.

A recent report in the European Parliament recommended that support for the olive oil industry should be calculated on the number of trees an olive farmer grows. So much for de-coupling! The report even went on to recommend the introduction of special grants for table-olives. In an industry which swallows over 2.4 billion Euros annually in subsidies and which has been at the centre of fraud allegations again and again, this is completely unacceptable. It is also horrifying to note that the European Commission pays over 1 billion Euros in subsidy every year to the tobacco growers of Greece, Spain, Italy and France. We claim to be at the cutting-edge of health reform in the EU and yet we dish out this enormous subsidy to an industry, which kills half a million EU citizens every year.

KEY OBJECTIVES OF THE CAP

It is worth reminding ourselves of the key objectives of the remodelled CAP as set out at the 1999 Berlin Summit:

1. A competitive agricultural sector which is capable of exploiting opportunities existing on world markets without excessive subsidy, while at the same time ensuring a fair standard of living for the agricultural community;
2. Production methods, which are safe and capable of supplying quality products that meet consumer, demand;
3. Diversity, reflecting the rich tradition of European food production;
4. The maintenance of vibrant rural communities, capable of generating employment opportunities for the rural population;
5. An agricultural sector which is sustainable in environmental terms, contributes to the preservation of natural resources and the natural heritage and maintains the visual amenity of the countryside;
6. A simpler, more comprehensible policy, which establishes clear dividing lines between the decisions that have to be taken jointly at Community level and those which should properly remain in the hands of Member States;
7. An agricultural policy, which establishes a clear connection between public support and the range of services which society as a whole, receives from the farming community.

CAP WINNERS AND LOSERS

I think it is plain to see that the CAP has failed in every single one of these key objectives. And who pays for this disastrous policy? The winners are France, Spain, Greece, Ireland, Denmark and Portugal. The losers are Germany, Italy, the UK, Netherlands, Belgium, Austria, Sweden, Finland and Luxembourg.

Let me give you a few examples: France contributes 6.9 billion Euros a year to the CAP, but gets back 9.4 billion Euros. Spain contributes 3 billion, but gets back 5.2 billion. Meanwhile, Germany contributes a massive 10.4 billion Euros but only gets back 5.8 billion. The UK gives 5.5. Billion and gets back only 4 billion. So you see, there is far from being a level playing field in terms of financing the CAP. There is a clear North-South divide between the winners and losers in the funding battle, with the South enjoying a relatively prosperous agricultural economy; much of it financed by the North. While farmers in many Northern Member states are facing their most difficult period in almost a hundred years.

The biggest farmers are also the biggest gainers from the CAP, with 20% of all the farmers in the EU receiving more than 75% of the total CAP budget. The Spanish Government has milked the CAP so successfully; they have now told the Council of Ministers that unless they receive a guarantee of continued funding at the present levels, they will block EU enlargement. Portugal and Greece have done likewise and now even Ireland has voted against ratifying the Nice Treaty in a referendum.

RADICAL REFORM

What an awful mess. Clearly something has gone badly wrong. So the time has come to revisit these core policies and start again. Chancellor Schroeder has said that he might even consider repatriation of the CAP, dispersing the annual budget to Member State governments to spend on supporting their own agricultural industry and countryside as they wished. As the biggest net contributor to the budget, we should listen very carefully to what Schroeder is saying. He appointed a Green as Agriculture & Consumer Protection Minister. She is now calling for a switch from industrial-scale farming towards more sustainable, ethical, environmentally friendly agriculture.

Italy has also appointed a Green as Agriculture Minister last year and both Germany and Italy have joined Britain, Sweden and Denmark in the reform camp. Even the Dutch are showing signs of becoming sympathetic to reform. Now Agriculture Commissioner Franz Fischler has acknowledged that the tide has turned.

He says that while the EU has recognised the social role of agriculture, it has also determined that future policy should focus on care for the environment and the countryside as well as on safe and welfare-conscious food production.

Sustainability means that we must use our resources in a way that will ensure there is a viable industry for future generations to inherit. Therefore sustainable development means including social, economic and ecological objectives under the same heading. That is why a proper balance must be struck embracing these three objectives. For this to happen, the EU must ensure that minimum standards are laid down for each of these three policy areas.

THE ACCESSION STATES

The Commission is currently in the process of drawing up a common policy for sustainable development and as a first component have insisted on compulsory environmental standards in a comprehensive policy covering organic farming, nature protection and protection of the landscape. The applicant countries will need to be prepared to meet these rigorous new standards and funding will be available to assist them in doing so. However, the accession states have a golden opportunity. They are joining the existing 15 member states at a time of significant change in the CAP. They also have a wonderful legacy of organic farming and, with the availability of cheaper labour, should have a clear advantage in this market.

For sustainable development and sustainable agriculture to preserve rural areas, we need sound structures, sound financial measures, good ideas, realistic strategies and committed people in local authorities, municipalities and the regions. We need to put the structures for enlargement in place. SAPARD and other financial arrangements will allow this to happen through the exchange of ideas and experiences. The SAPARD programme is particularly important for the restructuring of rural areas. Only 4.2% of the workforce in the EU are employed in agriculture. But in the applicant countries this figure ranges from 5.5% in the Czech Republic to 26% in Bulgaria. The liberalisation process in agriculture must begin. To achieve this, in almost all the applicant countries, around 1/3rd of the budget has been earmarked for structural development, because jobs will have to be created outside farming and rural areas This is the only way that restructuring will be socially acceptable.

This process has already started and most of the accession states are going through the painful transformation necessary to meet the requirements of the acquis communautaire, as they prepare their farming sectors for full EU membership. But they need to be encouraged and applauded in this process. I fear that the EU is now dragging its feet over the whole question of enlargement. The selfish and greedy attitude of Spain, Portugal and Greece to the question of future structural funding, coupled with the rejection of the Nice Treaty by Ireland in their recent referendum, could put the brakes on the whole process of enlargement.

This will inevitably lead to disillusionment and disaffection in the accession states. Already opinion polls are indicating dwindling support for EU membership in countries such as Slovenia, considered in Brussels as one of the fast-track candidates. So we need political leadership to press ahead with the enlargement process without delay. We need to set out a clear road map and a strict timetable. If we do not set out a clear strategy, we risk frustrating the candidate countries and driving them back towards communism. If this happens, in the long term we would all be the losers. By delaying or blocking enlargement, we will simply exacerbate the problem of asylum seekers coming illegally to the West in search of work, while instability and conflict escalates in the East.

CHINA'S INTEGRATION INTO THE WTO

And if enlargement poses a problem, globalisation poses an even greater threat. Last November I visited Guizhou Province in China, to see for myself how one of the poorest parts of the People's Republic was preparing for full integration into the global economy through World Trade Organisation (WTO) membership. For the poverty of the peasant population in Guizhou and the prospect that they might become even poorer under the WTO, has raised fears of a free-trade induced famine across rural China. The leadership of the People's Republic, mindful that they themselves came to power through a peasant revolution that had its roots in the countryside, are searching desperately for ways to placate the peasants. They know every dynasty that ever ruled China was overthrown by peasant revolts and they do not wish to suffer a similar fate.

In Guizhou, the peasants can be seen trying to scratch a living out of the poor soil. Local women, their backs bent under the burden of baskets tied to each end of heavy wooden poles, carry dung from tiny farmyards to fields sometimes many kilometres away. They dump the dung in neat little piles before making their weary way back to the farmyard for another load. In the fields, the men plough the turf with single-furrow ploughs pulled by water buffalo. It is a vision of an agricultural way of life unchanged for the past two thousand years. And it is evident not only in Guizhou, but also across much of rural China, where 900 million peasants eke out a forlorn existence, on an average income of less than 500 Euros a year.

China's farmers are impoverished and yet the food they grow costs far more than that being grown by foreign producers. With WTO membership, a flood of high quality, low-price produce from abroad will surge into China, de-stabilising the struggling peasant masses, driving them off the land and into the cities. Each new tractor that arrives in Guizhou will displace at least ten peasants from their jobs. And yet Beijing is determined to keep these people on the land, fearful that a mass drift into the cities could undermine China's fragile social stability.

Having agreed to lower import barriers and eliminate export subsidies as part of WTO membership criteria, Beijing is now being forced to confront the prospect of introducing the Chinese equivalent of the CAP in order to subsidise its rural population. But if the CAP in Europe costs 49 billion Euros a year, just imagine what the cost of a Chinese CAP would be? It is incalculable and well beyond the means of Beijing. With current WTO rules demanding the de-coupling of farm subsidy from production, the Chinese authorities will need to look for new ways of paying the peasants to keep them on the land.

THE FUTURE FOR FARMING

So what does the future hold for Europe's farmers? The long-term solution must inevitably be found in the marketplace. The market is king. The market drives everything. For far too long European farmers have been lulled by a sea of subsidies into producing commodities that the market did not want, or already had in abundance.

Those days are gone. To survive, farmers must identify niche or, in some limited areas, global marketing opportunities and produce goods that the consumer wants and needs. They can do this collectively or individually, through marketing co-operatives, producer organisations or similar bodies.

Agenda 2000 must be viewed only as a temporary stopgap measure. It is a means of utilising taxpayers' money to cushion the rapid downsizing of the farming sector to a lean and mean, marketing machine. Farming will not survive unless it can rise to meet the challenges of enlargement, globalisation and the liberalisation of trade.

Reforms of the CAP will need to be geared towards protecting both consumers and farmers. There will need to be stricter controls of the production process and a move towards building quality-based competitiveness into the industry. Farmers will have to become less dependent on subsidy and on market intervention and focus more on high quality regional markets. Environmental protection and sustainable rural development must be key parts of the reform package.

To achieve these new objectives, subsidies will have to be re-directed towards growth and productivity increases involving environmentally friendly cultivation and improvements in quality. There will also need to be a reduction in animal density per hectare across all sectors with active promotion of on-farm feed production.

With half the world starving, the EU must find, in this age of high technology, ways of delivering, storing and distributing food to the developing nations as an alternative to cash aid. However such assistance must be given in a way which does not undermine the ability of those nations to help themselves out of poverty and decline. Such an initiative could provide a solid foundation for the EU's highly productive agricultural sector.

However, for the remainder of the farming industry, the challenge will be to match supply to consumer demand. In other words, to satisfy the age-old law of economics. No longer will farmers be able to rely on such absurd policies as 'set-aside' which reward producers for non-production. Nor, particularly in the context of enlargement, can we seriously consider it likely that the current system of milk quotas, income support and intervention can be allowed to continue.

DIRECT MARKETING

Farmers and growers produce a wide range of high quality agricultural outputs to high environmental and animal welfare standards. However, a similar level of competence in marketing does not always match their production skills. For many producers, a greater understanding of the operation of the food chain and the significance of customer/consumer demand in driving market change, and the requirement of today's major buyers, are essential for future competitiveness.

It is important to recognise that farmers in the EU are responsible for around 80% of the total landmass of the Community. Their primary role is to supply high quality and fresh foodstuffs while at the same time, preserving and protecting our landscape heritage. Safeguarding and strengthening our domestic and international market position for agricultural products will mean placing ever-greater emphasis on quality. An important part of future marketing campaigns will involve labelling, ensuring that consumers have a clear knowledge of the source, production methods and quality of the goods on offer.

Direct marketing of agricultural produce and the stimulation of regional market services will play an important role in developing and securing new outlets for farm produce. Farmers, hoteliers, restaurateurs, butchers and shopkeepers will all benefit from the strengthening of the market. In particular, small and medium-sized enterprises will regard the diversification and differentiation of products to be an opportunity to safeguard their enterprises and their jobs on the farm.

New opportunities of income growth result first and foremost from farm-based direct marketing programmes and from accommodation of guests, from organic farming, from the production of plants for energy generation and from assuming communal services. The advantages of direct marketing for a family farm can be summarised as follows:

• Risk improvement by means of several bases for gaining a livelihood.
• Safeguarding jobs on the farm.
• Adding higher values to products.
• Contacts to consumers.
• Production of special products.
• Promotion of creativity, self-initiative and sole responsibility.
• Promotion of the regional identity.

The most common form of farm-based direct marketing are farm shops, farm-gate sales and farmers markets. Although there is increasing evidence of growth in this area, scope exists for considerable further expansion. It is commonplace in France, for example, to find leaflets in most village shops advertising every individual local commodity from cheeses, garlic, and foie gras to bread and wine. Farms and shops offer 'tastings' and guided tours, thus benefiting from exploitation of the tourist potential from food production.

All of this is a far cry from the traditional farming methods we have traditionally pursued in the UK, where most farmers regard their role as primary producers and care little what happens to their produce once it has left the farm or been sold in the mart.

Diversity, based on agricultural and extra-agricultural activities is the reality of many farm systems throughout Europe. For example, the co-operation of agriculture with the tourism industry and the catering trade increases the attractiveness of the countryside in many areas of the EU. The production of regional specialities, combined with direct marketing, has proved very popular with visitors. Innovative and saleable products can only be produced and marketed by means of close co-operation between the farming, food, beverages and grocery trades. Marketing associations and producers' groups increase the effectiveness of farm-based supply and are necessary prerequisites for the long-term success of alternative forms of marketing.

So we must do everything possible to promote and encourage the entrepreneurial spirit of our farmers. If we are to secure a sustainable future for the EU agricultural sector then we must give a high priority to protecting the interests of those who live and work in our rural areas. Only by so doing, can we hope to lead the world in producing high quality food in a healthy environment and a beautiful countryside.