Committee Reports > List of Committees > Joint > 1980 > Committee on the Secondary Legislation of the European Communities > Report No. 69 - Agricultural Prices and Measures to Balance the Markets and Streamline Expenditure

REPORT

Introduction

1. The Joint Committee has examined the proposals sent by the Commission to the Council on 11th February, 1980 (4896/80) on the fixing of prices for certain agricultural products and on certain related measures. In connection with this examination the Joint Committee has also considered proposals sent by the Commission to the Council on 5th December, 1979 (11337/79) for changes in the common agricultural policy to help balance the markets and streamline expenditure. Both sets of proposals are closely related and the Commission has indicated that it would wish to revise its recommendation on prices if action is not taken by the Council in line with the earlier proposals.

2. The Commission proposals were examined in detail for the Joint Committee by its Sub-Committee on Agriculture and Fishery Matters under the Chairmanship of Deputy Michael Smith. The Sub-Committee had discussions on the proposals with representatives of the Irish Farmers’ Association, Irish Creamery Milk Suppliers’ Association and the Department of Agriculture. It also considered the views in writing of An Bord Bainne. The Committee is indebted to Deputy Smith and his Sub-Committee for their work.

Background

3. The policy followed during the last three annual fixings of agricultural prices has been one of price moderation. Average common prices have risen by 3.9%, 2% and 1.3% in the past three agricultural campaigns. Prices of agricultural produce at the farm gate have risen more slowly than food and beverage prices, which rose in 1977 by 12.8%, in 1978 by 7.3%, in 1979 by an estimated 7.9%. Rapid cost inflation was a feature in certain Member States but this was offset by green rate adaptations and the conseqent price changes in national currency. Thus in 1977/78 price increases in national currencies varied between 3.7% and 30.1% (Community average: 7.8%), in 1978/79 between 0.2% and 13.7% (Community average: 8.9%) and in 1979/80 between 0.3% and 12.0% (Community average: 7.1%). During 1979 there was a rapid phasing out of existing MCAs. The monetary gap has been considerably reduced and no Member State has now available the sort of rapid price increase in national currencies that has taken place in the three previous years. Therefore, the scope no longer exists for further price increases for Member States facing the most rapid cost inflation.

4. During 1979 there was a continued trend towards higher levels of production in the Community. Deliveries of milk to dairies increased by 2.4% while sugar production reached a record 12.2 million tonnes. Cereals production at 113 million tonnes was only slightly below the 1978 peak. Beef production was 3 to 4% up on 1978 and wine production 15% above the average. In some other markets levels of production remained more or less stable.

5. For the Community as a whole there was a 3.3% increase in GDP in 1979 resulting in an increase of between 2 and 3% in workers’ real income. However, notwithstanding the large volume of production, rising costs in the agricultural sector resulted in an average decrease in real income of between 1.5 and 2%. This fall was registered in all Member States except France and Italy and was especially serious in Ireland. Denmark and Luxembourg. The rise in input prices was partly due to the oil price rise in 1979 and further cost increases arising from that rise are still in the pipeline.

6. The pricing policy in the recent years and other measures taken to stimulate demand have been designed to counter a stagnant or declining consumption. Nevertheless, persistent surpluses have remained a feature on some agricultural markets. Worsening inflation and rising unemployment together with dietary changes and a slowdown in the growth of population are depressing demand for agricultural produce while increasing input prices in the agricultural sector. These developments are a matter of particular concern at a time when uncertainty prevails about the Budget of the Communities. Apart from the fact that the 1980 Budget has not been adopted, there is concern about the adequacy of the resources available for financing the Budget in the future. The latter problem was the subject of the forty-seventh report (Prl. 8085) of the Joint Committee of 30th May, 1979.

Agricultural Prices Proposals

7. The Commission argues that if the market situation and budgetary position were the sole determining factors, the Community should adopt a price freeze in 1980/81. However, it accepts that regard must be had also to the fall in real agricultural incomes that took place in 1979. Accordingly, it recommends that the Council approve an increase in the common agricultural prices for 1980/81 varying according to product and ranging from 2 to 3.5% except for milk, sugar and beef and veal. In the latter sectors the increase proposed is 1.5% subject to its applying in the milk sector only to milk proteins and not to butter.

8. In the beef and veal sector the Commission is also proposing a premium of 60 ECU (IR£39.55) per head for the first fifteen suckling cows on a farm specialising in beef production.

9. The Commission emphasises that its proposals on prices are conditional on the Council taking action along the lines of the proposals made for dealing with market imbalances. In particular, it states that “under no circumstances can the price proposals and the related measures be financed unless an effective and permanent solution is found to the most serious problem currently facing the common agricultural policy, that is to say the milk problem”.

Market-Balance Proposals

10. The Commission proposals for restoring balance in the agricultural markets (modified to some extent in the later proposals regarding prices) contain the following three basic elements:—

(a) In the milk sector, in addition to the basic co-responsibility levy, a supplementary levy related to the costs of disposal of new surpluses,

(b)A revised regime for sugar and isoglucose, and

(c)Adaptations in the regimes for beef, rye and starch.

11. In addition to a co-responsibility levy to be levied on producers at the rate of 1.5% of the target price in 1980/81, the Commission is proposing that an additional levy shall be paid by all undertakings treating or processing milk purchased from producers who produce a quantity exceeding 99% of the quantity purchased in 1979. The rate of the levy would be 18 ECU (IR£11.86) per 100 kilograms by which the purchaser exceeds during the calendar year the quantity purchased in 1979.

12. The Council has already agreed to increase the basic co-responsibility levy on producers to 1.5%. The Commission has proposed that in respect of this basic levy, a levy-free franchise of 60,000 litres a year should apply to deliveries in the less-favoured areas. No exemptions or exceptions are proposed in the case of the supplementary levy referred to in the preceding paragraph.

13. In the sugar sector the Commission proposes to modify the maximum quotas by basing them on production in the two best of the last four completed campaigns and applying a co-efficient so that the Community total production comes to about 10.3 million tonnes. The maximum quota of each enterprise would be allocated in the proportions 80% to A quota (levy-free) and 20% to B quota (maximum levy—40% of intervention price) subject to the A quota of any enterprise not falling below 90% of its present level.

14. In the beef and veal sectors the Commission proposes (a) to establish Community classification of fat cattle carcases and to define the reference quality so as to establish genuinely common standards for intervention, (b) to fix guide prices in relation to reference quality, dead weight, (c) to make intervention available only when the Community average price for the intervention categories is at or below the intervention price, (d) to abandon national co-efficients which have the effect of setting buying-in prices at varying levels in different Member States and (e) under normal circumstances to suspend intervention in the period April-mid-August and to rely in this period, if necessary, on private storage.

Implications for Ireland

15. If the market-balance proposals were adopted unchanged, Ireland would suffer substantial losses through restraint on growth of agriculture production particularly in the milk, beef and sugar sectors with consequent adverse effects on overall agricultural output and on the economy as a whole.

16. For the Community as a whole the rate of the supplementary levy on dairies is estimated at 3% for 1980/81. The combination of this levy and the co-responsibility levy on producers could mean a deduction of 2.5p per gallon for producers in Ireland. As far as the supplementary levy is concerned no distinction would be made between regions with relatively low output per cow and regions with high output, often based on intensive use of imported feed concentrates, which are a main cause of the present milk surplus. Ireland has the lowest milk yield per cow in the Community and therefore the greatest development potential and accordingly, the Commission’s proposal is seen as highly discriminatory as far as this country is concerned.

17. There is no structural surplus of beef in the Community at present. An important factor which contributes to the present supply problem is the fact that large quantities of beef are imported from third countries on concessionary terms. Ireland’s average cattle price is the lowest in the Community and any restrictions on intervention would further reduce our price. This could lead to an erosion of cattle producers’ confidence which would negative the Commission’s efforts to get milk producers to switch into beef.

18. In the sugar sector the Commission is aiming to reduce production quotas by about 1 million tonnes. The effect in Ireland would be to cut our “A” quota (i.e. full price) from an annual 182,000 tonnes of sugar to 164,000 tonnes and our “B” quota (i.e. the further production subject to levy) from 50,000 tonnes to 10,000 tonnes. The Commission’s proposal would reduce farm income in Ireland from beet, which is a most valuable cash crop for the Irish farmer and would also impede the development of the Irish sugar industry.

19. As far as the proposals for dealing with imbalances in the market for other products are concerned, the implications for Ireland are relatively minor. The existing Community production refunds on starch would be phased out over three years. However, only a very small quantity of starch is produced in this country. The proposal on starch would increase costs to some Irish industrial users. The proposals for rye and for fruit and vegetables would not directly affect this country.

20. In regard to the proposals relating to agricultural prices, if the levels recommended by the Commission are adopted unchanged the effect would be to increase farm incomes in Ireland by about IR£25 million in a full year. The beef sector would account for about IR£11.25 million and the dairy sector about IR£9.6 million of the increase. There would be a net benefit of approximately IR£15 million for the balance of payments while the Consumer Price Index would increase by around 0.15%. The provision to exempt milk producers in less-favoured areas from the proposed basic co-responsibility levy of 1.5% in respect of an annual quantity not exceeding 60,000 kgs. would affect some 35,000 Irish producers and exempt them from payments of IR£2.1 million. The proposed beef suckling scheme for producers who undertake not to deliver milk would provide a premium of almost IR£40 per cow with a maximum of 15 cows per head eligible. If all eligible herdowners in Ireland applied for the premium they would receive in the region of IR£17 million.

Market Imbalances

21. The Joint Committee readily accepts that it is very much in Ireland’s interest that balance should be restored to the agricultural markets in the EEC. However, the Committee cannot support the Commission’s proposals as it believes that these pay inadequate attention to some of the factors which are causing the present structural surpluses.

22. Imports from third countries particularly those at preferential rates clearly contribute to present surpluses. If the Community, for political reasons, enters into preferential trade agreements with third countries the Community as a whole must be prepared to bear the cost of such agreements. It is most inequitable that the entire burden should fall on the farming sector. In the Joint Committee’s view, costs which would not have arisen in the absence of third country agreements should be isolated in the Community budget and not attributed to the common agricultural policy so that the factual position can be clear to everybody.

23. The Joint Committee also finds the Commission’s proposals inadequate in that they fail to deal with factors which it admits are relevant. There are no proposals as to how to deal with the competition of vegetable fats as far as the milk sector is concerned. As far as imports of animal feed are concerned, the Commission is apparently aiming for some voluntary restrictions of imports of soya beans similar to those undertaken for manioc. Something more positive is needed, in the Committee’s view, to favour dairy farmers using their own fodder.

24. The Commission proposals take little account of the regional differences in the Community or of the contribution varying methods of production make to the creation of surpluses. These proposals, particularly in the milk sector, are discriminatory as far as Ireland is concerned where productivity is below the European average. In this respect the Joint Committee believes that they run counter to Protocol 30 to the Treaty of Accession which recognises a Community interest in the economic development of this country “designed to align the standards of living in Ireland with those of the other European nations” and recommends “that the Community institutions implement all the means and procedures laid down by the EEC Treaty” towards the attainment of that objective.

Agricultural Prices

25. It is one of the objectives of the common agricultural policy as laid down in the Treaty of Rome “to ensure a fair standard of living for the agricultural community, in particular, by increasing the individual earnings of persons engaged in agriculture”. At a time when the real income of farmers has been dropping and input costs rising the Joint Committee fails to see how this objective is being observed in the Commission price proposals for 1980/81. Indeed, when these proposals are taken in conjunction with the related measures proposed by the Commission, the Joint Committee believes that the net result will be either no increase or even a fall in farmers’ income in 1980/81. The Joint Committee is informed that the Commission accepts that the COPA demand for 7.9% increase is based on an objective assessment. If this is correct, it believes that the demand should be accepted. Even such an increase would not be adequate to cover increased costs in Ireland where input costs rose by over 17% between November, 1978 and November, 1979.

Milk

26. The supplementary levy on dairies is intended by the Commission to apply in addition to the co-responsibility levy on producers which the Council has already agreed should be at the rate of 1.5% during 1980/81. In the Joint Committee’s view the proposed supplementary levy is an attempt to freeze the present pattern of milk production in the Community. In the Committee’s opinion it should be strenuously opposed by Ireland. An increase in milk production is essential for the economic survival of many of the smaller farmers in this country. The average yield per cow here is still well below the European average and the Committee believes that it is implicit in Protocol 30 to the Treaty of Accession that restrictions on production cannot be countenanced until a level of productivity on a par with the European average has been attained.

27. The Joint Committee fully accepts that alternative steps are necessary to tackle the problem of surplus production in the milk sector. It is clearly necessary to continue measures to induce producers to cease or reduce milk deliveries to dairies. In the Committee’s view consideration should be given to the improvement of the non-marketing and beef conversion schemes by increasing the financial inducements and by continuing the schemes for an extended period, say, five years. If the production of milk has to be further restricted through the medium of a tax, the Committee would support the suggestion that such a tax should only apply to production in excess of a reference yield per acre. It understands that a yield in excess of 12,000 litres per hectare has been mooted in this regard.

28. The Joint Committee also believes that the contribution made to the problems of the milk sector by competition from other products must be tackled at this stage. Some of the imbalance in the market is due to a reduction in the consumption of dairy products as a result of competition from fats of vegetable origin. The Committee considers it equitable that a levy corresponding to the milk co-responsibility levy should be imposed in the non-milk fat sector. Moreover, it believes that, while the present situation continues, there is no justification, if the principle of Community preference is to be observed, for continuing the present arrangements for importing New Zealand butter into the Community after the end of 1980.

29. The Commission apparently intends to seek voluntary restrictions on the imports of soya following similar measures for manioc. The Joint Committee believes that this is a step in the right direction as the question of milk production from imported feeding stuffs is an important element in seeking a solution to the problems of the milk sector. It considers, however, that more direct steps may be necessary to favour farmers who rely on home produced fodder. Consideration should be given to exempting from the co-responsibility levy farmers who produce at least 80% of the fodder on their own farms.

Sugar

30. In coming to a decision on the Commission’s proposals regarding sugar the Council should, in the Joint Committee’s opinion, take into account the fact that some of the cost falling on EAGGF in respect of export refunds arises because of imports from third countries. Community producers must not have to bear the full burden of this cost. The Committee believes that having regard to the improved world market for sugar there is a strong case for continuing the existing quota arrangements in 1980/81. In any event, the Committee is strongly opposed to any reduction in Ireland’s “A” quota because of the detrimental effect on farmers’ income and the development of the sugar industry in this country.

Beef and Veal

31. The Joint Committee is strongly opposed to the Commission’s proposals for restrictions on intervention in the beef and veal sector. The average cattle price in this country is the lowest in the Community and the effect of adopting the Commission’s proposals would be to depress market prices in this country further. They must, therefore, be resisted.

32. As there is no structural surplus of beef in the Community much of the difficulty in this sector must be attributed to the pressure exerted on Community prices by continued high imports under preferential conditions. If the Community, for political reasons, finds it expedient to grant concessions to third countries it should not be at the expense of its own producers. To counteract the effect of these imports the Joint Committee believes that the Community should pursue an active export policy and increase the export refunds for beef.

33. The Joint Committee welcomes the Commission proposal to improve the efficiency of intervention buying by establishing a Community classification of fat cattle carcases and defining the reference quality. This should ensure that beef carcases of similar quality have similar support prices in all Member States.

34. The Commission proposes to grant a premium to producers holding nurse cows which would be restricted to the first 15 cows and be at the rate of 60 ECU (IR£39.55) per cow. This proposal is welcome as there has been a decline in the number of suckling cows in Ireland in recent years. However, the Joint Committee believes that it would be more effective if the rate were IR£50 per cow for the first 30 cows in the herd.

Cereals

35. Because of the amount of substitutes such as corn gluten, tapioca and grain screenings which enter this country levy free, Ireland may have surplus cereals to export in 1980/81. For a variety of reasons the availability of these cheap cereal substitutes gives an unfair advantage to livestock producers in some Member States and Irish dairy producers and pig producers find it extremely difficult to compete with products produced with the aid of such substitutes. Moreover, a considerable part of the oversupply in the Community milk sector can be related to low-cost production based on imported cereal substitutes. The Joint Committee believes that a levy should be imposed on the imports of such substitutes equivalent to the levy on imports of feed barley.

Acknowledgements

36. The Joint Committee enjoyed the generous assistance of the Irish Farmers’ Association, Irish Creamery Milk Suppliers’ Association and An Bord Bainne in considering the Commission’s proposals. It owes a debt of gratitude to these bodies which it has pleasure in acknowledging.

(Signed) ALEXIS FITZGERALD,

Chairman of the Joint Committee.

27th March, 1980.