Tobacco, olive oil, cotton and sugar

1) OBJECTIVE

To prepare the reform of the common market organisations for tobacco, olive oil, cotton and sugar.

2) ACT

Communication from the Commission to the Council and the European Parliament. "Accomplishing a sustainable agricultural model for Europe through the reformed CAP - the tobacco, olive oil, cotton and sugar sectors." [COM(2003) 554 final].

3) SUMMARY

Reform of the tobacco common market organisation. The European Commission proposes abolishing the tobacco market organisation completely. Development of the tobacco sector is not compatible with European policies on sustainable development and public health.

The Commission is considering progressively decoupling production subsidies and abolishing the Community Tobacco Fund.

In order to facilitate conversion and restructuring of the regions affected by the reform, rural development measures will help conversion in production areas.

The transition period. The reform will begin with a transfer of all or part of the current premium into entitlements for single farm payments:

• For the first 3.5 tonnes, the transfer will be complete.
• For the part from 3.5 to 10 tonnes, 80% will go to the single farm payment system and the remaining 20% will go towards the restructuring envelope.
• For quantities over 10 tonnes, the current premium will be reduced by a third each year. This quantity will then be divided in two: one half will go towards the single premium and the other to restructuring.
• The Community Tobacco Fund will continue to finance anti-tobacco campaigns.

Expected results. This progressive implementation will allow farmers to bring production into line with market requirements. Their income will increase.

The least profitable crops will no longer be grown within the EU. The affected producers will convert, whilst more competitive farms will appear.

The funds reserved for restructuring are allocated according to procedures that are specific to rural development. A large number of producers will benefit from this.

Reform of the olive oil sector. For olive oil, the Commission suggests decoupling 60% of current production aid (100% in the case of the smallest producers). National envelopes made up of the remaining 40% will be used by the relevant national authorities to grant aid to producers, for claims exceeding EUR 50, per hectare of olive grove. This aid will be aimed at maintaining olive groves with environmental or social value.

The private storage measures currently in force will be retained for crisis situations, while export refunds, which have been fixed at zero since 1988, will be abolished.

Support for quality in the olive oil sector will be improved thanks to better quality assurance of the olive oils offered for sale.

Expected results. Decoupling will allow producers to become more competitive and continue giving the olive oil sector a positive image.

The aid for maintaining olive groves will help to resolve problems linked to conservation of the natural environment, particularly in areas with low yields. In this way, preservation of the olive tree in difficult areas or areas with low yields can be ensured. Within a framework of common criteria for the whole Community, the relevant national authorities will have greater flexibility in distributing this aid.

Reform of the cotton common market organisation. For cotton, the Commission proposes putting into place a single farm payment system and new aid granted in the form of a cotton area payment. The single payment system would be equivalent to 60% of the current aid and Member States would allocate the remaining 40% as an area payment per hectare of cotton.

Expected results. Partial decoupling of aid will enable producers to adapt more easily to market demands. They will also be able to use production methods which are more environmentally friendly.

European subsidies in the cotton sector will comply with World Trade Organisation rules and will no longer distort competition on the world market to such a great extent. Cotton growing will become environmentally friendly because farmers will have to respect environmental legislation in order to benefit from aid.

The new area payment per hectare of cotton will be granted for a maximum area of 425 360 hectares compared with 469 000 hectares at present.

Half of the area payment envelope will be differentiated according to interbranch scales, rewarding deliveries according to quality. The activities of each interbranch organisation will be financed by its members and by means of a Community subsidy of EUR 10 per hectare.

The remaining money allocated to the cotton sector during the period in question will serve to convert cotton-producing regions. This sum, shared out between Member States, will become a new instrument for rural development.

The sugar common market organisation (CMO): overview.

The current common market organisation has remained unaffected by reforms of the Common Agricultural Policy (CAP) since 1992.

Its quota system spreads out production within the European Union (EU). The market organisation has helped ensure a high and stable income for producers as well as a consistent supply of high quality sugar. Moreover, the countries that have preferential access to the Community market benefit from a high price on the European market.

However, there is much external criticism and pressure on the current common market organisation. Prices are high and do not favour the development of production and industry which can compete on the world market. Within the EU, these prices are unfavourable to users and consumers of sugar. Overall, the common market organisation should be redesigned to achieve the aims of competitive and sustainable development as established by the recent CAP reform.

From 2007, imports covered by the Everything But Arms initiative and agreements with the Balkan countries could cause substantial imbalance on the market. Within the WTO framework, the current negotiations are likely to lead to a reduction or even an abolition of export refunds.

Revision proposals. The European Commission suggests three possible ways of reforming the European sugar sector: extension of the present regime, the lowering of domestic prices and the complete liberalisation of the system:

• Extension of the present regime, adapting it in order to respect EU international agreements, would imply a reduction of customs duties, domestic prices and quotas. This solution would prevent, amongst other things, a restructuring of the sector.
• Lowering domestic prices to obtain a balance between imports and production would result in the gradual phasing out of quotas. The European market would become less attractive to countries exporting to the EU. A restructuring of the sector as well as compensation to European producers for loss of revenue would be necessary.
• A complete liberalisation of the system would lead to the disappearance of price and quota support mechanisms and consequently production would stop in most Member States. A limited number of third countries would supply Europe's sugar needs. Compensation for producers would also be necessary.

Effects of the reform on the budget. In terms of budget, the effects of the reform are neutral, in order to comply with the ceiling on agriculture expenditure.

Last updated: 12.02.2003