(2004/C 65 E/089)

WRITTEN QUESTION P-1421/03

by Pernille Frahm (GUE/NGL) to the Commission

(15 April 2003)

Subject:   Agricultural policy

How much does the Commission assess the producer support estimate to be as a result of the EU's agricultural policy, how much of this is market price support and what proportion of these amounts can be attributed to various products such as sugar, beef, dairy products, wheat and vegetables?

Supplementary answer given by Mr Fischler on behalf of the Commission

(2 June 2003)

The Organisation for Economic Cooperation and Development (OECD) Total Support Estimate, of which the Producer Support Estimate (PSE) measures the share of economic transfers from consumers and taxpayers to farmers in the Gross Agricultural Income resulting from goods produced, was developed to assess the support an OECD economy is providing to the agricultural sector as a result of policy measures i.e. financial budgetary payments constitute only part of it.

The methodology used has, however, a number of shortcomings since it bases the calculation of these economic transfers (expressed in theoretical EUR or $ or other national currencies) on the price gap between domestic and world market prices established under imperfect market conditions. It further introduces market price fluctuations amplified through the application of currency exchange rates that are an expression of the overall economic behaviour and monetary speculation. I.e. even if a policy does not change the PSE may rise or fall due to these parameters.

In recent years OECD has stressed the production, market and trade distorting character of some support measures (Market Price Support, Input and Output related payments) and put them into reference with much less or non-distorting policies of de-coupled support such as area payments, direct farm income support, payments on historical entitlements etc.

While the Commission has consistently pointed out the deficiencies and misinterpretations of the current methodology i.e. the over-estimation of economic transfers, it has been vigilant as to the harmful effects of certain policies on the domestic and world markets and the amount of this support that reaches the farm enterprise directly (income transfer efficiency).

In ‘the Common Agricultural Policy (CAP) reform- a long term perspective for sustainable agriculture’ the Commission proposes policies to minimise the distorting character of support while assuring sustainability and entrepreneurship for the agricultural producer through de-coupled measures in exchange for an elevated level of Good Agricultural Practice including improved environmental care. Through de-coupling the share of income the farmer receives from the support measure will substantially increase while distorting measures, such as Market Price Support, will drastically be reduced.

OECD calculates the amount of Total Producer Support Estimate at EUR 100 266 billion for the average of 2000-2002, of which 57 % or EUR 56 820 billion are calculated to be Market Price Support (MPS) and 40 % directly attributable to specific Commodity Price Support. This figure is over-estimated due to a number of factors, such as reference prices, currency exchange rates etc. and does not record 29 % of the agricultural production where support levels are very low or non-existent (such as fruits and vegetables, wine, flowers and ornamental plants etc.) i.e. the policy of the 71 % recorded commodities is extrapolated for the remaining crops.

With regard to the specific commodities mentioned, amounts of MPS of the requested commodities are: for sugar is calculated by OECD as EUR 1 131 billion, for beef and veal EUR 15 364 billion (mainly due to the bovine spongiform encephalopathy (BSE) related measures), for milk EUR 7,71 billion and for wheat EUR 4 488 billion. As explained earlier vegetables, except for potatoes, are not covered by the 71 % PSE coverage. However all other included commodities together account for only EUR 5 674 billion.