NAT/924
Enlargement and the EU agri-food sector
OPINION
Section for Agriculture, Rural Development and the Environment
How to ensure the social, environmental and economic sustainability of the EU agri-food sector with future enlargement
(exploratory opinion at the request of the European Commission)
Rapporteur: Stoyan TCHOUKANOV
|
Advisor
|
Philippe BURNY (to the Group III rapporteur)
|
|
|
|
|
Referral
|
Letter from the European Commission, 11/12/2023
|
|
Legal basis
|
Article 304 of the Treaty on the Functioning of the European Union
|
|
Section responsible
|
Agriculture, Rural Development and the Environment
|
|
Adopted in section
|
28/6/2024
|
|
Outcome of vote
(for/against/abstentions)
|
49/2/2
|
|
Adopted at plenary session
|
D/M/YYYY
|
|
Plenary session No
|
…
|
|
Outcome of vote
(for/against/abstentions)
|
…/…/…
|
1.Conclusions and recommendations
1.1This enlargement is different from all previous enlargements, in that it will occur under the urgency of current geopolitical circumstances (war in Ukraine) and in the context of growing challenges, such as climate change and the energy and environmental transitions. However, the EESC highlights that this should not be a reason to undermine the level of preparedness of the candidate countries, the importance of the needed legislative reforms and the respect of core EU values.
1.2Even though EU farmers’ worst fears during previous enlargements did not materialise, it is important to acknowledge that there were winners and losers. Weak rural areas have benefited far less from the process than agglomerations, and the smaller European farms are disappearing. The EESC therefore urges the European Commission and candidate Member States to consider and manage the impacts of enlargement on potential losers, considering specifically family farms and agri-food small and medium enterprises both in the EU and in the candidate countries.
1.3To prevent a vacuum and manage disinformation campaign's effectively, the EESC stresses the need for detailed and reliable data and urges the European Commission to closely monitor the agricultural production and the developments of the processes of reforms. Current concerns about enlargement should ease once candidate countries begin to implement the agreed reforms, the needed regulatory changes are implemented in the EU before the enlargement, and that civil society, rural communities and farmers are engaged in the process.
1.4The common agricultural policy (CAP) itself is undergoing a transformation that reflects the dynamics of the changing realities on the global scene. Debates on new forms of public support for the provision of eco-systemic services (that are no longer focused on inputs, such as land area, but on processes and outcomes) is ongoing at national and EU level. The EESC stresses that candidate countries will therefore have to align with the overall CAP objectives and values, while the CAP necessary reforms and the related financial framework will need to be agreed before the enlargement takes place. Specific support mechanisms will also have evolved by then, giving them a clear picture of what they must comply with.
1.5This enlargement, which significantly expands the EU's agricultural area, presents opportunities to better secure the EU’s strategic autonomy and further reduce the environmental footprint of the sector, which will have to be reconciled with the needed continued support to EU farmers and rural areas, with EU budgetary constraints and with the consequences of the war in Ukraine.
1.6The accession of the different candidates will not be possible without increasing the CAP budget and strengthening efforts towards agricultural policy goals for a sustainable European agricultural model, which will have to be adapted to the scale required by each successive step. Depending on the case, new instruments will have to be geared towards areas in need of specific support. The current net contributors need to be ready to pay a higher proportion of their GDP to the EU in the new financial period. This list of contributors may change, as the share of the CAP in the EU budget cannot be maintained at its current level, as the EU will be faced with other (and sometimes new) tasks.
1.7Considering the different levels of preparation of the various candidate countries (with regard to legislative reforms, institutional readiness and adaptation to the rules of the internal market) and the impacts of the new trade flows on the local economies of the candidate countries, the EESC recommends an appropriate timeframe for gradual integration to prevent negative effects from unbridled competition and provide a dedicated budget for the newcomers, separate from the funds which already exist, which should target the most impacted agri-food subsectors, in particular the SMEs.
1.8The latest CAP reform has strengthened the principle that every hectare supported must, in return, provide society with environmental services. However, uniform funding per hectare does not reflect either the ecological reality or a fair support from a social perspective. The EESC believes that in light of future enlargement, the CAP should be further adapted to provide more targeted support towards the three pillars of sustainability. This would also involve gradually replacing the present surface-based basic income support with financial incentives for services benefiting the environment and society, and degressive payments or mandatory capping for all Member States.
1.9Considering the preliminary market analysis on the redirection of trade flows between the EU and the candidate countries, enlargement will bring a net benefit for EU exporters of industrial goods and services, while the agri-food sector will be undercut by the lower production costs of some of the newcomers. The agricultural sector was the sector impacted most directly by Russian countersanctions in 2014. The EESC calls this time for an adequate budget that must be dedicated to duly compensating for the negative effects on EU farmers, taking into account also potential social costs.
1.10Today, big actors on the commodity market and companies farming large surfaces up to 500 000 ha are playing a major role in the world’s food economy. The EESC believes in market regulation to address the financialisation of the food sector, which drives severe speculation and may endanger both the sustainability of the entire chain and the European model of farming. The EESC calls for agricultural and rural development policies to become further oriented towards a proximity economy, and for these principles to be transferred to the new candidate countries.
1.11The risks of a rushed accession for unprepared farmers in the candidate countries may result in negative consequences in their short- and long-term perspectives, not only for the agricultural sector but for rural areas altogether. Increased land speculation could also produce unpredictable effects. The EESC therefore suggests that land reforms be closely monitored and implemented entirely before accession.
1.12The integration process has somehow already started, with EU markets opening to agricultural products from the candidate countries, creating potential disadvantages for EU countries that must be avoided through clear rules that the candidate countries must adhere to.
2.Overview of EU candidate countries
2.1The forthcoming enlargement of the European Union poses a major challenge for both the candidate countries and the EU and its Member States. Several countries are future potential EU Member States, and they are very different from one to another, according to the size of their population, their weight in agricultural production and trade and their socio-economic development. On the one hand, a small country like Montenegro will have no impact on the EU agricultural and food sector; on the other, an important player in the international agricultural commodities market like Ukraine can have a huge impact on the current EU agricultural production and trade.
2.2The EU accession is a long process which generally requires many years of negotiations and adaptation to EU standards. As in previous rounds of enlargement, one of the last and most difficult chapters to be discussed in the accession negotiations is the agricultural chapter. The membership negotiations began with Serbia and Montenegro in 2012. For the other countries, the process began more recently: Ukraine, Moldova and Bosnia-Herzegovina became candidates in 2022, and Georgia in 2023. The accession negotiations began in 2022 for Albania and North Macedonia, in 2023 for Ukraine and Moldova and in 2024 for Bosnia and Herzegovina.
2.3The accession of all these candidates would increase the EU’s agricultural area by one third, while the accession by Ukraine alone would increase it by one quarter (with the Ukrainian agricultural area being as large as the German and the Polish ones combined). In 2021, the Ukrainian production of maize (42), wheat (32) and barley (9) reached 83 million tonnes, representing more than 30% of the 270 million tonnes of cereals, including rice, produced in the EU-27. In the bovine sector, the relative weight of the accession candidates (excluding Türkiye) is much lower, around 7,5% of the total number of live bovine animals in the EU. In the field of swine production, the accession candidates (excluding Türkiye) have around 7% of the total number of live pigs in the EU-27. The poultry sector is significant in Ukraine (180 million heads, representing around 12% of the total number of live birds in the EU in 2020). The south-eastern candidate countries present a small-scale and fragmented production, where the average farm size varies between 1.2 ha and 6.2 ha (with the smallest in Albania the largest in Serbia), with Serbia being a net exporter of agricultural products and the other countries net importers (especially Albania and Montenegro).
2.4The challenges and opportunities of enlargement differ greatly between the different accession countries. With its broad agricultural area, the accession of Ukraine would better secure the EU’s strategic autonomy. However, Ukraine’s production will compete with current EU farmers’ production, in particular for poultry meat, eggs, cereals and sugar. Furthermore, considering the current war situation in Ukraine, the country might not be capable of achieving the EU’s environmental standards in the medium term due to water, air and soil pollution and a lack of adequate production tools (e.g. machinery and energy), and would therefore need to focus on environmental restoration. The other candidate countries, although representing smaller agricultural production, could potentially offer niche products to the EU market and would need to focus more specifically on modernising their production tools12. For example, in 2023 the EU imported EUR 443 million of fruits and nuts from Serbia (Serbia is the leading exporter in the Western Balkans, exporting about one fifth of its agricultural production), EUR 290 million of oilseeds and protein crops from Moldova, and EUR 90 million of tobacco, cigars and cigarettes from North Macedonia.
2.5The two decades since the EU 2004 enlargement show that beyond the moral and geopolitical arguments there is a strong economic case as the candidate countries represent new markets and opportunities for European agricultural products. During the former pre-accession process (1994 – 2004), trade between the EU member states and future members grew threefold with a positive trade balance for the EU. With a population of around 60 million people (2023), the current candidate countries represent significant potential for export not only for technologies and know-how, but also for agriculture. For example, Ukraine was the third destination for which EU agri-food exports grew the most compared to 2022, with an increase of EUR 447 million (+19%), across most product categories (exports to Ukraine reached EUR 2.8 billion in cumulative value from January to October 2023, their highest level over the last four years).
3.Background
3.1The story of EU enlargements is one of success, though with unequal results and unsolved problems from a social and economic point of view. They have often faced considerable opposition from the start: French President Charles de Gaulle opposed British membership; later, President François Mitterrand opposed Greek, Spanish and Portuguese membership. The reasons for the first Member States to apply, and for them to be accepted, were primarily economic while the second enlargement was more political. The southern Mediterranean countries had just emerged from dictatorships and wanted to secure their democratic systems through the then EEC, while the EEC wanted to ensure that their southern neighbours remain stable and aligned to NATO. These two principal forces, economic gain and political security, have been behind enlargements ever since.
3.2In 2004, ten countries, including Poland and Hungary – two important agricultural producers – became EU members. In 2007, it was the turn of Romania and Bulgaria. The farmers of the then EU-15 were afraid about the competition from these new Member States with lower production costs. However, the enlarged agricultural market was rapidly stabilised and trade relations among previous and recent Member States did not change dramatically. EU accession had a positive economic impact on the new Member States and their agricultural sector, by giving farmers and food processors new opportunities in a larger single market, by reaching consumers with higher income per capita, and also by benefitting from investments for modernisation. At the same time, farmers and food processors from the old Member States also benefitted from new markets and investment opportunities. As a result, most EU farmers and food processors became more competitive, intra-EU trade expanded and the EU strengthened its position in the world market. This evolution was equally profitable for EU consumers.
3.3After these substantial enlargements, public opinion in Europe turned more against further expansion. It was acknowledged that enlargement had its limits. Former Commission President Romano Prodi favoured granting ‘everything but institutions’ to neighbouring states, allowing them to co-operate deeply while not putting additional strain on the institutional framework. This has in particular been pushed by France and Germany in the form of a privileged partnership for Türkiye, membership for which has faced considerable opposition on cultural and practical grounds. The debate about EU institutional reform and CAP reform is still ongoing.
3.4In light of the ongoing Russian war on Ukraine, the EU reiterates the strategic value of the enlargement, as a driver for improving the economic and social conditions of European citizens, while fostering the values on which the Union is founded. In reality, the Union has few other political tools at its disposal to respond to security challenges on its periphery. The EU possesses neither a standing army nor an intelligence capability as a Union – a fact that will need to be further discussed.
3.5The current enlargement process differs from previous ones for two key reasons. Firstly, it is characterised by a gradual approach, in contrast to past enlargements. For instance, some candidate countries have gained and will continue to have open access to the single market – a privilege not granted during the previous accession process. Secondly, the situation with Ukraine presents a unique challenge. It marks the first time the EU is dealing with an ongoing war during an enlargement process.
3.6As a result, the EU must carefully consider the current geopolitical context and allocate resources to consolidate its position within Europe. Notably, the EU’s agricultural sector demonstrated its commitment by significantly decreasing agri-food product sales to Russia after the illegal ‘unification’ of the Crimea with Russia – a costly decision that signalled support for accession and contributed to reconstruction efforts. Given these factors characterising the current enlargement process, a thorough review of the CAP budget is essential. Imbalances may arise if the CAP remains unchanged, particularly in relation to Ukraine’s future accession. The EU Council, new European Parliament and European Commission must therefore establish a clear budgetary framework to address these challenges.
3.7The enlargement of the EU will provide opportunities for the Union to achieve greater autonomy in food production and become an even more important agri-food trade partner globally, while disseminating its high sustainability standards (social, environmental and economic sustainability of the agri-food sector). However, the enlargement process and conditions will need to ensure that future enlargement is beneficial both to farmers in candidate countries and in the EU and effectively contributes to achieving the EU’s sustainability objectives and the Agenda 2030.
4.General comments
Economic sustainability
4.1Even a significantly increased (in line with inflation) future CAP budget will be limited; therefore, it will require many measures including the capping of direct payments or reinforced redistributive payments in order to achieve a fair distribution of income support among farmers and to ensure that the current structure of EU agriculture can be maintained after enlargement. The EU has a high proportion of family farms
(94.8% in 2020) and small-scale farms (76% of farms managing less than 10 ha).
4.2The EESC notes that the quality of the economic data is an issue for some of the accession countries, and that most analyses are shrouded in uncertainty regarding the outcome of the war in Ukraine, as well as the influence of Russia and China on the Western Balkans.
4.3While EU farming has gone from a part of 11% in the GDP in 1991 to 1.4 % in 2022, something all candidate countries have in common is a relatively large share of their GDP based on agriculture (for example 22.9% in Albania, 8% in Montenegro and 7.5% in Serbia), including subsistence and semi-subsistence farming. This means that, at the end of the process, the share of agriculture in the GDP of the enlarged EU will have increased. The impacts of these new trade flows on the local economies of the candidate countries should be assessed and carefully managed in order to avoid adverse effects on local businesses.
4.4Farm size distribution and the market organisation of farm inputs are quite different among the various considered countries, and will need to be taken into consideration while preparing the CAP for the enlargement. In Ukraine, 80% of the farms – covering 25% of the agricultural area – have less than 120 ha and sell their products in the domestic market. On the other hand, Ukraine’s agricultural sector is also characterised by very large farms (farms of 15 000 ha - 50 000 ha are common, with an average farm size of around 96 ha compared to an average size of 17 ha in the EU), which are directly linked to the world market. Furthermore, cooperatives play an important role, among other things, by buying farm inputs such as seeds and fertilizers.
4.5The future of the CAP after 2027 hinges on the fact that other sectors, from defence to energy, are making strong demands for a larger share of the EU budget, of which agriculture currently receives one quarter. However, it must be considered that the enlargement will be a net win for the EU, with expected exports of industrial goods and all kind of services to the newly opened markets that will dwarf not only the feared imports of Ukrainian cereals but also the budgetary burden of increased structural and investment funds. In these conditions, it is only fair that farmers on both sides are adequately supported to, respectively, keep up with the more stringent production rules and withstand the impact on the markets of incoming competitors with lower production costs.
4.6In any case, in light of the enlargement, in the medium- to long-term, the EU should aim to make the agricultural sector economically viable even without the support schemes of the CAP, by ensuring that the profits within the supply chain are distributed in a balanced way and farmers can make a decent living out of their activity, while providing EU citizens with affordable food.
4.7Considering regional imbalances and the new EU candidate countries, the EESC recommends analysing external convergence and gradually replacing the present basic income support based on surface area with financial incentives benefiting the environment and society instead of compensation, while small family farms should have the opportunity to choose to maintain income support based on surface payments and labour units on the farm. The EESC insists that these necessary reforms need to be agreed before the enlargement takes place and the financial framework has been decided.
Environmental sustainability
4.8Climate change is threatening food production, as pointed out recently by the European Environment Agency, which warned of catastrophic risks to crops in Southern Europe due to record-breaking heat ten months in a row. There is also the impending water crisis, the loss of ecological services and productivity and, crucially, increasing competition from countries that are about to exploit their more favourable geographical position when it comes to global warming.
4.9Owing to climate change, the EU is losing some of its economic advantages, which are fundamental to its food security and strategic autonomy. Shifting toward regenerative agriculture and adapting to the consequences of climate change and to less polluting methods of production are the only ways to prevent a dystopian future in which food and water resources are weaponised. The EU has four years (until the end of the current strategic plans) left to change its common agricultural policy and give farmers a role in Europe’s security transformation and energy transition. If farmers are to help Europe in these tasks and farming is to become more resilient, then the EU needs to repurpose CAP support.
4.10EU accession comes with respect for the EU’s high health and environmental standards, which needs to be closely monitored in all candidate member states (level of implementation of Food Safety and Plant Protection (SPS) legislation, EU regulations on the use of PPPs and fertilisers, etc). . The regeneration of areas directly affected by the war, which are subject to air, water and soil pollution, will be costly. Concerning the implementation of rural development measures to deal with environmental and climate issues, co-financing by the Member States could be a real problem, especially in Ukraine.
4.11Facing a lack of energy resources during wartime, the Ukrainians have extended the use of environmentally friendly alternatives, which will contribute to building back a better and greener country (e.g. solar energy, biofuels, fuel pellets).
4.12The significantly increased agricultural area following EU enlargement will provide opportunities to increase the EU’s contribution to meeting climate and biodiversity objectives, such as carbon capture and organic production. For example, organic agriculture currently represents only a small part of Ukraine's agricultural area (FAO estimates the organic production in 2021 at 422 000 ha
-around 1% of Ukraine's agricultural land area-, while the Ministry of Agrarian Policy and Food of Ukraine estimates it at 263 600 ha
(data 2022) and other sources refer to 93 825 ha in 2023
), showing the potential of progression of organic surfaces in this country alone. In Serbia, 13 423 ha were grown under organic production in 2017, representing 0.38% of the total utilised agricultural land. A bigger "green" area in the enlarged European Union will lead to a bigger impact at the global scale.
Social sustainability
4.13Social realities vary widely across candidate countries. Agriculture in the accession candidate countries is an important socio-economic sector with a large labour force relative to the size of the working population. Enlargement might affect the structure of the agri-food sector, with small-scale farming that will partially disappear in the new Member States and agricultural workers who will migrate to neighbouring Member States. At the same time, in Ukraine, the unemployment rate was around 20% in 2023; the inflation rate went up to 26% in 2022, but fell to 5% in 2023. As a consequence of the war, the purchasing power of the population sharply deteriorated (40% is in need of food aid) and the population itself has fallen by around 10 million people. In such a situation, agricultural exports are very important for the national budget.
4.14Compliance with human and labour rights, and ensuring decent and fair living conditions, pension rights and minimum wages for agricultural workers that are comparable to other sectors, should be a prerequisite for ensuring the future of the EU farming sector.
4.15The proportion of female farmers is generally higher in the accession countries compared to the EU Member States. The accession process should take this into account and support female farmers and entrepreneurs in order to prevent them from leaving the sector.
4.16In the EU, the decline of employment in the European agriculture sector increases the need for EU and non-EU seasonal workers when planting and harvesting activities are at their peak. EU citizens’ freedom and right to work across the Union allows the market economy to function properly by providing labour where and when it is needed. Still, after 30 years of the single market, the social conditions of these seasonal workers need to be improved, while the consequences and opportunities of the enlargement process need to be properly taken into account.
4.17Enlargement could also lead to the demise of family farms, both in the EU in its current composition and in future accession countries, fundamentally transforming the EU’s agricultural landscape and potentially causing economic and social challenges. For this reason, the EU needs to prioritise the agricultural models that needs to be specifically supported in the future.
4.18Land reforms in the accession countries should be closely monitored and fully implemented before accession, while land grabs and land speculation should be kept under control. In Ukraine, the 2001 Land Code granted farmers small plots of land (of about 4 ha each) and introduced a moratorium on land sales. But in 2021, land markets were opened up as part of the International Monetary Fund’s (IMF) loan conditions. In January 2024, the cap on land sales was raised to 10 000 ha. This has unleashed a tide of speculative investment, with oligarchs and large agribusinesses now controlling over 28% of the country’s arable land, and investors gearing up to acquire additional farmland following the latest easing of restrictions. Following this privatisation, small landowners seem to have more difficulties to farm for themselves, as some are left with little choice but to sell their land to large companies.
Administrative capacity
4.19The existence of a functioning market economy is based on clear property rights, functioning and transparent markets, price liberalisation and macroeconomic stability. In order to resist competitive pressures in the internal market, new Member States have to provide for adequate marketing standards, price reporting, and public intervention.
4.20Owing to financial difficulties, Ukrainian public administrations are understaffed and in need of expertise; they would not be currently able to establish a CAP payment agency. In the other accession candidate countries, the administrations are still not fully prepared, particularly in the areas of agricultural policy formulation, implementation and control.
4.21Food quality standards such as those for organic production and geographical indications, must be properly monitored by public administrations and private certification organisms. This requires competent and independent laboratories able to carry out controls on the ground and in the marketplace.
Trade flows
4.22Among the candidates, Ukraine is by far the most important trade partner of the EU-27. Over the last ten to twenty years, Ukraine has strongly increased its exports of grains, oilseeds, vegetable oils and poultry meat and has become one of the main players on the global grain and oilseeds markets. Since 2014, Ukraine exports to the EU-27 have significantly increased for maize (10 million tonnes on average for the 2019-2021 period), rapeseed (2.2 million tonnes), sunflower oil (1.8 million tonnes), sugar and poultry meat. Higher EU imports of maize, wheat, barley, bran and residues, starch, processed cereals, poultry meat, eggs and albumins were observed after the trade liberalisation in 2022, but the increased imports of cereals are more linked to the logistical issue caused by Russian aggression against Ukraine and to the EU's increased import needs (low harvests in some EU neighbouring member states and severe droughts in Spain, for example).
4.23In EU countries bordering Ukraine, increased imports from March 2022 to May 2023 led to lower local prices.
4.24The main EU agricultural imports from the other candidate countries are mostly vegetables, vegetable oils, fruits, nuts and tabaco in moderate volumes.
Brussels, 28 June 2024.
The president of the Section for Agriculture, Rural Development and the Environment.
Peter Schmidt
_____________
