Note from Wyn Grant. This page was started to report on a conference in Tartu, Estonia, but it has evolved as a page where I can report on more detailed aspects of enlargement (and other subjects) that do not necessarily justify placement on my main CAP page. At some point it may be re-named to reflect its changed function.
My second trip to Australia this year in December saw me in Western Australia for a visit of just over week (fortunately I had no jet lag going over and was able to hit the ground running, heading the day after my arrival for the Margaret River wine growing region). The main purpose of my visit was to attend a conference on the state and future of farm organisations, very ably organised by Darren Halpin of Edith Cowan University which is located in Jondalup in the northern suburbs of Perth. I was very impressed by their beautiful campus and by the Jondalup gulf resort where I stayed. My enjoyment was completed by meeting up with an old school friend I had last seen in New Year 1966.
The conference is going to lead to a book, but it was evident that although farm associations were following different trajectories in different countries, they had some common problems:
Nevertheless, a fascinating paper by Graham Wilson of the University of Wisconsin-Madison challenged the conventional wisdom. In the particular circumstances of the United States, farmers had been best able to protect their interests by using the legislative route rather than by operating through interest organizations. It was still possible for a farm vote of 2.5 per cent (even more if one added on those with links to the sector) to be decisive in tightly fought Senate contests of which there had been a number in recent years.
I was also able to visit three wineries during the trip. This confirmed the view that I had formed in the western district of NSW in May that there are some superb Australian wines that are often only sold locally (many of the wineries have up market eating places attached to them) or at best within Australia. Outside Australia the perception is that the country only products cheap, drinkable wines which compete in the mid-market at best and are always under threat from cheaper products from the US and Chile. There is nevertheless a very considerable understanding of wine production in the country which is being bolstered by extensions to existing specialist institutions of higher education like the one that I saw being built at Margaret River. Against that, there is over supply and some 'investment wineries' are moving into even larger scale production. People who bought boutique wineries as a pleasant way of making a living in early retirement may be in for a shock. In the longer run, Australia has to find ways of moving its wines up market.
My last visit to Western Australia was to act as a keynote speaker for the annual conference of the dairy farmers' federation in the state. My speech caused some controversy at the time as I found myself in the middle of a debate about the future of the state's dairy industry. It was eventually deregulated in 2000 and as a consequence many more marginal farmers are now out of business. After a threat of closure for the only milk processing facility, the state government intervened (organic milk already has to be imported 4,000 kilometres from the east and that would really be impossible for fresh milk). A deal is supposed to have been done with Chinese interests to keep the plant going and export UHT milk to Asia, but even that seemed uncertain when I was there. Perhaps the remarks I made in 1991 on the lines of 'if it ain't broke, don't fix it' were apt after all despite charges that I had come to the state to target the then Minister of Agriculture.24/12/03
Great indignation has been caused in Western Australia by remarks by whingeing Pom Mandy Skeggs on a Channel 4 programme that it is not possible to buy decent knickers in Perth. This photo taken at sunset on one of the Perth beaches does raise issues about why anyone should complain about one of the most enviable lifestyles in the world.
As part of the conference on Future Policy Prospects for Agriculture at the Australian National University's National Europe Centre, a two day field trip for European participants was organised to the Western Division of New South Wales. Three main impressions emerged from the trip:
Our first visit was to an entrepreneur who had moved in to agriculture from, first, a transport business and then a grain storage business run as a joint venture with a major multinational. He had done so before he was 'bullish about A'. Considerable emphasis was placed on finding new 'efficiencies' in the production process, although he seemed to be motivated as much by the challenge as by earning extra dollars. He had been engaging in large scale land acquisition around the town of Temora. In part, this was because producers on smaller acreages (perhaps some a legacy of the post-war group settlement schemes for veterans) could no longer sustain their lifestyle. His biggest project was one of rearing pigs, done as a joint venture with a major company. He had some 138 lightweight 'eco units' for the pigs. They were bedded on rice husks, virtually a zero cost product and the fertiliser this produced could meet seventy per cent of the farm's needs, an important factor in the overall cost calculations. Nearby we could see a trail of dust as a neighbour sowed on dried land, taking a calculated risk that rain would come soon.
Sowing often has to take place in very dry conditions.
The town of Griffith is a prosperous settlement in the middle of an irrigation area forming part of the fragile Murray-Darling basin. It is surrounded by fruit orchards and grape growing areas. We visited one winery which, somewhat untypically, exports only ten per cent of its product. Like many other businesses in the area, it had originally been founded by Italian immigrants. My impression was that some of the best Australian wines are consumed domestically. The production operation with its stainless steel tanks looked very industrialised compared with Europe.
We visited an irrigated farm producing rice as well as wheat and canola. In the last year farms have only been permitted 38 per cent of their normal water extraction. The amount of water needed to produce rice has been reduced from around 16 mega litres a hectare to around 11, but this still leaves it as a very water intensive crop. The impression was of a very well managed operation with a constant drive to use water effectively.
Water is an increasingly scarce resource in world agriculture and needs to be used carefully.
Finally, we visited a huge beef feedlot operation that is Japanese owned and produces largely for the Japanese market, although also for Korea. The operation is licensed to deal with 53,333 head of cattle, but is currently down to 48,000 because of the drought. There is an abbatoir on site. There is an elaborate system of effluent collection. Water usage is around 1.1 million mega litres a day, but treated water is recycled to irrigate crops. Solids are composted and sold to local cereal growers, orchardists and horticulturalists.
As we drove home, a strong shower of rain gave at least some hope to beleaguered farmers. However, as work by Linda Botterill on ANU has shown, drought is socially constructed. There is no agreed definition of drought and the same rainfall which gave a bonanza crop in the 1880s would be classified as a drought a hundred years later. If not carefully managed, drought relief policies could allow non-viable and marginal farm businesses to remain in operation.
Food industries in the accession states are lagging well behind those in the EU-15 and are likely to face serious problems competing in the enlarged internal market. That is the main finding of a research report issued by the well-known IAMO research institute in Halle, Germany.
Direct investment by foreign food processors has given an important boost to modernisation, but has also met with a hostile reception from some local interests. Nevertheless, it has been particularly important in Estonia and Hungary. In Hungary, foreign ownership accounted for 60 per cent of all foreign ownership by the end of 1998. Because of the nature of the privatisation process in the Czech Republic through a voucher scheme, there has been less direct participation of foreign capital in privatisation there. Meanwhile, throughout the accession states, small local privatised industries have run into trouble with their owners lacking the necessary financial resources for investment, product improvement and promotion.
However, there is wide variation in the experience of different countries. Most progress has been made in Estonia and Lithuania where a substantial number of new companies have emerged. In Poland there has been a marked decline in the number of firms engaged in first stage processing as firms have become larger. 86 per cent of the sugar beet processing firms in Poland are still state owned.
Meeting EU food health and safety standards is likely to remain a serious problem. Some of the best standards are in Hungary where about half of meat companies, representing the bulk of slaughtering capacity, are up to EU standards. In contrast, in Romania and Bulgaria, admittedly not designated for immediate acession, very few of the facilities handling meat and dairy products are up to EU standards. Most meat and dairy enterprises in Poland still need special permits to export to the EU.31/3/03
The last time I had been to Potsdam it was in the DDR but I returned to the city in February 2003 for a conference organised by Ecologic, the Institute for International and European Environmental Policy on 'CAP and Enlargement: an Opportunity for Nature and Environment?' Relatively extensive forms of farming in many accession states support rich forms of biodiversity in terms of plant life, bird species and rare animals. But this biodiversity could be threatened by more intensive forms of farming, e.g., by ploughing up semi-permanent grasslands. Western Europe faces a situation in which voters' preferences have changed and the demand is no longer for greater efficiency. In Eastern Europe, the demand is for more competitiveness, as the challenge is one of survival. Account had to be taken of the lack of capital available in the accession states for modernisation.
There is another side to the coin of picturesque landscapes and traditional forms of farming in the accession states. As one contributor to the conference pointed out, it's beautiful, but for the people concerned it's poverty. Fixed assets were being run down so it was environmentally friendly out of necessity and poverty. It's not sustainable and change will be brought about by economic factors and by technological developments. Socio-economic and technological trends are shaping agriculture. Policy can slow them down and try to shape them and direct them positively. It is important to be realistic about what policy can achieve. There won't be societal support in future for small-scale agriculture. Slowing down structural change in rural areas could not be the solution. The age distribution among farmers meant that the shift to larger units would take place eventually, so an attempt should be made to do that in a well structured way, e.g., incremental increases in farm size.
The discussion took the form of a structured dialogue centred around four alternative scenarios presented by the conference organisers and informed by a questionnaire distributed earlier to participants. These were the initial situation (Agenda 2000 in the member states); the phasing in of direct payments (Copenhagen Summit); mid-term review proposals (July 2002 and January 2003); and flat rate area payments (seen as the most environmentally and nature friendly option). In order to simplify a complex situation, certain factors had to be treated as givens. The scenarios did not consider the WTO negotiation process; changes in the world market; technological changes; and social and economic aspects. The discussion tended to focus on mechanisms and policy instruments rather than possible goals. There was little discussion of taxpayer preferences and how they might impact on decision-making.
Under the flat area payment, support would not be paid as compensation for historical price cuts but as a renumeration for public goods demanded by society. These included provision of environmental services, the maintenance of traditional cultural landscapes, support for rural communities and the maintenance of visual amenities. Payments would be conditional upon cross-compliance requirements. Intensive farming systems and high yield regions would no longer be favoured (this would, of course, conflict with competitiveness objectives and would provoke a strong political reaction). There would be a special support for semi-subsistence farms, a proposal that would appeal to accession states with their dual farming structures. One outstanding question was whether the emphasis should be on the general improvement of agricultural impacts on the environment or targeted at regions with high environmental needs or values.
It is impossible to do justice to so many stimulating papers and such a rich discussion in a short report. However, a particularly interesting paper was delivered by Vicki Swales, formerly of RSPb but now at the Institute for European Environmental Policy in London. She pointed out that in the EU there are now thirty types of direct payments made to producers, six in the beef sector alone. Possible impacts of CAP subsidies in accession countries included intensification, specialisation, marginalisation and abandonment. There could be significant increases in cereal production, less so in oilseed. Milk production coul be contained by quotas. There could be a possible initial decline then increase in pig production and an increase in poultry production. Environmental implications included:
One would point of view was that small is not always beautiful, but the consensus seemed to be that big is almost always ugly, it leads to homogenisation and the loss of micro habitats. The traditional administrations of agriculture in accession states were mostly interested in the production side. For example, the Polish Government was not very much interested in the agri-environmental schemes. They had a very small team working on agri-environmental issue. The driving force for implementation was the EU.
More information about the conference and downlodabale papers are available at Ecologic
The attractive and lively Estonian university city of Tartu provided the setting for an interesting conference on the CAP with special reference to enlargement. If nothing else, the conference brought home the widening gap between expectations in the accession states about the benefits that enlargement might bring and what the EU can actually offer in the area of agriculture without disrupting its own budget - and the economies of the member states. In Estonia, for example, only eighteen per cent of the rural population is engaged in agriculture. If they were suddenly given large handouts, resentment might be created among those in rural areas who are not working in agriculture. The money made available might not be spent on investment, but on consumer goods.
The last morning of the conference saw some frank speaking about the dilemmas ahead. One contributor posed the question of whether CEC agriculture would ever recover from the decline in output that occurred after the collapse of the old regimes. A Hungarian speaker complained that the debate about enlargement and reform were being mixed up, but is it possible to disentangle them? The suggestion was made that there was a need for more country specific proposals, it being controversially argued that 'This [the Commission's] proposal is tailored for Poland.'
In an impassioned speech, an Estonian contributor made four key points:
The Commission sent a spokesman to give their perspective to the conference. He argued that the MacSharry reforms represented the first reform of a different type, shifting the emphasis from supporting production to supporting the farmer. Now the CAP faced a new set of realities. The old realities were based on the particular interaction of supply and demand in agricultural markets with supply being discontinuous and demand continuous. The old policy was about quantity and not much about quality. The new emphasis was on food safety, precaution, the environment and methods of production (animal welfare). An absolutely new spirit had come into play in member states, particularly the net payers.
The risk of renationalisation was that some states were more willing than others to support producers. Something had to be done about the fact that conditions are not the same, but the answer was in rural development policies rather than market rules. There was no such thing as reform without compensation.
Direct payments to farmers were an integral part of the whole system. While he admitted that the actual levels of payment were debatable, the policy, it was claimed, had been corrected through Agenda 2000. Degressivity was supported by a minority of member states. It was admitted that the Commission had worked out a proposal for degressivity in the High Level Group, but drawing on the fine distinctions in EU jargon, it would never call it a paper as such.
It was conceded that the draft position paper on enlargement was a 'one size fits all' approach and that the base periods selected were controversial. However, the 'approach of using a common reference period is nothing new in the history of the CAP. No one is contesting the principle, but the choice of years.' The Commission had chosen a recent representative period. Candidate countries had argued for the potential of production to be calculated, but that was a very difficult option.
A questioner from a candidate country asked whether the Commission would like a cut of 75 per cent. The Commission spokesman argued that this was a political kind of speech. 'I am sure that you already know the answers to the allegations that you made. We never said that accession would be immediate and 100%. There are a number of issues where candidate countries are asking for derogations. There will be no full accession in the veterinary and sanitary field. The important point is that at year x countries will be fully integrated into the system.' The 1995 accession was an exception to the rile. The 1986 enlargement had led to transition periods of ten years. It was important to give resources to the candidate countries to enable them to restructure and become part of a competitive European agriculture. Ministers in the candidate countries understood the situation well and were trying to get the possible deal within the framework set by the Commission .
Interestingly, the Commission spokesman commented that the simplified scheme to be applied in candidate countries was 'a very interesting experiment'. It seemed to offer an entirely decoupled form of support. Was that an accident? 'We have WTO negotiations starting'.
In his paper the writer of this page argued that the word 'reform' was used too casually in discussions of the CAP. Adjustments to the policy that delivered similar levels of support to farmers by new and more politically acceptable means were too readily classified as 'reforms'. There had never been a fundamental reform of the CAP. This provoked the Commission spokesman to rise to his feet and comment that he had heard such comments at conferences before, but no one had ever offered a definition of what would constitute real reform.
It was accepted in reply that a series of reforms which were insignificant in themselves could cumulatively have an effect. It was also emphasised that the paper giver was not blaming the Commission: reasonable proposals put forward by the Commission were often diluted by the Council. However, a real reform would include:
A paper by Tomas Doucha on Czech agriculture emphasised the huge range in the productivity and effectiveness of farms. Penetration by foreign capital had increased competition for land and the development of the land market. Howver, it also introduced a capital power with which Czech farmers could not compete.
Larger individual farms and well managed coops and companies had a production efficiency which was comparable with EU-15 levels. However, a considerable number of 'bad' farms still survived. Economies of scale were operating, but large collective farms were burdened with management transaction costs. An 'average' Czech farm did not achieve the productivity levels of EU farms. To gain one unit of production, the Czech farm most invest more land, animals, feeds, fuel and especially labour. It would not be possible to continue to rely on current low prices for land and labour. The lower technical efficiency was causd not only by a relative shortage of farm finance, but also by bad enforcement of contracts on the land market and internal factors in farm management.
Management of larger farmers was impeded by an extraordinarily intricate structure of stakeholders (owners of capital, labour and land). An average joint stock company had 470 owners with hundreds of land lease contracts. It was difficult to get rid of excess labour from such companies, although the share of working owners in the total number of workers on farms had been decreasing.
The transformation of property rights in Czech agriculture was far from over. Restitution claims were not fully settled. About twenty per cent of agricultural land was still owned by the state and the government had only started to privatise part of it. The way in which this privatisation was carried out would fundamentally affect Czech farm structure. Czech farms were heavily indebted by three generations of debts, especially by pre-reform debts and transformation debts. The state could be expected, once again, to write some of these off, e.g., interest free loans for 'restitutions' were being written off. A specific problem was the discrepancy between land ownership and the use of land. Ninety-two per cent of land on farms is leased and there is no land leasing law regulating the relations between land owners and land users.
The dairy sector in the Baltic States, particularly in Estonia, is seen as potentially competitive in an enlarged EU (protection levels have historically been low), but a paper by Roth on the subject gave cause for concern. It was noted in the sector is characterised by considerable product heterogeneity with hundreds of different products, many not tradeable. This product differentiation hampers market integration. Baltic prices are about sixty per cent of the EU level although bilateral trade is totally liberalised and market policies harmonised. There are wide variations in the prices of exports of cheese, also skimmed milk powder. Trade restrictions imposed by quality and hygiene requirements have also led to heterogeneous trade markets. Baltic products sold in the EU are priced higher than those sold in the Russian Federation.
An important characteristic of Baltic dairy markets is the relatively big share of the subsistence sector. A high proportion of milk is not delivered to processors with Estonia having the best delivery rate (65%). The high shares of the subsistence sector and the low level of raw milk quality are problems related to the slow restructuring and modernisation process in agriculture. This is especially the case in Lithuania and Latvia where farms of 1-5 cows are the modal category.
EU membership should lead to an increasing export demand for Baltic dairy priducts. This should favour industrial dairy processing and the decline of the subsistence sector. However, production quotas may interfere with the adjustment process. Assuming that they are not applied in the subsistence sector, producers may choose to increase their output there, e.g., by selling direct to consumers.
One participant in the conference had toured Estonian dairy farms before the meeting started. He noted poor management and insufficient capital. There were serious hygiene issues, e.g., inadequate cooling facilities. Control of slurry disposal did not appear to be taken seriously, although that might be helped by the low population density. Farmers were interested in the control of feed costs, but not animal welfare. Labour was very cheap and this was a key advantage.
A paper by Tiiu Ohrvril noted that investigations into the competitiveness of Estonian agriculture had revealed that there were relatively few sectors that could be competitive in the EU: grasslands and hay/silage production and dairy farming. The rural population was about 31% of the Estonian total. However, only about five per cent of the population were engaged in agriculture, a figure close to the EU average. The employment of rural people in agriculture had been decreasing rapidly: in 1992 51% of the rural population were engaged in agriculture, but by 2000 this figure had fallen to 18%. There was an urgent need to increase employment oppportunities in the countryside. The unemployment rate was generally higher in rural areas than in the cities, particularly in the remoter counties.
Alternative activities could be divided into four categories:
The principal alternative activity in the Estonian countryside was organic farming. There were about 360 organic farms. Prices in the domestic market were about one third above those for conventional products. The small volume of organic produce limited possibilities on foreign markets.
Strawberry and raspberry growing have quite long traditions in Estonia, dating back to the 17th century. The acreage under berries, particularly strawberries, has been growing in the 1990s. Production costs in comparison with European producers are about 1.5-2.5 times lower. Estonian berries are of high quality and produced under good ecological conditions.
At the beginning of the 20th century sheep farming was a major activity in Estonia. It suits areas not suitable for crop growing such as hilly areas and those with poor soil. It would be possible to support a million sheep in Estonia, but at present there are only around 32,000.
The pictures below show the town hall in Tartu, a typical side street in the older part of town and the main square.
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