"Prosperity and Other Objectives in European Agriculture"

Mariann Fischer Boel

EU Agriculture and Rural Development Commissioner

World Agriculture Forum

St. Louis, Missouri

9 May 2007

Ladies and gentlemen,

Thank you for your warm welcome this morning – and what a pleasure it is to join such an impressive list of speakers and panellists at this exciting event.  have been to the US several times, but every visit feels rather like an adventure. And I have that sense particularly strongly today in St. Louis, the "Gateway City" from which Lewis and Clark started their great exploration of the West in 1804. I've been very much looking forward to doing some exploring with you – not of the West, of course, but of new frontiers in agricultural policy.

"Prosperity" is a good choice of topic. I suppose most people think prosperity is a good thing. But it is sometimes strangely controversial when connected with agriculture.

There seem to be people who think that, if a farmer is rich, he must be doing something bad – mistreating his pigs, or using enough herbicide to kill off a whole rainforest. But some of those same people also seem to think that, if a farmer is not rich, he is probably still doing something bad – relying on the state for hand-outs. On this basis, farmers are damned if they are prosperous, and damned if they're not!

Thankfully, negative and uninformed views like these are not universal. But I think they underline two important points.

On the one hand, farmers want to make money. (Certainly, that was one of my main preoccupations when I was a farmer!) On the other hand, farming is not a purely economic activity. It has a significant impact on our world, so we must ensure that it makes money in the right way.

These are the main points that I would like to examine today.

Where should I start? Well, as we're in Missouri, the "Show me state", let me start with money - and show you how the CAP helps farmers to earn it.

What is the natural way of making money? By coming to the market-place with goods that people want to buy.

This is an obvious point. But it is not automatically reflected in agricultural policy. When making policy, we decide to what extent it runs with the grain of market principles.

I want to tell you today that, contrary to what some believe, the European Union's CAP has a large dose of market principles in its makeup. As I have explained during previous visits to the US, the core of the CAP used to be price support. There were reasons for this – reasons rooted in the particular situation of post-War Europe.

Over time, we moved away from price support and towards direct payments to farmers, linked to production. This made public spending on agriculture more transparent, but the payments continued to influence production choices. We have now taken another giant step forwards. Under a fundamental set of reforms agreed in 2003 and subsequent years, we have been "decoupling" the vast majority of direct payments to farmers from production (breaking the link between the two, in other words). Nearly 90 per cent of direct payments will be decoupled by 2010.

These decoupled payments do come with strings attached: I will return to this point later. But let me first emphasise the value of decoupling in itself.

We had the prosperity of our farm sector very much in mind when we introduced decoupling. We think farmers make better production decisions when those decisions are guided by what the market wants, not by a matrix of subsidy possibilities offered by Brussels. We think this is essential to long-term financial sustainability.

"Better production decisions" can simply mean producing one basic commodity rather than another, on the basis of a hard-headed assessment of market prospects. But it can also mean focusing on high-quality goods with very specific characteristics – an area in which the European Union's agri-food industry has tremendous strengths.

For example, a farmer who no longer has strong artificial incentives to produce milk as a basic commodity may move into producing cheeses or yoghurts under a new local brand. This has been happening in some parts of the dairy sector.

So decoupled payments – one of our central tools of policy – untie farmers' entrepreneurial spirit and free them to make money: for their benefit, and for that of the rural communities in which they work.

We have other policy tools which actively support the creation of prosperity in agriculture and wider rural economies.

One such tool is our rural development policy – which we call the "second pillar" of the CAP.

Among other things, this policy helps to build competitiveness in the farm sector – for example, through support for innovation, for training and for farm modernisation. It also supports diversification in the countryside – because in many rural areas, farming can no longer power the local economy alone.

I should add that the European Union's research budget makes a large contribution to encouraging technological innovation and economic understanding. Ladies and gentlemen,

As I have said, we want an agricultural policy that unleashes farmers' energy in the market-place. But that cannot be the only goal of policy.

Farmland makes up 80 per cent of the surface of the European Union. It includes some of our most beautiful landscapes. When farmers do their job well, they therefore create essential public goods: clean air and water, places of rest and recreation, for example. Farming also generates waste products. And in many cases, it involves animals and employs people.

Overall, its impact on us goes well beyond its apparent contribution to gross domestic product. This is why European citizens say that they expect farming to be responsible – with regard to our natural environment, animal welfare, food safety and labour standards.

We have found a way of integrating this need for responsibility into the decoupled payments that we make to farmers. The main tool for doing so is called crosscompliance. No one would claim that this term is particularly elegant or expressive. But the reality is important.

Under the system of cross-compliance, farmers' decoupled payments can be cut – even to zero – if they do not respect high standards of environmental care, animal welfare and public health. This gives farmers a strong incentive to work in the way that the public expects.

Cross-compliance helps to ensure a baseline of standards. Where farmers and other land-managers want to go beyond this baseline by making special efforts which the public will value, they can receive financial support through our rural development policy.

With the help of these essential tools – decoupled payments, cross-compliance and rural development policy - we think we are at least moving towards a good balance between prosperity and responsibility.

But of course, we have to achieve this balance in a context where a proportion of the European Union's food and agricultural raw materials is imported. And this presents a challenge.

In principle, we are in favour of trade liberalisation – at the right pace, and under the right conditions. It opens up new opportunities for wealth creation. But the conditions are important.

European farmers often point out that, in areas such as the environment and animal welfare, they are subject to standards going well beyond those which apply in many other countries. This means that, very often, they bear higher costs and therefore work on a playing field which is tilted against them.

In this respect, we want a level playing field. This phrase is used to refer to a number of issues in international trade discussions. Why should standards not be included in those discussions? If we can look for international consensus on things like maximum levels of agricultural subsidy or caps on import tariffs, why should we also not look for consensus about standards? The issue cannot be permanently airbrushed out of the picture, as some would like to do.

While I am on the subject of trade, let me make some more general comments on the Doha Round.

Right now, the going is heavy. But at least we have a clear process mapped out ahead of us. There is technical work to be done, and we must do it well. At the same time, politically, we must show that we're not quitters. We must stick with this until we get a result.

The European Union wants this Round to succeed – especially for the sake of developing countries. We have proved our commitment to development again and again in the past – through our aid programmes, our partnership agreements, and our preferential trade arrangements such as the Everything But Arms agreement. Success in the Doha Round will have to be built on compromise. There must be something in it for everyone.

Commentators may strike rhetorical poses, calling some sides "good" and others "bad"; but at the end of the day, they are not the ones who will make the deal around the table.

Therefore, we need balance in the agricultural section of the talks, and we need balance between agriculture, services and industrial tariffs. These last two issues have been shamefully neglected so far.

If, at a political level, WTO members can set their minds together on such a balanced overall agreement, then we have a prospect of real gains for everyone, and success should only be a matter of time.

If, on the other hand, some parties involved set their sights unrealistically high, there is a serious danger that we will all go home disappointed.

Ladies and gentlemen,

Having moved from domestic to international topics, let me close with an issue which has particular resonance in Europe just now, but which has also captured attention in much of the rest of the world, not least here in the US: bioenergy and biofuels.

Plainly, this subject has relevance to our topic of prosperity. It also has huge relevance to public concerns. Hardly a week goes by without my seeing a TV news item with images of glaciers collapsing and islands sinking into the ocean. Global warming is moving quickly up the international agenda.

In the European Union, we are trying to be ambitious but also realistic. Bioenergy and biofuels do offer market opportunities, and they are part of the solution to a number of problems. But they are no panacea, and we must be aware of the possible consequences of significantly raising production and usage.

European leaders had these points in mind when they agreed key targets about climate change and energy usage in March this year. All targets relate to the year 2020:

• First, the European Union should cut its greenhouse gas emissions by at least 20 per cent – or by 30 per cent if we can persuade other developed countries to match our efforts.
• Secondly, we must obtain 20 per cent of our energy needs from renewable sources.
• Thirdly, in the Union as a whole, and in each individual Member State, biofuels must provide at least 10 per cent of transport fuel supply.

With such binding targets, there will be a much better climate for investing in bioenergy, and this will mean openings for European farmers – supported by the relevant measures in the CAP.

With specific regard to biofuels – for which I have some policy responsibility – two questions have been raising particular interest.

First, can we hit our 10-per-cent biofuel target without putting excessive strain on our food markets? The Commission's analysis indicates that we can.

We think that, with this target, prices for agricultural raw materials in the European Union would increase by between 3 and 6 per cent for cereals, and between 5 and 18 per cent for the major oilseeds. That would have only a small impact on food prices – given the low share of raw-material costs in the price of most of the foods in question.

These estimates imply that we make the best use of our domestic feedstock resources, and that we accept a reasonable level of imports.

The second question is: Can we guarantee that the biofuel used in Europe will not have undesirable environmental consequences?

Again, our analysis indicates that we can, and we are working on a mechanism to achieve this. It will, of course, conform to WTO rules.

Ladies and gentlemen,

This brings to an end my contribution for today to our exploration of agricultural policy: now I should let others take the driving seat in the wagon.

But let me summarise my thoughts.

In the European Union, we want our farmers to be prosperous. We want to get behind them in their efforts to compete, not stand in their way. Through policy, we are doing this; and we are helping them to combine competitiveness with responsibility. These efforts will work best when we see eye-to-eye internationally on what responsibility means.

Let's be positive about prosperity. It doesn't have to mean capitalism red in tooth and claw. A farmer with a sauna in his house and a nice automobile in the driveway may also be maintaining woodland and growing energy crops. "Show me the money"; but let's also keep in sight all the other things that farmers do while making money.

Thank you for listening, and enjoy the rest of the conference.