Renshaw, Derwent.

English

Archive of European Integration

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ISSUES IN THE EUROPEAN ECONOHIC COMMUNITY'S 
AGRICULTURAL TRADE POLICY 
Address presented 
by 
Derwent RENSHAW 
Secretary for Agriculture 
Delegation of the Commission 
of the European Communities 
Washington, D.C. 
at 
The 1984 Forum on Examining Policy Alternatives 
for the 1985 Farm Bill 
Virginia Tech & State University 
Blacksburg, VA. - June 21, 1984 
1. 
I am most grateful to you Mr. Chairman and to the 
Virginia Cooperative Extension Service for giving me this 
opportunity of saying a few words to you on such an impor-
tant topic - one with implications not only for European 
farmers but also for American agriculture. And one with 
particular relevance today when both the EC and US are re-
viewing their farm policies. 
I propose spending the half hour alloted to me this 
morning saying something about the Common Agricultural Policy 
where it has got to and the course plotted for its future. 
I 
/ As most of you will know~ the European Community has 
i 
operated its own farm policy - the Common Agricultural Policy 
or CAP - for the last 20 years or so, and I imagine that you 
will also appreciate its great importance not only to our 8 
million farmers and their families but also to all 270 mio 
Europeans living in our 10 Member States. 
The objectives of the CAP - set out in the Treaty of 
Rome, our founding Constitution - can be summarised as follows: 
L 
- to increase productivity through technical progress; 
- to give the farmer a fair standard of living 
- to assure the supply of sufficient food at 
reasonable prices, and 
- to stabilise markets. 
. I . .. 
.___ 
Goals which are not very different - I would have thought 
from US Farm Policy, but - I get the impression - that 
there is perhaps less emphasis here on stability of prices 
and security of supply. And, what is more, we both have 
policies which have had uncomfortably similar results. 
Very broadly, the objectives of the Treaty have been 
achieved by fixing common prices for the major part of our 
but by no means all 
farm production. Some;of these prices are at higher levels 
than those in the US. But assurance of supply like any in-
surance policy costs money. And the European consumer is 
2. 
prepared to pay this small premium. But here, let me empha-
sise that the CAP should not be looked at in a purely 
economic context but against a social, political, cultural 
and environmental background as well. We believe that the 
well-being of agriculture is essential to the fabric of 
rural life. 
Let us now look briefly at what the effects of 
achieving these objectives have been - both inside and 
outside the Community. 
We are frequently accused by our critics of spending 
limitless sums of money to encourage our farmers to produce 
enormous surpluses which are then off-loaded onto world 
markets with unfair subsidies. But let us examine the facts • 
. I . .. 
3. 
First. As a result of the support we give our farmers, 
our wheat production, for example, has increased by 29% over 
the last decade - slightly more than the world average of 27%. 
The increase here in the US has been 73% and a lot of that 
in soft wheat grown largely in the Eastern half of the u.s. 
and frequently double-cropped with soya. This increase is 
2 1/2 times the world average. I say this in no accusatory 
sense, but in an attempt to set the record straight. Further-
more, the increase in Community production has been achieved 
through higher yields on an acreage that has remained virtual-
ly unchanged for the last ten to fifteen years. 
Second - the extent of our expenditure. 
Our total farm spending on all agricultural products at an 
all time record of 13.5 bio $ in 1983, compared with almost 
30 bio $ here - PIK included - represented less than 1/2 of 
one per cent of the Community's GDP. 
And, unlike all national governments that I know of, 
there is a rigid limit as to the amount we can spend 
since our Constitution forbids us from running a deficit. 
As to the impact of the CAP and our much criticised 
export refunds on world markets, just three points. 
Since I get the distinct impression that there is a feeling 
amongst less well informed groups than this one that agri-
cultural subsidies are an invention of cunning Europeans and 
the work of the devil. 
./ ... 
First, international trading rules formalised in the 
GATT to which both the US and the EC and 90 or so other 
nations are signatories, specifically permit the use of 
export refunds or subsidies, provided they are not used 
to gain more than an equitable share of the market. We 
maintain, and trade statistics support our view, that we 
L have kept to these rules. 
For example, over the ten years up to the beginning 
of the 80's, the Community share of the world market in 
wheat and wheat/flour rose from 10% to 14% ; that of the 
US from 34% to 46%. I submit that on the basis of these 
figures no reasonable person could possibly conclude that 
we had acted against the rules or taken an inequitable 
share. 
Second, the US, in addition to supporting its agri-
culture at home pretty generously over recent years, also 
deploy~a panoply of export aids - GSM-102, PL-480, Blended 
I 
Credits and plain unvarnished subsidies. 
On the question of credit for farm exports, Secretary 
Block said recently with some pride that: "This Administra-
tion spent more on credit for agricultural exports in the 
last 3 years than all previous administrations together 
over the last 25". And on US farm export subsidies. 
.. I . .. 
4. 
Obliged in my present post to at least cast an eye over the 
never ending stream of USDA publications, I noticed in an 
April issue entitled "Middle East & North Africa - Outlook 
& Situation" the following sentence : "In 1983, Egypt bought 
1 mio of US wheat flour at a subsidised price of only $136 
per ton, about one-third below the average world market price" 
and an accompanying graph shows with startling clarity how 
the United States' share of the Egyptian market has evolved 
spectacularly from 1972 when it had no share at all to 1983 
when it had 40% of the total market - domestic production 
included about 50% of the imports. 
But, before I leave the question of the macho Egyptian 
flour deal, allow me to disabuse you of the notion frequently 
put about that it brought the EC scuttling to the negotiating 
table. The US and EC had in fact already started a series of 
meetings before this unfortunate initiative and what this 
deal did was to very nearly torpedo them. They did continue 
nevertheless but I can assure you - since I was present -
in a much chillier atmosphere. So, agricultural subsidies 
are a fact of life and perhaps we are all sinners in the 
eyes of the Lord. 
But this brief look at some of the similarities and 
differences between us should not be taken to imply that 
everything is fine on the other side of the Atlantic and 
that we have no problems whatsoever in the Community • 
. I . .. 
s. 
( 
l 
; 
Those of you \vho follow developments in the Community, 
if only through your newspapers, will be well aware of the 
serious challenges we currently face. On the agriculture 
front, we are both of us - US and EC together - basically 
presented with the same problem : that of producing larger 
quantities than markets can absorb which, of course, is not 
the same as saying that there is too much food in the world. 
Whilst I strongly believe that the CAP is one of the 
major achievements of the European Community, it must -
like any other institution or policy, if it is to survive, 
and survive it will - adapt itself to changing conditions. 
In the Community, the CAP has to ·a large extent been 
the victim of its own success. The technical advances and 
productivity gains sought in Article 39 of the Treaty have 
meant that output has risen more rapidly than consumption. 
We have reduced our dependence on imports for the supply of 
some agricultural products and, in other cases, transformed 
the Community into a net exporter of others. 
Productivity increases have also led to an imbalance 
of supply and demand - as here - with milk as the most 
glaring example. Increases in the volume of total agri-
cultural production have averaged between l 1/2 and 2% 
a year whilst consumption has only risen by about 1/2%. 
However, in spite of our achieving security of supply in 
a number of important farm products - one of the Treaty's 
. I ... 
6. 
aims - the EC remains by far the world's largest importer 
of agricultural and food products whilst the US remains 
the world's leading exporter. 
At the same time., we are running very low on cash -
whether our farm expenditure represents less than one half 
of one per cent of our GDP or not. 
From 1974 to 1979, expenditure on supporting agricultural 
markets grew at 23% per year - almost twice the rate of 
growth in our revenue. For the next tNO or three years -
1980 to 1982 - expenditure remained fairly stable, largely 
because prices remained relatively high on world markets. 
But since thedexpenditure has increased sharply tonce again, 
as it has here), and increased about 30% in 1983. 
As I said earlier - our Community Constitution forbids 
us to run a budget deficit. So, for the first time we are 
running very close indeed to our financial limits. 
There is very little spare left. This chilling fact 
coupled with that of production outpacing consumption is the 
background against which the Commission proposed and the 
Council of Ministers - that is to say National ~inisters 
in a rare act of political courage adopted - an essential 
and very tough battery of measures for the rationalisation 
of our agriculture. 
. I . .. 
7. 
/ 
Time does not allow me to describe in any detail the 
full range of measures which will hit 8 million European 
farmers and their families and which will demand substantial 
sacrifices from them. Recent demonstrations by European 
farmers in England and France for example leave little doubt 
that they will be squeezed. 
But briefly the global agreement reached can be sum-
marised in six main points : 
- confirmation of the principle of guarantee thresholds, 
and their extension to other products ; 
- strict control of milk production by means of quotas ; 
- a return to the unity of the market, through the dis-
mantling of monetary compensatory amounts ; 
tough policy for prices ; 
- streamlining of aids and premiums for various products 
- observance of Community preference. 
Let me flesh out some of those six main elements 
Guarantee Thresholds. These thresholds which put a strict 
ceiling on the amount of a given crop a farmer may produce 
without him having to contribute to the cost of disposing 
of the surplus, were extended to three new products --
sunflower seed, durum wheat and raisins. They were conti-
nued for milk, cereals, colza, cotton, tomatoes and sugar. 
Prices. Price decisions were adapted to the different 
market situations for the different products. For example, 
8. 
for sugar there will be a price freeze and for grains a 1% cut • 
. I . .. 
----· -----~·--· -·-----------------
Overall, farm prices for the 1984/85 marketing year 
will be cut by 0.5 per cent as expressed in European Cur-
rency Units. And for the first time ever the Council's 
decisions mean that in national currencies there will 
be significant price reductions for a number of products 
in several Member States. 
In addition there will be an intensification of our 
efforts to narrow the gap between our prices and those of 
our competitors. This will apply particularly to grain. 
Milk Production. Because the milk supply/demand equation 
was so seriously out of balance, forcing the Community to 
purchase large quantities, strict production quotas have 
been set for five years at only one per cent above 1981 
milk deliveries. Harsh levies will be applied to any milk 
producer that exceeds his assigned limits. The levy has 
been set at 75% of the milk target price. In other words, 
totally dissuasive. In addition, prices have been frozen. 
This brings me to an external aspect of the package 
which, whilst only a very small part of the whole, has at-
tracted a great deal of attention here. Since our own 
farmers are being asked to make considerable sacrifices 
and to limit their production, the Commission feels that 
it is not unreasonable to review the treatment of competing 
imports provided that this is done strictly in accordance 
with international trading rules. 
. I . .. 
9. 
( 
i 
\ 
\ 
As I said earlier, we are aiming to narrow the gap 
between our grain prices and those of our competitors. EC 
milk producers bore the brunt of the price decisions this 
year because the demand/supply imbalance was most serious 
here and our grain producers escaped relatively lightly 
this time with only a 1% price cut compared with the awful 
fate which befell the dairy sector. They have been warned 
that they are next in the firing line. 
Such a move will have the effect of making grain substitutes 
much less attractive. But until that time and whilst we 
are implementing a strict guarantee threshold and requiring 
our grain pr0ducers to limit their own production, it is 
absolutely essential to have some effective stabilisation 
of the imports of grain substitutes. In other words, 
we are looking for a temporary breathing space so as to 
avoid the risk of sabotage to our efforts to get our grain 
prices lower and to limit production. Such stabilisation 
10. 
should also help to reduce surpluses in the livestock sector. 
Our aim of stabilising imports of substitutes is not 
a fiendish European plot aimed specifically at the residues 
of the US corn processing industry which, incidentally, has 
been able to take advantage of the high priced and US res-
trictive arrangements for sugar. Substitutes are imported 
into the EC from a wide range of sources and arrangements 
have already been concluded for manioc and for bran coming 
from Southeast Asia and elsewhere. 
. I . .. 
However, and I must stress this, what is being proposed 
is not hasty unilateral action, not a banning of corn gluten 
imports nor even a reduction in imports, as one might gather 
from the howls of protest, but a calm and reasoned negotia-
tion aimed at a temporary stabilisation of imports with ap-
propriate compensation and this only after fully carrying 
out the procedures laid down in the GATT. The first meeting 
on this subject took place in Geneva last week. 
Two final observations about this particular proposal. 
Our cutting back on milk production should reduce demand for 
corn gluten feed. And, furthermore, it seems to me that if 
11. 
we can successfully stabilise our imports of grain substitutes, 
then the amount of European wheat which should be forced onto 
world markets because it had been displaced by substitutes in 
animal feeding, would be reduced. A factor which should not 
be without interest to US wheat farmers. 
Those briefly are the decisions taken in Brussels 
at the end of March 1984, most of which are now in place. 
But this was not an instant rescue package and more hard 
decisions will have to be taken. 
Nevertheless, these recent decisions which are not 
an attempt to shuffle off our problems on to others but 
-
represent an important contribution towards a better 
balance of supply and demand on world markets, something 
. I . .. 
the US has been pressing us to do for years, should be of 
benefit to all farmers in all trading nations. 
They were not,I must emphasise,taken purely for 
budgetary reasons, but to fit our farming to meet the 
12. 
changed economic circumstances of the mid 1980's and beyond. 
And they will not lead to dismantling of the CAP nor 
to the disappearance of European farm products from world 
markets. We are not going to "fold our tents and silently 
steal a'\vay". You can instead expect to see a leaner, more 
streamlined European agriculture. 
more 
It seems to me therefore that there is all the;reason 
for us to seek cooperation rather than conflict, particularly 
with the prospect of ever increasing yields around the world. 
The EC, whilst vigilantly defending its own interests, will 
be prepared - as it has been in the past - to search diligently 
with the US and others for ways of cooperating so as to 
promote world trade. Since if we don't seize the opportu-
nity to cooperate we shall all be losers. Those who are 
not attracted to the far from easy path of cooperation 
should bear in mind some factors of paramount importance. 
First, the us and EC are the largest economic units 
operating on world agricultural markets accounting together 
for about one third of world trade and nearly 30% of world 
agricultural exports. . I . .. 
Second, that the EC is the world's leading importer of 
agricultural products and the US farmers' best customer 
taking 7.6 bio $worth of farm produce in 1983 and fore-
cast to rise to 8.8. bio $ in 1984 - Japan 5.9 bio $ -
South America 4.9 bio $. Japan is the US's leading single 
individual country market but the EC - due to its CAP - is 
a single multi-national market. On this point, a great 
deal is made of the US reputation as a reliable supplier -
and understandably so - but how many of you have paused to 
consider how very reliable the allegedly protectionist EC 
is as the world's best customer for farm products ? Only 
about 15% of our imports from industrial countries are 
subject to levies and virtually all farm products from 
13. 
the developing countries enter free. In fact, a recent 
study by OECD showed that it is the EC which imports by head 
of population the largest quantity of agricultural products 
from LDCs. 
Third, that the US is the world's leading agricultural 
exporter supplying about 55% of the coarse grains, 50% of 
the soya of which the EC takes very nearly half, 45% of 
the wheat, 30% of the cotton and 25% of the rice that move 
in world trade. 
That the more numerous that agricultural exporters become 
on world markets the greater the need for internal disci-
pline. 
. I . .. 
: 
That every agricultural exporting nation assists its 
farm trade directly or indirectly. 
14. 
That no one has a God given right to dominate world markets 
at will at the expense of other partners who may have diffe-
rent methods of subsidisation. 
But for such cooperation and for any other concerted 
measures, we shall need considerable political will not 
only in Washington and Brussels and in capitals around the 
world, but in communities such as Richmond and Rouen,in the 
Appalachians and the Alps, to achieve rules of conduct for 
agricultural trade which will benefit us all. 
If we keep cool and bear in mind the big picture of 
the total trade - not just agriculture - across the Atlantic 
and the mutual advantage this provides and if we can continue 
along the same general course which we both seem to have set 
out on - that of controlling farm spending, I believe we can 
build a more secure and prosperous West on the foundations 
of the one world trading system. 
DR/sbh 
21/6/84 
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Issues in the European Economic Community's agricultural trade policy. Address presented by Derwent Renshaw, Secretary for Agriculture, Delegation of the Commission of the European Communities, Washington DC, at the 1984 Forum on Examining Policy Alternatives for the 1985 Farm Bill. Virginia Tech and State University. Blacksburg, VA, 21 June 1984

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