Renshaw, Derwent.

English

Archive of European Integration

DELEGATION OF THE COMMISSION OF THE EUROPEAN COMMUNITIES 
Speaking Notes 
Baking & .Hilling News 
Kansas City, 13, June 198· 
' A EUROPEAN PERSPECTIVE ON AGRICULTURAL TKADE 
, 
First, let me thank you for giving me this 
opportunity to say a few words about agricultural 
trade as seen from the other side of the Atlantic. 
; 
My job as agricultural attache is beginning to take 
me around your country and I cannot see that I will 
ever become accustomed to its enormous size. The 
distance_ from Washington to Kansas City is about 
950 miles. If I had traveled that distance from my 
previous office in Brussels, I would have found my-
self in Riga in Latvia, in:-.Minsk in the Soviet Union 
or, in order to stay within our EC, somewhere south 
of Naples in the toe of Italy. 
But to trade matters. That this is a question 
of paramount importance m US/EC relations, is illustrated 
first by the fact that something like one fifth of American 
industrial production is exported and nearly 4 out of every 
5 manufacturing jobs created in the US between 1977 and 
1980 were linked to exports, and second, the EC is the 
US's largest single market. Together the US and EC 
account for one third of all world trade. Nearly hal~, 
2100 M Street NW Suite 707 Washington DC 20037 I telephone: (202) 862-9500 I telex: 89-539 EURCOM 
- 2 -
if you count trade beb1een the 10 Hember states of 
the EC. 
Being the worlds largest trading p~rtners, 
we both have a vested interest in seeing t1 it, that 
the open world trading system promoted and,protected 
by GATT and which has provided the framework for a un-
precedented increase in prosperity over th~ last 35 
years, should not be put at risk. 
One of the factors which could put the system 
under serious pressure is the friction between us on 
agricultural trade, particularly when there are so 
few signs - if any - of growth in export markets for 
farm produce. 
Here, on this side of the Atlantic, the Common 
Agricultural Policy is frequently seen as being the 
major cause for these difficulties. So, perhaps, it 
would be useful if I \17ere to say a fe\v \ITOrds about it 
and then move on to the specific areas of friction. 
Why, you may ask, bother to have a CAP at all? 
Why not let the free market work - assuming for the 
moment that somewhere in the world there is such a 
thing as a free, unfettered market for agricultural 
products. The answer lies in the history of our 
Community. 
- 3 -
When the EC was created in 1957 by the 6 
original Member States, it was based on a political 
deal whereby trade was opened up between i~s members. 
I 
This could be achieved for industrial good~ by elimi-
1 
nating custom tariffs but this would have made little 
sense for agricultural products because of the 
widely different agricultural structures in tho~six 
Member States and the different forms of farm support 
used. The only solution was to harmonize these 
different national systems into a Common European 
policy. Thus 1 the CAP became a vital element in the 
process of European integration - a process which 
continues and a process which we, who have the privi-
lege of serving in the European Commission, have the 
duty to nurture. 
The objectives of this policy - and which differ 
very little from those of US farm policy - are spelt out 
in Article 39 of the Treaty - the Treaty of Rome - which 
established the Community. These are: 
increase productivity 
secure a fair standar4 of living for the 
farm population 
- achieve market stability 
- to assure availability of supplies 
to provide reasonable consumer prices. 
------------------------------------------------
- 4 -
The mysterious ways by which these objectives 
are attained will be familiar to some of you but less 
so to others. Very briefly, they include ~ uniform or 
common internal price level with variable ~evies on 
I 
imports below this price and refunds on ex~orts when 
the internal price is above the world market. These 
mechanisms have helped to largely iron out.sharp 
fluctuations on our internal market. Prices have been 
stabilised - generally at higher levels than those 
obtained in the US. But assurance of supply - like 
any insurance policy - involves paying a premium. 
'The CAP has also helped to achieve sharp in-
creases in productivity and we have witnessed the 
farm labour force decline from 18 million to less than 
9 million. Over the same period, the average farm size 
has doubled to about 45 acres. Farm incomes have been 
maintained at a reasonable level but I am certain that 
our farmers would be the first to point out that their 
real incomes actually fell in 1979, 1980 & 1981. 
The CAP has also enabled the EC to reach self 
sufficiency in a number of essential goodstuffs. Thus, 
assured supplies and price stability have been achieved 
both are, of course, objectives of the CAP as spelt out 
in the Treaty and both are of primary concern to our 
consumers. Security, in the minds of many Europeans, 
- 5 -
often has as much to do with guaranteed food supply as 
it has with missiles and nuclear war heads. 
In some cases, self sufficiency has been exceeded 
and it is in these areas where the problems between the 
two sides have developed. 
The discussions between US and EC officials, the 
next round of which will take place in Washington on 
22/23, have enabled the two sides to clearly identify 
these friction areas - they are relatively few in 
numbers and are: wheat, wheat flour, poultry and dairy 
products. They have also helped - equally importantly -
to establish that our import arrangements for agricultural 
products - as opposed to their export - are not a divisive 
or serious issue between us. These import arrangements -
whatever may be put about elsewhere - are amongst the 
most liberal in the western world. Proof of this is to 
be found in the fact that, in spite of our having reached 
and,in some cases,exceeded self sufficiency in a number of 
products, the EC is the largest importer of agricultural 
goods in the world - about one quarter of global agricul-
tural trade is discharged in European ports, and, what 
is more important to an audience in the heartland of 
the US, we are the~American farmer's best customer. In 
1981 we bought 9.0 billion $ worth of US agricultural 
produce - including 2.8 billion $ of soyabeans - and 
ran a massive trade deficit on transatlantic agricul-
tural trade of around 7.0 billion $. Thus, our import 
- 6 -
arrangements are not an issue. The trade figures I 
have just cited underscore the point I made at the be-
ginning about the paramount importance of US/EC commer-
cial ties. 
So let us examine the circumstances surrounding 
the Community's transformation from a net importer to 
a net exporter of some agricultural products. This 
has come about largely as a result of a revolution in 
productivity which has taken place in the Community 
since the inception of the CAP. Just as productivity 
has increased in the US so it has - even more so - in the 
EC. Grain yields, for example, have doubled over the 
last 20 years, because of better seeds varieties and 
cultivation techniques etc. In fact, wheat yields of 
5 tons per hectare are far from unusual in Europe (a 
hectaree is almost 2 1/2 acres). The result of this 
has been that over the past decade, Community wheat 
production - as opposed to productivity - has risen 
by 29 %, compared with an average world increase of 27 %. 
Since we are frequently accused of artificially stimu-
lating production in the Community by fixing generous 
support prices, it is illuminating to compare this 29 % 
increase with what has happened in the us. The first 
- 7 -
thing one notices is that whereas the EC's increase has 
taken place on a relatively static acreage - there is 
after all not much spare land available in Europe - that 
in the us has taken place on a markedly increased acreage 
it has also largely taken place in soft wheats. As to 
total US wheat production this has gone up by 73 % 
compared with 29 % in the Community and 27 % over the 
world as a whole. Since total wheat production in both 
the EC and the US exceeds internal needs - two thirds of 
US wheat is surplus to requirements - some of the excess 
finds it way on to the world market. And it is this 
massive increase in US production which has been one of 
the most important destabilising factors on the world 
wheat market. But before I look at the way in which 
exports have developed, let me say a word or two about 
our export refunds - or subsidies as the GATT terms them. 
GATT rules permit export subsidies on agricultural pro-
ducts provided they do not result in a contracting party 
gaining more than an equitable market share. We feel we 
have observed this rule. Figures exchanged by the two 
sides in the bilateral discussions show, that in the 
case of wheat the EC share of the world market over the 
last decade has grown from 5 % to 10 %. The US pushed 
its share of the world market much more strongly from 
33 % to 51 %. I submit that it would be difficult on 
the basis of these percentages to sustain the argument 
that the Community had been taking some of the US share. 
- 8 -
At a gathering such as this I cannot, of course, 
overlook flour, so let us examine wheat and wheat flour 
together - a more realistic exercise than that of con-
fining our studies to wheat or flour separately, since, 
if you export wheat as flour, you cannot expect to export 
i~ as grain as well. Over the same decade, that we 
took for wheat on its own, that is to say for the period 
71/72 to 81/82, the Community increased its share of 
the world market for wheat and wheat flour from 9 % to 
14 %, whereas the US share grew from 32 % to 49 %. 
Generally speaking, the worlds wheat flour market 
has stagnated over the last couple of years. This is 
not entirely surprising when one observes the world re-
cession coupled with a trend for developing countries 
to set up their own flour milling plants and to import 
wheat instaed of flour. However, it does seem to me 
that the only potential area for any sustained growth in 
exports of wheat and/or flour is in these developing 
countries. 
But coming back to the discussions with our US 
colleagues on wheat and wheat flour. The US's dramatic 
increase in production, the resultant increased dependence 
of the US wheat farmer on a notoriously unreliable world 
market are two striking elements that have emerged with 
great alarity. Nevertheless, we in the Community are 
prepared to make a real and considerable effort to ease 
the situation by building up our wheat stocks to unpre-
cedented levels. This effort, if not nullified by other 
- 9 -
exporters, should help to improve the situation on 
the world wheat market. 
The other two problem areas are poultry and dairy 
products. Our discussions on poultry and careful , : 
examination of the trade figures has shown that, yes, 
the US has lost some of its world market share recently, 
but then so has the EC. Further examination reveals 
that our combined loss has been the gain of a compara-
tive newcomer to the world poultry scene - Brazil, whose 
exports, helped by low prices and generous credit terms, 
have increased to the extent that they now have 20 % 
of the world market compared with virtually "o" five 
years ago. It is clear that we need, in the case of 
poultry, to convert our bilaterals into trilaterals and 
to include Brazil. 
Dairy products, in my view, present the biggest 
potential dangers and problems. Some of you may have 
read of the advances made in genetic engineering and 
other aareas with the result that some herds of super 
cows in the US have started producing 55,000 lbs. of milk 
per year - this is about 3 times what is achieved at 
present in Europe by our most successful herds. At the 
same time I have seen forecasts that the ~rlds most 
important export outlet for dairy products - the Soviet 
Union - should be able to build up their domestic pro-
duction to the extent that by 1990 they will no longer 
- 10 -
need to import. I shall believe that when I see it 
but,nevertheless, it is an indication and warning to 
us all. Stocks in the us and the EC are already at 
massive levels (last year the US government bought 
three quarters of all dried milk produced) land, unless 
I 
both sides get to grips with this rapidly ~orsening 
situation, the problems we have seen with grains will 
seem relatively minor. Both sides must agree to take 
measures - the US and EC must each take their own - which 
will adapt milk production to market needs and thus 
reduce present budgetary costs. 
These then are the four major areas of friction 
and I hope that next week's talks will see us achieve 
some accommodation. You may have gathered from what 
I have said that the sorts of accommodation that may 
emerge do not involve a renegotiation or a dismantling 
of the CAP. This is so. We are seeking solutions to our 
problems within existing systems and the EC for its part 
has no intention of abandoning or bargaining away the 
principles of the CAP. For one thing, the CAP is an 
essential element in European integration and, for another, 
it has little to do with the problems - serious as they 
are - facing American farmers. These difficulties are 
due to other, far more telling factors. 
- 11 -
I have listed these factors on previous occasions, 
but I make no excuse for doing so, yet, again. Some have 
been outside your control - world recession and crippling 
debt problems in important client countries~ Mexico, for 
I 
example, reduced its grain purchases from the US from 6 mio 
tons in 1981 to 2 mio tons in 1982. 
Others - if I dare say this so far from home -
are to a large extent of your own making - the increase in 
the total cultivated land during the 70's by 60 million 
acres (I have already referred to the dramatic increase in 
wheat acreages.). This expansion was continuing even in 
the late.seventies,when economic conditions were deterio-
rating sharply. 
This, of course, led to huge increases in produc-
tion. Between 1975 and 1981, US production of wheat in-
creased from 58 mio tons to 76 mio tons, 
soya from 41 mio tons to 56 mio tons, 
corn from 146 mio tons to 208 mio and milk 
from 115 billion lbs to 128 billion lbs. 
As was the case with wheat, the world market, un-
able to absorb such surges, was seriously disrupted. 
There has, of course, in addition been a strong 
dollar and last, but by no means least, in this light, 
which is far from exhaustive, was your government's de-
cision,to impose a grain embargo on the Soviet Union. 
- 12 -
(We all await news from next week's talks on a LTA with 
great interst.) 
Thus, whilst clearly the EC and its CAP has an 
I 
influence on world markets as do all exporters, large 
and small, we insist that the real causes oJ the diffi-
culties of American farmers lie a lot closer than Europe. 
Nevertheless, the CAP is not set in concrete, 
it can and does evolve and steps have been taken to 
ensure a better matching of supply and demand, to make 
producers bear the burden of overproduction, to adapt 
to our role as a permanent exporter of some products and 
to restore sound operation to our agricultural markets. 
The recent price decisions taken in Brussels -
in the face of strong political pressure - are some of 
the first steps along this road. Price increases were 
extremely prudent overall - the lowest in a decade or 
more - and in the case of crops, where production had 
exceeded predetermined thresholds, penalties were in-
flicted on producers. Ministers not only accepted the 
principle of, what we call, producer co-responsibility, 
but they saw to it that this principle was implemented 
where it hurts. These are proofs that the CAP is not 
immutable, but is established and adaptable and good 
for many more years, yet. It is a policy for people 
not cows - and what is more, for people whose ancestors 
have farmed in Europe for 2000 years. From this you 
may gather, that it has an immensely important social 
function as well as an economic one. 
- 13 -
I trust, Chairman, that these recent adaptions 
to the CAP, the changes of direction and emphasis, and 
some development of the progress we have mad!e so far in 
our talks with our American colleagues will 'enable us 
I to defuse the problems which, as I said at the outset, 
could put at risk the trading system - and more - which 
has served friends and allies together so well over the 
last 30 years. 


A European perspective on agricultural trade. Speaking notes of Derwent Renshaw, Agricultural Attache, Delegation of the European Commission. Kansas City, 13 June 1983

DELEGATION  OF  THE  COMMISSION  OF  THE  EUROPEAN  COMMUNITIES Speaking Notes Baking  &  .Hilling  News Kansas  City,  13,  June  198· '  A  EUROPEAN  PERSPECTIVE  ON  AGRICULTURAL  TKADE  , First, let me  thank you  for  giving me  this opportunity to say  a  few  words  about agricultural trade as  seen  from  the other side of the Atlantic. ; My  job as agricultural attache is beginning to take me  around your  country  and  I  cannot  see that  I  will ever  become  accustomed  to its enormous  size.  The distance_  from Washington to  Kansas  City is about 950  miles.  If I  had traveled that distance  from  my previous office in Brussels,  I  would  have  found  my-self in Riga in Latvia,  in:-.Minsk  in the Soviet Union or,  in order to stay within our  EC,  somewhere  south of Naples  in the toe of Italy. But to trade matters.  That this is  a  question of paramount  importance m US/EC  relations,  is illustrated first by  the  fact that something like one fifth of American industrial production is exported  and  nearly  4  out of every 5  manufacturing  jobs  created in the  US  between  1977  and 1980  were  linked  to exports,  and  second,  the  EC  is the US's  largest single market.  Together  the  US  and  EC account  for  one  third of all world trade.  Nearly  hal~, 2100 M Street NW Suite 707 Washington DC 20037 I telephone: (202) 862-9500 I telex: 89-539 EURCOM - 2  -if you  count trade beb1een  the  10  Hember  states of the  EC. Being  the worlds  largest trading  p~rtners, we  both have  a  vested interest in seeing t1 it, that the open world trading  system promoted  and,protected by  GATT  and  which has  provided the  framework  for  a  un-precedented increase in prosperity over  th~ last 35 years,  should not be put at risk. One  of the  factors  which could put the  system under  serious pressure is the friction between  us  on agricultural trade,  particularly when  there are  so few  signs  - if any  - of growth  in export markets  for farm  produce. Here,  on this side of the Atlantic,  the  Common Agricultural Policy is frequently  seen  as  being the major  cause  for  these difficulties.  So,  perhaps, it would  be  useful if I  \17ere  to  say  a  fe\v  \ITOrds  about it and  then move  on  to  the  specific areas of friction. Why,  you  may  ask,  bother to have  a  CAP  at all? Why  not let the  free market work  - assuming  for  the moment  that  somewhere  in the world there is such  a thing as  a  free,  unfettered market  for agricultural products.  The  answer  lies in  the history of our Community. - 3  -When  the  EC  was  created in 1957  by  the  6 original Member  States, it was  based  on  a  political deal whereby  trade was  opened  up  between  i~s members. I This  could be  achieved  for  industrial  good~ by  elimi-1 nating custom tariffs but this would  have  made  little sense  for agricultural products  because of the widely different agricultural structures in  tho~six Member  States and  the different forms  of  farm  support used.  The  only solution was  to harmonize  these different national  systems  into  a  Common  European policy.  Thus1the  CAP  became  a  vital element  in the process of European  integration  - a  process which continues  and  a  process which we,  who  have  the privi-lege of serving in the  European  Commission,  have  the duty to nurture. The  objectives of this policy  - and  which differ very little from  those of  US  farm  policy  - are spelt out in Article  39  of the Treaty  - the Treaty of  Rome  - which established the  Community.  These  are: increase productivity secure  a  fair standar4  of living for  the farm  population - achieve market stability - to assure availability of supplies to provide reasonable  consumer prices. ------------------------------------------------- 4  -The  mysterious ways  by  which  these objectives are attained will be  familiar  to  some  of you  but less so  to others.  Very briefly,  they  include  ~ uniform or common  internal price level with variable  ~evies on I imports  below this price and  refunds  on  ex~orts when the internal price is above  the world market.  These mechanisms  have  helped to largely iron out.sharp fluctuations  on our internal market.  Prices  have  been stabilised - generally at higher levels than those obtained in the  US.  But  assurance of supply  - like any  insurance policy  - involves  paying  a  premium. 'The  CAP  has  also helped to achieve  sharp in-creases in productivity and  we  have  witnessed the farm  labour  force decline  from  18  million to less than 9  million.  Over  the  same  period,  the average  farm  size has  doubled to about  45  acres.  Farm  incomes  have  been maintained at a  reasonable level but  I  am  certain that our  farmers  would  be  the first to point out that their real  incomes  actually fell in 1979,  1980  & 1981. The  CAP  has also enabled the  EC  to reach self sufficiency in a  number  of essential goodstuffs.  Thus, assured supplies  and price stability have  been  achieved both are,  of course,  objectives of the  CAP  as  spelt out in the Treaty  and  both are of primary  concern to our consumers.  Security,  in the minds  of many  Europeans, - 5  -often has  as  much  to do  with  guaranteed  food  supply as it has  with missiles and  nuclear war  heads. In  some  cases,  self sufficiency has  been  exceeded and it is in these areas where  the problems  between  the two  sides have  developed. The  discussions between  US  and  EC  officials,  the next  round  of which will take place in Washington  on 22/23,  have  enabled the  two  sides to clearly identify these friction areas  - they are relatively few  in numbers  and  are:  wheat,  wheat flour,  poultry and dairy products.  They  have also helped  - equally importantly -to establish that our  import arrangements  for agricultural products  - as  opposed  to their export  - are not  a  divisive or serious  issue between us.  These  import arrangements  -whatever  may  be  put about  elsewhere  - are  amongst  the most  liberal in the western world.  Proof of this is to be  found  in the fact that,  in spite of our having reached and,in  some  cases,exceeded self sufficiency in  a  number  of products,  the  EC  is the largest importer of agricultural goods  in the world  - about  one quarter of global agricul-tural trade is discharged  in European ports,  and,  what is more  important to  an  audience  in the heartland of the  US,  we  are  the~American farmer's  best customer.  In 1981  we  bought  9.0 billion $  worth  of  US  agricultural produce  - including 2.8 billion  $  of  soyabeans  - and ran  a  massive  trade deficit on transatlantic agricul-tural trade of around  7.0 billion $.  Thus,  our  import - 6  -arrangements  are not an  issue.  The  trade figures  I have  just cited underscore the point  I  made  at the be-ginning about  the  paramount  importance of  US/EC  commer-cial ties. So  let us  examine  the circumstances  surrounding the  Community's  transformation  from  a  net importer  to a  net exporter of  some  agricultural products.  This has  come  about  largely as  a  result of  a  revolution in productivity which has  taken place in the  Community since the  inception of the  CAP.  Just as  productivity has  increased in the  US  so it has  - even  more  so  - in the EC.  Grain yields,  for  example,  have  doubled  over the last 20  years,  because of better seeds  varieties and cultivation techniques etc.  In fact,  wheat yields of 5  tons  per hectare are far  from  unusual  in Europe  (a hectaree is almost  2  1/2 acres).  The  result of this has  been that over the past decade,  Community  wheat production  - as  opposed  to productivity - has  risen by  29  %,  compared with an  average world  increase of  27  %. Since  we  are frequently  accused of artificially stimu-lating production in the Community  by  fixing generous support prices, it is illuminating to compare  this  29  % increase with what  has  happened  in the us.  The  first - 7  -thing one notices is that whereas  the EC's  increase has taken place on  a  relatively static acreage  - there is after all not much  spare  land available in Europe  - that in the us  has  taken place on  a  markedly  increased acreage it has  also largely taken place in soft wheats.  As  to total  US  wheat  production this has  gone  up  by  73  % compared with  29  % in the  Community  and  27  % over the world  as  a  whole.  Since total wheat  production in both the  EC  and  the  US  exceeds  internal needs  - two  thirds of US  wheat is surplus  to requirements  - some  of the excess finds it way  on  to  the world market.  And  it is this massive  increase in US  production which has  been  one of the most  important destabilising factors  on  the world wheat market.  But  before  I  look at the  way  in which exports  have  developed,  let me  say  a  word  or  two  about our export refunds  - or subsidies  as  the  GATT  terms  them. GATT  rules permit export subsidies on agricultural pro-ducts  provided  they  do  not result in a  contracting party gaining more  than  an  equitable market  share.  We  feel  we have  observed this rule.  Figures  exchanged  by  the  two sides in the bilateral discussions  show,  that in the case of wheat  the  EC  share of the world market over  the last decade  has  grown  from  5  % to  10  %.  The  US  pushed its share of the world market  much  more  strongly from 33  % to  51  %.  I  submit that it would  be difficult on the basis of these percentages  to  sustain the  argument that the  Community  had  been taking  some  of the  US  share. - 8  -At  a  gathering  such as this  I  cannot,  of course, overlook  flour,  so let us  examine  wheat  and  wheat  flour together  - a  more  realistic exercise than that of con-fining our  studies to wheat or flour  separately,  since, if you  export wheat  as  flour,  you  cannot expect to export i~ as  grain as well.  Over  the  same  decade,  that we took  for wheat  on its own,  that is to say  for  the period 71/72  to  81/82,  the  Community  increased its share of the world market  for wheat  and wheat  flour  from  9  % to 14  %,  whereas  the  US  share  grew  from  32  % to  49  %. Generally speaking,  the worlds  wheat  flour market has  stagnated over  the last couple of years.  This  is not entirely surprising when  one observes  the world re-cession coupled with  a  trend  for developing countries to set up  their own  flour milling plants  and  to import wheat  instaed of flour.  However,  it does  seem  to me that the only potential area  for any  sustained growth  in exports of wheat  and/or  flour is in these developing countries. But  coming  back to the discussions with our  US colleagues on wheat  and  wheat  flour.  The  US's  dramatic increase in production,  the resultant increased dependence of the  US  wheat  farmer  on  a  notoriously unreliable world market are  two  striking elements that have  emerged with great alarity.  Nevertheless,  we  in the  Community  are prepared to make  a  real and  considerable effort to ease the situation by  building up  our wheat  stocks to unpre-cedented levels.  This effort, if not nullified by other - 9  -exporters,  should help to  improve  the situation on the world wheat market. The  other  two  problem areas are poultry and  dairy products.  Our  discussions  on  poultry and careful  , : examination of the trade figures  has  shown  that,  yes, the  US  has  lost  some  of its world market  share recently, but then  so  has  the  EC.  Further examination reveals that our  combined  loss  has  been  the  gain of  a  compara-tive newcomer  to the world  poultry scene  - Brazil,  whose exports,  helped  by  low prices and  generous  credit terms, have  increased to  the extent that they  now  have  20  % of the world  market  compared with virtually "o"  five years  ago.  It is clear that we  need,  in the case of poultry,  to convert our bilaterals into trilaterals and to  include Brazil. Dairy  products,  in my  view,  present the biggest potential dangers  and  problems.  Some  of you  may  have read of the advances  made  in genetic engineering and other aareas with the result that  some  herds of  super cows  in the  US  have  started producing  55,000  lbs.  of milk per year  - this is about  3  times  what is achieved at present in Europe  by  our most  successful herds.  At  the same  time  I  have  seen  forecasts  that the  ~rlds most important export outlet for dairy products  - the Soviet Union  - should be able to build  up  their domestic  pro-duction to the extent that by  1990  they will no  longer - 10  -need  to  import.  I  shall believe that when  I  see it but,nevertheless,  it is an  indication and  warning  to us  all.  Stocks  in the us  and  the  EC  are already at massive  levels  (last year the  US  government  bought three quarters of all dried milk  produced) land,  unless I both sides get to grips with this rapidly  ~orsening situation,  the  problems  we  have  seen with grains will seem relatively minor.  Both  sides must  agree to take measures  - the  US  and  EC  must  each  take their own  - which will adapt milk production to market  needs  and  thus reduce present budgetary costs. These  then are the  four  major  areas of  friction and  I  hope  that next week's  talks will  see us  achieve some  accommodation.  You  may  have  gathered  from what I  have  said that the sorts of accommodation  that may emerge  do  not  involve  a  renegotiation or  a  dismantling of the  CAP.  This is so.  We  are  seeking solutions to our problems within existing systems  and  the  EC  for its part has  no  intention of abandoning or bargaining  away  the principles of the  CAP.  For one  thing,  the  CAP  is an essential element in European  integration and,  for  another, it has little to  do with the problems  - serious as  they are  - facing American  farmers.  These difficulties are due  to other,  far more  telling factors. - 11  -I  have  listed these  factors  on  previous occasions, but  I  make  no  excuse  for  doing  so,  yet,  again.  Some  have been outside your control  - world recession and  crippling debt  problems  in important client  countries~  Mexico,  for I example,  reduced its grain purchases  from  the  US  from  6  mio tons  in 1981  to  2  mio  tons  in 1982. Others  - if I  dare  say this  so  far  from  home  -are to  a  large extent of your  own  making  - the increase in the total cultivated land during the  70's  by  60  million acres  (I  have  already referred to the dramatic  increase in wheat  acreages.).  This  expansion was  continuing even  in the  late.seventies,when economic  conditions were deterio-rating sharply. This,  of course,  led to  huge  increases  in produc-tion.  Between  1975  and  1981,  US  production of wheat  in-creased  from  58  mio  tons  to  76  mio  tons, soya  from  41  mio  tons  to  56  mio  tons, corn  from  146  mio  tons  to  208  mio  and milk from  115  billion lbs to  128  billion lbs. As  was  the case with wheat,  the world market,  un-able  to absorb  such  surges,  was  seriously disrupted. There  has,  of course,  in addition been  a  strong dollar and  last,  but by  no  means  least,  in this light, which  is far  from  exhaustive,  was  your  government's  de-cision,to  impose  a  grain  embargo  on  the Soviet Union. - 12  -(We  all await  news  from next week's  talks on  a  LTA  with great interst.) Thus,  whilst clearly the  EC  and  its CAP  has  an I influence on world markets  as  do all exporters,  large and  small,  we  insist that the real causes  oJ  the diffi-culties of American  farmers  lie a  lot closer than  Europe. Nevertheless,  the  CAP  is not set in concrete, it can  and  does  evolve  and  steps  have  been  taken to ensure  a  better matching of supply  and  demand,  to make producers  bear the burden of overproduction,  to adapt to our role as  a  permanent exporter of  some  products  and to restore  sound operation to our agricultural markets. The  recent price decisions  taken  in Brussels  -in the  face of strong political pressure  - are  some  of the first steps along this road.  Price increases were extremely prudent overall  - the  lowest in a  decade or more  - and  in the case of crops,  where  production had exceeded predetermined thresholds,  penalties were  in-flicted on  producers.  Ministers not only accepted the principle of,  what we  call,  producer co-responsibility, but they  saw to it that this principle was  implemented where it hurts.  These  are proofs that the  CAP  is not immutable,  but is established and adaptable  and  good for  many  more  years,  yet.  It is a  policy for people not cows  - and  what  is more,  for people whose  ancestors have  farmed  in Europe  for  2000  years.  From this you may  gather,  that it has  an  immensely  important social function  as well  as  an  economic  one. - 13  -I  trust,  Chairman,  that these recent adaptions to the  CAP,  the  changes  of direction and  emphasis,  and some  development of the progress  we  have  mad!e  so  far  in our talks with our  American  colleagues will 'enable  us I  to defuse  the problems  which,  as  I  said at the outset, could put at risk the trading  system  - and  more  - which has  served friends  and allies together so well over the last  30  years. 

A European perspective on agricultural trade. Speaking notes of Derwent Renshaw, Agricultural Attache, Delegation of the European Commission. Kansas City, 13 June 1983

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