Draft Minutes of the Cotton Advisory Group

Transcription

1 Draft Minutes of the Cotton Advisory Group 1. Approval of the agenda and minutes of the last meeting 11 th July Communication from the Commission The CAP towards 2020: meeting the food, natural resources and territorial challenges of the future. The Commission s person in charge pointed out that it is a document of policy in order to present some basic ideas. The document will be discussed a) at a European level (European parliament, Commission, Council etc.), b) at a national level. At the end of the next year a more specific proposal will be made. The intention of this document is to properly frame the CAP and its reform. Future of the CAP: presentation and approval of an opinion of the Group on cotton sector, objectives and principles to incorporate. The representative of Greek farmers noticed that on p. 2, at the start of point 3 the term common market organization must change, because there was never a common market organization in cotton sector at a European level. He proposes the use of EU policy. The Spanish representative of the processing sector and as part of this presentation asks from the Commission the stability in CAP because so many frequent changes should not occur. The trade representative stated that he supports cotton and the EU s agricultural sector, but he called for greater attention in the declaration s statements. Specifically on p. 4, he writes that European specifications are needed. However, most of the European cotton is exported. The representative of Greek ginners stated that he respects the trade representative s opinion, but the declaration seeks to underline the high standards and the limitations of the European farmers. The trade representative stated that it should be said that we must cultivate with European standards, regardless of whether this European product is imported or exported. This sentence could be slightly modified. The president stated that the text will be slightly edited. This sentence could be completely removed. The trade representative stated that the sentence demanded by European consumers could be changed with to succeed high EU standards.

2 The representative of farmers agreed. After that all opinions were adopted, the president confirmed the adoption of the joint resolution (herewith in Annex). 3. Information on the legal framework of the accession Treaty of Greece and Spain in EU (protocol 4) and the commitments arising for the cotton sector. The main Articles of protocol 4 were shared by the Commission. The representative of the Commission pointed out that protocol 4 was initially utilized in 1981 upon Greece s integration in the EU, since no Member State produced cotton until then. It was extended then in 1986 with Spain and Portugal and then with Bulgaria. Paragraphs 3 & 6 are the most important ones in the protocol. Procedures to adopt the rules implementing the provisions of the Protocol have not been changed by Lisbon Treaties. The protocol has an unlimited validity. Principles in the Protocol can be modified at unanimity. Rules governing the aid regime can be changed at qualified majority. The representative of Spanish farmers asked if cotton sector must be reformed for budgetary reasons. The representative of the Commission replied that restructuring programs in the cotton sector adopted according the Regulation on implementing rules on cotton are for sure covered by the budget. The representative of Spanish ginners stated that as far as he understood the decisions made must be fulfilled and the engagements are not reconsidered. Therefore there will still be coupled support and asked if this is true or if it may change. The representative of the Commission replied that he did not understand the question. The representative of Spanish ginners added that the cotton s financing mechanism can be revised. This mechanism has already changed 6 times. There has been the decision 310 of Luxembourg s ECJ. The court ruled out that a coupled support is required. The court s interpretation of the protocol remains the same or can it change? The representative of the Commission replied that the mechanism may be revised, but the principle of production support may change only by unanimous decision.

3 The representative of Spanish farmers asked if the coupled support may be completely lost. The representative of the Commission replied that he cannot envisage which policy choices will be done in the future. Mechanism can change; however, the principle of the support to production in cotton sector, within the limits set out in the Protocol, may not change by qualified majority, but only by unanimous decision. The president stated that what must not change is the fact that in any case production must be strengthened. Not only the Region but also the farmers. The representative of the Commission replied that he must inform that production support could be considered incompatible with the arrangements in the context of the WTO. The president asked if the WTO overlaps the EU. The representative of the Commission replied that currently no controversy has been raised at WTO level concerning the EU cotton aid. He cannot foresee what will occur in the future. In any event, the court ruled out that the current cotton regime is in line both with the EC Treaty and the Protocol. 4. Information of the Commission concerning the Lisbon Treaty and the codecision procedure. Selected Articles of Lisbon Treaty were shared. The representative of the Commission clarified that Article 289 is the legal basis. The most important Articles are Articles 290 and 291 that concern the delegated and implementing acts. Main differences are a) the co-decision of the Commission with the European Parliament and b) the distinction of executive acts in delegated and implementing acts. Article 290: delegated acts. These are non legislative acts of general application, which supplement or modify non essential elements of the acts. The delegation to the Commission must be very specific, describing duration. Such a delegation may be revoked by the Parliament or the Council. The delegation is not mandatory. The authorization is not mandatory. The commission may consult Member States. Article 290 is directly is directly applicable. However, single basic legislative acts have to be adapted (aligned) to the new powers provided for in this Article.

4 Article 291: implementing acts. Member States are normally competent to adopt implementing measures, however, where uniform conditions for implementing Union binding acts are needed; those acts must confer implementing powers to the Commission. New rules on such implementing mechanisms must be adopted by the Council and the Parliament (new comitology). Timetable for adoption of the new comitology is not set out. Examples of the matters covered by delegated or implementing acts, following the assessment made by the services of the Commission, were given. Relevant presentation from the commission follows below (Ordinary Legislative Procedure under Lisbon Treaty) The presentation shows that the parliament, the council and the commission jointly operate. The representative of Greek farmers argues that he has the feeling the structure is mazy. When the decisions are valid for 8 months to 3 years, this will not last for long. Things should be simpler, if we want to meet EU s challenges. The representative of Spanish ginners poses 2 questions: a) whether national parliaments participate and b) on the amendments to the cotton s support mechanism, on the transition and when it will occur. The representative of the commission replies that as regards the second question the co-decision will be followed since cotton is incorporated in an act regarding many sectors. As regards the first question, national parliaments contribute only to monitoring the respect of subsidiarity. Parliaments will make sure that the principle of subsidiarity is correctly implemented pursuant to the EU s legislative act. 5. Exchange of views on the EU and world market situation: Provisional balance sheet for the marketing year 2010/2011: areas sown, production, yield, prices. Estimate from the production sector for the marketing year 2011/2012 Presentation by the trade sector about the current market and outlook. Presentation by the representative of the commission (Cotton market situation). Presentation by the trade representative (market outlook celcaanov 2610). The representative of Spanish farmers presented their data on production and area is estimates: in 2010, the cotton area is estimated at hectares, increasing by 10% compared to The effective production of unginned cotton is calculated to be around tons, increasing by 80% compared to

5 the last campaign. Prices of unginned cotton ranged between 0.45 and 0.50 EUR/kilogram. The representative of Greek farmers presented their data on production and area estimates in Greece: in 2010, cotton area is estimated at hectares. The production of unginned cotton is estimated around tons so far, with an important decrease in yields (-67%) compared to 2009, because of pests attacks and overload of rainfall. Prices of unginned cotton ranged between 0.60 EUR/kilogram and 0.65 EUR/kilogram and are deemed satisfactory. The representative of Spanish ginners pointed out that he is a farmer, agronomist and ginner. The price instability observed recently is huge. When the harvest started, prices were lower and the aim was to ensure production and sale. In Spain minimum output is required with the new regulation and there was a very good production thanks to favourable weather conditions. There was a little problem with chemicals in the fibre, a minor problem though. Increases and decreases in prices by 40% and 50% were observed within 4 weeks. He informed that ginning will be completed the next week and final data on fibre, prices, production will be available. The representative of Greek ginners pointed out that it was a very bad year in Greece, with problems resulting from insect invasions during the cultivation and also because of rains during the harvest. We expected an increase in hectares and it occurred. However, although we expected 270,000 tons of fiber compared to 240,000 last year, we finally expect 160, ,000 tons, a 40% decrease in production instead of the 16% increase we expected. Last year 500,000 tons of cotton was produced until 30/10, whereas this year 200,000 tons have been produced. Actions in the ginned production were made from 80c/lb to 170c/lb. The average value is 115c/lb. The year for Greek ginneries is deemed hard because of a) increased customer demand, b) lack of production, c) high expectations of producers and d) Presales at prices lower than the current ones. 6. Exchange of information on problems resulting from price fluctuations on commercial transactions. The trade representative noticed that there were conflicts lately because of price fluctuations. Very important violations in the contracts that are causing a very big problem and I think that it is vital to the entire system. When a contract is signed it has to be respected. We have to respect our signature. Market is twoway. The list of names is becoming longer and longer. We have to understand that there are customers who do not accept such behaviors. We have to decide that when one breaches one s contract one must endure penalties. Do not subsidize. We have to be reliable. The decision to sell or not to sell is free.

6 The other trade representative stated that it is a huge problem to Greece. Many European tradesmen purchase Greek cotton. They understand the problem of reduced production but this does not affect the observance of contracts. International arbitration decides on the future. The representative of Spanish farmers stated that he completely agrees to these statements. The restructuring plan of ginneries in Spain was a huge mistake. In Spain there are today 7 ginneries and there s not enough manpower to gin the Spanish cotton. Fortunately this year had no rains. Moreover, in Greece producers enjoy greater prices with respect to Spain. Because of the production increase we believe that there is much room for Spanish processing. We propose the farmer to sell fiber and not cotton. There were queues of 2-3 kilometers outside ginneries. The representative of Greek ginners states that there are indeed violations of contracts, according to market rumors. However he believes that cases of violation will be rare and in any case they do not relate to nor represent the majority of Greek ginners who try to fulfill their obligations. He adds that no more than 2-3 cases will be brought to arbitration. The phenomenon of delayed delivery of contracts is of course justified because this year the harvest occurred with a 1-month delay due to the unfavorable weather conditions in Greece in October. The president stated that the quantities sold must be delivered regardless of price. We must not impose this but recommend it. We believe that most will be delivered and anything not delivered is subject to arbitration. Tradesmen may have recourse to both international and national courts. Moreover, market should punish him. The representative of processing in Spain stated that there are no such phenomena in Spain. In commenting on the statement of the representative of farmers regarding queues outside ginneries he stated that Spain has sufficient ginnery manpower but excessive harvest manpower. The representative of Spanish farmers stated that there is a superabundant capacity during the harvest. However cotton cannot tolerate rain so this capacity is necessary. The representative of the Commission stated that he comes from the General Directorate of Internal Market and that they currently examine contractual relations in the chain. He is not an expert in matters of cotton and he finds arbitration mechanisms interesting in case of violation of a contract. Of interest

7 to the Commission is whether the weak part of the contract is subject to a violation practice and whether it may make up for the loss and breach. The trade representative stated that 80%-85% of cotton trade is monitored by ICA in Liverpool. British law is followed. But then the local courts must rule out to deliver a decision and he asks himself if decisions should be implemented at a European level. The representative of the Commission thanked the interlocutors for the clarifications. He underlined that he understood the problem. Unfortunately he cannot resolve it promptly but he may submit the question of enforcement of arbitration decisions to the High Level Forum on the food supply chain and in the context of the reflection on the need for an initiative on Fairer Commercial Practices. The president noted that we may not involve supports of regions or producers in the breach of ginners contracts. Ginners are not subsidized and the breach of contracts is not a practice of Greek ginners but is practiced only in rare cases. The representative of Greek farmers absolutely agreed with the President. He added that those who trade or those who process would not have business without primary production. ******** Disclaimer "The opinions expressed in this report represent the point of view of the meeting participants from agriculturally related NGOs at community level. These opinions cannot, under any circumstances, be attributed to the European Commission. Neither the European Commission nor any person acting on behalf of the Commission is responsible for the use which might be made of the here above information."

8 Annex I: COTTON ADVISORY GROUP RESOLUTION THE COMMON AGRICULTURAL POLICY AFTER 2013 AND THE EU COTTON SECTOR Brussels 26/11/2010 Within the framework of the Cotton Advisory Group, a common resolution has been drafted, detailing the specific objectives and principles of the EU cotton sector that need to be taken into account in the Common Agricultural Policy (CAP) after The structure of the proposals drafted in the resolution is as follows: 1. Firstly, it establishes the need to maintain a strong CAP in the EU with a clear mission after 2013; 2. It then evaluates the cotton sector in the EU, identifying the significant role it plays; 3. The cotton policy regime under the current CAP until 2013 is then reviewed, with the deficiencies and flaws defined; 4. Developments on the international market affecting the cotton sector are pointed out; 5. In view of the above, the cotton sector-specific objectives for the CAP after 2013 are identified; 6. Proposals are put forward on ways in which these objectives could be achieved. 1. THE CAP AFTER 2013 The Common Agricultural Policy, following successive reforms since 1992, has managed to assure to a certain extent that EU agriculture is functioning well, satisfying consumer needs both in terms of agricultural products and public services offered through agricultural activity.

9 In future, increasing demand for high-quality agricultural products will mean a strong CAP with an adequate budget is more essential than ever, if agricultural activity in the EU is to ensure: A secure supply of agricultural products for 500 million consumers in which production capacity is maintained throughout the EU; Sustainable production which meets the highest standards in the world for food safety, traceability, environmental protection and animal welfare; Employment and economic viability in rural areas - nearly 30 million people are employed on farms, over 40 million work in the agri-food chain altogether; The management of over three-quarters of the land in a way which provides a rich variety of landscapes and habitats by shaping the visual features of rural areas; Preservation of biodiversity; Production is maintained in less-favoured areas. It is extremely important that any adjustments to the CAP after 2013 reinforce the common nature of the policy with common rules, while taking into account the diversity of European agriculture. In order to be covered by the general principles of the CAP and given its specific characteristics, the cotton sector in the EU should be examined separately and specific policies should be applied where necessary for the sustainable development of the sector. 2. THE EU COTTON SECTOR The cotton sector, although a small sector in the European Union, is especially important to the regions where cotton is produced and processed, making a particularly positive contribution to the EU economy. Specifically: In some regions it represents more than 50% of total agricultural income; In these regions, both producers and processors have invested significantly in their equipment from which a whole new culture of land and countryside management has emerged; The sector offers employment opportunities to more than 200,000 people, including farmers, traders and people working in production, processing and the handling of goods; Without taking into account textile products, the sector has an annual turnover of approximately 600 million Euros;

10 European cotton is in high demand on the international market owing to its high quality. Difficulties have never been experienced in managing or disposing of surplus; The regions where it is cultivated have an especially suitable microclimate; Extensive know-how in cotton production has been developed given the traditional nature of cultivation; The manufacturing/production process is completely mechanised including all stages from sowing until harvest, ginning and product packaging. 3. THE EU COTTON REGIME & THE IMPACT OF THE MOST RECENT CAP REFORM ON THE COTTON SECTOR The European policy for cotton was introduced in 1981 with the accession of Greece to the Community and the regime was extended in 1986 with the accession of Spain and Portugal. Protocol 4 established the Community support programme for cotton. Subsequently, the regime was revised regularly until 2004 when the Council adopted a new aid regime for cotton, applicable from January This brought it into line with the other sectors, in accordance with the 2003 CAP. The basic principles of the new regime were that: 65% of previous aid, based on a reference period, was decoupled from production; 35% of previous aid remained coupled (linked to cotton production and triggered by the opening of the cotton boll rather than the harvesting of the seed cotton) in the form of area payments. The justification for this coupled payment was that the adoption of a completely decoupled payment would pose the significant risk that production would be abandoned in cotton producing regions; Payments were subject to environmental and other standards being met (cross- compliance); A portion of the previous budget was allocated to rural development (pillar II) and decoupled direct payments were subject to modulation; The reformed cotton regime was challenged by the Spanish Government, and following the Court of Justice ruling against the EC, the Court annulled the reform. On 23/6/2008 a new cotton support scheme was adopted by the Council which was enhanced with the following tools: To be eligible for coupled aid, cotton could now only be grown on land authorised by the Member State using authorised varieties of seed, and cotton would have to be harvested under normal growing conditions.

11 Additionally, the Member State could establish eligibility criteria for coupled payment; National restructuring programmes were also developed to encourage the restructuring of the cotton ginning industry and to enhance the quality and marketing of cotton produced. Given the third season under the reformed 2004 CAP has now begun and the first season following adoption of the new support scheme from June 2008 is underway, the following observations can be made regarding the impact of the new standards on the functioning of the market: Both the area under cotton and productivity, measured in yields (kg of seed cotton per hectare) fell sharply in the EU. (Area: average of 450,000 hectares during fell to 290,000 hectares by Yield: in Spain fell by almost 70%; Greece by 25%). Total output reduced considerably, whilst total expenditure for the sector (coupled payments + decoupled payments + pillar II payments) remained almost the same. Funds allotted to the cotton sector under pillar II, which gradually increased through the Modulation process, were not clearly identified as having the purpose of financing alternative Rural Development actions for cotton producing regions. Use of ginning capacity fell considerably, affecting both employment in the sector and the profitability (viability) of the industry. With the new standards there is over capacity of the ginning sector. Economic activity in regions where farmers traditionally produced cotton in the past has declined significantly owing to the inadequacy of production alternatives to replace traditional production. The potential impacts of the reformed cotton regime on cotton area and yields as well as on the use of ginning capacity was mentioned by a study conducted on behalf of the EC by LMC International on July 2007 (impact study of the new cotton regime), when implementation of the regime began. The study attributed the aforementioned reductions to a fall in gross margins per hectare for producers (the difference between revenue minus various costs without calculating decoupled aid and family labour). From the findings of this study, most importantly it was concluded that as the level of coupled payment falls, the gross margin for cotton falls. Moreover, with full decoupling, margins turn negative, meaning the area under cotton would be expected to fall to zero. 4. CHALLENGES FACING THE EU COTTON SECTOR

12 Proposals for future policies for the sector should not ignore the trends highlighted above nor recent developments on the global market: Price volatility has increased because of the general economic instability and severe climate fluctuations resulting in unstable production conditions. Besides, measures formerly available under the CAP to ensure market stability have been progressively dismantled. Both cotton productivity and total production volumes have fallen, however global demand has increased significantly. The EU is a minor player at global level and only has a negligible impact on world market prices (it only contributes approximately 2% to total global production). Besides, the EU does not use export subsidies for this sector and offers duty free access. On the contrary, the major cotton producing countries (USA, China, India) implement their own direct support measures, each affecting the functioning of the global cotton market. Farmers in the EU have been facing increasing costs of production to meet the highest EU standards. Additionally the European sector has made a considerable effort to minimise the impact on the environment and to adopt sustainable production techniques: as an example, the area under integrated production represents 82% in Spain. To the same direction effective plant protection products have been forbidden from EU before alternative active substances have been found halting productivity and competitiveness of the farmers. However, the European cotton has to compete on the same market with cotton produced at much lower costs and which does not meet these standards. 5. OBJECTIVES OF THE CAP AFTER COTTON SECTOR CASE STUDY In view of the context outlined above, the specific objectives and principles of the cotton sector that need to be taken into account in the CAP after 2013 are summarised as follows: I. Creation of a long-term strategy, in line with the aims of the CAP reform but also in line with the undertakings of the EU with the Accession Treaties of Greece and Spain (protocol 4), to secure the viability of the sector and the sustainable development of cotton-growing regions, recognising the importance of cultivation to the local communities and the broader economy of the EU. II. Establish prerequisites for improving productivity with the aim of: a. meeting industry and consumers demand in terms of quality and quantity;

13 III. b. improve farmers income levels; c. more rational Community budget management available to support production. The EU should ensure that all imports meet the environmental and other standards equivalent to those applied in the EU. IV. Ensure that all production will be carried out in a way which protects the environment and maintains an attractive countryside, respecting the safety of farmers and consumers alike. V. Adopt cultivation practices which ensure the proper use of water and soil. 6. ACHIEVING THE OBJECTIVES - ACTION TO BE TAKEN AS PART OF THE CAP AFTER 2013 To achieve the aforementioned objectives, the following action would be required from the CAP after 2013: A. Maintain public support for the cotton sector at its total current level to ensure that the economic activity, the employment and the industrial activity created by the sector are also maintained. The importance of coupled support for the cotton sector should be recognised as a crucial factor for viable cotton production in EU, reflecting the support measures used by the major cotton producing countries in the world (level playing field). Any further decrease in these payments could lead to a drop in gross margins for farmers and consequently to serious disturbances to production. It is important for Member States to establish measures and eligible criteria for granting coupled payments to farmers in order to ensure proper budget management and adequate farm productivity. Besides, public support for the sector will ensure a stable income (safety net) for farmers, especially during periods of intense volatility in market prices, allowing them to provide a series of public services (e.g. cross compliance in land management) which are valued by society but are not currently rewarded by the market. B. Modulation between pillar I and pillar II should be eliminated and budget allocation for the main elements of the CAP should be fixed for the entire financial period. Money allocated from the existing cotton budget to pillar II should be fixed from the very beginning and clearly

14 channelled back to cotton-producing regions by financing actions such as: a. Total Quality Management of farming practices for better input control, production cost efficiency, quality improvement and environmental protection; b. Water management techniques; c. Agri-environmental payments. C. Assurance that any direct payments are granted only to active farmers who contribute to society through their farming activity, rather than to non-farming landowners. D. Measures to promote exports on the international markets pointing out the high quality produced through Total Quality Management - environmental friendly techniques. E. The high degree of volatility in world cotton prices is of particular concern to European cotton producers, especially given the limited role played by European production at world level. In order to shield cotton growers income from extreme price fluctuations, instruments such as income insurance should be investigated. Disclaimer "The opinions expressed in this report represent the point of view of the meeting participants from agriculturally related NGOs at community level. These opinions cannot, under any circumstances, be attributed to the European Commission. Neither the European Commission nor any person acting on behalf of the Commission is responsible for the use which might be made of the here above information."