Evaluation of CAP measures for the sheep and goat sector

Transcription

1 Ref. Ares(2011) /12/ Boulevard de Bonne Nouvelle Paris In collaboration with COGEA (Roma) And the Institut de l Elevage, QMS, MLCS, Speed, Incatema, Board Bia Evaluation of CAP measures for the sheep and goat sector TENDER N AGRI 2010 EVAL 02 For DG Agri European Commission Executive Summary November 2011

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3 1 1 EVALUATION OBJECTIVE AND CONTEXT The objective of the present study is to evaluate the impacts of the Common Agricultural Policy measures on the sheep and goat sector since the entry into force of the 2003 Reform of the Common Agricultural Policy. The evaluation focuses on: The transfer of coupled aids into the Single Payment Scheme (SPS) and the possibility of partial recoupling (Council Reg. (EC) No 1782/2003); The Single Area Payment Scheme (SAPS) and the Complementary National Direct Payments (CNDP) implemented in the EU-12 Member States; The possibilities offered by articles 69 (Council Reg. (EC) No 1782/2003) and 68 (Council Reg. (EC) No 73/2009); The market measures, of which the most relevant are custom duties and tariff quotas. Evolutions due to the Health Check (Council Reg. (EC) No 73/2009) are presented in the descriptive part only, as their effects cannot be measured at this stage. Analyses are carried out using data, except for the analyses based on the Farm Accountancy Data Network (FADN) for which data are only available up to They focus on Spain, Italy, Greece, France, the United Kingdom (UK), Ireland and Romania for the sheep sector; Spain, France and Greece for the goat sector. These 7 Member States (MS) hold 87% of the sheep and goat population, a level which has remained little changed over the study period.. 2 METHODOLOGY Overall, the study follows the standard methodology for evaluation, in 4 phases: Inception: theoretical analysis of decoupling, empirical analysis of the sector, identification of the judgment criteria, indicators and sources to answer the evaluation questions; Data collection; Analysis: based on the data collection phase, the analysis is organised around 10 evaluation questions set by the European Commission; Conclusions and recommendations. The study relies on various sources: Statistical data : DG-Agri, Eurostat, FADN, national/regional statistics, data from technical centres; including the Institut de l Elevage, Teagasc, and the Agriculture and Horticulture Development Board ; Case studies carried out in 7 regions (Andalusia, Sardinia, Epirus, Midi-Pyrenees, Scottish Highlands and Islands, Irish Mid-East and Centre Romania) including interviews with the main stakeholders: national and regional authorities, professional organisations, sheep and goat farmers, and other businesses along the supply chain including abattoirs, dairy processors and merchants. The analyses on the effects of the reform start in 2002 and exclude the year 2001 because the production was impacted by the foot-and-mouth disease outbreak in that year. Regarding the analyses based on FADN, in order to reflect the diversity of production systems in the 7 Member States studied, 4 groups of farms were established 1. The main limits of the study are related to data availability: on one hand, the FADN data was only available until 2008 and on the other hand the availability of regional data varied widely among regions. The representativity, then, is not always sufficient to analyse each type of farming in 1 Sheep-meat (Type of Farm (TF) 441 and revenues coming mainly from meat), sheep-milk (TF 441 and revenues coming mainly from milk), sheep and cattle combined (TF 442) and specialised goats (TF 443).

4 each region (NUTS2 level), although it would be interesting considering the segmentation among producers (for example sheep, goat or sheep-and-goat farmers, specialist business or combined with beef; farms oriented towards meat or milk, heavy or light lamb production, share of own resources for fodder, location in less-favoured areas or not). This last point also explains why observations, analyses and conclusions differ depending on the Member States or regions; in addition to the diversity of production systems, the implementation of the Common Agricultural Policy also varies (total or partial decoupling, weight of the second pillar support, historical or regional references for the single payments). 2 3 SECTOR DESCRIPTION 3.1 SHEEP AND GOAT PRODUCTION IN THE EU At the European level, sheep and goat farming is a minor agricultural activity, representing in % of the total value of animal production in the EU-27. However, in some Member States, sheep and goat farms cover a significant part of the agricultural area: 31% in the UK, close to 20% in Ireland, Spain, Romania and Italy. Sheep production is characterised by a decrease of the number of livestock intended for meat production (33% fewer meat ewes between 2000 and 2009) while the number of livestock intended for milk production has increased steadily (+43% for the number of milking ewes). In total the number of sheep has been decreasing slowly since the 1990s (-1% per year) and faster after 2005 (-3% per year). The number of goats decreased by 11% between 1990 and This reduction however was offset by productivity gains, which resulted in an increase of the milk production. The main trends on the sheep meat market are: A steady decrease of the consumption (3.5 kg per capita in 2001, 2 kg in 2010); A drop of producer prices in 2001 coinciding with the foot-and-mouth disease outbreak, followed by a stabilisation until 2006, and an increase after that; Stable imports, within tariff quotas, coming mainly from New-Zealand and Australia. The main trends on the sheep and goat dairy market are: A 9% increase of the sheep milk production since 1995 (although it is currently little changed from the 2000 level of production); about 2/3 of the milk produced is collected and processed off farm by commercial dairies, with important variations among Member States; sheep cheese exports from the EU represent 3/4 of the world trade. A 10% increase in goat milk production since 1995; the collect rate is lower than for sheep milk with many more producers processing milk on farm. International trade for goat cheese is marginal. Stable prices for sheep milk over the past few years, with stable differences among Member States; steady increase of goat milk prices in the main producing Member States.

5 3 3.2 THE SHEEP AND GOAT SECTOR IN THE 7 MEMBER STATES ANALYSED The main characteristics of production systems in the 7 Member States studied are summarised in the table below. Figures relate to Greece Spain France Italy Ireland UK Romania Current situation Largest European producer of sheep milk (686,000 t, 24% of EU supplies in 2009) Largest goat herd (4.8 million heads, 37% of EU total in 2009) Mainly milk production 23% of sheep milk and 62% of goat milk processed on farm 2 nd largest European sheep flock (18.5 million head) and goat herd (2.9 million head) Predominance of meat production National surplus for live sheep and sheep meat Largest European goat milk producer (623,000 t, 33%) Predominance of sheep-meat systems and concentration of the sheep-milk systems within 3 areas National deficit for sheep meat 2 nd largest European producer of goat milk Mainly milk production National deficit for meat Only Sheep-meat systems Production focused on intra-eu exports (2/3 of the production). National surplus for live sheep and sheep meat Only Sheep-meat systems Largest EU sheep flock (21.3 million heads, 24% in 2009) and largest meat producer (307,000 t, 41%) Mainly oriented towards milk production Live exports within and outside the EU 3% of sheep milk is collected Main evolutions in the past 10 years Number of animals and production in slight decline (both for meat and dairy). A trend of concentration in to fewer and bigger farms Shift from meat to dairy Slaughtering in significant decline following the decline in the number of animals Modernisation of the dairy industry Increasing dairy production (sheep, goat) Significant decrease in the number of sheep intended for meat production and of slaughters Increase in the number of goats Stable production of sheep milk and growing production of goat milk Decrease of Pecorino sales since 2006 Decreasing production Livestock numbers deeply impacted by the foot-and-mouth disease crisis in 2001, and in slow decline since then Growing livestock and milk production

6 4 4 CAP MEASURES IN THE SHEEP AND GOAT SECTOR 4.1 INTERVENTION LOGIC The sheep premium and the market measures were first put in place in 1980; those tools were based on a price support system. New instruments were later introduced to limit expenditure; the premium was extended to the goat sector under certain conditions. Support for less favoured areas was created. Since 2001, three instruments have been available: direct payments, established as a fixed premium per animal, intervention measures (private storage and exceptional measures never used since then) and measures related to the trade with third countries. The 2003 reform introduced decoupling, modulation and conditionality and therefore combines several types of support namely: Decoupled aids, characterised by the disconnection between production and support; Residual coupled aids (50% of the sheep and goat premium) maintained by some Member States; Support to specific types of farming deemed important for the protection of the environment or for improving quality and marketing (article 69 used in Italy, Greece and Portugal for the sheep sector); Market instruments, mainly custom duties and tariff quotas. Member States could choose between two alternative support mechanisms: total decoupling (Greece, Ireland, United Kingdom, Italy) or partial decoupling (Spain, France). In the EU-12 Member States, a decoupled Single Area Payment Scheme (SAPS) was introduced, sometimes with Complementary National Direct Payments (CNDP). The Health Check (Council Reg. (EC) No 73/2009) continues to offer the possibility of partially recoupling support to the sheep and goat sector, extends the possibility to use the SAPS and modifies the possibilities of using article 69 (now article 68). After the entry into force of the Health Check in 2010, all the Member States analysed had fully decoupled. 4.2 BUDGETS Before the reform, the sheep and goat sector benefitted from significant level of support (1.836 billion Euros in 2004, or 22% of the production value). Following the 2003 reform, sectorial aids went from billion Euros (average ) down to 436 million Euros (average ) and only 299 million Euros for the year This last amount represents less than 4% of the production value. Out of this amount, the sheep premium (coupled aid) represents close to 3/4 of the total support, additional payments (additional subsidy to the sheep premium available for the less favoured areas) totalled some 20% of direct payments. In addition, 20.8 million Euros were spent in 2008 in three Member States under article 69 ( 11.8 M in Greece, 8.4 M in Italy, 0.6 M in Portugal). Sheep-meat farms are the main beneficiaries (70% of direct payments) followed by sheepmilk farms (22%) and goat farms (9%). Since the reform, market measures (e.g. private storage and exceptional measures) have not been used. Therefore, there has been no expenditure.

7 5 5 EXTERNAL FACTORS, RURAL DEVELOPMENT The sheep and goat sector has been influenced by several factors over the period of the study: Health crisis: the foot-and-mouth disease outbreak in 2001 and again in 2007 in the UK and the bluetongue outbreak starting in 2006 and persisting in to 2007 and 2008 in France, Spain and the UK all had significant economic consequences for sheep and goat farms viability through: livestock losses (foot-and-mouth disease), vaccination campaigns (bluetongue disease) and restrictions of trade in live animals. Skyrocketing prices in the cereals and fodder market in and Sheep meat consumption, which, with the exception of Romania has declined in all the Member States studied. Cheese consumption is stable (Romania) or growing (the other Member States). The sheep and goat cheese sector is characterised by the production of fine cheeses for exports outside the EU and the importance of products benefitting from a European quality label (Protected Designation of Origin PDO or Protected Geographical Indication PGI). Production in New-Zealand (80% of tariff quotas and of total imports) is characterised by a reduction of the sheep livestock and a price increase. The sheep and goat production is also reliant on the rural development policy, which can bring significant support to sheep and goat farms, most of which are based on grazing systems and are located in less favoured areas (70% of the livestock). 6 EFFECTS OF THE REFORM ON THE ECONOMY OF THE SECTOR 6.1 SHEEP-MEAT Production The number of sheep has contracted in the EU as a whole, both in total and in terms of the number of ewes, and especially in the four Member States where farms are mainly (France, Spain) or exclusively (Ireland, UK) oriented towards meat production. Decoupling has accelerated a pre-existing trend; as a matter of fact the reform came in addition to other negative external factors, namely, rising fodder prices and epizootic outbreaks. The analyses do not allow the establishment of a hierarchy among these three negative factors. There is no differential effect between partial and total decoupling. Meat production has decreased as a result of the decrease in the number of ewes, since prolificacy has barely increased. Regarding the spatial distribution of the production, decoupling resulted in a greater reduction of livestock in economically vulnerable areas (Scottish Highlands and Islands). The entry of the EU-2 Member States favoured the development of the production in these 2 Member States but we cannot establish a causal link between these two trends (decline in the West, increase in the East). Farm structures have barely changed, except in France, where farms have expanded but for other reasons than the reform of the CAP, and in Romania, where the number of farms has decreased while their size increased rapidly following their entry into the EU. In the Romanian case, the concentration effect is related to investment aids, which encouraged the improvement of genetics and equipment. Finally, the extensification of production observed in Ireland is an indirect result of the reform following the acceleration of the decline in livestock numbers, whereas the number of farms remained stable. Following from the decoupling of aids; the reduction in animal density results in a better adaptation of the flock to the available fodder resources on farms. Supply for abattoirs The reduction of sheep-meat production is noticeable in France, Spain and Ireland. In the UK, the recovery trend following the foot-and-mouth disease outbreak stopped, and then reversed, at the time of the reform. Restructuring trends were observed in Scotland and in France. In Spain and in

8 Ireland, specialised processing companies have had supply and/or growth issues. The reduction of supply capacity is an indirect consequence of the 2003 reform: without significant productivity gains the contraction of flock resulted in the reduction in the number of animals available to the slaughtering industry. Market orientation, competitiveness and prices The main change following the reform has been a greater focus on improving productivity. Production costs in sheep-meat farms primarily depend on fodder prices. The reliance on external supply varies among Member States (low in Ireland and the UK, high in Greece and Spain, average in France and Italy). When fodder prices increase, production costs increase as well. In other words, farm competitiveness in this sector primarily depends on an external factor. Other operating costs (fixed costs) have also increased. Overall, during the period, producers did not improve their price competitiveness in comparison to other meats (particularly pork) or global sheep-meat producers (e.g. New Zealand). The consumer price for sheep meat also increased faster than the general consumer price index. However, the evolution of price, productivity and relative competitiveness is not related to the reform of the support scheme to the sheep and goat sector. Low price imports were limited by tariff rate quotas until As a matter of fact, during the past decade, total global exports from Australasian countries increased whereas European imports from these same countries remained stable at the tariff quota level. The reform did not prevent the profitability of sheep-meat farms from deteriorating. The average profitability, measured by the gross margin per livestock unit, contracted or remained stable (in the case of Ireland) in all Member States specialised in (Ireland and UK) or mainly oriented towards meat production (France and Spain). In conclusion, on the one hand, sheep-meat farms produce rather expensive products, and during the period analysed, the producer price did compete favourably with other meat products and consumer price increased faster than the general price index. On the other hand, the same products only bring very limited profits to farmers. These two statements highlight the lack of competitiveness inherent among the sheep and goat sector. Farmers who, with decoupling, do not have to maintain the same number of animals any more in order to benefit from the support, have, on average, reduced an activity that is low-profit and not competitive for them. Income In the Member States studied and over the period of the study, direct aids helped farmers to maintain their income or limit its decline. Generally speaking, the importance of direct support in income is higher after the reform than before. However, the poor market context and the lack of competitiveness of the sector resulted in a reduction of the average net income in several Member States, especially in the UK, the largest sheep meat producer in the EU, but also in France and Spain. In Italy, the impact of direct aids is less because of a higher income from the market. In the three main Member States for sheep meat production (United Kingdom, Ireland, France) the market alone is not able to provide sufficient return to generate a positive income, as prices do not cover production costs SHEEP-MILK Production The number of milking ewes has remained stable in Italy and Greece, which are mainly oriented towards milk production, as well as in France and Spain, where the production is mixed; but the ewe flock increased in Romania. The milk sector has not been affected by the negative trends of the meat sector and the reform of direct aids has not had a significant influence on the number of milking ewes. Consequently, the effect of the changes in the support regime on milk production, and the volume of meat produced as a by-product of the dairy sector, is also limited.

9 In Greece, balance between goats and sheep has slowly shifted from goats to sheep since the beginning of the decade, although the decrease in goat numbers had started before the 2003 reform. The main driver of this change has been the higher price paid for sheep milk. The volume of milk produced varies independently among Member States and production areas, depending on the specific markets for sheep cheeses. Fodder prices also play a part, as farmers limit the feed ration and as a consequence of that milk yields when prices are high. However these trends are not caused by the reform. In Sardinia, while on the one hand, there is a tendency to increase the size of professional farms, on the other hand small semi-professional farms remain. In Romania, the accession to the EU came with increased public support for the sector (both direct aids and investment aids) which resulted in investment in equipment and genetics. In the years following the reform restructuring took place as farms became bigger and production increased. Supply for the dairy industry The collection rate (the ratio between the total milk production and the milk used by the processing industry) is variable but never exceeds 92%. There are indeed possibilities for milk collection to adjust in terms of volumes, as industrial production is complementary to the production of artisan farmhouse cheeses. Moreover, production is conditioned by the processing industry which regulates the volumes purchased according to its own sales. In Romania, the restructuring trend in the farming sector has not yet resulted in the development of the dairy processing industry. Therefore the reform has not had any effect on the supply for the dairy processing industry. Market orientation, competitiveness and price The reform has not changed existing trends regarding milk production, which depends essentially on the cheese industry s capacity to increase its own sales volumes. Competitiveness varies according to fodder prices, which lead farmers to adapt their production choices (yield is pushed up when feed is inexpensive while, the use of compound feeds is limited when they are expensive, which reduces milk yield). Production costs have increased over the study period in all 5 Member States analysed. The evolution of productivity cannot be linked to the reform implementation, but. Productivity improved in France, Spain and Greece but deteriorated in Italy. In Sardinia, the volume of production contracted faster than the number of producers, leading to poorer productivity. During the period of analysis, prices were volatile both before and after the reform: during the second period, they start decreasing then increase slightly following the fodder price increase. Production volumes also vary, following Member States-specific trends; there is no general tendency, neither before nor after the reform. Profitability has only slightly changed, but evolutions differ among Member States. Income The income of sheep-milk farmers shows a positive trend in the four Member States concerned starting with the reform implementation. Except for France, where the income decreases steadily, the average income after the reform is higher than before. This is mainly because the amount of decoupled aids (or the sum of decoupled and coupled aids in France and in Spain) is generally higher than the amount of coupled aids before the reform. In other words, this sector benefitted from a positive transfer of the support with the implementation of decoupling. This can be explained, in Member States that opted for regional references, by a transfer between other farmers and sheep farmers, and in France, by a concentration effect (increase of the amount of support per Family Work Unit). The income of Romanian farmers increased between 2007 and 2008 but remained much lower than the income of the EU-15 farmers. 7

10 8 6.3 GOATS Production The goat herd, mainly oriented towards milk production, tends to decrease over the study period in Greece and Spain but grows in France. These evolutions are market related. In Spain, the market is quite stable. In France it grows as a result of industrial innovations in the cheese sector and, to a lesser extent, because of PDO cheeses. In Greece, where herds are mixed goat and sheep, the higher price for sheep milk results in a shift towards this latter production. The same trends occurred in the goat meat sector; they are stronger in Spain, where goat fattening has had difficulties in 2007/2008 because of fodder prices. In Greece, the decrease in the number of young goats slaughtered is a consequence of the reduction in the goat herd. None of these trends however is a consequence of the reform: they are tendencies or fluctuations related to the market chain both downstream (cheese) or upstream (fodder). Prices and yields fluctuate according to national situations, which are relatively independent from one another. The reform has not had any impact. The number of farms dropped between 2003 and 2007, in the three Member States analysed, simultaneously farms size increased. The trend is very clear in France and Spain but there is no evidence of link with the reform. Production areas barely changed, however a tendency to geographic concentration in the most important areas is noticeable, particularly in France. Again, this evolution is not related to the reform, but to the dynamics of the cheese industry. Supply for the dairy industry The volume of milk collected is lower than the production and the processing sector regulates it according to its own sales volumes. Market orientation, competitiveness and price The production of goat milk and meat is market oriented; it is determined as much by the demand for cheese and other milk products as by fodder prices. The impact of the support scheme and the reform is negligible. Goat milk prices fluctuated in the three Member States in different ways. Production costs are very dependent on fodder prices. Profitability of goat milk farms improved in the three Member States as a result of the evolution of prices, with no link with the reform. The economic profitability of the activity is barely affected by the reform, given that the level of support was lower than it used to be for the sheep sector. Income Goat farmers income increased, as a result of stable economic results combined with an increase of direct aids following the decoupling; again, this can be explained in Member States that have chosen regional references by a transfer between other farmers and goat farmers and in France by the concentration effect (increase of the amount of support per Family Work Unit). 6.4 SYNTHESIS OF THE EFFECTS ON THE ECONOMICS OF THE SECTOR a) Activity in the sheep-meat sector slowed down significantly as a result of the overlap of the 2003 reform and external factors such as the bluetongue outbreak and the increase in fodder prices, starting in Decoupling therefore contributed to the acceleration in the scale of reduction in the number of ewes resulting in turn in a reduction of sheep-meat production through the consequent decrease in lamb slaughtering.

11 This trend can be explained by the poor profitability of sheep-meat production, which forced farmers to cut back their flocks or to cease their activities. In 2008 and 2009, the lower supply and the increased production costs led to an increase in the meat price. The consequences of the reform then are an acceleration of the decline in production and, indirectly, a contribution to the meat price rise. Changes within the support scheme have not resulted in productivity gains and, therefore, they have not resulted in the improvement of competitiveness, even though the reform has encouraged farmers to focus more on productivity and to reduce fodder costs. b) There are little differences based on the reform implementation choices made by Member States. Spain and France chose partial decoupling, and the downturn was similar to what occurred in Ireland and in the UK, where total decoupling was implemented. c) The reform had no influence on the sheep and goat milk markets. d) The implementation of partial or total decoupling resulted in an increase of the amount of aid from the first pillar per Family Work Unit, especially in Member States that chose regional references and in those where the sector s concentration increased. 9 7 EFFICIENCY, COHERENCE AND RELEVANCE 7.1 TRANSVERSAL EFFECTS Rural development Over 70% of the sheep and goat population is located in less favoured areas. Analysis of the case study regions areas show that: The decrease of the sheep flock is stronger in Epirus and in Northern Scotland. Total decoupling contributed to the acceleration of the flock reduction in these fragile areas where the general context is the hardest. Goat herds in less favoured areas, and at the national level, are less impacted by the reform implementation than by the market conditions (demand, raw materials costs). The amount of aid from the 2 nd pillar varies among Member States. It is high in Ireland, the UK and France; it is lower in Spain, Italy and Greece. In the first case, considering the amount of support compared to economic results, the 2 nd pillar is critical to maintaining an activity. Council Reg. (EC) No 1782/ Article 69 Article 69 of the Council Reg. (EC) No 1782/2003, implemented in Italy and Greece, had no impact by itself on the production level, because amounts per unit were too low. Electronic identification The impact of health crises is very important; they substantially disrupt production, trade and consumption. Electronic identification is in theory a means to prevent and/or to quickly contain epizootics. The implementation cost is high for some types of farms (small, extensive or goat fattening) and it puts additional strain on competitiveness. There are significant differences among Member States in terms of implementation (chosen technology and the level of public funding, which contribute to different rates of implementation). Promotional measures and state aids Promotional measures contribute to the improvement of the competitiveness, to increasing consumption and to a better marketing of farmers products. Likewise, national programmes (state aids for genetics improvement programmes, promotional support, health programmes, investments, industrial restructuring), which usually aim to improve competitiveness, are coherent with the objectives of the reform.

12 EFFICIENCY In the sheep-meat sector, farmers income evolved less favourably than the average farm income in the 4 Member States with mainly meat producers (France, United Kingdom, Spain and Ireland), despite an increase of the share of direct aids. In the milk sheep sector, the income increased in the same way as the average farm income in Spain and in Greece and decreased in France and Italy, also despite an increase of the share of direct aids. In the goat sector, farmers income increased less than the average farm income in France and Italy, and increased more in Spain, again despite the increased share of direct aids. The administrative burden decreased with decoupling; however conditionality increased the control workload. 7.3 COHERENCE WITH THE GENERAL OBJECTIVES OF THE COMMON AGRICULTURAL POLICY AND OF THE EU Competitiveness and absence of distortion of competition The reform did not contribute to improving the competitiveness of the sheep and goat sector. The adaptations that have been implemented by some farmers (depending on Member States and production types: extensification, concentration, improved feed self-sufficiency) were facilitated by the decoupling but did not offset the effects of external factors (epizootics and fodder costs) on production costs which have increased in most cases. In a few cases, the choice of extensification led to an increase of fixed costs per animal (total fixed costs remained stable but were divided by fewer animals). Differences in competitiveness among Member States are related to the existence of different market conditions, at the farm level as well as at the industry level. The different implementation of the reform (partial and total decoupling) does not seem to have introduced distortions of competition: indeed the analysis of farmers margins and prices show that there are structural differences among Member States and that they have not been deeply modified by the reform. Environment The environmental impact of sheep and goat farms (extensification, maintaining permanent pastures) seems to be more related to the second pillar measures and cross-compliance (maximum density rate, minimum production level) than to the implementation of decoupling. Regional cohesion Regarding maintaining sheep farms in less favoured areas, results vary among regions. The number of farms decreased in four of the regions analysed: Andalusia, Epirus, the Scottish Highlands and the Irish Mid-East (not a less favoured area but a traditional stock-farming area). In these four regions, the reform seems to have resulted in the exodus of the worst performing flocks, also weakened by other negative events such as the bluetongue outbreak in Andalusia or the lack of specialist workers in Scotland. In the Irish Mid-East, the reduction of the flock started before the reform, and accelerated after In Sardinia and Midi-Pyrenees trends show that the production is holding better. In Sardinia, decoupling has not had a significant impact because farmers income was less reliant on the support before the reform than in other, meat producing, case study regions. Moreover, the sector remains fairly stable because of the lack of alternatives. In Midi-Pyrenees the existence of profitable production of specialist cheeses e.g. (Roquefort) contributed to securing the viability of the dairy sheep sector. Employment in sheep and goat farms clearly went down in most areas analysed; the contribution to total employment is therefore negative.

13 RELEVANCE The significant and increasing support to farmers income was relevant in terms of the objective of a fair income for rural populations, even if, in some cases, the decoupled aid did not compensate the loss of income coming from the market. The acceleration of the reduction in sheep-meat production resulted in difficulties for the slaughtering industry and in restructuring in some places. The price rise at the end of the period also weighed on the demand side. The effects here are contrary to the objectives of securing supply to the industry. Furthermore, the consumer price for sheep-meat increased faster than the general consumer price index. The increase of farm costs is linked to the increase of fodder prices and operational costs in general. The increase in producer prices at the end of the period is caused by the overlap of the contraction in EU production and lower supply availablity from New-Zealand. The policy, as implemented, did not therefore fully comply with the objective of satisfying consumer demand. The reform did not result in similar effects in the dairy sector. 7.5 RECOMMENDATIONS The sheep and goat sector is very fragmented and the main characteristics vary for each Member State, or even for each production area: species (sheep, goat, combined), type of farming (milk, meat), systems (suckler or suckler-fattener / intensive or extensive), types of products (heavy lambs, light lambs), structures (small or large), importance of the activity within the area (from very important to marginal). As a result the agricultural policy has to take into account a great diversity of situations. This evaluation covers the period of the 2003 reform. We are lacking the hindsight and necessary data in order to make a judgment on the Health Check implementation, which, we know, has brought about major changes with France and Spain decoupling totally and several Member States implementing important measures within the framework of article 68 of Council Reg. (EC) No 73/2009. Recommendation 1. Based on the analyses and conclusions drawn, we recommend what has been already done in most Member States, i.e. total decoupling of the EU sheep premium. Nevertheless, specific support for production, either in economically vulnerable areas, or for specific production systems (quality schemes, etc.), is the only way in the long run to maintain production, and farmers, in these types of farming. This support could be granted under the second pillar (rural development) or as coupled direct support. Considering that market returns are rather low, the amount of support should be significant. In order to avoid hindrances in the functioning of the market, the support should be carefully targeted both in terms of geographic location and specific production systems. Recommendation 2. Since the cost of electronic identification is relatively high compared to the value of animals and to the farmers margins and since there are implementation issues, especially in Member States that don t support it financially, this issue could be studied further in order to evaluate the effectiveness of the implementation of this measure. Recommendation 3. Promotional measures contribute to increased consumption, help to improve profitability for producers and/or to make higher prices acceptable to the consumer. Indeed, sheep-meat is at the high end of the food market, as are goat and sheep cheeses. The cost of these measures is limited, compared to the means allocated to direct support; and their use should be increased. However, in case of fresh and frozen meat, the list of products eligible for financial support for a promotional campaign (Council Reg. (EC) No 3/2008) is limited to products that belong to a national or EU quality scheme. We recommend extending the scope of the measure to all sheep and goat products (meat and milk), no matter if they bear a quality label or not.