LSIRD NAPLIO CONFERENCE PAPERS
The support to livestock producton in less-favoured areas under the Common Agricultural Policy of the European Union


Eduardo Díez Patier & Daniel Trueba Herranz
Ministry of Agriculture, Fisheries and Food, Madrid, SPAIN


1. Background

The Community agricultural structures and rural development policy, in general, and the attention paid to less-favoured agricultural areas, in particular, are two subjects the responsible authorities for the Common Agricultural Policy (CAP), throughout its history, cannot really be pleased about.

It can even be said that one of the reasons for the classical CAP crisis has been the difference in speed that, since the beginning, the EAGGF-Guarantee Section and the EAGGF-Guidance Section, as well as their corresponding action frameworks, markets and structures, have kept. It must not be forgotten that at the Stresa Conference a resource distribution of 2/3 for markets and 1/3 for structures was agreed though it was never observed. Till the modification of the Structural Funds in 1988, the distribution was 95% for the EAGGF-Guarantee Section and 5% for the EAGGF-Guidance Section, approximately.

Not only was it a matter of different speeds. The requirement of national cofinancing for structural and territorial measures, but not for market measures, has meant a curb to agricultural holding modernization in those Member States having greater economic difficulties which, besides, are, in general, those with the largest number of less-favoured agricultural areas.

Therefore, less-efficient agricultural holdings had larger difficulties to get into the path leading to structural improvements, although they were taken into account in the income policy when fixing the minimum guaranteed prices, either influencing their increase or avoiding their reduction. That implied a stimulus for the production increase in the most efficient agricultural holdings which, without the need for following market signals, gave rise to surpluses of costly financing.

In short, the CAP was, at first, subordinated to the market policy, leaving structural subjects in the hands of national policies and reserving for the Community just the cofinancing of particular projects.

2. Development

The adoption of the first real structural measures coincides with the emergence of agricultural and livestock products surpluses. It followed the Mansholt Memorandum of 1968 as well as its corresponding Plan which was never applied in an integral, coherent way. It was the three socio-structural Directive-package approved in 1972 on the modernization of farms, cessation of farming and guidance and occupational training of farmers (Directives 72/159, 72/160 and 72/165).

However, it will not be till 1975 that the approval of rules of territorial scope took place. Directive 75/268, on mountain and hill farming and farming in certain less-favoured areas established detailed rules for the application of paragraph 2, point 2, Article 39 of the Treaty of Rome on structural and natural inequalities of the different agricultural regions and in fact it is the first Community rule which allows differentiated treatments according to natural conditions. Besides, it does so trough direct aids to farmers'incomes by Compensatory Payments (CP).

This first package of rules was completed, in 1977 and 1978, through Regulations on common measures to improve the conditions under which agricultural products are processed and marketed and on aids to agricultural producer groups and associations thereof (Regulations 355/77 and 1360/78, respectively).

A second generation of socio-structural provisions appeared in the late eighties, and on the one hand coincided with the serious crisis of the market policy which would give rise to the 1992 CAP Reform and, on the other, with the modification of the Structural Funds and the new regional policy in the Community resulting from the European Single Act.

The Directive on modernization of farms was totally amended, turning into a Regulation on improving the efficiency of agricultural structures (Regulation 797/1985); the first environmental measures along with certain integral and regional schemes (Mediterranean Integrated Programmes, less-favoured areas schemes) were adopted; likewise, accompanying measures concerning the agrobudgetary stabilisers prereform (set aside, reconversion and extensification, advanced cessation, programme of agricultural income aids etc) were approved.

But, to the purpose of this paper, it is specially interested to underline the new orientation of the Structural Funds which are designed around five great objectives (in fact six, since the fifth one is divided into two), three of which have territorial nature and two of those three are specifically rural and agricultural. Such Funds are applied through Operational Schemes of a territorial basis to the purpose of the distribution key of financial resources as well as to the purpose of the range of possibilities to be developed and financed. The overlap of horizontal measures (improvement of structures) and those of territorial nature is generally solved through both more flexible conditions in less-favoured areas and a larger percentage of Community financing.

The asumption by the EAGGF-Guarantee Section of some kind of structural action or reference to less-favoured areas would not appear till Commissioner Mac Sharry's procedures for "support to the rural world", in 1990 and 1991, to favour small farmers or those located in less-favoured areas. The 1992 CAP Reform will also finance its acompanying measures (afforestation, advanced cessation and environmental measures) through the EAGGF-Guarantee Section, although they have direct repercussion on specific territorial bases or on livestock production.

3. Identification of less-favoured areas

As a result of the above mentioned, the first question arising is the identification of less-favoured areas in the Community legislation. To that end it can be considered:

a) Mountain, and less-favoured areas, in the sense of Directive 75/268. They are regions (made up of municipality groupings, NUTS IV) with considerable problems to maintain the population or to preserve the natural environment. There are several groups:

- Mountain areas with problems regarding altitude or slope gradient, which means considerable difficulties for the development of farming (paragraph 3, Article 3 of the Directive).

- Areas with risk of depopulation, little productivity of the land and low population density or even a trend to population regression (paragraph 3, Article 3 of the Directive).

- Other areas having specific limitations, that Member States can apply for up to a maximum 4% of the Useful Arable Land (UAA), if need be to maintain farming on (paragraph 5, Article 3 of the Directive).

b) Objective 1 Areas, in the sense of Regulation 2052/88, in which the aim is the development and structural adjustment of the less developed areas. The regions are defined in terms of NUTS II, when Gross National Product (GNP) per capita is below 75% of the Community average, expressed in the three-year average. Such a parameter can be obviated for the overperipheric territories of France, Spain and Portugal, in Northern Ireland as well as in the New Landers of the Federal Republic of Germany, (and also for the new objective 6 created for Sweden and Finland as a consequence of the last enlargement). Exceptionally, other adjoining territories can be included in some regions where the level is lower than NUTS II and have problems related to the GNP.

c) Objective 5b Areas, in the sense of Regulation 2052/88, in which the aim is the promotion of rural development, making easier both the development and the structural adjustment of the rural areas. Such areas are not included in Objective 1, although they face, at municipality level (NUTS IV), agricultural unemployment problems, low agricultural income level, low population density, or other problems derived from the agricultural holding structure, ageing of the agricultural population, pressure on the environment and the rural space or specific location.


4. Aids to livestock production

4.1. Compensatory payments

In Directive 75/268 a Compensatory Payment (CP) for livestock head (also for area unit) is established to be granted, in mountain and less-favoured areas, to agricultural holding owners on active who commit themselves to stay in the farm at least five years and have a minimum area of four hectares (three hectares when it comes to Southern areas of the Community).

The aid is granted for the equivalent to Large Animal Unit (LAU) of cattle, sheep, goats and horses. Dairy cows are only taken into consideration when milk production is an important component in the farm production, and it is restricted to 20 units when it refers to less-favoured areas included in paragraphs 4 and 5, Article 3 of the Directive. In any case, the CP is subject to the disposal of a territorial base equivalent to a 1,4 LAU/Ha density.

The amount of the aid cannot be lower than 20,3 ECU/LAU or higher than 150 ECU/LAU, or, in exceptional cases, higher that 180 ECU/LAU. Within this range, Member States can both adjust the amount of the CP, theoretically, taking into account the seriousness of the permanent natural limitations affecting farming, and establish complementary or restrictive conditions, in particular when it comes to using practices compatible with both environmental protection and natural space preservation.

The maximum eligible amount at the expense of the EAGGF-Guidance Section is limited to the equivalent to 120 LAU per agricultural holding and, besides, from 60 LAU on per holding, the maximum eligible amount per LAU is cut down to 50% of the maximum amount of the CP provided for in general.

The Community cofinancing of the CP varies between 25% and 75%. As a rule 25% is applied; certain areas provided for in paragraph 3, Article 26 of Regulation 797/85 have the right to obtain 50%, and mountain and less-favoured areas, which besides are in Objective 1 areas, are entitled to obtain 70%.

Some comments can be made on this aid and they would be related to the core of the matter which will be treated further ahead. The "diversity" of the Community agriculture, that of its less-favoured areas together with that of the characteristics of natural difficulties it has to face is, by all means, important. In any case, it may not be so important as to justify a range from 20,3 to 180 ECU por LAU which could affect the conditions of competence provided for in Articles 92 y 93 of the Treaty.

But the debate diversity versus competence is inserted in that of "financial solidarity": the demand of a minimum 30% of national cofinancing involves, in some Member States, a real curb to establish a CP level next to the maximum authorized limits, whereas other Member States enjoying more financial resources can be more generous regarding this matter. This way, the CP level is set up depending no so much on the specific difficulties of the less-favoured areas but on the Member States resource availability.

4.2 Sheep supplementary premium

It is the most important measure of those included in "support to the rural world" introduced by Commissioner Mac Sharry.

As it is well known, the basic element of the Common Organization of the Market (COM) in sheep is a production premium based on the difference throughout the year between the market price and the institutional base price. This difference is later transformed into a premium per ewe and goat head. Ewes which are not milked, and produce "heavy" lambs, get the whole premium, whereas both ewes which are milked, and produce "light" lambs, and goats get 80% of the premium. At present, the right to the premium is subject to the individual quota scheme regime, based on the premium received in the reference year 1991.

The suplementary premium is granted to sheep and goats located in the less-favoured areas envisaged in Directive 75/268, and its present amount is 6.641 ECU per head for ewes producing "heavy" lambs and 4.586 ECU for ewes producing "light" lambs and goats, and it is wholly paid by the EAGGF-Guarantee Section. As a reference, it can be pointed out that the amount of the general premium for 1995 has been 24.82 ECU for ewes which produce "heavy" lambs and 19.857 ECU for ewes which produce "light" lambs and for goats. From the EAGGF-Guarantee Section budget, for 1995 financial year, 423.1 million ECU were paid as supplementary premium while payments for the general premium reached 1,781.9 million ECU.

The financial solidarity (there is no cofinancing) of the EAGGF-Guarantee Section makes every farmer get the specific premium if he is entitled to it for being in less-favoured areas. Another conclusion of the analysis of the amount paid, is that in most of the producing countries, sheep holdings are located in these less-favoured areas (such as in Greece, Spain, France, Portugal, Ireland and Austria). There is no risk of competence distortion since, besides, the premium is the same for every producer.

4.3 Suckler cow supplementary premium

In the COM in beef as a consequece of the CAP reform, a suckler cow premium relatively important, of 144.9 ECU/suckler cow (which is not milked), is granted provided that a minimum livestock number is respected (2 LAU/Ha in 1996) and within an individual quota scheme of the premium rights. Additionally, there is an extensification premium to be referred to further ahead.

Besides, Member States are authorized to grant an additional premium up to 30.19 ECU/cow, of which 24.15 ECU/cow are financed by EAGGF-Guarantee Section in Objective 1 areas.

Such an approach tries to avoid the appearance of competence problems in each Member State, but it does so by dint of the financial solidarity principle characteristic of the EAGGF-Guarantee Section, since the supplementary premiums for suckler cows which are not in Objective 1 areas must be financed by national budgets, as it happens when it comes to paying the possible excess up to 30.19 ECU/cow of those in Objective 1 areas. In practice, only Member States with a high percentage of suckler cows in Objective 1 areas are interested in applying this supplementary premium and obviously they will probably do it only to the limit of 24.15 ECU/cow of the Community financing.

4.4. Other aids in the COM framework

a) In the COM in beef, the suckler cow premium and the young animal special premium both have an extensification complement when the density factor is lower than 1.4LAU/Ha. For 1996, the amount of such an extensification premium is 36.23 ECU/LAU. As a reference, the ordinary premium for suckler cow is 144.90 ECU/cow and the special young animal premium is 108.70 ECU/head. Even recently the Council of Ministers of the E.U. has approved a second level of the extensification premium for livestock numbers under 1 LAU/Ha. The total extensification premium amount in the financial year 1995 of the EAGGF-Guarantee Section was 438.1 million ECU.

These extensification premiums are not specifically linked to less-favoured areas recognised by the Community, as defined in previous points in this paper, but undoubtedly such areas generally fulfil the ideal conditions for extensive livestock and that is why they are those which most benefit from these aids. For example, in Spain and in Greece the extensification premiums represent about 20% of the whole set of the beef sector premiums, whereas for the Community as a whole such a figure is 10% (data from EAGGF-Guidance Section, 1995 financial year).

b) Regarding aids subject to individual quota schemes (special sheep premium and special suckler cow premium) the Community regulation allows Member States to define certain sensitive areas from which quota transfer to other areas is not permitted. Needles to say that such a restriction is provided to protect less-favoured areas producers, but due to the way the authorization has been introduced Member States have difficulties in using it owing to matters of interference with the general quota market and, probably, to domestic policy problems.

c) Till the CAP reform and the establishement of the individual quota scheme for the payment of the sheep sector premium, there used to be a limit of 500 heads per farm, and from that limit on producers were paid 50% of the premium, though in respect of less-favoured areas such a limit was 1000 heads for herd. Taking into account the individual quota scheme and to avoid artificial division of herds, such limits were removed after the 1992 reform and along whith the evidence of an action to favour livestock in less-favoured areas.

d) Among the acompanying measures of the CAP reform, that of environmental nature (Regulation 2078/92) could have been a good support to livestock in less-favoured areas. Nevertheless, the fact that, although such measures are financed by the EAGGF-Guarantee Section, a national confinancing is requested (and even though in Objective 1 areas such national cofinancing is 25% versus 50% in other areas), once again makes more difficult its implementation by countries with scarce resources. As an example, Germany, Finland and France together catch in between 60% and 65% of the resources spent by the EAGGF-Guarantee Section, even though their Objective 1 areas represent just 20% of the total.

Besides, it is likely that in the conception and development of this Regulation, environmental criteria of Northern countries have been imposed, and such countries are far from aridity, drought and desertification problems the less-favoured areas in Southern countries have to face. To confirm all this it can be pointed out that to have access to the aids envisaged in this Regulation regarding livestock activity a reduction in the livestock number per hectare is required -Article 2.c-, whereas in many less-favoured areas there is plenty of forage area, although not very productive, and the problem is to keep both the herd and the economic activity.

4.5. Aids to improve the efficiency of farms and Operational Programmes

In general, aids to improve agricultural and livestock holdings are regulated by Regulation 2328/91, on improving the efficiency of the agricultural structures. Such aids are part of Objective 5a of the Structural Funds, although they also have a territorial distribution to the purpose of the partition of the Funds as a whole. The main characteristics of such an aid scheme are as follows:

- The holder must practise farming as the main activity, with some flexibility and the holding must have an income per agricultural labour unit under 120% of a reference income of the correponding region. Granting of aids to producers associations is foreseen with some limitations.

- The farmer professional training must be documented. He must commit himself to keeping a minimum record of the holding accounts and it is necessary to submit an Improvement Plan where objectives to be reached and measures to be taken to his purpose must be described.

- Livestock productions have several limitations (milk, beef cattle, pig meat, eggs and poultry) which, in general, can only made more flexible when taking into consideration both environmental matters and animal welfare, but bearing in mind the limitation of the production potential.

- There are ceilings established for investments to be made, referred to the holding as a whole and to the agricultural labour unit it bears.

- The aids, in subsidy form, are limited to 20% (and 35% for buildings) in general, but both in mountain and less-favoured areas envisaged in Directive 75/268 such figures raise up to 30% y 45%.

- The Community cofinancing of EAGGF-Guidance Section varies between 25% and 50%, in general and between 50% and 75% in Objective 1 areas and, in the latter, the Community cofinancing can exceptionally reach 80% in countries benefiting from the Cohesion Fund (Spain, Portugal, Greece and Ireland) and 85% in overperipheric regions and in Greek peripheric islands. This financing scheme also applies to the Operational Programmes of the Objective 1 and 5b regions of the Structural Funds.

Regulation 2328/91 contitutes, besides, the criteria and detailed rules for Articles 92 and 93 of the Treaty regarding national aids to agricultural holdings. Under particular conditions national aids to agricultural holdings are strictly forbidden and, in other cases, the amount of such aids is limited.

All which has been stated in the previous paragraph has meant, besides, a curb to the possibility for Member States to include, in the Operational Programmes of Objective 1 and 5b areas real specific plans for livestock development in less-favoured areas, which should be adapted to the problems and needs of each region although the latter do not meet the general rules of Regulation 2328/91.

This way, the Operational Programmes in Objective 1 and 5b areas, contrary to the initial approach, do not constitute an appropriate reference framework for private investments in agricultural and livestock productive sectors and they are limited to cofinance national or local administration actions.

It is true that in the Operational Programmes several collective actions (genetic, health, hygenic-sanitary conditions of production improvements) for herd development in less-favoured areas have place, but they are just secondary measures regarding the main goal which is to make livestock holdings viable.

In short, and bearing in mind the experience of some Southern Community Member States which have considerable problems concerning livestock development in less-favoured areas, it can be stated that the Community Support Framework is not an adequate answer to the existing problems.


5. Considerations for the future

In January, 1995, Italy submitted a memorandum on mountain and hill agriculture which gave rise to several debates within the Council which proved the existence of a real problem as well as the inadequacy of the present measures to solve it. Due to the reservations of some Member States along with that of the Commission, no steps ahead could be taken. Such Member States were worried about both the budgetary repercussions and the competence distortion problems which could derive from some of the aids Italy asked for.

Nevertheless, the outcome of the Cork Conference recently held (November, 1996) on rural development is still more worrying. It is so, not only because no specific reference to less-favoured areas was made on the Final Declaration, but because most of the ideas envisaged in it (diversity, subsidiarity, diversification, cofinancing, reduction in the importance of the market policy and so on) could have counterproductive effects on the agricultural and livestock development in less-favoured areas.

In the Community agriculture as a whole, and in particular in less-favoured areas, there will be neither farmers nor rural world to be developed if there is not an adequate agricultural activity considered in its most economic, dinamic, competitive sense.

Such an activity will undoubtedly need certain aids to compete on open markets, and the former could be more or less directly granted or as compensation for the occupation and maintenance of the territory as well as to make easier both habitability and development in the rural world. But, it must be stressed that the priority is to maintain and ensure an agricultural and livestock production activity with economic and market foundations.

On the other hand, it is also certain that the granting of certain specific aids in less-favoured areas could bring about risks of competence distorsion, but it is considered there are other alternatives to maintain agricultural and livestock activity if the problem is approched from the Cohesion spirit set up in the Treatry after Maastricht and, as stated in Article 130 B, such spirit must be the reference when it comes to approaching and developing all the Community policies, including the CAP.

From this Cohesion prospect, an approach to the problem solution about agricultural and livestock development in less-favoured areas could be as follows:

a) Compensatory Payments should be unified at an adequate intermediate level, enlarging the maximum eligible and being totally financed by the EAGGF. This will perhaps require a revision of the present definition of areas.

b) A Community reserve of quotas for less-favoured areas should be available (milk, premium to ewes, premium to suckler cows) and granted to farmers (individuals o enterprises) who settled or enlarged their activity in such areas. It goes without saying that such reserve quotas could not be transferred to an area different from that they had been allocated to.

c) Regarding aids to investments in agricultural holdings located in less-favoured areas, most of the specific restrictions imposed on the livestock activity should be removed and lots of other general requirements (full-time farmers, maximum limit of investment, etc) should be made more flexible or even removed.

d) "Rural world support" measures should be kept and encouraged, and the allocation of certain aids to the less-favoured areas within the COM framework, being financed by the EAGGF-Guarantee Section, should proceed.

e) Diversification and support activities (rural tourism, payments for environmental measures, provision of services, etc) and in general everything known as sustainable rural development must obviously be kept and encouraged as a complement to the agriculture and livestock activity although it is sure that such measures would be pointless if a minimum, adequate market-guided production activity of a dynamic and competitive nature is not kept.


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