31 March 2010

The position of the Federal Government of Germany

Further Development of the Common Agricultural Policy (CAP) after 2013

Preliminary remarks

The European Union is on the verge of starting the negotiations for a new multi-annual financial framework. The Member States are thus called upon to state their position regarding the important questions on the future focus of the EU budget and the individual Community policies.

One thing is true for all policy areas: Due to the economic and financial crisis and the subsequent long-term necessity to consolidate the public budgets of the entire EU we are facing the need to tackle the future challenges of the EU with funds from a limited financial framework which, in Germanys opinion, shall not exceed the current financial framework.

In view of the forthcoming long-term consolidation constraints the prevention of excessive net positions is also of increasing political importance to Germany. It is to be taken into consideration in this regard that the distribution effects of all EU policies have a considerable influence on the acceptance of the EU by its citizens. Thus this is to be born in mind in respect of all reforms.

All Community policies are to be checked to ensure that they are consistent and coherent. This must also include checking to ensure that the policies are suitable and appropriate for dealing with new challenges that result for example from the fight against climate change, loss of biodiversity, the necessary contribution to ensuring global food security, the trans-European transport networks, cross-border education, police and judicial cooperation, research and development, energy supply, and ensuring European competitiveness in global competition. No final decision has yet been made on what scope can be granted, within the financial framework or within the already existing policies, for the setting of new priorities.

A final decision on all questions relating to finances will only be made when decisions are made on all policies and the entire EU financial framework including its funding.

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I. Tasks for CAP and future challenges

1. The European agricultural model has proven its worth and should remain a goal of the CAP as it combines the competitive production of food and renewable resources with services of the agricultural sector for the general public. The course mapped out by the agricultural reforms of 1992, 1999 and 2003 and confirmed by the health check in 2008 must be continued. The course that has been chosen is aimed at strengthening the market orientation of the CAP and increasing the competitiveness of both farms and sustainable, resource conserving production. The two-pillar model for the CAP shall be retained beyond the year 2013.

2. Pursuant to Art. 39 of the Treaty on the Functioning of the European Union and taking into consideration growth and development of the policy in the past decades, the focus of the Common Agricultural Policy is

- on improving the competitiveness of food production, - on ensuring that agricultural products, and the processing of these products into food,

are of a high quality, - on contributing to sustainable food security for a growing world population and to

supplying this population with renewable resources, - on providing support regarding the structural change, - on contributing to sustainable and large-area agricultural land use and - on assisting in the development and protection of vibrant rural areas.

Besides these main areas of focus, the CAP should also contribute to the provision and preservation of public goods that are not rewarded by the market.

The CAP must be coherent with other European Union policy areas and the Millennium Development Goals. It must also support agriculture in dealing with climate change and maintaining biodiversity, in improving water management and ensuring environmentally-friendly and animal welfare-conscious production. Considering the growth and job potential of rural areas, a sustainable, productive and competitive agricultural sector will make an important contribution to the Europe 2020 strategy as well as to meeting the new political challenges in the EU.

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The following aspects are particularly relevant for this:

a) Safe, healthy food is a matter of particular interest to society in Germany and Europe. High standards regarding the quality of products, and a sustainable production strengthen the position on the European market as well as on important export markets. However, higher standards and costs in production and processing may result in competitive disadvantages for European producers on certain export markets. The protection of designations for European agricultural products must be safeguarded. The creation of non-tariff barriers to trade by means of the introduction of excessive standards in food production are to be avoided.

b) The diverse rural areas and agricultural holdings face great challenges, . including demographic change, the comparitively difficult situation on the labour market and the changes in agriculture itself (automation, specialisation and growth of holdings). The increasing market orientation of the agricultural sector, new challenges such as climate change, food security and energy supply, technical progress and ever higher standards in agricultural production will result in further structural adjustments in the agricultural sector. These must be dealt with in a socially acceptable way and must not put the quality of life, cultivated landscape, environment or development opportunities of rural areas at risk.

c) Vibrant rural areas improve the opportunities to secure added value in ever-increasing competition between locations. This enables existing jobs to be kept or new to be jobs created. Agricultural holdings are offered new opportunities for income combination through diversification.

d) It is necessary to further develop the framework for a sustainable and competitive agricultural sector. An adequate income for agricultural holdings is mainly based on the sale of agricultural products and services. Agricultural income should also take into account remuneration for public goods that are not rewarded by the market. In view of the generally expected fundamental market developments, it must be borne in mind that prices on the agricultural markets can be expected to fluctuate to a greater extent due to the withdrawal of the state from market regulation, the globalisation of markets with the resulting opportunities and risks, and the greater worldwide fluctuations in production caused by climate change.

e) The maintenance of sustainable, area-wide agricultural land use is also an important goal in order to maintain equal living conditions. It secures regional added-value and jobs in agriculture and the upstream and downstream sectors. By maintaining the

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diversity of cultivated landscapes, agricultural land use is the basis for securing attractive rural areas and thus also for tourism development in these regions. Furthermore, sustainable, area-wide agricultural land use maintains the productivity of these areas. Thus it contributes, both in the short and in the longer term, to supplying food and energy for a growing world population, as the existing natural resources continue to be utilizable. The abandonment of agricultural production would also threaten other industries (e.g. tourism) in some areas.

II. Further development of the CAP after 2013

3. In order to cope with the challenges ahead, the CAP needs to retain a strong first and a strong second pillar. For the years after 2013, a clear and reliable financial base for both pillars of the CAP must be created.

4. We reject an annual reallocation of funds from the direct payments to the second pillar (modulation, farm size-related degression). With a view to greater planning security for agricultural holdings and the regions, the financial resources should instead from the beginning be appropriately distributed between the two pillars of the CAP for the whole multi-annual financial framework.

5. The simplification of CAP should also be a priority task for the next funding period. We must resolutely continue along the path embarked upon in recent years. For this reason the review of the CAP instruments to eliminate avoidable red tape should definitely be continued.

A. Direct payments

6. In order to implement the goals and principles, we need decoupled direct payments that provide planning security: This provides besides a contribution to farm income a remuneration for the effort to meet higher standards desired by society and for public goods that are not rewarded by the market, as well as contributing towards securing farm income. These public goods provided by agriculture include, for instance, the agricultural sector providing food security, contributing towards preserving natural resources, continuing to protect the countryside and maintain it as a place for recreation. The principle of flat remuneration through direct payments for public goods and services provided by the agricultural sector has proven its worth in general; further developments should focus on developing the quality of this system.

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7. The national ceilings that are laid down for direct payments, and thus the distribution of the available funds between the Member States, should be based on the current distribution key. If changes are made to the status quo, the national ceilings for direct payments should be determined on the basis of the current distribution key and to a very limited extent on objective criteria that comply with WTO requirements and take into account the specific conditions in the individual EU Member States. Possible adjustments to the current distribution key should be made on a step-by-step basis within appropriate transitional periods. In the case of such adjustments, checks should be made to see whether it would be possible to allocate parts of the direct payment funds to the Member States as a national ceiling based on the current distribution key, in order to facilitate the reaching of a consensus.

B. Market instruments

8. The further development of the first pillar of the CAP cannot be undertaken without taking the developments on the market side into consideration. One particular feature of these developments comprises the growing price volatility on the international markets which will increasingly impact on the EU market in the future.

9. The market instruments are to be limited to providing a safety net to protect the agricultural sector against the effects of extraordinary market crises without constantly intervening in market activities.

10. From the German perspective, and under the condition of an overall agreement in the WTO negotiations, we should dispense with export refunds as an instrument as well as with all other forms of trade-distorting export subsidies

C. Rural development

11. Agriculture and rural areas are closely linked. We should therefore aim to have integrated agricultural and structural policies for rural areas. In order to meet the requirements of an integrated policy for rural areas we are in favour to retain the second pillar with its range of support beyond the year 2013 and to improve its effectiveness and efficiency. In addition to the new challenges, in future there should be a special focus on demographic change and the creation of new jobs, both within and outside the agricultural sector. A cross-sectoral policy approach should be taken in this regard, with separate priority areas

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and building on close coordination with rural and structural policies. The implementation of integrated approaches at regional level will play a major role. The support schemes used to-date should be reorganised and restructured according to the respective goals. Then we could dispense with the current demarcation between the priority axes.

12. Key elements of this policy include:

a) In view of more liberalised markets, measures that strengthen the competitiveness of the agricultural sector will play a major role in the future. An important aspect in this context is to strengthen the potential for innovation in the agricultural sector, e.g. in the area of investments in modern technologies to improve energy efficiency, to manage the new challenges (e.g. mitigating climate change) or to expand the use of sustainable and environmentally friendly biomass for energy generation and the non-energetic use.

b) In order to achieve social and environmental policy goals (e.g. the preservation of ecologically valuable agricultural biotopes, biodiversity strategy, climate protection strategy) in cooperation with the agricultural sector, it is a prerequisite to provide targeted rewards for voluntary services for animal, nature and environmental protection and the preservation of countryside that go beyond the statutory requirements. It should be possible to reward these services such that the desired control effect is achieved.

c) The implementation of the Natura 2000 network of protected areas and the EU Water Framework Directive must be considered in respect of the funding.

d) The compensation for special disadvantages and the protection of sustainable land management under difficult conditions (in mountain areas, in other disadvantaged areas and areas with specific natural disadvantages) remains necessary. In respect of funding, sufficient account must in future also be taken of grassland areas.

e) The development of rural areas is to be included as part of the CAP as a necessary addition to agricultural support. Sound rural areas are a prerequisite for preventing depopulation and for successfully developing the agricultural sector. The creation and safeguarding of jobs is a major priority in this respect. Only then will it be possible to develop efficient structures, including in the upstream and downstream sectors. This means that an important role will be played by support for skills acquisition, the expansion of infrastructure and village renewal, the strengthening of rural economies,

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diversification for the development of new sources of income, and support for the preservation of the natural heritage.

f) The scope for goals that may be more easily defined and reached at regional level and the scope for the shaping of measures at regional level (subsidiarity) should be enlarged.