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New EU members and challanges facing European rural and agricultural policy Martins Roze Minister of Agriculture The Republic of Latvia

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Facts on Latvia Area km 2 64 589 Population, mio., (at beginning of 2004) - 2,319 Population density per 1 km 2 36,1 Borderline 1 862 km including coastline 494 km Length of the territory, km from the North to the South 210 from the West to the East 450 Average elevation above the sea level 87 m Highest point (Gaizikalns) 311,6 m Mean monthly air temperature in Riga January 4.7 0 C July+16,9 0 C

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Territorial structure of Latvia at the beginning of 2005

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Reform of agricultural sector in the early 90-ties Decision of the Supreme Council On agrarian reform in the Republic of Latvia (13.06.1990) laid down: land reform reform of economic relations management reform in agricultural sector privatization of State establishments radical changes in the system of agricultural and price support liberalization of external trade

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Distribution of the agricultural land area following the types of users Source: Latvian State Institute of Agrarian Economics, basing on materials of the Land and Cadastre and Information headquarters of the State Land Service

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Share of agriculture in GDP

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Share of agriculture* in the total GDP in the EU Candidate Countries in 2002 ** -2001 * - agriculture, hunting, forestry and fishing

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Share of population employed in agriculture

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Share of population employed in agriculture* in the EU Candidate Countries in 2002 *incl. forestry, hunting and fisheries ** -provisional

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Annual average fluctuations of the Consumer Price Index (CPI) in Latvia, 1990 2003 Source: Latvian Central Statistical Bureau

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Self-sufficiency in agriculture products %

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Latvias negotiation position in the chapter Agriculture basic principles: Development of Latvias sector of agriculture within the common economic domain of the European Union on the basis of equality; Sufficiency of the production level to satisfy domestic market demands; Efficient use of rural land areas in production and conservation of rural landscape; Maintaining rural areas populated by encouraging retraining of workforce, made redundandant in agriculture, to get employment in non-agricultural sectors.

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Production quotas Latvia, similar to Estonia and Lithuania has considered that conditions offered by the EU need adjustment, taking into account: restructuring of agriculture from the USSR collective and State farm system to free market system; impact of Russian crisis.

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SAPARD challange for EU and accession countries First EU financed decentralised support scheme for non-EU countries Preparation of Rural Development programmes Establishement of effective administration system New type of aid for the farmers demanding requirements

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SAPARD experience Aid applicants were active and able to prepare projects complying with SAPARD Program requirements, acquiring an experience in achieving conformity with the EU requirements; MoA as the Monitoring Authority within SAPARD Program has facilitated its availability by preparing manifold amendments to the Program conditions; RSS as the Program administration authority has been able to administrate a relatively large number of projects (the Program anticipated 600-700 projects per year in average, in 2002 RSS received 559 projects but in 2003 1536 projects) in a short period of time two years since the start-up of the Program.

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Major changes in policy instruments Subsidies EU Direct payments State aid SAPARD Single Programming document Rural Development plan Credit guarantees Credit programs Reimbursement of the Excise tax Before accession After accession

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Direct payments in new MS compared to EU15 rate, 2004 1. Malta and Slovenia do not apply the single area payment scheme. Source: OECD Arable crops Potato starch Suckler cows Slaughter beef Ewes Milk Overall national payment rate Total payment rate EU15 100 0 Czech Republic X 100 X X X X 23 48 Estonia 44 0 55 X 21 46 Hungary 38 0 X 0 X X 30 48 Latvia 55 77 100 74 86 44 69 Lithuania X X X X X X 25 50 Poland X X X X X X 25.7 55.7 Slovak Republic X X X X X X 27.5 52.5 Slovenia 1 n.a 60 85

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Sources of finance for rural development European Agriculture Guidance and Guarantee fund (Guarantee section) Structural funds European Regional Development Fund (ERADF) European Social Fund (ESF) European Agriculture Guidance and Guarantee fund (Guidance section) Fisheries Fund (FIFG) Rural development plan Single programming document

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Indicative financial allocations among the new Member States in 2004 - 2006

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Distribution of Finances in the Single Programming Document 2004 - 2006 Total public (2004 2006) 137 mln EUR

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Distribution of Finances in Rural Development plan 2004 - 2006 Total public (2004 2006) 410 mln EUR

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National support after accession to European Union In August 2004, according to Annex IV of the Accession Agreement, the Commission was notified of the existing national support schemes within which the support is allocated also after May 1, 2004; By 2007 all the existing support schemes must comply with the Community Guidelines for State Aid in Agricultural Sector.

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National support measures in agriculture Livestock farming development; Crop farming development; Dissemination of education, science and information; Cofinancing of Latvias and foreign joint projects; Investment enhancement in agriculture; Development of agricultultural NGOs and agricultural service cooperative societies; Development of organic farming; Market promotion.

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Total Amount of Subsidies * Compensation for drought *

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Nacionally financed programs Long-term investment credit program in agriculture Credit program focused on purchase of agricultural land Non-agricultural entrepreneurship development program

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Farm income and income of population employed in agriculture

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Balance of foreign trade in agricultural goods, mln LVL

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Structure of Latvia s export goods by EU-25 and Third countries, mln LVL

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Structure of imported agricultural goods by EU-25 and Third countries, mln LVL

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Latvia`s participation in World Trade organization before joining EU Since 1999 Latvia is WTO member and applies equal provisions to all WTO members in it`s agricultural policy and trade: (1) in domestic support pillar Latvia`s commitments of Amber box payments were: * until 2003 - 24 million SDR ( ~ 12,45 million Euro) * after 2003 - 5% from total agricultural production, which was never exceeded; (2) Latvia bound its import duties on agricultural products at a ceiling rate of 50%; (3) Latvia bound import duties within quotas of certain sensitive products; (4) Latvia committed to eliminate its provided export subsidies.

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Latvia`s participation in WTO as EU member state (I) Domestic support After enlargement EU-25 commitments in WTO were consolidated: (1) domestic support: * Allowable ceiling of EU Amber box payments is 67,2 mio Euro, but in 2005 planned Amber box payments for Latvia is ~ 6 mio Euro * Latvia is entitled to receive direct payments under production limiting programs (Blue box), which was not possible before: -) in 2005 the planned sum of SAPs is ~ 39 mio EUR, -) in 2005 the planned sum of SAPs is ~ 39 mio EUR, -) in 2005 the planned CNDP is ~ 61 mio Euro. -) in 2005 the planned CNDP is ~ 61 mio Euro. * In 2005 the planned Green box payments in Latvia are ~ 208 mio Euro

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Latvia`s participation in WTO as EU member state (II) Export competition -) Latvia is entitled to receive also export subsidies for exports of certain agricultural and processed agricultural products to third countries: * EU ceiling of export subsidies is ~ 3,8 billion Euro. * In 2004, Latvia`s exporters received export refunds in tune of 71 127,6 Euro for the following products

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Latvia`s participation in WTO as EU member state (III) Market access -) Latvia`s bound tariffs increased considerably and became more protective: Product LV bound rate of duty (ceiling, %) LV bound rate of duty, calculated in EUR/ t EU bound rate of duty (ceiling) fresh meat of swine 36 % 216,6 EUR/t 467 869 EUR/t fresh meat of bovine animals 40 % 333,09 EUR/t 12,8% + 1414 to 3041 EUR/t poultry meat 20 30% 123, 7 EUR/t 187 to 1283 EUR/t cheese30-36% 357,5 EUR/t 1391 to 2212 EUR/t barley50% 71,6 EUR/t 93 EUR/t wheat 25 - 40% 29,7 EUR/t 95 - 148 EUR/t

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Decisions and Current activities on CAP reform Latvia has decided that the Single Area Payment scheme will be also applied in year 2006 and 2007 Activities: Analysis of the CAP reform legislation still under process in the MoA Economical calculation about the CAP reform impact on agricultural sector in Latvia will be finished at the end of this year Informative campaign as well as discussion with society and farmers was organized by the MoA Consultations with EC experts and regular workshops with Baltic colleagues

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Calculator

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Opinions on CAP reform Opinion/decision/ by Agricultural Joint Consultative Council: to introduce the reform from 2009, to regard Latvia as a single region and to tie up the support with production levels as much as possible. Recommendation by the State Institute of Agrarian Economics the scenario, which envisages implementation of the reform, as late as possible in 2009, and providing a maximum interconnection between direct payments and production, gives a stronger development impetus to Latvias agriculture and a general income growth in the sector. The offered support to the reform does not provide support to agricultural production, moreover it does not reach countryside.

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Opinions on CAP reform Results of public opinion poll What will Latvias agriculture and rural development look like in the next planning period from 2007 to 2013 (641 inquiry form) the year of the reform implementation 2009, to tie up the payments with production, to regionalize Latvia. Choice of respondents on implementation of CAP reform, % 43% 47% 10% 0% 10% 20% 30% 40% 50% Early implementation of the reform (2007) Later implementation of the reform (2009) No answer

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Rural Development Programme 2007 - 2013 Improving the competitiveness of the agricultural and forestry sector Improving the environment and the countryside The quality of life in rural areas and diversification of rural economy LEADER

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Main objective of Latvias rural development policy Prosperous people in inhabited rural areas of Latvia

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Operational objectives for Latvia Establishement and development of high quality production chains targeted at consumer Establishement of new economically active units Development of human resources: By training and consultations By improvement of age structure

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Operational objectives for Latvia Preservation of agricultural land for production of agricultural products Support for production of public goods Development of production of non agricultural products in rural areas

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Thank you for your attention!