The Future of Beef Producers in the European Union

SPEECH/97/159

Dr Franz Fischler

European Commissioner for Agriculture and Rural Development

The future of Beef Producers in the European Union

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National Farmer’s Union of England and Wales

Wales, 11 July 1997 Thank you very much for giving me the opportunity to speak to you today on the future for beef and veal producers in the European Union. As you may imagine it is not an easy task to tackle the current problems of this important sector of European agriculture. But I understand very well that beef producers, in particular in England and Wales, have to know how policies in the beef sector will develop. Not only because the livestock sector is the major contributor to the value of agricultural production - here in Wales for instance more than 80 % of this value comes from grazing livestock- but also because the sector has experienced a fundamental crisis during the last year. Beef farmers in particular in England and Wales have had to go through a traumatic period of uncertanity. I therefore appreciate all the more the constructive way the farmers and their unions have contributed to solve the problems.

Consumer confidence in the quality and safety of European beef has been profoundly shaken. It is not easy to regain the confidence of consumers and convince them that all necessary actions are being taken in order to guarantee safe food. The Commission has been accused of not giving first priority to human health or even of having deliberately put out misleading information. I firmly reject such accusations. On the contrary, the motto of the Santer Commission has always been to promote transparency and scientific methods in order to eliminate risks to human health. A recent example is our renewed proposal on the treatment of specified risk material in all Member States.

On the detailed scientific and technical questions concerning health, the Commission must take scientific advice. Neither I nor any other politician, scientist or journalist alone will ever be in a position to understand all the particular aspects of such a complex problem as BSE. We need the experts to examine the question from all different angles and then advise us, today and in the future. In order to guarantee in the long-term that consumers are at no risk from BSE, I have put forward a major research programme involving international experts which will clarify the areas in which action still needs to be taken. But we should not be impatient with scientific advice and expect quick results instead of trying to understand better the scientific problems and methods.

I would add that a methodical approach is also needed when it comes to lifting the export ban. I am aware that farmers in the United Kingdom feel their patience is being stretched. Nevertheless, all the practical aspects of a staged lifting of the ban need to be examined thoroughly by the scientific experts. This takes time.

Nevertheless, important progress has been made in examining the UK authorities’ request for exports from certified herds. The Scientific Veterinary Committee has looked at this proposal and raised a number of concerns and points for clarification. I understand that the United Kingdom authorities are in the process of revising their proposal in order to take account of these concerns. We shall then have to see whether on a scientific level the scheme can be given a green light.

I also understand that the United Kingdom authorities are looking at a scheme for permitting the export of animals born after a particular date. Although the devil always tends to be in the detail, this idea seems, on the face of it, to have the merit of simplicity.

2 If Community legislation is to make a greater contribution to winning back consumer confidence in European beef, our rules must be consolidated and simplified to make them more transparent. Consumers are often not aware that the European Union is ahead of the rest of the world with many of our veterinary and hygiene measures. Over recent years, the Commission has examined the legal basis of our rules with the aim of achieving consolidated, comprehensive yet simpler measures which the food industry and the consumer will easily understand.

However, consumers must also be certain that all measures necessary for their protection are being taken. I don’t have to remind you that the standards approved at Community level must be applied by the Member States. An examination of measures to combat BSE was presented to the Standing Veterinary Committee in March. It revealed shortcomings in many Member States, particularly in the practical application of the approved measures, the training of technicians and inspectors, checks on carcass meat and the prevention of the risk of contamination of other foodstuffs. Meanwhile the Commission is preparing legal actions against 10 Member States for failing to implement properly the new food safety rules.

Recent discoveries in relation to illegal export of British beef undermine our efforts to assure consumers that precautionary measures taken to protect them will indeed do so. It is essential that Member States redouble their efforts to ensure proper control. Clearly, the United Kingdom has a key role to play in this respect. Indeed, there is a vital interest at stake since a breach of the export ban does not bring any closer the day when consumer confidence is fully restored.

Ladies and Gentlemen,

It is in the interest of beef farmers and the beef industry as a whole to rebuild European beef consumption. This is possible only if the whole sector can give sufficient guarantees on the safety and the quality of beef. I believe the best guarantee will be if beef is no longer an anonymous product.

Already in 1993, the Commission laid down that a comprehensive system of tracing products was a precondition for the payment of assistance under its promotional measures for quality beef and veal. Sales of beef and veal meeting the criteria of the European quality programme now have reached almost 350 000 tonnes per year. In some Member States the market share has increased to 20 %. I think this can be seen as a real success and we should continue this approach.

I think if we want to regain consumers’ confidence in beef and veal it is necessary to individualise it and to give the consumer information on the origin of the meat he or she is buying. You all know the discussion on beef labelling that has taken place since last summer. The main subject of controversy was the voluntary or compulsory character of the system.

3 A voluntary system has the advantage of minimising the whole burden of control. Such a system can be based on internal inspection. External control would then be limited to supervising the system as a whole. A compulsory approach, on the other hand, puts the duty of control on the competent authority, and this would need a fully effective identification and registration system for beef animals functioning in all Member States together with a central data base.

Although a compulsory system would be the best solution to satisfy consumer demands as quickly as possible this could not be realised in the immediate future throughout all Member States of the Union. For this reason the Council decided to start with a voluntary system until the year 2000 and to introduce mandatory labelling from that year on.

The Council however acknowledged that some Member States already have an efficient animal identification system. They are permitted to introduce immediately an obligatory labelling system for meat coming from their own animals.

Another point of discussion was the information to be put on the label. No precise commitments have been introduced for the first phase before the year 2000. However, the Council indicated its intention to introduce obligatory information about Member State of birth, fattening and slaughter of the animal from the year 2000 on.

This decision was taken unanimously by the Council against the Commission. The Commission was opposed principally because we were of the view that the legal basis of the rules should be a broader one than simply the “agricultural” article 43 of the treaty. In addition to this concern, the Commission would have preferred that origin indications make reference to regions instead of Member States in order to avoid any distortion of the internal market or even a renationalisation of the beef market. From my point of view, there is no link between the Member State of birth, fattening or slaughter and the quality of meat. For the European consumer this kind of link with a region is much more readily understandable.

The main controversial point was however the legal basis. Following the amendment of the European Parliament, the Commission brought its proposals up to date in order to amalgamate the two initial texts into a single proposal and put it on a legal basis, Article 100A, which requires a stronger participation of the European Parliament in the decision procedure.

In its final decision, the Council returned to the traditional legal base and I personally regret this very much.

During the next years we will have to see how the labelling system develops and examine how it contributes to restoring consumers’ confidence in beef and veal. Based on this experience a report will be drafted by mid 1999 so that the general rules for mandatory labelling of beef from the year 2000 onwards can provide an efficient system of quality control.

4 In my opinion it is essential that the beef sector and agriculture as a whole respond to the demand for all-round quality and control of foodstuff at every stage in the production chain. The farming sector must react to changed market requirements and agricultural policy must support them in this. Quality policy is one of Europe’s strongest points and we must demonstrate this, both within the Community and on the world market. This is necessary to stabilise the beef market in the long run and to give future perspectives to our beef producers.

The sudden reduction of beef consumption in March 1996 because of BSE has caused a considerable reduction in the market prices and the most serious crisis since the introduction of the Common Market Organization for beef. For the year 1996 as a whole, consumption dropped by about 7 % from the 1995 level and per capita consumption decreased to 18.6 kg in 1996.

To address the situation immediately, several measures were taken by the Commission. Refunds were increased, private storage operations for veal were started, public intervention was opened, cofinancing for destruction operations was set up, calf slaughtering operations were activated and a package of direct payments to producers amounting to a total of 600 million Pounds sterling was adopted. The decision to eliminate adult cattle of over 30 months in the UK from the food and feed chain led to a large reduction of more than 300,000 tonnes in beef production in the last year. So far some 1,4 million animals have gone into this scheme.

The immediate and most urgent measures were followed up with a package of additional measures adopted by the Council in October 1996. This involved additional income aid of 350 million Pound sterling. In order further to reduce production, Member States were obliged to introduce either a processing premium for calves or an early marketing premium (or both). In addition, on the demand side, the budget available for promotion of quality beef and veal has been substantially increased.

I am sure, you will agree that the Commission has used all available means to stabilize the beef market. This policy significantly supported prices and in the second half of the year average EU price started to recover to reach 80% of the intervention price by the end of last year. However, beef prices in the UK were, and remain still, at a very low level, not least due to the very strong revaluation of the pound against the other European currencies. EU average prices are currently around 77% and 75% of the intervention price for bulls and steers respectively. However, the current steer price in Britain is only around 72 % of the intervention price. In Northern Ireland it is even lower at about 70%. Hopefully this situation may improve somewhat with the recent decision of major burger chains to buy British beef again.

However, the drop in production was not sufficient to balance out the drop in consumption, resulting in intervention purchases currently exceeding 600,000 tonnes.

5 For the coming years, balance on the beef market will depend on the impact of the emergency measures adopted in October 1996, of the over thirty months scheme (OTMS) and on the degree of recovery of consumption. The greatest impact of the calf measures and the OTMS taken together will be felt in 1998 and 1999. This will accentuate the expected downward move in the beef production cycle and will allow an important destocking from the levels built up.

However, after the year 2001 as production returns to its normal potential and consumption continues its long term decline, stocks will tend to accumulate again. Given the GATT limits on export possibilites, Commission experts have forecast an increase of stocks to 1.5 million tonnes by the year 2005. The additional market impact of any eastern enlargement of the Union is difficult to predict, but is unlikely to relieve the Union’s beef and veal market.

On the other hand, a major rise in food demand on world markets and further expansion of world trade have been forecast by many experts. Should this come about, then for the Union - being among the major exporters of beef - should clearly aim to play an active part in this growth in market opportunities.

When third country markets open up for agricultural products and farmers in other countries seize upon these new outlets, I have to ask myself, why shouldn’t our farmers have the same opportunities? Our high-quality food stands a good chance on world markets. The EU’s agricultural policy should therefore aim to provide the right set of conditions for our farmers and food industry to make the best use of their potential. As a result of the Uruguay Round, this will only be possible, if we rely less and less on export subsidies.

Therefore, what we need is a long-term solution for the beef and veal market not only to consolidate consumer confidence but also to adjust production to long- term demand trends, to improve the competitiveness of our beef production, and to ensure a stable outlook for the income of beef producers.

Taking into account all these objectives, the Commission will present a proposal for the future orientation of the Common Agricultural Policy in the framework of the so-called Agenda 2000 package within a few days. The main other elements of this package will concern enlargement towards the East and the future of certain other Community policies, notably the Structural Funds. All this will be dealt with within a framework of the Union’s financial perspectives for the years 2000 to 2006.

I am confident that the European Council will give its green light to the Commission’s overall approach at its meeting in Luxemburg in December. The Commission will translate its outline sketch of the reforms required into a fully painted picture by tabling more detailed proposals on the different aspects of Agenda 2000. In any event, I intend to present reform proposals for a number of key agricultural sectors in the second half of this year.

You will understand that I do not wish to anticipate the Commission’s discussion at this point. Let me just give you some personal considerations concerning the future of the beef sector in the European Union.

6 In my view there is only one realistic course for the future of the CAP and the beef market in particular: we must continue to pursue the process we began with the 1992 reforms. We have seen how successful this can be and a further shift towards direct income support would enable us to take a more offensive strategy. It would simultaneously reduce the need for routine use of export subsidies, and reinforce the competitiveness of European products both internally and externally. It would help us to lower significantly the level of export refunds to traditional destinations and to develop new export outlets without subsidies. Finally, such an approach would also lead to a major simplification of EU measures.

I think the alternative option of solving the long-term over-production in this sector by increasing the slaughtering of young calves is simply not acceptable. Nor can the surplus problem be solved efficiently by the introduction of new quotas, which would create major administrative complications at all levels.

A better strategy is to increase competitiveness by gradually establishing a reasonable level of market support. Income support would then be ensured by developing the present system of direct payments.

This would make agricultural support more transparent. In turn, this might also lead to questions about how to distribute support amongst farmers. This issue is gaining more and more importance, not least from the point of view of public acceptability. However, I do not underestimate the practical challenge of putting a system of differentiation of support into place.

In future, European beef farmers will have to rely less and less on price support mechanisms, for they alone cannot guarantee farm incomes in the long-term. In markets where competitiveness becomes ever more important, artificially high prices would quickly lead to a dead-end. Intervention, rather than serving to set price levels, should return to its originally intended role as a true “safety net” in cases of serious market disruption. On the other hand, European agriculture has already proven its ability to provide consumers in the Union and worldwide with high-quality food. We should continue to use our strengths and to increase our competiveness in order to improve the future prospects for the European beef producers. I am convinced that such an approach lies in the interest of the EU as a whole and of the United Kingdom and Wales in particular.

Thank you for your attention.