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Draft market organisation regulation confirms market orientation with safeguards

The two previous posts covered the Commission’s draft proposals for the Direct Payments regulation and the Rural Development regulation. In this post, I cover its draft proposal for a revised single common market organisation regulation.

Summary

• There is the first formal acknowledgement that the Commission is not going to propose legislation to renew the sugar quota regime when it expires in 2014/15, although there will be a one year extension. Ending the sugar quota system is given as an example of simplification of the CAP under the proposal.
• A single animal disease/loss of consumer confidence provision is extended to plant products given the experience with the e.coli outbreak in Germany over the summer.
• The general market disturbance clause is expanded to cover all sectors in the CMO. In this context, we should also recall the proposal for a new Special Reserve in the MFF regulation for crises in the agriculture sector with an annual ceiling of €500 million to be mobilised over and above the ceilings of the financial framework. Farmers will also be made potential beneficiaries of the Global Adjustment Fund which, for example, could provide assistance to farmers adversely affected by trade agreements. There is also the provision that Member States can use some of their Pillar 1 national ceiling to couple payments to products which are adversely affected by continuing disturbances on that market.
• The product coverage for recognition of producer organisations and their associations as well as interbranch organisations by Member States is expanded to all sectors in the current Single CMO.
• Building on the lessons of the milk crisis for the functioning of the food chain and the recommendations of the High Level Expert Group on milk, the Regulation incorporates the proposal already made for the milk sector that sets out basic conditions if Member States make written contracts compulsory and to allow dairy farmer producer organisations to negotiate contract terms including price with a view to strengthening the bargaining power of milk producers in the food chain.
• It also reflects the proposal already made on marketing standards in the context of the quality package.

Evaluation

The organisation of commodity markets has been at the core of the CAP since its foundation, but the amount of support provided through market intervention measures (as opposed to tariffs) has gradually been reduced under successive CAP reforms. Despite calls from some quarters for a reversal of this process, and the reintroduction of high support prices underpinned if necessary by supply control measures such as quotas, the draft legislative proposal maintains the current market orientation.

Indeed, for sugar, the remaining commodity subject to quotas, the draft makes clear that quotas will not be renewed after 2015/16 for this product. This is despite calls from some in the industry to extend quotas for a longer period.There is a one year reprieve as the current regime, which is due to end in 2014/15, is extended for one further year “in order to allow for a reasonable period of adjustment for operators in the sector”.

The main ‘new issues’ addressed in the regulation are volatility and bargaining power in the food chain. Volatility is address by the extending the possibility of support in the case of market disturbances due to a loss of consumer confidence, an animal disease outbreak or price volatility (in addition to the enhanced risk management toolkit available in Pillar 2).

The proposal to try to strengthen the position of dairy farmers in the food chain by requiring written contracts and permitting collective bargaining over the milk price have been well signalled previously in the wake of the High Level Expert Group report.

This draft regulation represents a ‘steady as you go’ approach given the unfounded hysteria whipped up around issues such as food security and should be broadly welcomed for that reason. It was too much to expect that the Commission would unilaterally announce the end of export subsidies even though this would have been a very desirable move to include in the regulation, but that is for another negotiation on another day.

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