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Farmers and the European Globalisation Adjustment Fund

A row has broken out over the Commission’s proposal to use the European Globalisation Adjustment Fund (EGF) in the next financial perspectives period to help farmers who might be adversely affected by the conclusion of EU trade agreements. According to a report in Europolitics, the European Trade Union Confederation (ETUC) is opposed to farmers being included in the list of potential beneficiaries of the Fund. The union confederation wants the funds reserved for workers, and argues that farmers should be helped under Pillar 2 of the CAP.

Background

In the new EGF regulation the Commission has proposed that its scope should be extended to provide transitory support to farmers to facilitate their adaptation to a new market situation resulting from the conclusion by the Union of trade agreements affecting agricultural products. Examples given of such possible forthcoming trade agreements are those under negotiation with Mercosur countries, or in the context of the World Trade Organisation under the Doha Development Agenda.

The EGF has been in operation since January 2007 (the summary in this paragraph and next is taken from a report by the UK House of Commons European Scrutiny Committee). It was introduced to provide support for workers affected by large scale redundancies occurring as a result of shocks due to globalisation and trade shifts. It provides one-off, time limited individual support, geared directly to redundant workers, so that they are able to find new jobs as quickly as possible. Expenditure from the fund is allowed only for active labour market policies, including training measures. It must not be used for activities that are ordinarily carried out by public employment services or are receiving other EU funding, for example, through the European Social Fund. Nor, in principle, can it finance the restructuring of companies or sectors. At a practical level, Member States have to apply to the EGF on a case-by-case basis, with each application subject to agreement by the Council and the European Parliament.

The EGF was amended in June 2009, in response to the financial crisis, through a mix of permanent and temporary changes to improve take up. The scope of the EGF was temporarily enlarged until 30 December 2011 to cover redundancies caused by the impact of the global financial and economic crisis; and the maximum contribution from the EGF (the co-financing rate) was increased from 50% to 65%, thus reducing the direct match-funding requirement from applicant Member States. The Commission has recently proposed an extension of the temporary derogations until 31 December 2013, the end of the current EGF implementing Regulation and of the Multi-Annual Financial Perspective for 2007-2013.

Since the fund’s establishment, the Commission has received 78 applications for support for 76,000 dismissed workers representing a total budget of €355 million. Applications for assistance have been growing — from 18 applications for €75.72 million under the original Regulation to 28 for €131.70 million, 75% related to the crisis, in 2009, and 31 for €132.50 million, 87% related to the crisis, in 2010.

The indicative amount available annually under the present EGF is €500 million, but as the figures show, this amount has never been reached in any year. Against this background, the Commission is proposing a slight reduction in the funding of the EGF, with a maximum amount from January 2014 to 31 December 2020 of €3.0 billion, or €429 million annually. According to the proposed EGF regulation for 2014-2020, five-sixths of the fund’s total budget – i.e. €2.5 billion (2011 prices) – could be used for farmers affected by trade agreements.

How the EGF would work for farmers

For the agricultural sector the Commission proposes that an EGF application would be triggered using a dual-threshold procedure. First, ex-ante information about the sectors and/or products likely to be affected by increased imports as a direct result of trade agreements will be provided in the analysis carried out by the Commission departments for the trade negotiations. Once the trade agreement is initialled, the Commission departments will check the sectors or products for which a substantial increase in EU imports and a significant drop in prices are expected and will assess the likely effect on sectoral income. On this basis the Commission would designate agricultural sectors or products and, where relevant, regions as eligible for possible EGF support.

Second, Member States would then have the possibility to submit applications for an EGF contribution, provided that they can prove that eligible sectors experience significant trade-related losses, that farmers operating in these sectors are affected and that they have identified and targeted the affected farmers.

The regulation provides that an application shall include the following information:

(a) a reasoned analysis of the link between the redundancies and the major structural changes in world trade patterns, or the serious disruption of the local, regional or national economy caused by an unexpected crisis, or the new market situation in the agricultural sector in the Member State and resulting from the effects of a trade agreement initialled by the European Union in accordance with Article XXIV of the GATT or a multilateral agreement initialled within the World Trade Organisation as per Article 2(c). This analysis shall be based on statistical and other information at the most appropriate level to demonstrate the fulfilment of the intervention criteria set out in Article 4;

For farmers, including all members of the farm household active on the farm, the measures would focus on the acquisition of appropriate training and skills and use of advisory services enabling them to adjust their activities, including carrying out new activities, within and/or outside agriculture, as well as to support to a limited extent the initial investments in changing or adjusting their activities so as to assist them to become structurally more competitive and secure their livelihoods. The cost of investments in physical assets for self-employment and business start-up or for changing or adjusting activity may not exceed €35,000. The aid would be provided to farmers changing or adjusting their previous agricultural activities within a period starting upon initialling of such trade agreements and ending three years after their full implementation.

Evaluation

I think that the Commission’s proposal deserves to be supported. A feature of trade agreements is that they generally lead to overall positive benefits, but the gains are generalised across the population as a whole while the costs are often felt by much more specific groups of workers and industries, including farmers. The obvious example is the Mercosur agreement which would result in significant overall welfare gains for the EU but which would increase competition significantly for EU beef farmers. It makes sense to provide a system of targeted adjustment support to help those sectors adversely affected by such agreements.

The ETUC may feel that including farmers in the scheme may increase the competition for resources for non-agricultural workers. In this context, the Commission proposal to also reduce the ceiling on resources in the forthcoming period as well as widening the beneficiaries might be criticised, even if usage of the fund to date has been well below the indicative ceiling. The ETUC proposal that funding for farmers might be taken from Pillar 2 of the CAP does not recognise the unprogrammed and unforeseeable nature of adjustment assistance and the need for quick disbursement of available funds to assist restructuring, which has led the Commission to propose that the EGF for the next period should be placed outside the MFF ceiling.

In terms of how important this might be for agriculture, the details are important. The fund would not be used to provide generalised and degressive income support to farmers adversely affected by a trade agreement. Its intention is to focus on ‘personalised support’ to help affected farm families to understand their options and to provide targeted assistance to those farmers who want to change or adjust their activity. What exactly will be accepted as ‘adjustments’ to farm activity in response to a fall in market prices will be crucial in determining how many farmers are likely to benefit from the EGF in future.

A final observation is that the proposal places a lot of responsibility on the shoulders of economists and their models, because the results of ex-ante modelling will be used by the Commission in formulating the first threshold to be met before farmers can access these funds.

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