ECONOMY

Cotton, olive oil and tobacco subsidy reform finally achieved

Mediterranean member states of the European Union achieved a slight delay in projected changes to the subsidy regime of the so-called «Mediterranean Products» – cotton, olive oil and tobacco. More importantly, they succeeded in deleting a provision for so-called «legal adjustments» that were to be introduced in 2009 and could lead to the abolition of subsidies, especially for tobacco. Greece, in particular, succeeded in pushing back the total decoupling of tobacco subsidies from production to 2010, in the face of strong opposition from Denmark and Sweden, and retained its present cotton-growing area of 370,000 hectares, which the Commission wanted to shrink to 340,000 hectares. Moreover, it succeeded in keeping 35 percent of the subsidies still linked to the production area, while the Commission envisaged keeping only 20-25 percent. Greek officials estimated that the reforms would leave, at present, tobacco farmers’ and olive oil producers’ incomes intact, adding that the quotas of coupled and decoupled subsidies were flexible enough to accommodate everyone. Specifically, the Council of Agriculture Ministers decided on the following reforms: Cotton: Sixty-five percent of subsidies will be decoupled and 35 percent converted into area-based payments. The reference period will be based on 2000-02 output. With 80 percent of EU output, Greece is by far the largest EU cotton producer and turns out 1.55 million tons of raw, or unginned, cotton a year. The EU is a minor player on the world cotton scene, contributing only 2.5 percent to world output, which stands at around 19.9 million tons. It is, however, a major importer. The current regime is based on a minimum price per ton of unginned cotton, subject to maximum volumes per country. It was last reformed in 2001, when penalties for overshooting production quotas were increased. Subsidies amount to some 773 million euros a year and are given to processors, allowing them to sell ginned cotton at world prices, after they have paid a minimum price to growers. Aid levels vary according to the difference between world prices and a «guide price» set by the European Commission. Olive oil: The reform will apply from November 2005 so payments can be decoupled from January 2006. For producers with holdings larger than 0.3 hectares, 60 percent of subsidies will be decoupled – while 40 percent of payments will be redistributed on an area or «per tree» basis. Smaller holdings will have completely decoupled payments. Member states may decide by August 1, 2005 to increase the decoupling rate beyond 60 percent and may hold back 10 percent of payments for spending to promote quality production. Areas planted after May 1, 1998, except those in approved new planting schemes, will be excluded from these payments. Private storage aid will be kept, with no subsidies for export. A complex system of calculating subsidy levels will apply based on a 2000-02 reference period for the overall amount of aid per country. Each farmer’s payments then depend on the average planted area and individual subsidy between 1999 and 2003. Current aid averages 1,322.50 euros per ton. Tobacco: Gradual decoupling of all subsidies to tobacco farmers, with a restructuring fund to be created to help them improve yields or switch to other crops. The EU’s current regime will apply for 2005, with aid levels already fixed for this year. All growers, regardless of the size of production, will have their payments fully decoupled from 2010, with half of the total subsidies to be then shifted into the restructuring fund. To cushion the impact of the reform, member states may keep up to 60 percent of payments linked to production – but only for farmers in poor areas or in schemes to promote quality varieties – for four years from 2006.