|
|
Production
Estimates and Crop Assessment Division |
|
|
Production
Estimates and Crop Assessment Division |
December 17, 2003
The European Union (EU) Commission has proposed a policy change intended to spur crop production in 2004, in response to extreme weather and below-average yields in 2003. The Commission would like to modify the Common Agricultural Policy (CAP) to reduce the minimum amount of land that must be left fallow (set-aside) from 10 percent of total base area to 5 percent. The minimum set-aside rate has varied between 5 and 15 percent over the past decade, but has been stable at 10 percent since 1999. The goal of the set-aside program is to prevent over-production and preserve farm income by providing a financial incentive for removing marginally productive or environmentally sensitive land from cultivation. The EU set-aside program is similar to the Conservation Reserve Program (CRP) in the United States, but it is more flexible, with some notable differences.
A major farm-income stabilizing feature of the CAP is the compensatory payments program (also called "direct payments".) Compensatory and set-aside payments are the same, €63 ($77) per ton, paid on a per hectare basis, after reference yields have been taken into account. Reference yields vary across Europe, and are based on historical productivity. For example, in a region with a reference yield of 6 tons per hectare, the compensatory payment would be €378 ($461) per hectare (6 tons per hectare times €63 per ton). Using the reference yield assumption, a hypothetical 20 hectare farm would produce 120 tons of arable crops. According to the CAP, farmers that wish to receive compensatory payments for more than 92 tons of arable crops (area times reference yield) must comply with the minimum set-aside rate. This stipulation is a very strong incentive for farms to comply with the set-aside policy. Therefore, under the existing legislation, 10 percent of the area, or 2 hectares of a hypothetical 20 hectare farm would have to be set-aside, and the other 18 hectares could be used to produce arable crops. If the set-aside rate is changed to 5 percent, only 1 hectare would have to be set-aside, leaving 19 hectares for arable crop production. The total compensatory and set-aside payment for a 20 hectare farm is €7,560 ($9,223), an amount that would not be affected by changes in the set-aside rate. However, total crop production should be greater because the farmer is allowed to use more land. Land that is set-aside can also be used to produce non-food crops under contract, such as rapeseed for biodiesel.
If the proposed set-aside policy change takes effect, the EU Commission forecasts that approximately 7 million additional tons of grain will be harvested from a cereal area increase of 1.5 million hectares. See GAIN Report #E23240 (pdf) for additional information. The chart below shows the relationship between the minimum set-aside rate and harvested cereal area for the period of 1995 to 2003. In general, harvested area increases as the set-aside rate is lowered. In the past, farmers have responded to changes in set-aside policy; however, this year the announcement came too late for farmers in many countries to increase their winter wheat plantings, so most of the additional area will be in barley, corn and other spring crops. At the 10 percent set-aside rate, year-to-year area changes have fluctuated by hundreds of thousands of hectares because of winter and spring weather. For example, the French Ag Ministry's December 2002 winter wheat area estimate was 5.18 million hectares, but their November 2003 estimate was 4.83 million hectares, a decrease of almost 350,000 hectares because of unfavorable weather. The set-aside rate cut should increase harvested area in 2004, but weather conditions, economic factors and perhaps other policy aspects during the next six to eight months will be important in determining this figure.
Winter rapeseed plantings will not change if the EU set-aside rate is changed. Winter rapeseed is planted at the end of August and beginning of September, but the EU Commission proposal to reduce the minimum set-aside rate was not announced until early November. Therefore, farmers who intended to plant winter rapeseed for non-food use on their set-aside land had already done so. Increased planting of spring rapeseed is possible, but because spring rapeseed is relatively low-yielding, the amount of increase is likely to be modest.
Autumn weather conditions have been variable across western Europe. Dry weather in the United Kingdom delayed winter grain planting and rapeseed germination. Recent rainfall has been beneficial, but some replanting will be necessary because of emergence problems in the UK. In Spain, heavy rains have delayed winter wheat planting, and some farmers will switch to spring barley instead. See GAIN Report #SP3046 (pdf) for more information. After a period of dryness in France and Germany, farmers were eventually able to get their winter crops planted. Area increases are expected in both countries, and so far conditions are good. Corn was harvested early in France because of the summer drought, so this autumn farmers had the unusual opportunity to plant winter wheat after corn. See GAIN Report #E23239 (pdf) for more information.
On May 1, 2004 the European Union will enlarge from 15 to 25 members. However, the set-aside program only pertains to 15 countries that were members of the EU in 2003. This is because the 10 new members will receive aid using a "simplified" scheme, which does not make a distinction between land that is set-aside and land that is cropped. It will not be possible to verify that farmers are complying with set-aside requirements until the Integrated Administration and Control System (IACS) has been installed. In addition, there are many small farms--less than 92 tons of arable crop production--in new member states, such as Poland, and small farms are exempt from set-aside requirements.
(1 euro = 1.22 US dollars)
NASA Earth Observatory: Fall Crops Fail to Emerge in UK, 12/2/03
EU-15: Grain Forecast by Country, 11/13/03
Rapeseed Production May Benefit from New EU Directive, 11/4/03
EU-15: Cotton Production Summary, 10/2/03
EU-15: Biodiesel Industry Expanding Use of Oilseeds, 9/23/03
EU-15: Summer Crops Suffer from Heat and Drought, 9/12/03
EU-15: Grain Forecast by Country, 8/13/03
EU-15:
Oilseed and Rice Forecast by Country, 7/14/03
Germany: Field Travel Reveals Conditions and Trends, 6/19/03
EU-15: Grain Forecast by Country, 5/13/03
EU Enlargement: Eastern Germany Crop Yield Increases Herald Changes in
Central Europe, 1/13/03
European Union, Grain and Feed Semi-Annual, 2003,
E23239 (pdf), 12/11/03
European Union, Oilseeds and Products Annual, 2003,
E23144 (pdf), 8/1/03
European Union, Grain and Feed Annual 2003,
E23086 (pdf), 6/2/03
European Union, Grain and Feed Semi-Annual 2003,
E23001 (pdf), 1/6/03
For crop conditions in the European Union and throughout the world, visit Crop Explorer
For current and historical official USDA data on production, supply and distribution of agricultural commodities for the European Union and much of the world, visit PS&D Online
