Agriculture

How will the agricultural sector be affected by membership?

This sector requires most change to adjust to membership. Change, of course, brings with it both threats and opportunities. For those involved, the issue is how to make sure that the process of change is used to their best advantage. Others, however, are still resisting change and feel threatened by it.

Membership of the EU, as seen following the outcome of negotiations, will present one major shift. Currently, farmers are shielded from competition through import levies that at times are so high that they effectively block out all importation altogether. This protection will now need to be replaced by a new kind of protection in the form of direct financial assistance to the sector.

This means that importation of competing products will be possible, whereas at the same time farmers will be assisted to compete effectively. This applies in all areas but it will have most direct impact on crop farmers as well as the pig meat, dairy and egg and poultry sectors.

The new protection that will replace levies will take the form of a financial assistance package of around Lm77 million until 2014. This is by far the largest financial investment that has ever been made in this sector, although admittedly many contest whether it is sufficient.

The subsidies were calculated on the basis of the price differential between local prices and those of EU member states (including transport costs), which have traditionally exported agricultural products to Malta. Subsidy payments are in large part intended to help farmers put down the price of local produce to a level which would make it competitive with the imported products.

So protection will remain. It is the type of protection that will change - but one that does not rule out competition.

The agricultural package will clearly come at a cost. But it is misleading to say that this is a new cost that we will now have to pay from our taxes. For two reasons:

Firstly, this claim completely disregards the fact that, today, consumers are already paying a high price for the current levy system. Consumers pay levies on imported products (when they do penetrate the market). But they also pay a high price for local products that are protected from competition.

Moreover, consumers also pay an additional price in terms of a restricted choice and, at times, inadequate quality. A back-of-the-envelop calculation of how much the new subsidy scheme will cost on a per capita basis will show that consumers may well be paying more for the current system than for the new one.

So, whereas the new system will come at a cost, it does not mean that the current system is free of charge. If they are to pay in any case, taxpayers may prefer to assist the sector while benefiting from a wider choice, cheaper prices and a better quality.

Secondly, the agricultural assistance will not be shouldered by Maltese taxpayers alone as it is now. It will be paid in part by the EU. During the first three years of membership, it is expected to cost around Lm28 million - but the EU will pay Lm12.8 million from its agricultural funds and additional EU funding will be allocated from Malta's share of the EU Structural Funds.

Apart from the direct subsidies, EU assistance will also help the sector restructure and it will support the implementation of Malta's rural development plan - the blueprint for Malta's future agricultural policy. EU funding after 2006 will be determined when the new EU budget is agreed by all EU countries, including Malta.

Of course, farmers question what would happen if this new system is not sufficient to secure their livelihood. This is fair enough. And it is also clear that whereas the situation will be challenging for all, prospects will be toughest for those who will resist change.

This specific "what-if?" question was also discussed during negotiations. As a result, it was agreed that over and above the income support programme, during the five years after membership, when the sector will be gradually adjusting to the new reality, Malta may resort to a "safeguard clause".

This would enable the Maltese authorities to take action to assist the agricultural sector, even specific sub-sectors, in case of difficulty. The clause may be triggered when in specific agricultural sectors difficulties arise which are serious and liable to persist, or which could bring about a serious deterioration in the economic situation of a given area.

The importance of the safeguard clause should not be underestimated because it provides a safety net for the sector when it faces abnormal market conditions.

Negotiations on this sector were very detailed and highly technical. Suffice it to say that in this area, Malta secured the largest number of special arrangements.

But it is now up to the affected sectors to ensure that they have fully understood the meaning and implications of what was negotiated. And to examine carefully how they can best turn the situation to their advantage.

For instance, the removal of all obstacles to exports opens a new window of opportunity that should not be overlooked. Not just for potatoes, our main export crop, but also for processed food. So is the new policy that will see our land-area for growing grapes for quality wine more than double to 1,000 hectares.

The same applies to other interested parties, including the agro-processing industry that is directly linked to the farming community.

But the deal is also of direct interest to consumers because their choice and their pockets will also be affected. I have already gone into the issue of food prices in this column and explained how, as a direct result of negotiations, food prices are more likely to go down, than up. Without negotiations, the situation would have been different.

Malta-EU Information Centre:
Tel: 25909192; Fax: 21227580;
E-mail address: euinfo.mic@magnet.mt;
Website: www.mic.org.mt
Readers wishing to put questions to Dr Busuttil may do so directly with the centre or through The Times.