PDF file: Annual Report 2002/2003 - Scottish Crop Research Institute

Director’s Report
Relative Importance of Agriculture in the EU With
data only available for 2000, Eurostat estimated the
relative importance of agriculture in the 15 EU member
states, measuring the share of agriculture in
national Gross Value Added (GVA) at market prices
and employment. Overall, agriculture accounts for
1.4% of EU GVA and 4.0% of employment. For the
UK, only 0.4% of the national GVA at market prices
(i.e. it excludes directly paid subsidies) and 1.4% of
the workforce are attributable to agriculture. For
Sweden, the figures are 0.5% and 2.4%; Finland
0.5% and 5.0%; Luxembourg 0.5% and 2.4%;
Germany 0.7% and 2.5%; Austria 1.0% and 5.9%;
Belgium 1.0% and 1.9%; Denmark 1.7% and 3.5%;
France 1.8% and 3.9%; the Republic of Ireland 1.8%
and 7.6%; Portugal 2.0% and 11.9%; The
Netherlands 2.1% and 3.2%; Italy 2.2% and 4.8%;
Spain 3.2% and 6.2%; and Greece 4.7% and 16.5%.
Agriculture has the least importance to the national
economy in the UK, but the most in Greece.
Eurostat income indicators reveal the declining performance
of UK agriculture compared with that of the
EU as a whole. In 2001, NVA at factor cost of agriculture
per total annual work unit i.e. income per fulltime
worker equivalent, has increased on average in
the 15 member states (EU-15) since 1995 whereas it
has declined by 40% in the UK. Thus, on the basis
of the average index 1994-1999=100, the UK figure
was 60.5 and 112.1 for EU-15. For net
entrepreneurial income from agriculture, there were
declines in both the EU as a whole and the UK, but
the fall in the UK (-67%) was more severe than that
of EU-15 (-12%) i.e. 33.0 versus 88.5.
Subsidies Many have written at length on the origin,
rationale, and development of the Common
Agricultural Policy (CAP), and its market-distortion
effects, complexity of operation, enormous costs,
potential for corruption, currency exchange-rate turmoils,
political manipulations to favour certain types
of agriculture but exclude others, effects on international
trade negotiations, and the need to put into
context the challenge of having a sustainable rural
economy, and protecting production agriculture from
income parasitism further up the food chain. CAPrelated
subsidies supporting UK agriculture are supplemented
by other types of support. The majority of
subsidies come in the form of direct payments linked
to production. There are also market support measures
given by intervention purchases and import tariffs,
both of which impact on consumer prices.
Support is also given increasingly by direct payments
linked to rural development. Public expenditure relating
to agriculture covers diverse activities including
the operation of market regulation, certain areas of
animal health and disease control, education, research,
advice, food safety and standards, and relevant publicsector
staffing and the construction, maintenance and
operation of associated facilities; some of these costs,
of course, do not directly benefit producers but are
designed to benefit consumers and commerce more
generally.
Total public expenditure under CAP and on national
grants and subsidies was forecast to be £3.1192 billion
in the financial year 2002-2003. This comprised (a)
total direct product subsidies, including the Arable
Area Payments Scheme, livestock subsidies, and agrimonetary
compensation, totalling £1.9227 billion; (b)
total other subsidies on production, including the
agri-environment, conservation, and rural schemes, as
well as special area support for less-favoured areas, and
animal disease payments, totalling £0.4845 billion; (c)
total capital grants, transfers and other payments,
including diversification and FMD-related payments,
totalling £11.6 million; and (d) total CAP market
support, including cereals, sugar, milk products, processed
goods, and livestock-related payments, totalling
£0.7004 billion. The figures for 2001-2002 were distorted
by the impact of the compensation payments
and disposal schemes arising from the FMD outbreak,
where total public-sector expenditure was £4.6639
billion. In 2002, the agricultural industry received an
estimated £2.578 billion in direct subsidies less levies,
compared with £2.402 billion in 2001.
Modulation remained a contentious issue. It is a process
to recycle or vire a proportion of direct CAP payments
under the various commodity regimes, and was
introduced in the UK, at a flat rate of 2.5% in the
2001 scheme year. The funding raised was used to
help fund the Rural Development Programme (RDP),
incorporating Countryside Stewardship, Tir Gôfal,
Countryside Premium, Environmentally Sensitive
Areas, and certain of the less-favoured-area-schemes.
In 2002, modulation was raised to 3% of subsidy payments
in order to help fund the RDP, and the rate is
expected to rise to 4.5% by 2005. The funding raised
by modulation is matched by the UK taxpayer, and
the total spent in the RDP to support the rural economy.
On an accruals basis, modulation was estimated
to have reduced arable and livestock subsidies by circa
£60 million in 2002. Changes to the subsidiary
regime in 2005 raised questions about the willingness
of taxpayers to pay for ‘public goods’.
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