28 June - 4 July 2001

Lm7.2m a year in subsidies for farmers

• Need to negotiate additional forms of compensation
• Current production levels would need to be doubled
• Following accession in agriculture, an implied additional
public expenditure would be Euro 9.5 million per year

by Ivan Brincat

The government will have to fork out around Lm7,200,000 in subsidies a year to farmers and operators in the agriculture industry according to estimates found in a report on the challenges and opportunities for the small-scale multifunctional agricultural sector.
The total cost on the agricultural sector is roughly estimated to be slightly higher.
The report, presented to the government by Ciheam-Iam Bari in November 2000 gives an indication of the likely effect the Common Agricultural Policy would have upon accession.
It, however, claims it is almost impossible to make an accurate calculation of the overall effect the adoption of the Acquis in agriculture would have on the Maltese economy as a whole.
It said that at this stage of pre-accession, there are in fact many issues which are still uncertain. The arrangements for single sensitive products which will be dealt with in negotiations, the framework for EU rural development and structural funds, within which the degree of project national co-financing for Malta will have to be defined and also the possibility of negotiating a special programme, in order to cope with all the structural constraints and peculiarities of Maltese agriculture, among others.
The report comes up with the reasons why the government has to negotiate a comprehensive and specific programme in this sector.
A major issue, in the accession context, is the whole agricultural policy framework. This is due both to the major role that the CAP still plays in the EU domain, and to the sensitivity of Maltese agriculture in the accession perspective.
The implications for Malta are obviously the removal of trade barriers which are substantial for agricultural and food products.
The report said this is a special matter of concern, due to the fear that a fast removal of levies on
agricultural products may lead to
the virtual disappearance of local agriculture.
“There is widespread awareness in the country that this would be
an undesirable outcome. This is because it would jeopardise the stability of consumer prices and the livelihood of farmers, while making the country fully dependent on international food prices, and because it would imply the loss of a relevant part of the natural and cultural environment of the country.
This could, in turn, have deep long-term social consequences, and result in an economic drawback on other economic activities and primarily on tourism,” the report said.
The report however states that at the same time a fairly high level of protection from foreign competition is itself unsustainable in the long run.

Considering Malta’s involvement in international economic policy fora – such as the WTO and the MEDA system – the removal of levies is a long-term requirement, independently from accession to the EU.
Agriculture and fisheries account for about 2.8 per cent of Malta’s GDP over the past years, a share that increases to a little more than six per cent if the whole agri-food chain is concerned. It employs 1,800 full time farmers and a little less than 13,000 part-timers.
The agricultural land area covers 12,000 hectares, of which about 85 per cent is dry land. Almost 42 per cent of the agricultural land is devoted to cereals, legumes and forage crops, vegetables account for 29 per cent of the land and the remaining 19 per cent is devoted to fruits, flowers, seeds and minor crops.
One half to two thirds of the agricultural land is State-owned and is made available to farmers for a very cheap and inheritable lease.
Fruits and vegetables are Malta’s most important agricultural products, particularly potatoes, tomatoes and peaches.
The most important livestock products are pork meat, poultry and milk.
The report said that despite the low comparative advantages of Malta’s agriculture, several local products can be regarded as typical, showing a significant degree of differentiation due to the localisation of production. This is primarily the case of early potatoes, the variety internationally known as Malta
is exported to several European countries.
Some degree of specificity is shown also by local wine varieties for which the country has moderately good agro-climate conditions.
Almost two thirds of the tomatoes produced in Malta goes for processing, partly in cottage plants producing sun-dried tomatoes, partly to local processing companies. There are three relatively large-scale
processing companies, producing tomato pulp, peeled tomatoes, a typical (sweet) tomato jam and other minor products. Wine is processed in about 15 diversified wineries, some of which are relatively large scale, by Malta’s standards.
At present, some important export destinations of Maltese agricultural products are non-EU countries, and especially those of the Middle East. The most important partners are Saudi Arabia with a share of 17 per cent followed by Italy, the United Arab Emirates, the Netherlands, Djibouti, Egypt, Oman, Yemen, and so on.
The report said that for most products, and in a relatively short time, Maltese agriculture will face a price shock. In order to avoid such a shock turning into a sharp income fall for Maltese farmers, compensation will be necessary: the rationale for such compensation lies in the specific, very unfavourable, conditions of Malta’s agricultural sector and in the necessity for this island country to keep the sector alive. A necessity enforced by the fact that the size of Maltese agriculture, even in the current context of over protection, is already very small, both in absolute terms and as a share of national GDP and total labour force.
The Maltese government will need to negotiate additional and probably transition forms of compensation.
For example Malta currently produces 22,000 tonnes of tomatoes. Out of these 7,000 tonnes find their way to the fresh market while some 15,000 tonnes go for processing. Imports of tomatoes for the processing industry are subject to a levy, but no other import restrictions exist.
No direct aid is provided at
the moment in Malta to tomato producers.
Current production levels would need to be doubled to attain competitiveness in the European internal market.
However although the price shock will be substantial and yields still have to increase significantly, the presence in Malta of some
efficient processors puts the sector in a good position for a positive adjustment.
With regards to potatoes, on the other hand total production is around 30,000 tonnes. The production of early potatoes in Malta is acknowledged as typical and specific. The name Malta cannot be used but Maltese potatoes could be at least differentiated by a symbol, like those supported in remote territories and islands of member States.
The report said the winery industry appears as the most “threatened component from foreign competition after accession, the risks for the grapes growers are not to be discarded. This aspect is of great concern in Malta taking into account the farmers’ strong dependence on sales to the local winery industry.”
The report suggests that the loss in public revenue arising from the removal of levies in agricultural and food products is estimated at Euro 8m although the report said this is overestimated to some extent.
It also stated that the public sector will be called to co-finance structural and rural development actions.
The report said that following accession in agriculture, an implied additional public expenditure would be Euro 9.5m per year.
With regards to farmers, total compensation needed in the area of market policies is estimated at little more than Euro 17m. This figure is deemed to be pessimistic because it would mean that the negotiations with the EU did not yield any result whatsoever. Consumers and the food industry in general are set to experience a benefit of Euro 4.8m per year.
The total net balance as the bill of EU accession for farmers and the food industry is around Euro 18m per year. This figure, the report said, is a tentative one.
The reason behind these costs is that Maltese agriculture is specialised in production for which the CAP does not provide significant support. Production in Malta tends to suffer from structural constraints that reduce their competitiveness. Moreover, the agro-industry and consumers are benefiting from cheap imports from the EU and in the case of some products which are heavily protected in the EU, from lower world market prices.
The report said all these points have to be strongly underlined in the negotiation process, as good reasons for asking for a substantial compensation which the EU should be prepared to discuss with a sympathetic attitude.