REPORT FROM THE COMMISSION TO THE COUNCIL ON THE APPLICATION OF THE EARLY MARKETING AND THE CALF PROCESSING PREMIUM SCHEMES IN THE BEEF SECTOR
COMMISSION OF THE EUROPEAN COMMUNITIES Brussels, 18. 04. 1997 COM (97) 165 final REPORT FROM THE COMMISSION TO THE COUNCIL ON THE APPLICATION OF THE EARLY MARKETING AND THE CALF PROCESSING PREMIUM SCHEMES IN THE BEEF SECTOR I. INTRODUCTION Council Regulation (EEC) No 805/68 states in Article 4i, inter alia, that Member States must apply at least one of the following two premium schemes during the period 1 December 1996 to 30 November 1998: - Early marketing premium for calves, - Processing premium for young male calves. Furthermore, the same Article provides that after six months i. e. after 1 June 1997 the Commission shaii verify whether the two schemes have achieved satisfactory results- At the March meeting of the Agricultural Council it was agreed, however, that the Commission should present its report on this subject in April 1997. This report fulfils that obligation. II. A. EARLY MARKETING PREMIUM Aim The early marketing premium was and is intended to reduce red meat production in 1998 and 1999 by encouraging veal producers to increase the number of calves used for veal production in 1997 and 1998. B. Legislation The premium was agreed by the Council through Regulation (EC) No 2222/96 of 18 November 1996. Due to the very short time scale available to prepare the implementing rules, the Commission Regulation on this subject was not published until 3rd December 1996 (Reg. (EC) No 2311/96), although the scheme was already applicable from 1st December. For various reasons a number of modifications have subsequently been adopted (Regulation (EC) No 18/97, (EC) No 200/97, (EC) No 280/97 and (EC) No 616/97). The accelerated implementation and subsequent modifications together with delayed decisions from Member States as to which premium to apply and the related introduction of their national administration systems resulted in various degrees of application in the first two months (Dec-Jan). This may have led veal producers to adopt a wait-and-see approach especially in the context of a generally weak veal market across the Community. Eventually, the early marketing scheme was implemented in all Member States except Ireland, the United Kingdom and Portugal. C. Weight limits In accordance with the Council Regulation the maximum weights were fixed per Member State on the basis of EUROSTAT-statistics for 1995 or any other official and published figures accepted by the Commission. Germany, Denmark and Luxembourg had their reference weight adjusted as a result of applying such alternative statistics (see Annex I). Nevertheless, both Denmark and Italy have repeatedly argued that the reference actual veal production in these two countries. weight is too low to reflect Although, alternative official statistics to prove their claims have not so far been provided. Furthermore, some Member States, in particular France, have complained that the application of a national weight limit leads to a distorted market situation. They argue that their producers, who before 1997 used to slaughter calves for a traditional veal market with carcase weights of 125-140 kgs, are now being forced to decide between two options; either to continue production of such carcases without the premium (in possible competition with imported veal which has benefited from the premium) or to produce 15 % lighter carcases with the premium but for which there is not an immediate market K For slaughterings from 20 January onwards an increased amount of premium was made available in order to alleviate the special and transitional problems related to the light weight carcases. D. Statistical information the Under the implementing rules Member States are required to notify Commission on a weekly basis of the number of animals in the preceding week which were subject to an application for premium. In addition, such information should be broken-down according to weight groups in order to calculate the number of calves which are slaughtered well below the maximum weight , thereby enabling an estimate to be made of the number of animals which receive the premium "freely". Unfortunately, only a couple of Member States have been correctly notifying such weekly information. Some countries are still (end of March) in the process of revising figures from December and January and others have responded with a delay of up to 6 weeks. Annex II, which shows the total number of premium applications recieved so far should therefore be looked upon against this background of incomplete information. A total of 300,000 applications for premium have been received from the beginning of December 1996 to the end of March 1997 of which 6 Member States account for 94 % of the Community total : the Netherlands 35 %, France 21 %, Italy 12 %, Austria 11 %, Germany 8 % and Belgium 8 %. By comparing these applications with the total number of veal calves slaughtered in the same period (based on actual statistics where available 1 A French memorandum on this subject was distributed to the Council in March. 3 or 1996 EUROSTAT statistics for the corresponding months) it appears that in the Netherlands premium applications cover 26 % of the total number of veal calves slaughtered while the percentage in France is 11 %, in Austria 63 %, in Italy 19 % and in Belgium 28 %. For the sake of comparison, the latter set of percentages refer to applications and production in the period December - February (3 months). 8 %, in Germany Information received on the actual weight of slaughter for the premium calves confirm a fairly wide statistical spread (see Annex III). Furthermore, an extrapolation of the weight distribution from the lower weight groups to the weight group just below the maximum weight gives an indication of the number of animals which would have been slaughtered in that group in any case, with or without the introduction of the premium. For the sake of simplification of calculation it is assumed (1) that 50 % of the calves in the 10 kilogrammes interval just below the maximum weight would in any case have been slaughtered at that weight and that (2) calves lighter than that weight interval all would have been slaughtered at that low weight irrespective of the premium. It can reasonably be argued early slaughter so far only refer to 20 % of all premium that active applications in the Netherlands, 34 % in France, 25 % in Austria and 24 % in Germany. No or incomplete statistics have been received from Belgium and Italy. Consequently, in the 4 Member States referred to above more than 75 % of the premia have been applied for in respect of animals which in any case would have been slaughtered at a lower weight. Evaluation On the basis of the participation in the scheme as indicated by Member States for the first 4 months it is estimated that the premium may be granted in respect of 1 million calves in 1997. However, on the background of the findings above, the premium paid on 750. 000 head would not necessarily give rise to an active restructuring of production but may simply constitute a production subsidy. With regard to the 250. 000 calves which it is estimated will be deliberately slaughtered early, savings are only obtained if the producers turn to calf replacements in order to increase their throughput in terms of numbers. Assuming a full 15 % replacement rate the saving can be estimated at 26 mio ECU compared with the total cost of the premium of+/- 65 mio ECU for 1997. An estimate based on the assumption that all calves above the one million mark will fall under the "active" premium definition actually leads to the conclusion that in order for the early marketing premium to be cost effective slightly more than 2 mio calves must be covered by the premium (Annex IV). If there is less than a 15 % replacement rate of calves the break-even number will be correspondingly higher. An increase in the current average number of applications cannot be excluded in particular because veal producers obviously need some time to adapt to the new situation. The scheme is still fairly young and has already gone through a number of modifications in particular with regard to the level of the premium. On the other hand, a doubling of the present rate of applications seems rather optimistic and the decision to go for supplementary replacements is very much a function of the prevailing and foreseeable market conditions. Those factors are still very much influenced by the BSE scare of last year although the prices admittedly have recovered somewhat during the month of March (see Annex V). In its Memorandum, France has to a large extent blamed so-called premium subsidised imports for being responsible for the low veal prices at the beginning of 1997. The Commission, however, has no statistical evidence to support that assumption and notes, furthermore, that the prices for veal from particularly the Netherlands have historically always been lower than the French veal prices. Concluding remarks On the basis of the existing incomplete statistics from Member States it may be somewhat premature to draw firm conclusions on the cost effectiveness of the premium scheme over its full two years of application. It seems, nevertheless, beyond reasonable doubt that the bulk of premium payments granted so far have only to a small extent complied with the intentions behind the scheme. If this tendency is not quickly reversed a logical. conclusion, based solely on the cost/effectiveness of the early marketing premium, would be a suspension of the arrangements in order to safeguard the Community finances. However, Article 4i, following Council's conclusions, consists of a balanced package of two measures which have to be assessed together. Therefore, any final conclusion can only be drawn after having analysed the global result produced by the two schemes. III. CALF PROCESSING SCHEME A. Aim The concept of the calf processing premium was first introduced in the basic beef regulation following the 1992 reform. With a view to reducing the use of male calves of dairy origin for beef production, Member States either had to apply a light weight intervention system or provide for a system which enabled calf producers to sell the abovementioned type of animals for processing subject to a maximum age of 10 days. Although the light weight intervention ceased to apply in 1995 the calf processing premium remained as a market instrument although only on a voluntary basis for Member States. In the context of the Council's renewed intention to bring down future beef production, as set out in Regulation (EC) No 2222/96, the calf processing scheme was made obligatory for those Member States which did not opt for the application of the early marketing scheme, in particular with a view to provide as far as possible equal distribution of efforts to adjust production. The declared aim was to process one million calves per year. B. Legislation The basic rules for the calf processing premium are laid down in Article 4i of Council Regulation (EEC) No 805/68 as amended in particular by regulation (EC) No 2222/96. The implementing rules are provided through Commission Regulation (EEC) No 3886/92, as amended by Regulation (EC) No 2311/96, and in particular at Chapter V, Section I. The amount of premium before 1 December 1996 was fixed at a uniform level of 120 ECU per male animal. After that date non-dairy male calves also became eligible for the premium, which was set at 150 ECU, whilst the premium for dairy calves remained unchanged at 120 ECU. Statistical information f Annex VD Statistical information on the premium is obtained on a weekly basis and Member States applying the processing premium generally respect the statistical requirements. Under the pre-December system only the United Kingdom (since the end of April 1996), Portugal (since the end of May 1996) and France (since the middle of October 1996) applied the premium. A total number of 445. 000 calves were slaughtered for processing before December 1996 with the United Kingdom accounting for more than 80 %. After 1 December 1996 Uniied Kingdom has opted to continue the application of the premium along with Portugal and France. Since February 1997 Ireland has joined the other 3 countries in their choice. Up to the end of March 1997 some 330. 000 calves have been slaughtered under the new arrangements with UK accounting for slightly more than 50 %. Taking into account that Ireland has only been operating the scheme for 2 months and assuming the same monthly average for the rest of the year the Commission anticipates that the target quantity of 1 million calves will be reached in 1997. D. Evaluation The total cost of granting this premium in respect of one million calves is estimated at 125 mio ECU. However, the savings in terms of lower future production and lower intervention in-take amount to an estimated 690 mio ECU (see Annex VII). It goes without saying that the processing scheme is the most effective measure for reducing production, not only in terms of direct cost efficiency but also in terms of providing a greater balance between consumption and production in the future. A number of Member States have not opted for this premium expressing concerns over possible negative reactions among consumers. In this respect it is interesting to note that according to information from the 4 Member States applying the scheme no such negative attitudes have been expressed and the consumption of beef and veal is continuing its slow but steady recovery in all of those countries. The processing premium on male calves may admittedly in certain circumstances constitute a floor price for calves intended for veal production as the bulk of such calves in fact are male animals. On the other hand, of the four Member States applying the premium only France has substantial veal production. It is reported that calves from other Member States are also being processed in France thereby influencing the prices of very young animals in those countries, but no factual information can be obtained as to such movements. Furthermore, if there is indeed a floor price, that price would be somewhat lower than the premium of 120 ECU due to the cost of transport, slaughter and processing of the calf. Finally, it has to be noted that prices for young calves are still below the level of one year ago, which means that the processing premium (at least until now) does not seem to have been causing an unfair price increase in the raw material for veal and beef production. Concluding remarks Given the background of the continuing inbalance in the beef market, effective measures to adjust red meat production should be encouraged. The Commission finds that the calf processing scheme is by far the most efficient of such measures and once again urges Member States to make use of this option. IV. CONCLUSION A. B. This report has been prepared in accordance with Article 4i(6) of Regulation (EC) No 805/68 under which the Commission is obliged to verify whether the two calf schemes have produced satisfactory results as measured against their intended targets. The report was initially due 6 months after the application of the two schemes but was subsequently advanced at the request of the Council. Unfortunately, as a direct consequence, the experience gained as well as the statistical information required is far from complete and the conclusions which have been drawn should be considered in that light. Another unfortunate factor at least vis-à-vis the early marketing premium was the timing of the start of the scheme which coincided with a very depressed market situation created by the BSE scare earlier in 1996. Decisions by veal producers with regard to calf replacements have definitely been negatively influenced by the weak market in the sector. Having said that, the Commission can only conclude that the arrangements for the early marketing premium have not yet produced the desired results. In order for the premium to become cost effective at least a doubling of the current rate of applications coupled with increased calf replacements would be necessary. The present rate and nature of applications tends to suggest that 3 out of 4 calves simply obtain a production subsidy decoupled from the production effort with which it was intended to go hand in hand. The calf processing premium, on the contrary, appears to be very effective in terms of actual reduction of future production and in terms of cost-effectiveness. Although the Commission appreciates some Member States' concern about negative consumer reactions in the context of this premium it is still disappointed * that only 4 Member States have decided to apply the premium on their territory. Since the Council introduced the two premia as part of an integrated solution which was intended to result in a balanced effort to reduce production, it is appropriate to evaluate the two premia together. In terms of total cost effectiveness, the application so far is positive, although only because of the application of the processing premium. This unfortunately means that the measures in reality have not provided equal burdens in terms of the reduction of the production potential. Furthermore, if one of the two premia were to be suspended (e. g. the early marketing premium) the inbalance would be even greater. The Commission, therefore, proposes that the Council should judge the early marketing premium on a period longer than the past 4 months, taking into account the necessary time for technical adaptation of the veal production structures. Furthermore, account should be taken of the fact that the latest increase of the supplement paid to low weight carcases only entered into force on 14 April 1997 and has therefore not yet had any effect on the implementation of the premium. Finally, the beginnings of a recovery in veal prices in March may equally encourage producers to turn to more positive decision-making in respect of increased calf replacements. The Commission will continue to closely monitor the level and distribution of applications and, depending on their future development, as measured against both cost effectiveness and balanced efforts in Member States, it reserves its right to take steps in accordance with Article 4i (5) and/or (6) of Regulation (EEC) No 805/68. ANNEX I Maximum carcase weight for the early marketing premium Member State of slaughter Maximum carcase weight Belgium Denmark Germany Greece Spain France Ireland Italy Luxembourg The Netherlands Austria Portugal Finland Sweden United Kingdom. 136 110 112 127. 1 24 108 117 120 138. 82 110: 84 88 32 10 EARLY MARKETING PREMIUM FOR VEAL CALVES: APPLICATIONS RECEIVED Regulation (EEC) No. 3886/92 ANNEX II Week Be Da De El Es Fr It Lu NI Ôs Pt Fi Sv EU ' 96wk49 December 96wk50 "" 96wk51 96wk52 1996 TOTAL 97wk01 January 97wk02 97wk03 97wk04 97wk05 97wk06 February 97wk07 97wk08 97wk09 97wkl0 March 97wkll 97wkl2 97wkl3 TOTAL % of EU TOTAL 1000 1047 1604 1615 5266 462 1406 2118 1820 2088 1705 1722 1874 1874 1758 675 5 • 22773 7. 57 0 0 0 0 0 132 12 45 76 129 104 125 101 73 79 105 74 275 394 1024 480 2173 1019 1480 4982 1629 2064 1969 1530 1641 1654 1909 1492 1323 n n 19 7 3 8 9 2 2 5 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 • 2466 3442 4377 3515 13800 3631 5935 5287 5020 4842 4297 4098 4974 6401 3593 1287 1365 5482 - 3497 4565 2190 2509 2824 2463 3625 3044 0 0 0 0 0 0 10 10 7 9 11 7 12 6 8 9 8 0 783 7422 1422 9627 5181 10403 4417 9414 5936 7266 10352 4331 13790 8943 4737 11495 0 50 1028 1339 2417 2798 3689 4195 2042 2561 2347 1956 2491 2166 2169 2062 2420 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 13 55 50 118 57 122 177 205 325 361 360 326 258 177 174 92 10 2762 0,92 536 771 538 60 1905 69 625 958 926 722 904 874 907 830 857 644 373 4277 6500 16059 9846 40799 13349 23682 22189 21139 22192 23536 23217 19174 29885 21958 14812 18839 10594 3. 52 300869 NJ6* Shaded figure denote actual totals provided by Member States but which cannot be broken dowtt by weéfcdr Weight category* 1055 0. 35 24865 8. 26 66 0,02 0 0*00 63165 • 20. 99 36287 12*06 97 0,03 105892 35o20 33313 11,07 0 0. 00 "1 ANNEXE III APPLICATIONS FOR EARLY MARKETING PREMIUM (ACCORDING TO WEIGHT) AUSTRIA* 1 Groups of 10 kg 0-42kg 42 - 52 kg 52 - 62 kg 62 - 72 kg 72 - 82 kg TOTALS * : From December 96 to 97 week 12 1 TOTAL CALVES (I) 121 2082 5186 9424 16500 33313 | | TOTAL "FREE" CALVES (II) 121 2082 5186 9424 8250 25063(75%) ' FRANCE* Groups of 10 kg 0 - 38 kg 38-48 kg 48 -58 kg 58 - 68 kg 68 - 78 kg 78 - 88 kg 88 - 98 kg 98 - 108 kg I TOTAL CALVES (I) | TOTAL "FREE" CALVES (II) 13 (+ 7) 35 (+ 21) 98 (+ 59) 307 (+ 185) 906 (+ 546) 2686 (+ 1615) 8907 (+ 5366) 26469 (+ 15942) 13 (+7) 35 (+21) 98 (+ 59) 307 (+ 185) 906 (+ 546) 2686 (+ 1615) 8907 (+ 5366) 13235(4-7971) T O T A LS * : From December 96 to 97 week 8 ** : No. calves for which a premium application has been received but which cannot be broken down by weight ( ) : Etimated distribution by weight of the 23744 calves 1 39421+23744** =63165 | 26186 (+15773) « 41959 (66 %) GERMANY* I Groups of 10 kg 0- 72 kg 72- 82 kg 82- 92 kg 92- 102 kg 102-112 kg TOTALS * : From December 96 to 97 week 12 1 TOTAL CALVES (I) 3031 2475 3729 6281 9349 24865 THE NETHERLANDS* I Groups of 10 kg 0 - 28 kg 28 - 38 kg 38-48 kg 48 - 58 kg 58-68 kg 68 - 78 kg 78 - 88 kg 88 - 98 kg 98 - 108 kg 108-118 kg 118-128 kg 128 - 138 kg T O T A LS * : From December 96 to 97 week 12 I ; TOTAL CALVES (I) 2 32 79 143 399 841 1706 3490 7425 16629 32291 42855 105892 I | I I M TOTAL "FREE" CALVES (II) 3031 2475 3729 6281 4675 18941(76%) TOTAL "FREE" CALVES (II) 2 32 79 143 399 841 1706 3490 7425 16629 32291 21428 84464(80%). ANNEXIV Earlv marketing premium / Cost effectiveness 1997 Number of calves receiving premium (head) Estimated costs (mio ECU) Calves with actual reduction of weight (head) Increase of calf replacements l Savings on. , intervention2 (head) (mio ECU) (1) 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 2,000,000 (2) 64 77 90 103 115 128 (3) 250,000 450,000 650,000 (4) 37,500' 67,500 97,500 850,000 127,500 1,050,000 157,500 1,250,000 187,500 (5) 25. 9 46. 6 67. 3 88. 0 108. 7 129. 4 1 2 15% of (3). (4) x 0,3 tonne x 2300 ECU. 13 -F 550 525 425 400 375 VEAL Community Average Price • • ' i ' • • • * * • • - j — i — i — • — i —i i — • —i i i i _ _ _i i i_ 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 Week ANNEX VI Applications for the calf processing premium Applications received before 1. 12. 96 Applications received after 1. 12. 96 Dairy calves Dairy calves non-dairy calves Total applications received up to 21. 3. 97 370 339 140 291 23 535 534 165 12 406 62 269 0 17 904 94 005 8 346 89 30 399 20 832 177 106 175 8 521 445 014 260 546 44 631 750 191 United Kingdom Portugal France l Ireland 1 T O T AL Applications up to 15. 3. 1997. 15 ANNEX VTT Calf processing premium / Cost effectiveness 1997 Cost of dairy calves Number of dairy calves receiving premium (head) (mio ECU) Number of non-dairy calves receiving premium (head) Cost of non-dairy calves Total cost (2) + (4) Savings on intervention (mio ECU) (mio ECU) (mio ECU) 0) (2) (3) 850,000 102. 0 » 150,000 (4) 22. 5 2 (5) 124. 5 (6) 6903 1 850,000 head x 120 ECU. 2 150,000 head x 150 ECU. 3 1,000,000 head x 0,3 t x 2,300 ECU. 16 ISSN 0254-1475 COM(97) 165 final DOCUMENTS EN 03 10 Catalogue number : CB-CO-97-153-EN-C ISBN 92-78-18660-0 Office for Official Publications of the European Communities L-2985 Luxembourg il