Farmers should not bear EU green transition costs alone, says Letta report

Wednesday, 17 April 2024 Culture

The costs linked to the EU’s green transition should be shared collectively to avoid burdening specific sectors, according to a report by former Italian prime minister Enrico Letta, citing farmers as a group showing resistance to reforms.

The much-anticipated report, which proposes reforms to the EU’s single market, has been released today (Wednesday 17 April) during a two-day summit of European leaders in Brussels.

“Failure to achieve this collective effort could lead to resistance from various groups,” writes Letta.

“Today it might be farmers, tomorrow automotive workers who feel they are disproportionately bearing the costs of transformation without sufficient support,” it states.

Nevertheless, Letta stresses that the EU must meet its “ambitious green targets” as the future of the 27-member bloc “hinges on these commitments.”

The report adds that the cost of inaction is high as climate-related extreme weather events, which frequently take a toll on the agricultural sector, become increasingly frequent.

According to the report, extreme weather caused the EU €170 billion in losses in the last five years.

To tackle these challenges Letta proposes creating an EU-wide state aid fund to finance the bloc’s green transition.

His warnings come after an expert group identified extreme weather as a top concern for EU food security in 2024, in an assessment published by the European Commission yesterday (Wednesday 16 April).

EU experts increasingly worried about impact of extreme weather on food security

Experts identified extreme weather as a primary challenge to food supply in Europe in an assessment of EU food security released by the European Commission on 16 April.

Unfair trading practices

The draft text also highlights accusations of unfair trading practices from large wholesalers and retailers voiced by the agri-food sector.

“Farmers and food processors claim that large distributors and retailers are engaging in unfair trading practices,” reads the report.

While Letta indicates that the EU tried to address these issues with the adoption of the Unfair Trading Practices Directive (UTP) in 2019, the report admits difficulties in enforcing the rules on companies operating in multiple EU member states.

In response, he calls on the EU to give national authorities more power to tackle suspected competition rules violations through a common procedure for all cross-border cases.

The Commission announced last month that it would conduct an in-depth evaluation of the rules and propose legislative changes if necessary by 2025. It also plans to create an observatory to track trading practices, margins, and costs in EU agri-food supply chains.

Conditional state aid

The Letta report also suggests developing solutions that allow for targeted public subsidies for sectors in need, while preventing fragmentation of the EU’s single market -particularly after the bloc relaxed state aid rules in 2022 to help businesses cope with the impact of the war in Ukraine.

Euractiv’s analysis of state aid granted to the agri-food sector revealed significant disparities among member states.

EU countries provide billions of euros in aid to agri-food sector amid farmer protests

European Union member states have spent billions of euros supporting agricultural and food industries over the past two years, following a temporary relaxation of the bloc’s state aid rules to help businesses cope with the impact of Russia’s war in Ukraine.

Poland, the EU’s top spender in the agri-food sector, spent almost €4 billion in public subsidies since the Russian invasion of Ukraine.

“Whilst the progressive relaxation of State aid in response to the recent crises has contributed to limiting the negative effects on the real economy (…), it has also produced distortions of competition,” highlights Letta.

He noted that these distortions could be “amplified” due to the different spending capacities of individual member states, and proposed a “state aid contribution mechanism” under which countries would allocate part of their national funding for pan-European initiatives and investments.

Nevertheless, Letta cautioned against “wasteful or harmful spending,” stressing that public funds should be subjected to conditions and contribute to “common public policy objectives.”

Enlargement fear not

The former Italian prime minister has also tried to appease concerns over the accession of new member states to the EU, notably agricultural powerhouse Ukraine, and its impact on the bloc’s farming subsidies program.

“This enlargement should not be perceived, neither by Governments nor by citizens, as a termination of growth and convergence support – particularly for the more recently joined countries – provided by cohesion policy and the Common Agricultural Policy,” reads the text.

New fund to balance future EU enlargement impact needed, Letta report says

With some EU member states and sectors likely to be exposed more than others by the European Union’s future enlargement rounds, a new fund is needed to compensate for imbalances, according to a draft report by former Italian prime minister …

An internal Council study found that Ukraine’s accession to the bloc under the current CAP per-hectare payment scheme would result in a 20% cut in farm subsidies for the rest of the member states.

However, a recent European Parliament analysis notes that these estimates should be taken with a grain of salt.

The Parliament’s analysis states that CAP will likely be reformed in light of the accession, potentially limiting farm subsidies “to prevent payments to Ukraine’s biggest agro holdings.”