Tobacco Growing in the European Union

Tobacco Growing in the European Union Mr Johan van Gruijthuijsen 1, European Commission Study conducted as a technical document for The first meeting of the Ad Hoc Study Group on Alternative Crops established by the Conference of the Parties to the WHO Framework Convention on Tobacco Control February 2007 1 The observations made in this paper are the author s only and may not be construed as the opinion of the European Commission, nor should they be attributed in any manner whatsoever to any of the Parties to the WHO Framework Convention for Tobacco Control, the World Health Organization or the Tobacco Free Initiative. 1

RAW TOBACCO SECTOR IN THE EUROPEAN UNION In 2005, the 12 tobacco-growing Member States of the European Union (EU) (Belgium, Germany, France, Poland, Austria, Hungary, Portugal, Spain, Italy, Slovakia, Greece and Cyprus) produced approximately 350 000 tonnes of raw tobacco on an area of about 130 000 hectares. Based on data from 2000, almost 80 000 farms produced tobacco, creating 126 000 full-time job equivalents and employing 213 000 people. COMMUNITY RAW TOBACCO POLICY, PRIOR TO AND POST 1 JANUARY 2006 The Common Market Organisation (CMO) for raw tobacco: significant change in 2006 In 2004, it was decided to significantly reform the Community Raw Tobacco Policy. Below is a description of the main elements of the raw tobacco policy until 2006, followed by the main elements of the reform, which apply to the period beginning on 1 January 2006 and onwards. Prior to 2006 The Council Regulation 1 on the common organization of the market in raw tobacco provided for: a premium system; a system of production orientation and limitation (including an overall guarantee threshold per harvest for the European Community (EC), for each tobacco variety group and for each producing Member State, and an individual grower quota regime); measures to convert production (including the Community Tobacco Fund and a quota buy-back programme). The detailed rules for the application of the Council Regulation are laid down in two Commission Regulations 2,3. Premium system As of 1992, the raw tobacco varieties are classified into eight groups. A single premium in /kg is fixed for each variety group. The premium is paid if the raw leaf tobacco has been produced in a specific area for each group of varieties, if the minimum quality level is respected and if the producer delivers the raw tobacco to the processing industry on the basis 1 Council Regulation (EEC) No 2075/92 on the common organization of the market in raw tobacco, OJ L 215, 30.7.1992. 2 Commission Regulation (EC) 2848/98 details rules for the application of Council Regulation (EEC) No 2075/92 as regards the premium scheme, production quotas and the specific aid to be granted to producer groups in the raw tobacco sector, OJ L 358, 31.12.1998. 3 Commission Regulation (EC) No 2182/2002 details rules for the application of Council Regulation (EEC) No 2075/92 with regard to the Community Tobacco Fund, OJ L 331, 7.12.2002. 2

of a sale contract. The tobacco is cultivated under a contract concluded between a single producer or producer group and a first processing industry. Measures to orient and limit production An overall guarantee threshold per harvest was set for the Community and, within that quantity, individual guarantee thresholds for each group of varieties and for each producing Member State. To ensure the respect of guarantee thresholds, the Council foresaw a regime of individual producer production quotas by variety group. Measures to convert production Quota buy-back system The quota buy-back system enabled the individual producer to sell a quota back to the European Commission when the producer decided to definitively abandon the sector. In the two months before the quota buy-back took effect, other producers could buy the quotas that were put up for buy-back; if that did not occur, the Commission would acquire the quota. Consequently, after the buy-back, the national guarantee thresholds were reduced accordingly. In return for participating in the buy-back programme, the producer received a buy-back price, which was fixed as a percentage of the premium and was paid over several years. The Community Tobacco Fund The CMO provides for the creation of a Community Tobacco Fund. Prior to the 2002 harvest, this Fund could be used to finance agricultural research on tobacco varieties and production methods and for informational campaigns to increase public awareness of the harmful effects of smoking. From 2003, in accordance with Commission Regulation 2182/2002, the Fund could, instead of being used for agricultural research, be used to finance actions to assist tobacco producers in converting to other crops or economic activities that generate employment and to finance studies into the possibilities for producers to switch to other crops or activities. The funding eligibility for individual reconversion measures was linked to participation in the buy-back programme of tobacco production quotas. The 2004 reform 1 situation post 2006 Tobacco was included in the second Common Agricultural Policy (CAP) reform package adopted in April 2004. The overall aim of the reform is to allow producers to adjust to a situation where production support will be phased out. Full decoupling of production and income support will be carried out after a four-year transition period, which started in 2006. During this transition period, at least 40% of tobacco premiums have to be included in the decoupled single payment for farmers. In line with the subsidiarity principle, Member States 1 Council Regulation (EC) No 864/2004 amending Regulation (EC) No 1782/2003 establishing common rules for direct support schemes under the Common Agricultural Policy and establishing certain support schemes for farmers, and adapting it by reason of the accession of the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia to the European Union, OJ L 161, 30.4.2004. 3

may decide to increase this percentage. A maximum of 60% may be granted as a coupled payment. The coupled payment has to be paid in such a way as to ensure equal treatment between farmers and/or according to objective criteria. From 2010 onwards, tobacco aid will be completely de-linked from production. Some 50% will then be transferred to the decoupled Single Payment Scheme and the remaining 50% will be used for restructuring programmes in tobacco producing regions under the Rural Development policy 1. This financial envelope for restructuring is established to enhance cohesion in the regions concerned. It may, for instance, be used for infrastructure improvements in tobacco-producing regions or to help create alternative economic activities and employment opportunities. It is for the Member States to draw up and implement these rural development measures. With the reform, the Council also decided that the contributions to the Community Tobacco Fund will be 4% of coupled payments in respect of the 2006 harvest and 5% in respect of the 2007 harvest. In these two years, the Fund will only finance the actions of information programmes concerning the harmful effects of tobacco consumption. THE COMMUNITY TOBACCO FUND The resources of the Community Tobacco Fund are allocated to two different categories of measures. Information programmes to improve public awareness First, the Fund supports information programmes to improve public awareness of the dangers of all forms of tobacco consumption. The concerned projects focus in particular on: raising public awareness of the harmful effects of tobacco consumption, including passive smoking; improving the relevance and effectiveness of the messages put across about the harmful effects of tobacco consumption, and the methods of communication used; preventing and stopping smoking; disseminating the results to national authorities and the relevant sectors. Since 2005, the Community Tobacco Fund has supported the EU-wide HELP for a life without tobacco campaign. The HELP campaign consists of, among other projects, a public relations campaign, an advertising campaign and a web site with help on how to quit smoking. A European Tobacco Media Observatory systematically collects and analyses European anti-tobacco communications in the media. 1 Council Regulation (EC) 1698/2005 on support for rural development by the European Agricultural Fund for Rural Development (EAFRD), OJ L 277, 21.10.2005. 4

The HELP campaign has been devised by a consortium of health experts and media companies. The media companies delivering the campaign are working in partnership with nongovernmental organizations and public health bodies brought together by the European Network for Smoking Prevention. They have developed their strategy with input from an expert advisory board chaired by Professor Gerard Hastings of the Centre for Tobacco Control Research at the University of Stirling. Measures to promote a switch of production Secondly, the Fund provides financing for a) individual and b) general interest measures to promote a switch of production to other crops or economic activities, and to support studies into switching to other crops or activities. The individual measures include incentives to: switch to other crops and to improve the quality of agricultural products other than tobacco, as well as incentives for holdings to diversify their activities; acquire training necessary for a switch to agricultural products other than tobacco; establish the infrastructure for marketing quality products other than tobacco, as well as providing services for the rural economy and rural people and diversifying agricultural activities with a view to creating a range of activities that generate alternative employment and income and, in particular, promoting tourism and handicrafts activities. The general interest measures and studies into the possibilities for tobacco producers to switch production include: studies intended to identify ways to expand the opportunities for producers of tobacco to switch production to other crops or activities; guidance and advisory services for producers who decide to withdraw from tobacco production; constructing innovative experiments for demonstration purposes. These measures may be accompanied by measures to disseminate the results. Financial assistance provided The amount of Community assistance per producer depends on the quantity of the quota for which the producer has been paid under the buy-back programme. The overall amount is the sum total received per tranche of the quota bought back. For a tranche: not exceeding 10 tonnes, the amount of the assistance is three times the amount of the premium; 5

exceeding 10 tonnes, but not exceeding 40 tonnes, the assistance is twice the amount of the premium; exceeding 40 tonnes, the assistance is equal to the amount of the premium. The maximum total value of Community assistance that could be granted is 75% of the eligible expenditure of individual projects other than training and 100% for general interest measures and individual training measures. For individual projects, total Community support per producer may not exceed 300 000. A ceiling of 100 000 is applied to measures not involving the production, marketing or processing of agricultural products. The Commission drew up an indicative distribution between Member States of the resources to be allocated to measures under the Fund on the basis of two elements: 1) the quantities irrevocably bought back under the quotas (90%), and 2) the national guarantee threshold (10%). After that, a definitive allocation of the funding between the Member States, on the basis of the applications for assistance, was established by the Commission. General Expenditure by the Fund in each of the two categories of measures (information and reconversion) may amount to a maximum of 50% of the Fund total. In case the amount available for one of these categories is not used up in full, the remaining amount may be reallocated to the other, provided that, in the latter area, there are eligible projects still in need of funding. Member States are responsible for the setting up of reconversion projects and measures and for informing the Commission every year on the progress made under the programmes during the previous calendar year. Financing the Fund The Community Tobacco Fund is financed by a deduction from the financial envelope originally foreseen for production support to raw tobacco. In other words, financing of the Fund is done within the budget for production support and not in addition to production support. The percentage for the deduction has been gradually increased over the past years, thus enabling more financial resources to be made available. The amount withheld from the production support to raw tobacco was 2% for the 2002 harvest and went up to 3% as of the 2003 harvest. The percentage of the envelope for coupled support to raw tobacco production withheld in 2006 was 4% and will be 5% in 2007, which is in fact the last year of application. Use of the Community Tobacco Fund 6

The table below provides an overview of the reconversion measures for which financing by the Community Tobacco Fund was requested on an annual basis. 7

Répartition définitive des ressources du Fonds tabac - actions art. 13 et art.14 du R. 2182/2002 IT EL ES PT FR DE BE AU TOTAL Année 2003 (*) Répartition définitive (EUR) 90% des ressources en fonction du rachat 4.864.583 3.370.541 0 195.538 0 0 56.836 61.634 8.549.131 10% des ressources en fonction du seuil 360.893 346.749 117.621 16.860 71.512 31.699 4.224 1.310 950.869 total 5.225.476 3.717.290 117.621 212.398 71.512 31.699 61.060 62.944 9.500.000 Actions individuelles - nbr de projets 110 27 0 3 0 0 1 3 144 Actions d'intérêt général - nbr de projets 1 4 1 2 1 2 1 0 12 Année 2004 (**) Répartition définitive (EUR) 90% des ressources en fonction du rachat 12.138.520 183.578 0 374.206 0 0 373.223 76.288 13.145.814 10% des ressources en fonction du seuil 624.065 129.938 177.542 48.130 109.443 48.507 8.441 587 1.146.653 total 12.762.585 313.516 177.542 422.335 109.443 48.507 381.664 76.875 14.292.467 Actions individuelles - nbr de projets 467 15 0 3 0 0 10 3 498 Actions d'intérêt général - nbr de projets 3 2 1 1 1 2 0 0 10 Année 2005 (***) Répartition définitive (EUR) 90% des ressources en fonction du rachat 1.961.308 8.972.907 0 379.265 0 0 99.062 0 11.412.542 10% des ressources en fonction du seuil 662.236 388.757 184.000 25.069 120.000 48.876 3.260 0 1.432.198 total 2.623.544 9.361.664 184.000 404.334 120.000 48.876 102.323 0 12.844.741 Actions individuelles - nbr de projets 3 228 0 0 0 0 6 0 237 Actions d'intérêt général - nbr de projets 2 19 1 2 1 2 0 0 27 Année 2006 (****) Répartition définitive (EUR) total 5.542.586 5.255.417 1.853.806 259.154 1.127.090 499.597 62.350 0 14.600.000 Actions individuelles - nbr de projets 310 0 17 0 0 0 0 0 327 Actions d'intérêt général - nbr de projets 4 7 1 4 3 3 1 0 23 Grand Total 2003-2006 Ressources totales 26.154.191 18.647.887 2.332.969 1.298.222 1.428.045 628.679 607.396 139.818 51.237.208 Actions individuelles - nbr de projets de reconversion 890 270 17 6 0 0 17 6 1.206 Actions d'intérêt général - nbr de projets/études 10 32 4 9 6 9 2 0 72 (*) Décision de la Commission du 30 juin 2003 (2003/486/CE) L164 p17 (**) Décision de la Commission du 30 juin 2004 (2004/543/EC) L 240 p14 (***) Décision de la Commission du 23 mai 2005 (2005/397/EC) L134 p47 (****) Décision de la Commission du 4 juillet 2006 (2006/472/EC) L187 p33 8

Individual projects The individual projects for which applications were filed were to be organized in various areas of agricultural activity, in general depending on the type of farm. When leaving tobacco, tobacco growers who are active in several sectors tend to concentrate on one of the other enterprises by, for example, acquiring new harvesting equipment for vegetables or improving the infrastructure of the farm by building a new milking shed or a freezer installation for vegetables. Farmers who stay in agricultural production may switch to alternate crops, such as olives or cereals, while those who look for alternatives outside of agricultural production may invest in activities such as tourist accommodation or wood carving facilities. General projects The general projects for which applications were filed related to, for instance, studies on reconversion possibilities or concerned the setting up of a help desk to provide advice services to those farmers that were in the process of reconverting their farming activities. RURAL DEVELOPMENT From 2010 onwards, additional funding will be made available for restructuring in tobaccoproducing regions under rural development programming. Since the reform of the Common Agricultural Policy, rural development is playing an increasingly important role in helping rural areas to meet the economic, social and environmental challenges of the 21 st century. Rural areas make up 90% of the territory of the enlarged EU and the new legal framework points more clearly in the direction of boosting growth, creating jobs in rural areas and improving sustainability. The Rural Development policy 2007 2013 will focus on three areas in line with the three thematic axes laid down in the new rural development regulation: improving competitiveness for farming and forestry, environment and countryside, and improving quality of life and diversification of the rural economy. A fourth axis called the Leader axis, based on experience with the Leader Community Initiatives, introduces possibilities for locally based bottom-up approaches to rural development. The new programming period provides a unique opportunity to refocus support from the new rural development fund on growth, jobs and sustainability. Now that the European legal framework is established, each Member State may draw up its national strategy and Rural Development programmes for submission to the European Commission for approval. For each set of priorities, the EU strategic guidelines are suggesting key actions. Member States shall prepare their national rural development strategies on the basis of six community strategic guidelines, which are: improving the competitiveness of the agricultural and forestry sectors improving the environment and the countryside improving the quality of life in rural areas and encouraging diversification building local capacity for employment and diversification 9

translating priorities into coherent programmes complementarity between community instruments. It is in this horizontal context where diversification, or creating alternative economic activities for tobacco growers, may be seen. As with other farmers, tobacco growers have access to Rural Development programming and are welcome to use these programmes to maximize their benefit. To use these possibilities, it is necessary that the Member States take up these measures in their national programmes and guarantee sufficient national funding together with EU co-financing. 10