26 April 1995
REPORT on challenges to the European agricultural machinery industry
(Rapporteur: Mr van der LINDEN, Netherlands, Group of the European People's Party)
The European agricultural machinery and tools industry has, for more than ten years, faced a decline in production and employment. The last three years have been particularly hard. The main reason has been the difficult economic situation of the agricultural sector in western, as well as in central and eastern Europe, and even world-wide. The European economies in transition have also introduced serious restrictions on credits to the farming sector.
Non-food production in agriculture (animal feed, renewable raw materials for industry and the energy sector) could solve both problems, given an appropriate political framework for such development.
This report analyses the relationship between the problems of the agricultural machinery industry and the agricultural sector, and puts forward proposals for new political initiatives to solve present problems and for the creation of new employment.
I. Draft resolution
1. The Assembly is aware that structural problems, the decline in European markets and the limited success in developing new markets in Asia have severely affected the European agricultural machinery and tools industry. The industry has experienced a drop of close to 50% in production and employment since 1980.
2. The Assembly has, on two earlier occasions, asked member governments to adopt a policy framework favouring the development and market introduction of renewable raw materials from agriculture for the energy sector and for use in industry (Recommendation 1092 (1989) and Resolution 979 (1992)). Such policies would help reduce pollution stemming from fossil fuels and petro-chemicals; they would improve the economic situation of the agricultural sector and, consequently, the European agricultural machinery industry; they would reduce the present large surplus in food production and they would lead to the creation of new employment.
3. The Assembly recognises the usual difficulties of dealing with interdisciplinary problems relating to different policy sectors.
4. For these reasons, the Assembly calls on member governments, governments of countries having special guest delegations with the Assembly, and the European Union:
i. to introduce tax reforms favouring the promotion of non-food production in agriculture and, more specifically, for the production and use of agricultural raw materials for the energy sector and for industry. This will allow a reduction of agricultural subsidies;
ii. to associate the European agricultural machinery industry with such initiatives;
iii. to assist the agricultural sector and the European agricultural machinery industry in research and development of new and improved production and transformation systems and processes. This could involve programmes within the framework of EUREKA;
iv. to work for an easier release of credits to the agricultural sector in the European Economies in Transition and in particular for credits to improve or renew agricultural tools and machinery;
v. to promote joint-venture establishments for the agricultural machinery industry in this context;
vi. to help the European agricultural machinery industry to gain new markets, particularly in Asia.
II. Explanatory memorandum
by Mr van der LINDEN
The decline of the European agricultural machinery and tools industry since 1980 has been dramatic. The market for tractors in the European Union (EU) and EFTA dropped from a level of 300 000 units in 1980 to some 130 000 in 1994. In eastern Europe, the level dropped from 450 000 units to 270 000 in the same period. The turnover of the industry in the EU dropped by 43% between 1983 and 1993 and employment in the sector decreased by 40%. The most dramatic decline was registered during the last three years.
These difficulties reflect the crisis affecting the agricultural sector.
The Committee on Agriculture and Rural Development, on an initiative taken by its Chairman, Mr Scheer, (Doc. 6837), therefore decided to convene a hearing with representatives of the European agricultural machinery and tools industry. Considering that a possible solution to the present crisis might be found in the area of non-food production in agriculture, the committee also invited experts in this field. The hearing took place on 25 November 1994. Your rapporteur, on behalf of the committee, would like to thank the experts who took part (Mr Chartier, Director, Agence de l'Environnement et de la Maîtrise de l'énergie (ADEME), Paris; Mr Grenier, Secretary of the European Parliament Intergroup "Non-food uses of agricultural products"; Mr de Montis, Syndicat Général des Constructeurs de Tracteurs et Machines Agricoles (SYGMA), Paris; Mr Palz, European Commission, DGXII, Mr Rousselle, SYGMA; Mr Vincent, SYGMA; Mr de Vries, COPA; Mr Schenk, Marketing Department, CLAAS OHG, Harsewinkel, Germany; Mr Scherer, Director, Landmaschinen und Ackerschlepper-Vereinigung (LAV), Germany) for their contribution to this hearing.
The present report aims at highlighting the main findings of the hearing and, on the basis of this, put forward a few recommendations to member governments and the European Commission regarding policy measures which could improve the situation for the European agricultural and machine industry as well as for European agriculture.
2. The European agricultural machinery and tools industry
The industry is represented at the European level through CEMA (Comité Européen de Machines Agricoles), which has sixteen member countries (thirteen from the European Union and EFTA plus Hungary, the Slovak Republic and Turkey). The French branch, SYGMA (Syndicat Général des Constructeurs de Tracteurs et Machines Agricoles) represents 50% of the French companies working in this field and 80% of the industry's turnover in France. The German branch, LAV (Landmaschinen und Ackerschlepper-Vereinigung) is the strongest in Europe.
European production dropped by 43% between 1985 and 1993, equalling an annual decline of almost 5%. The drop since 1990, however, has been 20% per year. The industry lost 95 000 jobs between 1983 and 1993. European consumption has dropped by 42% since 1985 (see graphs 1 and 2).
In 1993, the production of agricultural machines in the European Union (equalling 12 000 million ecu) could be broken down into 44% tractors, 32% equipment for different crops, of which 3% for fruit and vegetables, 14% general farm equipment, 7% transport material and 3% of garden equipment.
In general, the situation throughout the world for the agricultural machinery market has not been very favourable in recent years; statistics provided by SYGMA-CEMA show that in 1991, 1 050 356 tractors were sold. Sales in 1992 were 984 090 and in 1993 948 238.
The crisis in the agricultural sector is directly responsible for this dramatic drop in sales. The main negative factors have been the revised Common Agricultural Policy and the GATT Uruguay Round Agreement. A fall in the number of farms and an increasing number of farms in economic difficulties evidently lead to decreases in farm consumption and investments. A further decline is therefore expected in the coming years.
The situation in the new democracies of central and eastern Europe is dominated by an agricultural sector in decline and lack of credits for new investment. The agricultural machinery industry in these countries is, in most cases, old and outdated. The products are not adapted to the new market needs, credits for modernisation are difficult to obtain and marketing and after-sales services are poorly developed.
The main negative and positive impacts on the sector for the next five years have been analysed in a strategic study on the development of the European agricultural machine industry, made by ERECO (European Economic Research and Advisory Consortium), which was published in October 1994. The results of a survey of 160 manufacturers are given in graph 3.
Among the new perspectives for the agricultural machinery and tools industry, can also be mentioned new "niches" products and para-agricultural services (equipment for soil maintenance, rural tourism, etc.). Integrated exploitation systems are also challenges for the industry in a longer term perspective. New services and leasing could experience an expansion given the high acquisition costs for certain equipment and machines.
The efficiency of the sub-contracting option can be seen in countries where its use is very widespread, such as in Italy and France. In France for example, the recent merger of three sub-contracting businesses has led to the establishment of a single broad network which covers the whole country and holds more than 350 machines. There are plans for it to operate outside of France in the future. Sub-contractors can keep close control over finances and own very sophisticated machines. It is difficult for individual farmers to have the same facilities because of the high costs involved and the advanced technology used.
The cost of production in western Europe is relatively high and transfers of production sites can be expected, for example to eastern Europe. The stimulation of the establishment of joint ventures could be made within the framework of assistance programmes for the European Economies in Transition.
3. Non-food production in agriculture — A way out of the crisis?
The Committee on Agriculture and Rural Development organised in Munich, in September 1988, a parliamentary conference on the theme: European agriculture as an industrial supplier — A way out of the crisis. This initiative resulted in a recommendation to member governments, voted by the Assembly on 30 January 1989 (Recommendation 1092 (1989)).
In connection with the Kuwait crisis, the Assembly voted a further resolution in 1992 on agriculture's contribution to enhancing energy security and saving the global environment (Resolution 979 (1992)).
The hearing of experts on non-food production in agriculture had two main objectives: firstly, it should help re-assess the potential of such production and present the committee with an up-dated market evaluation. Secondly, it should give information on possible developments which might positively involve the European agricultural machinery and tools industry. Mr Chartier stressed that world energy demands were increasing. This placed hydro-electric energy and energy from biomass in an interesting position for the future. Biomass was not at present a central issue for the energy market because of limitations in output and the relatively high price. In France, the ultimate production potential of biomass had been estimated to 40 000 million tonnes oil equivalents per year. The energy sector represented, however, an insaturable market for agro-forestry. The main arguments in favour of increased use of biomass were:
—re adily available (including production on set-aside land);—
—cr eation of new and decentralised employment;—
—re duction of CO2 emissions (preventing climatic change, as compared with fossil fuels);—
—re vision of energy policies (increased restriction on, or abandonment of, nuclear energy);Th
The main weaknesses were:
—hi gher prices than for fossil fuels, as long as environmental costs are excluded (certain forms of biomass could at present be competitive with a price of 30 US$ per barrel);—
—pr oduction of biomass might lead to a further development of intensive farming with negative environmental consequences.Th
The French position with regard to biomass has so far been to give priority to the use of traditional crops. Biofuels have also been exempted from taxes. For the further promotion and development of biofuels, co-operation has been set up between the competent ministries, the French petroleum Institute (IFP) and the French oil companies Total and Elf as well as representatives from the agricultural sector (the scientific grouping AGRICE).
Mr Palz reiterated the environmental benefits of using biomass in energy production (no extra emission of "green house" gases and toxic materials). Biomass production could also solve the present surplus production of agricultural products in the European Union, thus making the costly set-aside schemes irrelevant (at present five million hectares). It could lead to the creation of new jobs, as was shown by Brazil's energy policy initiative, which created one million jobs in the production and transformation of biomass. The European Commission allows non-food production on set-aside land but stronger tax incentives for environmentally friendly energy resources would be needed to compensate present price disadvantages. A new energy policy for the promotion of renewable energy systems should be adopted. Rape seed oil could already become a competitive alternative to diesel fuels for the transport sector if it was not taxed in the same manner as fossil fuels. Many other traditional and new plants could also be used in the production of biofuels to replace diesel as well as benzine.
Mr Grenier welcomed the fact that both the Parliamentary Assembly of the Council of Europe and the European Parliament had taken initiatives for the promotion of renewable energy systems.
Three sectors were of particular interest for non-food production: starch and sugar, animal nutrition and biofuels. Mr Grenier's presentation of these sectors for the European Union is reproduced in the appendix.
It should be noted that without tax incentives for biofuels (the introduction of CO2 tax for fossil fuels, reduced taxes for renewable energy resources, etc.), the price difference compared to fossil fuels discourages a wide use of biofuels. A price difference of approximately 1 French franc per litre of benzine has been considered as a realistic goal for the near future. The attainment of this goal seems all the more likely since such results have been achieved in large-scale installations in the United States of America. It should also be noted that Shell, in a recent energy report, presents the view that renewable sources of energy will dominate the energy market from around the year 2050. Such reports, coming from major oil companies, may indicate a breakthrough for biomass production.
The hearing provided evidence that during recent years the agricultural machinery industry has undergone considerable setbacks owing to the problems currently encountered by the agricultural sector and lack of new markets. A further contraction in the industry is foreseen for the next five years. Cost-saving initiatives may result in western companies moving production to low-cost countries, including eastern Europe — which in a broad European perspective would be a very positive development. The eastern European market is characterised by strong restrictions on credits for new investment in farm equipment and machinery.
Improvements for the industry depend on a revival of the agricultural sector. New products, in particular more sophisticated equipment or system solutions, as well as sales of different services and the leasing of expensive and specialised machines are also likely to contribute to improving the sector's economic situation.
Production of raw materials for industry, the energy sector and for animal feed could bring the agricultural sector out of its present crisis if an appropriate policy framework for such production were adopted. Such developments would have an almost immediate positive effect on the agricultural machinery and tools industry. The industry could also be asked to furnish new products and services.
New political initiatives in this field should avoid all types of subsidies and rather consider tax incentives and tax penalties based on environmental and social considerations. For example, a non-polluting product/process should be subjected to less tax than a polluting one. Incentives should also be envisaged for the creation of new employment in rural areas. Decentralised energy production could result in such development. Closed production cycles should receive tax incentives, whereas production resulting in waste, in particular noxious waste, should be charged the real cost of their elimination.
With regard to European Economies in Transition, it is particularly important, as has been stressed in earlier reports to the Assembly, to improve the economic situation of the agricultural sector and of rural regions — employing, in some cases, up to 50% of the active workforce and being the home for as many as 80% to 90% of the population in some countries. Credit for the modernisation of agricultural machinery must be found to support the reforms needed.
GRAPH 3: EVOLUTION OF THE MARKET IN THE NEXT FIVE YEARS
Sectors of particular interest for non-food production
(presentation by Mr Grenier)
I. Starch and sugar
Starch (glucose) is produced from cereals (maize or wheat) and potatoes.
Sugar (saccharose) is extracted from beet in Europe.
The use of starch and sugar in European industry is beset by a regulatory problem which will be discussed before looking at the actual and the potential future yields and uses of starch.
1. Starch controls
a. Pre-1986 starch and sugar marketing system
Before 1986, the purchase prices of starch (glucose) and sugar (saccharose) for European industry far exceeded the rates on the international market, which was open to firms located just beyond the fringe of the European Economic Community (Austria, Switzerland, etc.) and of course the United States of America.
As no customs duty was payable on entry to the Community for starch and sugar based products manufactured in Switzerland, Sweden and other peripheral countries, they raised unbeatable competition.
This competition eventually brought about the shutdown of certain Community manufacturing sectors and doomed any new EEC investment in the highly promising sector of biotechnologies.
b. Regulations as from 1986
The industry took several years to bring about an adaptation of the rules, which were amended by Regulations 1009 (starch) and 1010 (sugar) in 1986.
Regulation 1009 — taking starch as an example — authorises European industry, subject to certain restrictions on manufactured derivatives, to procure supplies of starch at a price approaching the world rate.
A major impediment to the success of the representations made by Europe's bio-industry was the initial unwillingness of certain agricultural interest groups to adopt provisions which effectively established two price levels within the Community for agricultural products: one rate for food uses and the other, far lower, for industrial uses, with all the inherent commercial hazards of such a situation.
Increased difficulties in disposing of agricultural products led the whole of the farming sector and allied industries to accept and support the proposals put forward by major industry.
c. 1993 renewal of the 1986 regulations
The 1986 regulations enabled the starch industry and its customers in bio-industry to achieve quite remarkable progress.
The 1986 regulations were renewed in 1993 according to the wishes of industry.
However, the industrial users complain, justifiably it would seem, of the restrictiveness with which the Commission authorities apply the regulation in calculating the amount of the refund (subsidy) for starch production.
As a result, the European starch industry and its customers are not always in a very favourable competitive position vis-ŕ-vis the opposition beyond the European Community.
d. The 1994 regulation
In response to:
—th e "runaway" development in the East German starch sector after reunification, and —
—ma rket imbalances affecting certain vegetable products after the 1992 CAP reform,in
in July 1994 the Commission issued a regulation placing a ceiling on starch production.
An overall ceiling was calculated according to the production indicators over the previous years. This quota is apportioned among Community member states.
2. Starch production and uses
Total EEC starch Raw materials
3,8 MT 6,0 MT maize
1,4 2,6 wheat
1,6 8,0 potatoes
European starch production therefore consumes over 8 million tonnes of cereals (slightly over 5% of the Community's aggregate consumption).
The quantities of starch employed for industrial uses are now of the same magnitude as those channelled into the foodstuffs sector.
Main industrial uses of starch:
1. The chief outlet for starch lies in the paper industry (sizing, coating, recycling, etc.).
2. Use of starch for biodegradable plastics has grown more slowly than anticipated. Certain technical problems have arisen in perfecting biodegradable plastics — whether manufactured from starch or from other raw materials.
Furthermore, the current prices of biodegradable plastics, far higher than for conventional plastics, form a serious impediment to the development of these products.
Nonetheless, starch-based plastics manufacturers consider that advantages such as the anticipated improvement in production costs, the properties of biodegradable plastics and the foreseeable constraints on recovery and recycling of conventional plastics should partially offset the present handicap to these new plastics.
3. The field of cleansing agents (biodegradable detergents) is seen as one of the most promising outlets, particularly having regard to the tonnages it involves.
Leading detergent manufacturers are already engaged in building industrial plants to produce biodegradable detergents.
4. Lastly, the chemicals industry uses renewable raw materials to obtain:
—or ganic feedstock: glucose is the grand avenue leading to numerous chemical combinations, or—
—pr oducts yielded by biotechnology processes or genetic engineering.Su
Summing up, the approximate 10% annual increase in industrial-use starch consumption already testifies to the success of endeavours to develop the use of agricultural raw materials.
II. Animal nutrition
Use of cereals for animal feed represents, as shown above, some 60% of aggregate Community cereal consumption (compared to under 30% for foodstuffs), notwithstanding the massive imports of livestock feed (soya, cereal substitutes, corn gluten feed, etc.) which exceed 50 million tonnes per year — easily 1/3 of Community cereal production.
1. In order to boost cereal feeding and thus reduce imports of livestock feed products, various measures have been taken.
One such measure — largely responsible for the CAP reform — entails reducing cereal marketing prices in order to regain control of the fodder market within European.
A further possibility is to replace the use of soya (a high-protein product imported into Europe in annual volumes of over 20 MT) with that of amino acid enriched cereals.
The substitution can be outlined, in the case of lysin (an amino acid), by the following "nutritional equation":
100 kg soya = 97 kg wheat + 3 kg lysin.
Lysin, manufactured in Europe from substrates of agricultural origin, makes it possible to overcome the low concentration of this essential amino acid in wheat-based feedingstuff.
Moreover, reliance on use of amino acids has the advantage of reducing nitrate pollution on livestock farms. A better balance of amino acids in the intake allows the quantity of organic nitrogen compounds discharged into the environment by livestock to be reduced.
2. However, to be economically viable, this substitution requires a sufficient price differential between soya feed cakes and wheat, the reference cereal.
Financial incentive is needed, considering the insufficiency of the price differential between soya feed cakes imported into Europe and wheat, despite the fall in the price of European wheat following the CAP reform.
It should nevertheless be observed that of all current measures to assist cereal turnover (exports, biofuels), incentive to the use of lysin enriched cereals is estimated according to cost per 100 kg of wheat to put the least strain on the Community budget.
This is why it would be in the Community's interests to apply such incentive, although it would be sure to cause a retaliation by the major exporters of soya to Europe: United States of America, Argentina, Brazil and others.
Let it be pointed out, however, that the European Community could ease its export drive where the cereal market is concerned, having regard to its new internal outlets for cereals as animal feed.
3. Moreover, substitution of lysin enriched cereals for soya is already proceeding in the United States of America, where the price differential between soya and cereals (maize in this case) is far larger than in Europe.
For the year 1991-92, for instance, the American periodical FEEDSTUFFS (edition of 28.12.92, p. 31) reported that 2 million tonnes of soya feed cakes had been replaced by an equivalent amount of maize dosed with lysin.
In the early twentieth century the invention of the internal combustion engine deprived agriculture of its market for the supply of energy.
Today, in order to find new outlets for its yield, agriculture is attempting to resume a role in the energy sector by proposing the substitution of:
—al cohols or derivatives for petrol;—
—es terified vegetable oil for diesel fuel.Wi
Will agriculture succeed in performing its centuries-old role? This is the question to be answered at present.
Earlier, during the second world war, oil shortages prompted:
—us e of vegetable oils to power diesel engines in Africa;—
—us e of alcohol (ethanol) to power car engines in Europe.Th
Thereafter, apart from the use of hydrocarbon-blended ethanol in France in the 1950s (then intended to dispose of large stocks of vinous alcohol which had become cumbersome and costly), not until the first oil shock was the search for oil substitutes oriented towards biomass as a possible source of raw materials for fuel production.
Many products have been researched as substitutes for both petrol and diesel.
Some have been discarded, and present-day substitutes representing the best compromise between price, availability and efficiency are:
—et hanol or more plausibly its derivative ETBE (ethyl tertiary butyl ether);—
—es terified vegetable oil, that is methyl ester derived from colza oil, which we shall call diester, an abbreviation furthermore corresponding to a registered trademark (contraction of DIESel esTER). Re
Reporting committee: Committee on Agriculture and Rural Development.
Budgetary implications for the Assembly: none.
Reference to committee: Doc. 6837 and Reference No. 1870 of 5 June 1993.
Draft resolution adopted unanimously by the committee on 11 April 1995.
Members of the Committee: MM. Scheer (Chairman), van der Linden, Szakál (Vice-Chairmen), Mrs Andnor, Mrs Anttila, MM. Bernardini, Bianchi (Alternate: Arata), Bonnici, Caballero, Černý (Alternate: Hurta), Couveinhes, Crowley, Figel, Fronzuti, Gunnarsson, Hoejland, Holte, Hornung, Sir Ralph Howell (Alternate: Mr Alexander), MM. Iuliano, Jeambrun, Kairys, Kiratlioǧlu, Kotsonis, Lanner, Lord Mackie of Benshie (Alternate: Dame Peggy Fenner), Mr Mändmets, Mrs Melandri (Alternate: Mr Guidi), MM. Metelko, Michels, Mrs Moser, MM. Rippinger, Rodrigues, Roger, Seiler (Alternate: Berger), Sinka, Smolarek (Alternate: Adamiak), Jack Thompson (Alternate: Cummings), Weyts.
N.B. The names of those members present at the meeting are printed in italics.
Secretary to the committee: Mr Lervik.