Priit OJAMAA

Directorate of Rural Development Programmes

DG.AGRI
Presentation at the ELO conference in Tartu on adding value to food products

Ladies and gentlemen,

Let me start by praising your timing for the meeting you have organized. It is high time to
inform the stakeholders and formulate the ideas for the next RD programming period 2007-
2013. It is by the end of this year that the Community is expected to adopt its strategic
guidelines for the period; whereas the Member States would formalize theirs during the spring
of 2006. I am glad to be present here today and I would like to understand what the
stakeholders hope from rural development programming and perhaps provide you with some
information that would enable you to participate in the process. I would like to stress that the
final outcome of the RD programme depends on the national administration who together
with its stakeholders makes a selection among the predefined measures which it believes best
serves the interest of its people in the rural areas. My presentation will indicate some
possibilities that exist in the EU legal framework witch I assume are relevant for adding value
to food products and could be of interest to you.

Data that I received from a report of Julda Kielyte ( DG AGRI economic analysis and
evaluation unit) on FDI in agriculture and food industry indicates that food industry (mainly
large scale) forms an important part of the new Member States manufacturing. The figures
show that 18% of the FDI stocks in the manufacturing sector and 6% in the overall economy
were directed towards the food industry since 1998 to 2003.

According to VAN BERKUM 1999, NETWORK 2004, BANSE et al. 1998 alcoholic
beverages and dairy production have attracted substantial FDI flows besides sugar industry
confectionery, tobacco, soft drinks, brewing and oil refining. The more resource-intensive
activities such as milling or meat production have had less preference according to the source.

In comparison agricultural sector attracted only 0.4% of the FDI which went mainly to land
acquisition. In 2003 roughly 2% of the distribution of FDI stock in agriculture and food
industry in the new Member States was invested in Estonia. The latest numbers I have
indicate that in 2004 ca 0.2 bio EUR of FDI went to Estonian food industry (the total FDI in
Estonia in 2004 was close to 7 bio EUR). Provided the market exists for the large scale
producers I hope that you will find an answer whether their success can be repeated for the
local food processing industry.

The current RD programming period 2004-2006 the public sector (EU and EE)has already
made its contribution to the food sector. Overall, 3 support measures can be in some way
associated with adding value to local food production chain. I would like to know how you
have perceived the benefit of these measures in relation to adding value to local food
products. Parts of this approximately 50 million euros of public sector support over 3 years
complement nicely the foreign and domestic investments to the sector. These millions are
attributed to 3 measures:
• Investments in agricultural holdings 32.2 meur out of which 30.5 meur have been
committed to projects
 • Investment support for improving processing and marketing of agricultural products
11.4 meur out of which 7.7 have been committed to projects
• Diversification of economic activities in rural areas 8.7 meur out of which 5.0 meur
have been committed to projects.
The financial performance data dates from end of June of 2005 and therefore does not include
all commitments that result from the applications of this year. Nevertheless, it is evident that
the food sector is attractive for investment and that the investment support funding is almost
exhausted for this period. Therefore attention should be paid to the preparations of the 2007-
2013 program.

In order to prepare this presentation I worked though the following three drafts and in order to
be clearer I tried to adapt them to an imaginary scenario of development of local food
processing activity. It is worthwhile reminding that this text is based on drafts and could thus
be subject to change. The draft texts are:

1. Council regulation on support for rural development by the European Agricultural

Fund for Rural Development (EAFRD) com(2004)490 final
2. Council Decision on Community strategic guidelines for Rural Development
2005/0129
3. Draft implementing regulation for rural development by the European Agricultural
Fund for Rural Development (EAFRD)

The new EU RD policy is based both on past experiences and new CAP reform. The new RD
policy is part of the reform that is expected to take the EU subsidies further away from the
trade distortions and open rural enterprise more to market needs. The new RD policy is
expected to answer economic, social and environmental challenges which to some extent
derive from the reform of the EU agricultural policy. The new RD policy makes direct
reference to Lisbon Strategy, Gothenburg Council decisions and EU Employment Strategy.

At first glance most evident changes seem to relate to programming and administration of the
support schemes it includes significant changes for the rural actors. Next period is likely to
devote more attention to micro and small enterprise in rural areas by supporting innovation
and sustainable development.

The three major objectives for the RD policy have been set in the Communication of the
Financial Perspectives for the period 2007-2013:

• Increasing the competitiveness of the agricultural sector through support for

restructuring
• Enhancing the environment and countryside through support for land management
(including RD actions related to Natura 2000 sites);
• Enhancing the quality of life in rural areas and promoting diversification of economic
activities through measures targeting the farm sector and other rural actors;

Even though I believe the implementing regulation is the one that provides you with
necessary detail on the predefined measures I would recommend to take a slight look at the
recitals in draft RD regulation of the Council. These will help you better understand the spirit
of the RD measures that you find in the implementing regulation.
Now let us imagine a scenario for adding value to local food production. Among others the
imaginary production chain is likely to include the following steps:
• R&D (research, feasibility study) for market of a quality product and processing
technology
• Sourcing of quality raw material (investment in farm technology, advisory and
training of producers to improve quality)
• Setting up of producer groups to control and guarantee sufficient quantity and quality
produce
• Setting up of quality processing including necessary technology, research, training and
quality schemes
• Participation of farmers in national or EU food quality schemes
• Marketing and sales including setting up of farm shops

I shall now quote some of the recitals in the RD regulation are targeted to the subject:

23) Improvements in the processing and marketing of primary agricultural and forestry
production should be encouraged by means of support for investments aimed at improving
efficiency in the processing and marketing sector, promoting the processing of agricultural
and forestry production for renewable energy introducing new technologies, opening new
market opportunities for agricultural and forestry products; putting emphasis on quality,
improving performance in the environmental protection, occupational safety, hygiene and
animal welfare fields as appropriate by targeting small and micro-enterprises which are better
placed to add value to local products, while simplifying the conditions for investment aid as
compared with those laid down in Council Regulation (EC) No 1257/1999.
27) The aim of the measure providing support for farmers participating in Community of
national food quality schemes is to provide assurances to consumers on the quality of the
product or the production process used as a result of their participation in such schemes, to
achieve added value for agricultural primary products and enhance ;market opportunities.
Since participation in such schemes may give rise to additional costs and obligations which
are not fully rewarded by the marketplace farmers should be encouraged to participate in such
schemes.
28) There is a need to improve consumers awareness of the existence and specifications of
products produced under the aforementioned quality schemes. Support should be provided to
producer groups to inform consumers and promote products provided under quality schemes
supported by Member States within their rural development programmes.

The Annex to draft implementation regulation defines among others the following measures:
1.2.3. adding value to agricultural and forestry products;
1.2.4. cooperation for development of new products, processes and technologies in the
agricultural and food sector;
1.3.2. supporting farmers who participate in food quality schemes;
1.3.3. supporting producer groups for information and promotion activities for products under
f food quality schemes;
1.4.2. setting up of producer groups;

Last but not least Leader approach should be considered for public-private partnerships in
order to compose local development strategies and also implement them. It would be a
strategic approach for areas and farmers that are operating in distant locations and can not
profit from already existing food processing infrastructure. 5% of the overall budget during
the coming period would be channelled though leader groups. It is a 5 fold relative increase
compared to the proportion available under this approach during the current period. Leader
Groups can plan and implement any measures they see fit for their area in the fields of
increasing the competitiveness of the agricultural sector, enhancing the environment and
countryside through support to land management or enhancing the quality of life in rural areas
and promoting diversification of economic activity.

This is probably very much what you liked to hear. Unfortunately the MSs have not yet
agreed on the budget for the period, therefore mentioning of available amounts of money at
this stage would be a mere speculation. Therefore I am not ready to mention any sums. What
is sure is that there is always less money than we could use. Therefore careful consideration
has to be given to the allocation of the available resources.

I repeat that the abovementioned measures are possibilities provided by the EU legal texts that
can be made use of. The decision whether to do so depends on the administration of specific
member state, which defines the strategic goals and selects the corresponding measures from
the list. The first ideas of the direction a specific country will take would be indicated in
national rural development strategy that should be formulated by May 2005.

I hope my short presentation gives subject for some reflection and contributes to the vivid
discussion you are already having and will continue to have until the new RD programme is
formulated.

P.O.