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Interview: MEP De Castro on CAP reform, UTPs and GIs

"There is a sizeable risk of opening the door to a gradual but unstoppable renationalisation of the CAP"

Italian MEP Paolo De Castro is a vice-chair of the European Parliament’s Committee of Agriculture and Rural Development, a former Italian agriculture minister and has also served as professor of Agricultural Economics at the University of Bologna.

In part 1 of this interview with IEG Policy’s Alessandro Mancosu, Professor De Castro discusses a range of issues related to recent events in European agriculture and farming policy, including his concerns about the possibility of renationalisation of the Common Agricultural Policy, the passage of new legislation related to Unfair Trading Practices in the EU food supply chain, the importance of geographical indications, and the potential of new trade agreements.

In part 2, to be published next week, he talks of his disappointment at the European Court of Justice (ECJ) ruling on gene editing late last year, what he sees as the future of genetically modified organisms (GMO) in the EU, the "fake news", as he describes it, that clouds the use of plant protection products, and how he sees the forthcoming European Parliament elections panning out.


Alessandro Mancosu: Professor De Castro, to start with, let’s talk about the successful agreement of the new EU directive on Unfair Trade Practices (UTPs)

Paolo De Castro: It was very much expected, because it was long overdue as a legislative act from the Commission. We had an issue in that the [Agriculture] Commissioner [Phil Hogan] put his draft on the table quite late, in April last year, that’s why we put together a negotiating team of a really high level.

It was a record, from April until December 2018, for the agreement under the Austrian presidency, for a legislative act in co-decision. After the votes of the negotiating mandates of the Parliament and the Council, there were 6 trilogues.

It’s a result that has been positive all round, and now we have to make sure that member states apply it in a clever way, especially those who don’t have legislative acts covering this matter, and those that do have legislative acts with limited efficacy, such as in Italy, which has a good law which unfortunately did not work as expected.

Our driver in introducing this legislation was to broaden the scope to all actors in the agrifood supply chain - because unfair is unfair. Parliament managed to significantly increase the protection, covering 100% of EU farmers and more than 97% of the agri-food industry, and we have doubled the number of prohibited unfair trading practices from 8 to 16.

AM: Why did the UTP laws not work in Italy?

PDC: In the five years after the rules were introduced in Italy, there was only one case, but in Spain and France there were dozens of cases. In Italy the lack of anonymity for a plaintiff has been detrimental to the well-functioning of the law.

The enforcement of the law was also given to the national antitrust authority, which should do its job of regulating competition, cracking down on abuses of dominant position etc, whereas UTPs are abuses of a commercial nature.

There is a need for a more dedicated authority which is quick, lean, endowed with staff who can assess all the contracts. I expect in Italy a cooperation with the Ispettorato Controllo Qualità e Repressione Frodi (ICQRF - Institution for Fraud Prevention) will be beneficial. It’s the best body we have, with 2000 staff that are already active in checking all certifications and requirements; once this authority has established there was a violation of the rules, then the antitrust authority can impose the fine.

AM: Why do you think farmers get only a fraction of the added value of the agrifood supply chain? Is it a symptom of the issues that farmers face in uniting?

PDC: No, it’s the global structure of the offer in the producing phase of agriculture, the only difference being that in some regions they manage to organise themselves. The capacity of farmers to keep the value within their chunk of the supply chain is directly related to their capacity to reach the market place with an organised structure, which is capable of countering the power of the buyers.

There are numerous examples, the apple growers in Italy’s Trentino region, are highly organised. Around €800 million worth of produce is managed by a single selling consortium; the capacity of organising themselves has helped them raise their negotiating power. Where this capacity is not present they are at the mercy of unaccountable buyers because of this deficiency. This is a typical problem in Southern Italy for instance, due to the structure of the farming there and the ‘cultural mindset’.

The idea of farmers getting together has not yet happened, whereas if one goes north, in Italy or even more so in Northern Europe, you see the opposite and a stronger position lies with the producers.

AM: On CETA – about olive oil being sold to Canada – is it true that only olive oil produced in the Venice region is being traded under CETA and not oil from the Apulia region for instance, which accounts for 60% of Italian production?

PDC: The CETA agreement has guaranteed a list of European GI products which will be protected in Canada. The almost totality of the quality scheme products going to that market are then protected: however, we are talking about an open list. If, for instance, Apulian another Italian GI olive oil manages to end up being sold in that market – the CETA allows for a renegotiation of the list each time there are changes in the flux of products on both sides. If I am a negotiator, I have to protect the products that go to that particular market, not the ones which don’t make it there.

And one cannot forget that all free trade agreements are negotiations, sometimes they turn out well, sometimes they turn out badly. Today on CETA, despite the fact the agreement has been into force for a very limited period, it’s a bit difficult not to express a positive opinion.

AM: Is the Commission sacrificing agriculture in FTAs to push other sectors of the economy?

PDC: This is another fantasy. Let’s think for a second about the trade relationship between the US and Europe:, we exchange daily around €2 billion worth of goods and services. We are talking about €700 billion worth of trade every year. Out of this, €40 billion corresponds to agriculture… in other words, we have €660 billion worth of trade in other goods and services besides agriculture between the two sides of the Atlantic.

We cannot expect that the €40 billion of agricultural trade can subordinate the rest of trade with its own agenda. However, saying that EU FTAs do not pay enough attention to our agricultural sector is again a clear exaggeration.

"When former minister Fassino and I would mention that we need a protection for our PDOs, other European counterparts would simply laugh at the idea and would say that it was a peculiar Italian thought" - De Castro on geographical indications

In my perspective, as per my experience as a minister in the WTO Seattle round (1999), up to today, there has been an increase in the attention given to GI agriculture products from Southern Europe. Back then, I can assure you, that at that round of negotiations, when former minister [Pierro] Fassino and I would mention that we need a protection for our PDOs, other European counterparts would simply laugh at the idea and would say that it was a peculiar Italian thought for a sector representing so little in terms of turnover, even within the Italian market.

Twenty years later, it’s before everybody’s eyes that that was a winning card, [Trade Commissioner Cecilia] Malmstrom is talking about protecting our GIs in trade agreements all the time now, it’s been a success, not only attributable to Italy but also to Spain and France, the three or four, five southern European countries which have a real economic interest in having their excellence in agrifood products protected and which have raised awareness about this topic, so much so that it’s become a EU-wide topic.

AM: Is Italy doing a good job in promoting its GIs via the right channels? I read recently that one in three Italian GIs for instance doesn’t even have a website for its promotion…

PDC: The problem is related to the financial scale that each GI product attains, one cannot generalise. Parmigiano Reggiano cheese, Grana Padano, Modena’s balsamic vinegar, Mortadella di Bologna, Prosciutto di Parma, and Mozzarella di Bufala from Campania - these 6 products make up 80% of the turnover of the nearly 800 GIs Italian products.

So, it’s self-evident that you cannot compare Castelluccio’s lentils (which has a €1 million turnover) with Grana Padano cheese which has attained this year a turnover worth €1.5 billion. It is obvious that Grana Padano has websites, commercials, 40% of its production exported worldwide, one of the GIs most traded in the world.

It’s a very diverse system, so much so that I suggested taking the opportunity of the latest CAP reform to improve the administrative procedures related to GIs. Today the technical regulations as regards minimum safety provisions/requirements for all GIs in Europe are the same… there is no difference between the regulation of a product traded worldwide and the regulation of one traded only locally. It’s not practical to continue that way.

A product with a €1 million of turnover has exactly the same technical regulations as another one which has more than a billion euros worth of added value and is produced by thousands of people. It’s not sustainable and [the regulations] must be diversified - we believe that time has come to do this.

AM: In regard to the Commission’s draft for the new CAP. Are you fearing a renationalisation of the Policy?

PDC: Definitely, yes. It’s one of our chief worries on these legislative proposals, especially with regards to the national strategic plan, covering Pillar 1 and 2. There is a sizeable and, in my view, underestimated by the Commission, risk of opening the door to a gradual but unstoppable renationalisation of the CAP.

Currently, you say to a member state, ‘this is the CAP, you have to apply it and then I enforce it’ but what seems to be happening now is the Commission is saying ‘draft your own CAP yourself, you decide how to spend the money and I will then tell you whether you acted correctly or not’. That’s a completely different paradigm that leaves the member state free to decide where to put the money, it becomes very difficult to say where the letter C (for common) of the acronym CAP has disappeared.

AM: The Commission has tried to keep direct payments unchanged and is sacrificing a bit in rural development, P2. What do you make of that?

PDC: This is obviously in the hands of member states, which are now discussing on the future MFF. The Parliament has given a clear direction in this, stating that the current level of expenses for the two pillars of the CAP need to be maintained. We do not consider the Commission proposal sufficiently ambitious; this is why we asked for an increase of the EU budget to 1.3% of the EU GNI, compared to the current 1% and the 1.1% proposed by Commissioner Oettinger last May.

AM:. So for you the CAP budget should be kept at current levels? And what then with the new priorities (security, migration etc) and Brexit looming?

PDC: The CAP budget should certainly be maintained at current levels and member states should understand that EU policies must be implemented with fresh resources. If they want to raise the resources for migration policies, for research, for the Erasmus programme, all the goals that the EU has given itself, then these big objectives must be given new funds.

Thinking about doing all these big new things with the old resources amounts to making fun of Europeans. And I refer in particular to those nationalist parties saying on the one hand that they don’t want to take a cent away from the CAP, but then are reluctant to put more money into these big objectives.

We are talking about an additional 0.1%, 0.2 % of a country’s GNI, not talking about doubling national contributions to the common EU pot. If EU member states are not willing to send invest more money to deal with these new political ambitions, it is only natural that cuts will be made in the current policies, especially to the CAP and Cohesion Policies.

But I want to say it’s a shocking prospect, one deprived of any direction and I hope that eventually we can push (as the Parliament voted in plenary) member states to do more on this front.

AM: In your opinion, does it still make sense today, when some claim that in the EU there is not a problem with food security, to give all this money to farmers? After all the CAP is the second biggest policy in terms of spending, after Cohesion. And the Commission seems to be putting a big fig leaf on a topic which is a bit of a taboo…. By justifying direct payments for a category of people supposedly representing “the guardians of the environment”?

PDC: The mistake is in thinking that Europe gives a lot of money to agriculture. Europe doesn’t give that much money to agriculture if we compare to other main policies around the world. The mistake that we keep making is that we only look at those two policies (CAP and Cohesion policy) and their relative percentage, just because they are the two the EU put the most funds on.

If we compare how much money the EU spends on its farmers compared to how much Japan and the US does, we realise that in absolute terms per farmer EU agriculture is one of the cheapest ones. We need to be truthful about these kinds of statements made by detractors of the CAP.

The US spends around US$85-90 billion per year, keeping in mind that US farmers number around 2.5 million, our €53 billion (corresponding to around $65 billion) for CAP and for 10 million farmers yield a result that shows that the US spend five times as much for their farmers than the EU does.

"Europe has grown its ambitions over the years, but it has never increased the budget accordingly" - De Castro on the EU budget
Out of the European GDP, the European budget corresponds to 1.0%, it’s ridiculous making those kind of comparisons with the US. In the US, the federal budget corresponds to 23% of the American GDP – and there you see the difference there straight away.

Having said that, it’s self-evident that the new public goods we call environment, biodiversity, sustainability, land management etc we are pushing for our farmers slowly through the CAP to make more to meet the needs all citizens have, not only those 10 million farmers. And this raises the legitimacy of the CAP, without forgetting the economic and social dimension of the common policy stemming from the Treaty of Rome, which created the CAP to guarantee an income to farmers.

Europe has grown its ambitions over the years, but it has never increased the budget accordingly.

I think we will have some problems in the future because of this. Given that the first sector in Europe in terms of employment, exports and turnover is agriculture and food processing if we take into account the whole of the supply chain. So, we are not talking about funding this “bunch of losers doomed to die out eventually”, we are talking about the first and main sector of the European economy. On this point the public opinion does not have much awareness and this nationalist trend we see happening is just making the public more ignorant.

AM: On direct subsidies and the gap in payments between Western and Eastern Europe, farmers in the Baltic countries, Poland, Slovakia and others are calling for a fairer distribution. What are your thoughts on that?

PDC: They are right, we cannot deny that. But the original 15 member states are also right in saying that the cost of living and producing in Western Europe is higher. The €2,100 per hectare that goes to farmers in Eastern Europe, obviously frustrated by the fact that in Italy the average farmer receives €500 per hectare, are justified by the fact the cost of living in Italy is not the same than in new EU countries, including the labour costs, social contributions, everything is proportional.

Having said that, a principle of convergence must exist of course. In my view, before tackling external convergence we must deal with internal convergence, we have a lot of agriculture firms in Italy which receive hefty premia compared to many smaller ones which receive ridiculous sums.

Therefore, we must first make an effort to fulfil the internal convergence principle, within countries, then gradually, taking into account the level of added value per unit (of product), which is also very different for those who farm intensively (fruits and vegetables, wine production, intensive olive growing) and those who farm extensively.

A reminder that Part 2 of this interview will be published next week


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