had perhaps overstressed the drawbacks and underrated the advantages which the Soviet grain agreement could bring to the American economy.

Mr. de Koning thought that "Agricultural Power" could only be used to a limited extent. He welcomed. however, the attitude adopted by Mr. Nolan to the Community policy and finished by recommending that efforts should be made to coordinate the policies of the two giant partners in world trade.

HELSINKI ACCORD NEGLECTED

Mr. Stanton regretted that the détente preached in Helsinki was not being put into effect to the extent that it ought to be. He was sorry that Mr. Symms and Mr. Nolan had not taken greater account of the efforts made by the United States towards solving world food problems; positive steps had been taken here, although the percentage of farmers in the USA was very small compared with other economic groups. It was true that at world level trade in food was hampered by the basic problem of transporting foodstuffs.

Mr. Scott-Hopkins suggested that "Agricultural Power" was a twoedged sword. If the USA had not signed the grain agreement with the USSR the situation would have been even more serious. He simply thought that the USA could have obtained concessions from the Russians in other areas. As for Mr. Houdet's point of view on building up butter stocks, this would be real progress, though he doubted if this could stimulate agricultural production. Stocks should be held against a possible crisis. Food aid was not a permanent solution and we ought to be thinking in terms of sending machinery or seed or even technological aid to the developing countries.

CAUTION ON CONTROLS

He voiced some doubts on multilateral agreements, since he feared these might lead to a situation where the markets were too closely controlled. A first stake might be bilateral agreements, particularly between the USA and the EEC, for strategic food products.

Mr. Ryan replied by stressing that agricultural trade was indeed a true political weapon. He would have preferred not signing the grain agreement with the USSR, which was very expensive for the United States, but rather that the USA should have been a member of a world consortium.

According to Mr. Fraser, many Americans were not in favour of the grain agreement. However, it must be taken into account that if the Americans had refused the USSR would have signed this agreement with other countries.

He pointed out the inflationary effect of the large purchase of cereals by the USSR in 1972. For this reason resolute steps had to be taken towards building up world stocks which could be used in time of crisis, but the main point for discussion was whether a prices policy clause was necessary or whether the quantitative element was the most important consideration.

The subject suggested for examination by your rapporteur leaves him somewhat perplexed, for while it is true that the Community exports agricultural produce, it can hardly be said that it has any guiding principle in the matter. Yet the problem of exports is of concern as much to the farmers as to the Community's Council which, on the occasion of the common agricultural policy stocktaking in November last, admitted the need for the Community "to be represented on the world market by its agricultural exports”.

Having set out in the first part of this paper, the reasons which should induce the Community to adopt an agricultural exports policy, your rapporteur will examine it, in the second part, the framework in which such a policy could be achieved.

I. REASONS FOR AN AGRICULTURAL EXPORTS POLICY

A. Developments

1. After a long period of prosperity, the world economy recently suffered a crisis, from which it is recovering only slowly at the economic level, and which continues unabated in the international monetary sphere. There are some, indeed, who wonder whether one of the causes of the 1973 crisis, even before the oil price increase, had not been the record purchase by the USSR from the USA of 29 million tons of grain. It resulted in a steep price rise for grain (soft wheat tripled), which spread to a number of other agricultural products. The farmers then had the benefit of the exceptional harvest of 1973/74, though it should be noted that it was less profitable to European farmers, as the price stabilization policy rightly pursued by the Community worked to their disadvantaged. Thereafter, the interplay of rapidly rising production costs and falling market prices in real terms reversed the situation once again, from the 1974/75 harvest onwards.

This series of events has focused attention on a number of factors, some of which are old, but were thought to have virtually ceased to operate, others new. 2. To the first category belongs the extreme sensitivity of agricultural commodity markets to variations in supply and demand, due to the relatively small volume of agricultural commodity trade in comparison with total consumption. Thus for grain, in which trade is the most substantial, this trade represents only about one-sixth of world output,

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3. Among the second category is the Europeans' new awareness of the extent of their dependence on third countries, particularly the USA, for supplies of soya, maize and even fishmeal, now that these products have become an essential constituent of animal feeds. The Europeans have also discovered how much of an economic whip-hand the United States have thanks to their agricultural exports. These account for 22 to 25 percent of their total exports, as against 10 percent for the EEC. Again, the Europeans have come to appreciate that USA exports of agricultural products and foodstuffs are twice the size of the corresponding imports, while in the Community the situation is just the reverse. This is a fact of particular importance for the United States' economic life, even though thanks to their domestic petroleum production, they have not had to suffer the consequences of the oil crisis as acutely as the EEC.

B. Comments

4. This has prompted the Europeans to reflect whether their rather passive attitude to agricultural exports should not be revised and give way to a more active policy.

Various considerations come into play.

5. As the principal customer for US agricultural produce, the Community Nine are surprised to note some protectionist trends in their relations with the USA (at the Munich meeting we referred to the problem of cheese exports to the USA who have reduced them by approximately 50 percent; today we must draw attention to the suspension of imports of Irish meat) when the Community puts zero duty on imports of American soy beans which are a factor of its milk production.

6. Looking beyond these bilateral relations, the Europeans point to the element of stability in the Community's agricultural output. Its agricultural production is carried on in a temperate zone and is thus less subject to variations than those of other countries or groupings of countries in other parts of the world.

Both the USA, where certain States have been suffering a drought, and the USSR, where the climate is becoming colder, are subject to climatic swings much more violent than in Europe. In a world context, therefore, it would be bad economics to force Europe to restrict its agricultural output.

7. Some European experts have, it is true, pointed to the dangers of overproduction, due mainly to the considerable technological progress in agriculture of the last two decades, and have been calling for a rational prices policy that would not encourage farmers to raise output too much. Against this, however, our costly experience in the energy sector, where coal output had been deliberately slowed down while nothing was done to promote the search for alternative energy sources, argues for priority to security of supplies, with price levels a secondary consideration.

8. The discussion, in fact, should be properly placed in the framework of the world as a whole, where the contrast is continually sharpening between the rich nations who eat as much as they want, and some Third World countries where hunger follows bad weather spells or is actually endemic. To this must be added the fact that the developed countries are consuming increasing quantities of processed foods, which, insofar as they are cereal-based, represent an additional drain on the poor regions' food resources. The imbalance between the "fed" and the "hungry" is reflected in the alarm that the FAO has been sounding for years now over the threat of severe shortages, not to say famine as a result of the world's population growth.

9. Food aid, of course, is one way to bring immediate relief in the most desperate cases, but while it can replace a medium-term programme of income redistribution between the rich and the developing nations, it cannot be considered a solution for the very long run, as development of the countries which are underprivileged today must, at least for those which possess cultivable land, proceed through the expansion of their agricultural production.

10. What the developed countries can, however, do is to commercially export such agricultural products as are complementary to those that the developing countries are potentially able to sell.

As regards the developed countries, we should also keep in mind the role played by agriculture in their economies and the exigencies consequent on that role. The agricultural sector is closely linked, at one end with industries manufacturing the means of production, at the other, with the food and agricultural product processing industries. If a level of agricultural productive capacity sufficient to maintain the activity of these other sectors is to be preserved, incomes in agriculture must remain comparable to those of other economic sectorswhich is not everywhere the case-comparable, what is more, to incomes which, except for the conditions of high unemployment created by the crisis, have been steadily rising in recent decades.

11. All these facts, together with the social aspect which must not be overlooked for those Community countries where the proportion of farm population is high, argue in favour of maintaining a fair amount of agricultural activity with gradual improvement of the conditions of production throughout structural reforms.

II. FRAMEWORK FOR A POLICY OF AGRICULTURAL EXPORTS

Setting aside food-aid programs, your rapporteur proposes to examine in turn some of the major agricultural commodities and then to deal with the legal aspects.

A. Some major commodities

12. For any commercial exports, the prime question is competitiveness. The Community has often been accused of promoting competitiveness through export refunds. But are such accusations really warranted, when we know that the Community is by no means alone in subsidizing exports? Nor should the price fluctuations referred to in the first part of this paper be forgotten. Is it generally realized that powdered milk is offered on the world markets today at $275 a ton, while last year it was selling at $1000, whereas in 1971, when world prices were booming, the Community was obliged to restrict exports to prevent shortages within the Six?

The example of sugar price fluctuations is still fresh in our minds. In the course of 1973-74 they varied by a factor of as much as five.

13. Apart from the exceptional present situation with regard to milk powder which may, in fact, prompt the Community to restrict its output by making the producers bear more of the responsibility for the management of that market, it would seem that European agricultural producers can normally compete with their American counterparts. For in the agricultural sector the major factor on production costs is labor, but there is no international market for drinking milk, and the world market for butter is virtually saturated. This is why present Community thinking turns on exporting milk powder to developing countries where reconstitution plants would be installed. It is a logical line of thought, since such a solution would both meet a trading need and the Community's justifiable desire to obtain some recompense for the generous concessions made to the developing countries under the Lomé Convention, and, under other agreements, to the Mediterranean countries-concessions mostly disadvantageous to Community farmers. Admittedly, the Community would then have to face the question of the internal sharing out of the burdens and benefits of any such agreements, since the sectors with export potential are not necessary identical with those which are exposed to increased competition from imports from, say, the Mediterranean countries.

14. Grain is another sector with export potential. The peculiar conditions of 1973 have already been described. Since then, world prices have dropped again, but to nothing like their former levels.

How will the relative price levels for grain evolve in the EEC and the USA, the world's principal exporter? Present market trends suggest that the prices will converge. It can, in fact, be predicted that European prices in real terms will fall (as has been happening since the fixing of the common prices), while in America they will rise as inferior land, entailing higher production costs, is returned to cultivation.

15. Sugar is a sector which is always difficult to discuss, since sugar cane is a major source of revenue for many developing countries. But the demand for sugar is great, while international trade in the commodity, at barely 10% of world output (both beet and cane) is very small, and the competitiveness of this commodity is tending to even out between the developed and the developing countries. Thus, under the Lomé Convention the signatories have been granted in fact, if not on paper, a price equivalent to that obtaining in the EEC.

B. The legal aspects

16. The Community has in mind medium-term agreements, principally with countries which are geographically close or with which more general trade agreements already exist. It was thus that an agreement with Egypt, under which 1 million tons of grain over a five-year period, as well as quantities of milk powder were to be supplied, was drawn up. This project met with some reservations from certain EEC countries, hestitant about embarking on a policy of exports. The Egyptians, on their part, seem to have meanwhile lost interest in the agreement, because it fixed the price of milk powder, which, as the market crumbled, struck them as too high. But a rather disquieting aspect of this affair is the report that the USA is said to have offered Egypt very long (40 year) credit at very low rates, particularly for grain deliveries.

17. Other Mediterranean countries have asked to negotiate with the EEC. Obviously, Community farmers are in favor of these negotiations, for the reasons which have already been explained. It should be noted that agreements of this type, while they fit into the concept of helping to offset the concessions granted