New Policies and their Ramifications

New policies globally are encouraging the production of bio-fuel crops. Take for instance, Europe, where the Common Agricultural Policy (CAP) has profoundly influenced by crop production patterns through its high support prices, planting restrictions, intervention buying, stock management, and rigid border controls. International Trade agreements have also been influential on cropping decisions.  Many of these supports had distorted the commodity market prior to 2003. Since 2003 there had been removal of these barriers though major reforms in the policy. These reforms have been beneficial in fall of cereal price within Europe. CAP includes rules on agricultural land use, as well as payment subsidies for the production of crops dedicated to bio-fuels.

In order for farmers to qualify for the total CAP benefits, they are required to set aside 10% of their land and they then receive a set-aside land compensation payment (European Union, 1999). On this land farmers can then plant oilseed for bio-fuel use, under the restrictions of the Blair House Memorandum of Understanding.

Under the Blair House Memorandum of Understanding of 1992, there was a set limit to EU oilseed production (rapeseed, sunflower, soya). This limit called a Maximum Guaranteed Area (MGA), limited producer’s production of oilseeds. Producers then benefited from crop-specific oilseeds payments. This inhibited expansion of bio-fuels. Since then, the European commission, due to CAP reforms of 2003, believes that it no longer under the limitations of the Blair House Memorandum of Understanding (United States Department of Agriculture, 2005). Consequently freeing markets and enabling increases in bio-fuel production.

Special aid has now been set up for the production of bio-fuel crops on non-set aside land under the reforms of 2003. Farmers producing bio-fuel crops are eligible for a premium of €45 per hectare. Overproduction is limited by a ceiling of maximum guaranteed area of 2 million hectares ( United States Department of Agriculture, 2005). If this is breached then a reduction in payments will be put in place to not allow budgetary overruns.

In February 2006, the EU cut internal sugar price supports by 36% over a period of 4 years (United States Department of Agriculture, 2005). Many smaller sugar manufacturers consequently left the industry. There are expected drops in production of food-based sugars over the next few years. Europe is expected to become the world’s chief importer of sugar. On the other hand, two reform provisions will be of great benefit for sugar beet used in bio-fuel production. Sugar beet produced for bio-fuel will now also be eligible for €45 per hectare payment when produced on non-set-aside land and it will also be excluded from production quotas.

Coinciding with the CAP reforms of 2003, three new directives were put in place by the EC, to influence the use of bio-fuels. The “Bio-fuels Use Directive (European Union, 2003)”, “Energy Taxation Directive (European Union, 2003)” and “Fuel Quality Directive” (European Union, 2006).

The Bio-fuels Use Directive goal was for 2% of the EU’s transportation fuel would be bio-fuel. Following that a target of 5.75% was set for December 2010. A new taxation framework came into place with the Energy Taxation Directive, which allowed member states to provide tax reductions and / or exemptions on the use of bio-fuels. The Fuel Quality Directive amended the specifications of Petrol and Diesel, while also establishing specifications for the incorporation of bio-fuels.

There is the potential for new EU Policies to support developing countries through trade of bio-fuel grains. Bio-ethanol could be a possible alternative for sugar producing countries affected by the EU sugar reform. The EU could stimulate trade with sugar cane producing countries such a Guiana and Barbados. This could rejuvenate their economies and bring them out of debt.

Finally the EU must ensure that it does not overlook the use of second generation bio-fuels in it policies.  More detailed policy support is needed globally, especially in Europe. Broad polices encouraging the production is only beneficial to a certain limit. There need to be a priority for the production of certain bio-fuel crops (second generation bio-fuels). The policies must focus on crops with a high yield, like sugar cane, or focus on cradle-to-cradle bio-fuels.

It is only by the awareness of this focus, and by a total dedication to its correct and planned implementation via the use of policies governing production of food and bio-fuels, that the benefits can be realised.

European Union. (1999). Council Regulation (EC) No. 1251/1999, Article 6(1), May 17,1999.

European Union. (2003). Council Directive 2003/30/EC of 8 May 2003 (O.J. L123, 17/5/2003)

European Union. (2003). Council Directive 2003/96/EC of 27 October 2003 (O.J. L283, 31/10/2003)

European Union. (2006). Standard EN 590 as discussed in EC Memo/06/65, Brussels, 8 Feb. 2006

United States Department of Agriculture. (2005). EU-25, Oilseeds and Products Outlook for EU Oilseeds and Biofuels, United States Department of Agriculture: Foreign Agricultural Service. Foreign Agricultural Service.

United States Department of Agriculture. (2005). EU-27, Agricultural Situation, EU Program for Energy Crops Oversubscribed. Foreign Agricultural Service.

United States Department of Agriculture. (2005). EU-27,Sugar,EU Agrees to Mandatory 2007/08 Sugar Production Cut. Foreign Agricultural Service.

United States Department of Agriculture. (2007). EU-25, Bio-Fuels, Biofuels Annual Report. Foreign Agricultural Service. Washington:

United States Department of Agriculture. (2007). USDA Agricultural Outlook Forum 2007. Retrieved November 30, 2007, from United States Department of Agriculture:


Completing a masters in Strategic Management and Planning

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One comment on “New Policies and their Ramifications
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