Common Agircultural Common Agircultural Policy (CAP) Policy (CAP) Reforms Reforms Prof. Carlos San Juan Prof. Carlos San Juan Claudia Eigner Claudia Eigner Brian Kehoe Brian Kehoe Thomas Thalhammer Thomas Thalhammer
Common Agircultural Policy Common Agircultural Policy (CAP)(CAP)
Reforms Reforms
Prof. Carlos San JuanProf. Carlos San Juan
Claudia EignerClaudia Eigner
Brian KehoeBrian Kehoe
Thomas ThalhammerThomas Thalhammer
OutlineOutline
BackgroundBackground
CAP ReformsCAP Reforms
CAP+WTOCAP+WTO
Example (sugar industry)Example (sugar industry)
Effects of 10 new member statesEffects of 10 new member states
CAP in the futureCAP in the future
Common Agricultural Policy Common Agricultural Policy
Created (Treaty of Rome) 1960Created (Treaty of Rome) 1960
6 Member States 6 Member States
Principles:Principles:– Market Untiy Market Untiy – Community PreferenceCommunity Preference– Finacial SolidarityFinacial Solidarity
Reasons for InterventionReasons for Intervention
Economic,Social,Political and StrategicEconomic,Social,Political and Strategic
CAP objectives:CAP objectives:– Self sufficiencySelf sufficiency– Saving foreign exchangeSaving foreign exchange– Stabilise pricesStabilise prices– Improve efficiency and productivityImprove efficiency and productivity– Enviromental awareness (recent)Enviromental awareness (recent)
How the CAP works:How the CAP works:
Import TariffsImport Tariffs
Import CalendarsImport Calendars
Internal interventionInternal intervention
SubsidiesSubsidies
QuotasQuotas
External trade policyExternal trade policy
Legislative harmonizationLegislative harmonization
Funded: 44% EU´s Budget 2005 (€43 billion)Funded: 44% EU´s Budget 2005 (€43 billion)
ProblemsProblems
Anti developmentAnti development– average dairy cow in the EU received $913 in average dairy cow in the EU received $913 in
subsidies, compared with an average of $8 per subsidies, compared with an average of $8 per person in Sub-Saharan Africa. person in Sub-Saharan Africa.
InequalityInequality– 80% of funds go to the largest 20% of farmers, while 80% of funds go to the largest 20% of farmers, while
the smallest 40% get only 8% of funds. the smallest 40% get only 8% of funds.
Artificially high food pricesArtificially high food prices– Europeans pay about 25% higher prices for foodEuropeans pay about 25% higher prices for food
Equity among member StatesEquity among member StatesState interventionState intervention
Reforms Pre-2003Reforms Pre-2003
1960s Mansholt Plan 1960s Mansholt Plan – Lobby groups (failure)Lobby groups (failure)
1980s Problems highlighted1980s Problems highlighted– Expensive and wastefulExpensive and wasteful
1992 Mac Sharry Reforms1992 Mac Sharry Reforms– Euroscepticism and External trade demandsEuroscepticism and External trade demands– Limited productionLimited production– Set aside and forestation programsSet aside and forestation programs– Reduced supportReduced support
Supply Response of EU Agriculture to Supply Response of EU Agriculture to the Common Agricultural Policythe Common Agricultural Policy
José A. Mendez, Ricardo Mora and Carlos San JuanJosé A. Mendez, Ricardo Mora and Carlos San Juan
First, agricultural output is First, agricultural output is responsive to agricultural prices. responsive to agricultural prices.
Second, the MacSharry reforms Second, the MacSharry reforms have been instrumental in have been instrumental in restraining agricultural production.restraining agricultural production.
Third, agricultural output would Third, agricultural output would have been higher if the EU had not have been higher if the EU had not applied the CAP. applied the CAP.
These results are important These results are important and have broad implicationsand have broad implications
First, they strengthen the position of First, they strengthen the position of those reformers both within and outside those reformers both within and outside of Europe that argue for lower price of Europe that argue for lower price supports as an appropriate policy for supports as an appropriate policy for stemming European agricultural stemming European agricultural surpluses.surpluses. Second, they indicate that recent EU Second, they indicate that recent EU reforms, which have in effect extended reforms, which have in effect extended the MacSharry reforms, are appropriate the MacSharry reforms, are appropriate measures for curbing European measures for curbing European agricultural surpluses.agricultural surpluses.
CAP Reforms Post 2003CAP Reforms Post 2003
2003 Reforms2003 Reforms– Single farm paymentSingle farm payment– Stronger rual develpment programStronger rual develpment program– Financial disciplineFinancial discipline– Reduced interventionReduced intervention– EnviromentEnviroment
2004 Expansion (10 new members)2004 Expansion (10 new members)2006 Sugar Reforms2006 Sugar Reforms
According to the Commission, the key elements of According to the Commission, the key elements of the new reformed CAP-03the new reformed CAP-03
are, in a nutshell:are, in a nutshell:
A single farm payment to be made to EU farmers, A single farm payment to be made to EU farmers, independent of productionindependent of production; ; Limited coupled elements may be maintained to Limited coupled elements may be maintained to avoid abandonment of production, avoid abandonment of production, This payment will be This payment will be linked to respect for linked to respect for environmentalenvironmental, , food safety, , animal and plant health and animal welfare standards, , ““cross-compliance”cross-compliance”: the requirement to keep all : the requirement to keep all farmland in good agricultural and environmental farmland in good agricultural and environmental condition budget for the new rural development condition budget for the new rural development policy.policy.
CAP-03 (cont.2)CAP-03 (cont.2)
A strengthened A strengthened rural developmentrural development policy policy using more EU budget.using more EU budget.
““ModulationModulation”:”: A reduction in direct A reduction in direct payments for lager farms to increase the payments for lager farms to increase the rural development budget.rural development budget.
Possibility to reach a WTO agreementPossibility to reach a WTO agreement
WTO & CAPWTO & CAP
„ „ The World Trade Organisation is the only The World Trade Organisation is the only international organisation dealing with the international organisation dealing with the global rules of trade between nations. It‘s global rules of trade between nations. It‘s main function is to ensure that trade flows main function is to ensure that trade flows as smoothly, predictably and freely as as smoothly, predictably and freely as possible.“possible.“
WTO & CAPWTO & CAP
WTO‘s Agricultural AgreementsWTO‘s Agricultural Agreements– Objectives:Objectives:
Trade liberalizationTrade liberalization
Free marketFree market
Fair competitionFair competition
Less distorted sectorLess distorted sector
Marrakesh Agreement of 1994Marrakesh Agreement of 1994
Situation before the reform of the Situation before the reform of the sugar sector in the EUsugar sector in the EU
A-quotasA-quotas
B-quotasB-quotas
C-quotasC-quotas
Minimum-price Minimum-price
Intervention priceIntervention price
High import tariffsHigh import tariffs
Reasons for the sugar reformReasons for the sugar reform
EU‘s sugar price is three times as high as EU‘s sugar price is three times as high as world market levelworld market level– ProtectionProtection– supply > demand supply > demand excess is dumped on the excess is dumped on the
world market and subsidized very highworld market and subsidized very high– EU is accused for ist export policyEU is accused for ist export policy
Current regulations run out on 30.6.2006Current regulations run out on 30.6.2006 EU sugar reform come into force on EU sugar reform come into force on 1.7.20061.7.2006
Key aspects of the sugar reformKey aspects of the sugar reform
Price cut for sugarPrice cut for sugar– by 36% over 4 yearsby 36% over 4 years
Compensation for farmersCompensation for farmers– by about 60% of their income lossby about 60% of their income loss– by decoupled direct paymentsby decoupled direct payments
Restructuring FondsRestructuring Fonds– Within a four year periodWithin a four year period
Key aspects of the sugar reformKey aspects of the sugar reform
Reduction of quotasReduction of quotas– Within the first four years not compulsoryWithin the first four years not compulsory– One single quotaOne single quota– Transmission mechanismTransmission mechanismEU sugar production will decreaseEU sugar production will decrease
Reduction of sugar export subsidiesReduction of sugar export subsidies
Key aspects of the sugar reformKey aspects of the sugar reform
Supporting ACP-partners and least Supporting ACP-partners and least developed countriesdeveloped countries– ACP-countries ACP-countries assistance scheme assistance scheme– Least developed countriesLeast developed countries
complete tariff elimination until 1.7.2009complete tariff elimination until 1.7.2009
Effect of 10 new member statesEffect of 10 new member states
1 May 20041 May 2004From 380 to 454 million peopleFrom 380 to 454 million peopleLarger internal marketLarger internal marketOpportunitiesOpportunities– Stable pricesStable prices– Direct income supportDirect income support
Key challengesKey challenges– Improve prosperity in agriculture and rural Improve prosperity in agriculture and rural
society (integration)society (integration)
Effect of 10 new member statesEffect of 10 new member states
Acceding countriesAcceding countries– Cyprus, Czech Republic, Estonia, Hungary, Latvia, Cyprus, Czech Republic, Estonia, Hungary, Latvia,
Lithuania, Malta, Poland, Slovakia, Slovenia (and now Lithuania, Malta, Poland, Slovakia, Slovenia (and now also) Bulgaria and Rumaniaalso) Bulgaria and Rumania
Candidate countriesCandidate countries– Turkey but not yet in negotiationsTurkey but not yet in negotiations
Applicant countriesApplicant countries– Croatia, Former Yugoslav, Republic of MacedoniaCroatia, Former Yugoslav, Republic of Macedonia
Effect of 10 new member statesEffect of 10 new member states
ImportanceImportance– Targeted rural development schemesTargeted rural development schemes
SapardSapard
European agreementsEuropean agreements
Double zero arrangementDouble zero arrangement
Double profit arrangementDouble profit arrangement
Increased exports to EUIncreased exports to EU– Single marketSingle market
Goods, people, money + servicesGoods, people, money + services
Effect of 10 new member statesEffect of 10 new member states
Euro (single currency)Euro (single currency)– 12 EU countries12 EU countries– Austria, Belgium, Finland, France, Greece, Austria, Belgium, Finland, France, Greece,
Ireland, Luxembourg, the Nederlands, Ireland, Luxembourg, the Nederlands, Portugal + Spain + Slovenia (from 2007)Portugal + Spain + Slovenia (from 2007)
National currencyNational currency– Denmark, Sweden + United KingdomDenmark, Sweden + United Kingdom
Effect of 10 new member statesEffect of 10 new member states
On farmersOn farmers– From 7 to 11 millionFrom 7 to 11 million– From 130 to 168 hectars (+30%)From 130 to 168 hectars (+30%)– +10-20% production+10-20% production– +6% gross value added of agriculture+6% gross value added of agriculture
Differences: new Member States - EU15Differences: new Member States - EU15– High income consumers-demand high qualityHigh income consumers-demand high quality– Income growth-growing markets of meat, Income growth-growing markets of meat,
fruits+vegetables, fresh milk products+cheesefruits+vegetables, fresh milk products+cheese
Fair change + equal market opportunitiesFair change + equal market opportunities
Effect of 10 new member statesEffect of 10 new member states
Benefit of the farmers in the new Member Benefit of the farmers in the new Member StatesStates– Free access to EU single marketFree access to EU single market– Policies for developmentPolicies for development– Financial and other supportFinancial and other support– Modernisation and restructingModernisation and restructing
– Gross value added 2002-2010: +35%Gross value added 2002-2010: +35%– Significant disparities (lack of capital)Significant disparities (lack of capital)
Funds and Instruments for New Funds and Instruments for New Member States 2004-06Member States 2004-06
CAP BudgetCAP Budget
Overall EU budget: 106.5 billion € (2006)Overall EU budget: 106.5 billion € (2006)– 10 new Member States: 15% (16 billion €)10 new Member States: 15% (16 billion €)
Agricultural and rural development: 40% (4,7 bn €)Agricultural and rural development: 40% (4,7 bn €)– Direct payments 1,7 bn €Direct payments 1,7 bn €– Market expenditure 1,0 bn €Market expenditure 1,0 bn €– Rural developement 2,0 bn € Rural developement 2,0 bn €
Rural Development is an imortant part: See next Rural Development is an imortant part: See next graph.graph.
CAP in the futureCAP in the future
Direct payments:Direct payments:
–10-year phase-in period until 201310-year phase-in period until 2013
–Topping up optionsTopping up options
Single Area Payment scheme (SAPS)Single Area Payment scheme (SAPS)
–8 New Member States (SAPS)8 New Member States (SAPS)
–Malta + Slovenia (CAP)Malta + Slovenia (CAP)
Phasing-in of direct payments over 10 years
Farmers in the new Member States qualify to receive direct payments from their first year as members of the EU.However, these will not be paid at the full rate applying in the EU-15 until the end of a 10-year phasing-in period.By 2013 the direct payment rates of farmers in the new Member States will be aligned with those of the existing EU. See next graph.
Phasing-in of direct payments over 10 yearsThe percentages of the EU-15 level present payment that apply in the new Member States in each year are shown in the graph
below.
Topping up options
In order to bridge the difference in direct payment levels between the EU-15 and the new Member States during the phasing-in period.The new Member States can (in agreement with the Commission) top up EU direct payments, using complementary national direct ayments,via one of two options: (see next grph)
In the first years after accession the new members may opt to use a different type of direct aid scheme for their farmers – one that is not on offer in the EU-15. This different aid scheme is a simpler concept than schemes operating in the EU, or the single farm payment of the future.The new Member States have little experience of complex farmer support systems;Given the short time between conclusion of the accession negotiations and the accession itself it was difficult for national administrations to set up the necessary control systems for the standard EU schemes;The new single farm payment poses a problem for the new Member States as it is not possible to calculate payment entitlements for their farmers on the basis of the same historical reference period as used in the EU-15 (2000-2002).
The rationale for offering this special scheme is that:
CAP in the futureCAP in the future
EU‘s agricultural policyEU‘s agricultural policy– Stable supply of foodStable supply of food– Reasonable standard of livingReasonable standard of living– Farming in all regionsFarming in all regions– Well-being of rural societyWell-being of rural society
– QualityQuality– SafetySafety– Protection of environmentProtection of environment– Animal health + welfare conditionsAnimal health + welfare conditions– Minimal costMinimal cost
CAP in the futureCAP in the future
Rural development programmsRural development programms– Investment and restructing aidsInvestment and restructing aids– Temporary income supportTemporary income support
CAP‘s mechanisms will not apply CAP‘s mechanisms will not apply immediatelyimmediately– Time to adapt administrative proceduresTime to adapt administrative procedures– Disparities – changesDisparities – changes
Market support measuresMarket support measures
CAP in the futureCAP in the future
Increasing concern about food safetyIncreasing concern about food safety
Greater emphasis to rural development Greater emphasis to rural development measuresmeasures
CAP in the futureCAP in the future
Reforming of sectorsReforming of sectors– Cotton, hops, olive oil + tobaccoCotton, hops, olive oil + tobacco– Fruit, vegetables + sugarFruit, vegetables + sugar
Stronger agricultural playerStronger agricultural playerDirect aidsDirect aids– Rural development programmingRural development programming– Structural funds programmsStructural funds programms
Good income prospectsGood income prospects– New competitiveness (price+quality)New competitiveness (price+quality)– Investment for new standards+more market sharesInvestment for new standards+more market shares