Income and factor markets the policy context Pierre Bascou – Wolfgang Münch DG AGRI European Commission Expert workshop 2829 June 2007 Seville
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Income and factor markets the policy context
Pierre Bascou – Wolfgang Münch
DG AGRI European Commission
Expert workshop 2829 June 2007 Seville
Sevilla – Expert workshop June 2007 2
CAPReform: 3. package 2005/7
Midterm review 2002
AGENDA 2000
CAPReform: 1. package 2003
CAPReform: 2. package 2004
Future rural development policy:
2007/2013
Enlargement process
EU 25 EU 27 EU …
Trade relations
WTO „Doharound“
regional agreements
Development on agricultural markets
EUconstitution
Reform of Community policies, e.g. structural
funds
Financial perspectives 20072013
EU Council BXL October 2002 & December 2005
Financial framework enlargement
Policy context 1 / 5
Sevilla – Expert workshop June 2007 3
Degressivity Modulation
Strengthening the 2nd pillar
Adjustment of intervention levels
Decoupling of direct payments
Consolidation of the CAP within strict limits of financial discipline
Better balance of support
Enforcing standards (environment, food
safety, animal welfare)
Improving the transfer efficiency of direct
payments
Reinforcing farmers’ market orientation and entrepreneurial role
Crosscompliance
Policy context 2 / 5 CAP reform process – measures and objectives
Sevilla – Expert workshop June 2007 4
Policy context 3 / 5 The mediumterm
The Health Check (review of the 2003 reform of the CAP, “ensuring that the CAP is working as it should” and set of review clauses)
Review clause of all aspects of EU spending, including the CAP, and of resources to report in 2008/09 (“more long term issues»)
Sevilla – Expert workshop June 2007 5
Policy context 4 / 5 Set of reporting obligations and review clauses over the 20062010 period (to evaluate, correct, adapt and simplify where appropriate)
Single farm payment and decoupling (degree of decoupling, decoupling model, F&V question)
Market measures (dried fodder, dairy, cotton, energy crops, potato and cereal starch)
Other issues (cross compliance and farm advisory systems)
Other issues (markets, bioenergy, risk management tools) Financial questions (capping, modulation, degressivity etc.)
Sevilla – Expert workshop June 2007 6
Policy context 5 / 5 some of the policy issues
§ Competitiveness of the farm sector (market and trade developments; farm income and profitability)
§ Impact on structural adjustment (capitalisation of support in factor prices, value of agricultural assets, role of RD in facilitating structural changes)
§ Transfer efficiency of farm support § Provision of public goods (e.g. environmental benefits)
Sevilla – Expert workshop June 2007 7
The income gap remains and widens with the accessions….
5 0 %
4 5 %
4 0 %
3 5 %
3 0 %
2 5 %
2 0 %
1 5 %
1 0 %
5 %
0 %
1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6
E U 1 5
E U 2 5
E U 2 7
The difference in sectoral income per head in agriculture and gross wages in the rest of the economy (%)
Sevilla – Expert workshop June 2007 8
Development of agricultural labour, real sector income and income per head
EU15 (2000 = 100)
8 0
8 5
9 0
9 5
1 0 0
1 0 5
1 1 0
1 1 5
1 2 0
1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6
r e a l i n c o m e p e r A W U
r e a l s e c to r i n c o m e
a g r ic u l t u r a l la b o u r
Sevilla – Expert workshop June 2007 9
Distribution of beneficiaries and direct payments (EU15 1000 euros), 2005
50%
8%
16%
10% 8%
6%
2% 3% 2%
8%
12%
17%
28% 30%
0%
10%
20%
30%
40%
50%
0 < 1.25 1.25 < 2 2 < 5 5 < 10 10 < 20 20 < 50 >= 50
Beneficiaries Direct Payments
Sevilla – Expert workshop June 2007 10
Distribution of beneficiaries and direct payments (EUN10 1000 euros), 2005
93.1%
3.3% 2.3% 0.6% 0.3% 0.2% 0.2%
39%
7% 9%
6% 7% 9%
23%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 < 1.25 1.25 < 2 2 < 5 5 < 10 10 < 20 20 < 50 >= 50
Beneficiaries Direct Payments
Sevilla – Expert workshop June 2007 11
§ Farm income of the sector has regularly declined over the last decades – often below other socioprof. groups:
• Contribution of policy and of markets? • Income risk • Productivity of farm labour • Farm household income (diversification; household behaviour)
§ Income transfer efficiency § Distribution of income support: the targeting issue § Policy adjustment: the functioning of labour markets
Income and labour markets – the policy issues
Sevilla – Expert workshop June 2007 12
Economic conditions § structural adjustment and growth of farms depend on land markets § Rental markets very important for European farms (64% of farm
land is rented, in some regions more than 90%) § Land markets have numerous imperfections
– Inelastic supply and immobility of land – Thinness of land markets – Profitability and agricultural support is reflected in land rents – Imperfection from other markets
Importance of land markets for agriculture 1 / 4
Sevilla – Expert workshop June 2007 13
Competitive adjustment § Conditions differ substantially between EU Member States and regions
– Legal framework (property rights, competition, transaction costs, inheritance law)
– Socioeconomic conditions – Cultural and historical influences – Natural conditions
§ What impact on the relative competitiveness? Agricultural policies § Most types of agricultural support become capitalised in the price of land
(extent of capitalisation differs between support systems, e.g. market price support, direct payments linked to land/persons)
Importance of land markets for agriculture 2 / 4
Sevilla – Expert workshop June 2007 14
EU direct payment systems
§ Single Payment Scheme SPS (historic, regional, hybrid model) § Single Area Payment Scheme SAPS (in new Member States) § Different principles of these direct payment systems determine capitalisation à link to land, presence of ‘naked land’
§ SAPS = payment inseparably linked to land § SPS = partial link to land (entitlements separate from land and tradable but
need to be activated with eligible hectares) § Historic model: more eligible land than entitlements (‘naked land’), asymmetry
of information § Regional model: little or no ‘naked’ land, high transparency
Importance of land markets for agriculture 3 / 4
Sevilla – Expert workshop June 2007 15
§ Land price formation: a complex issue – role of agricultural support and capitalisation
• Diversity of situation across sectors/regions/MS • Link with other economic sectors / land demand from nonagricultural sectors
• Influence of DP systems on land prices and capitalisation of support (impact of modulation, alternative level of support)
• Distribution of support between land owners and farmers • Effectiveness and efficiency of land markets: impact of policy adjustments
• Farm households: the wealth issue and influence of production and investment behaviour
§ Alternative means of support and the objectives of CAP ?
Land markets – the policy issues 4 / 4
Sevilla – Expert workshop June 2007 16
Conclusions
Many policy issues … … that represent many analytical challenges …
… which require to combine diverse approaches at regional level …
The contribution from research will be essential.
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