Transcript CAP reforms

Common Agircultural Policy
(CAP)
Reforms
Prof. Carlos San Juan
Claudia Eigner
Brian Kehoe
Thomas Thalhammer
Outline
Background
CAP Reforms
CAP+WTO
Example (sugar industry)
Effects of 10 new member states
CAP in the future
Common Agricultural Policy
Created (Treaty of Rome) 1960
6 Member States
Principles:
– Market Untiy
– Community Preference
– Finacial Solidarity
Reasons for Intervention
Economic,Social,Political and Strategic
CAP objectives:
– Self sufficiency
– Saving foreign exchange
– Stabilise prices
– Improve efficiency and productivity
– Enviromental awareness (recent)
How the CAP works:
Import Tariffs
Import Calendars
Internal intervention
Subsidies
Quotas
External trade policy
Legislative harmonization
Funded: 44% EU´s Budget 2005 (€43 billion)
Problems
Anti development
– average dairy cow in the EU received $913 in
subsidies, compared with an average of $8 per
person in Sub-Saharan Africa.
Inequality
– 80% of funds go to the largest 20% of farmers, while
the smallest 40% get only 8% of funds.
Artificially high food prices
– Europeans pay about 25% higher prices for food
Equity among member States
State intervention
Reforms Pre-2003
1960s Mansholt Plan
– Lobby groups (failure)
1980s Problems highlighted
– Expensive and wasteful
1992 Mac Sharry Reforms
– Euroscepticism and External trade demands
– Limited production
– Set aside and forestation programs
– Reduced support
Supply Response of EU Agriculture to the
Common Agricultural Policy
José A. Mendez, Ricardo Mora and Carlos San Juan
First, agricultural output is responsive to
agricultural prices.
Second, the MacSharry reforms have
been instrumental in restraining
agricultural production.
Third, agricultural output would have been
higher if the EU had not applied the CAP.
These results are important and
have broad implications
First, they strengthen the position of those
reformers both within and outside of
Europe that argue for lower price supports
as an appropriate policy for stemming
European agricultural surpluses.
Second, they indicate that recent EU
reforms, which have in effect extended the
MacSharry reforms, are appropriate
measures for curbing European
agricultural surpluses.
CAP Reforms Post 2003
2003 Reforms
– Single farm payment
– Stronger rual develpment program
– Financial discipline
– Reduced intervention
– Enviroment
2004 Expansion (10 new members)
2006 Sugar Reforms
According to the Commission, the key elements of
the new reformed CAP-03
are, in a nutshell:
A single farm payment to be made to EU
farmers, independent of production;
Limited coupled elements may be maintained to
avoid abandonment of production,
This payment will be linked to respect for
environmental, food safety, animal and plant
health and animal welfare standards,
“cross-compliance”: the requirement to keep
all farmland in good agricultural and
environmental condition budget for the new rural
development policy.
CAP-03 (cont.2)
A strengthened rural development policy
using more EU budget.
“Modulation”: A reduction in direct
payments for lager farms to increase the
rural development budget.
Possibility to reach a WTO agreement
WTO & CAP
„ The World Trade Organisation is the only
international organisation dealing with the
global rules of trade between nations. It‘s
main function is to ensure that trade flows
as smoothly, predictably and freely as
possible.“
WTO & CAP
WTO‘s Agricultural Agreements
– Objectives:
Trade liberalization
Free market
Fair competition
Less distorted sector
Marrakesh Agreement of 1994
Situation before the reform of the
sugar sector in the EU
A-quotas
B-quotas
C-quotas
Minimum-price
Intervention price
High import tariffs
Reasons for the sugar reform
EU‘s sugar price is three times as high as
world market level
– Protection
– supply > demand  excess is dumped on the
world market and subsidized very high
– EU is accused for ist export policy
Current regulations run out on 30.6.2006
 EU sugar reform come into force on
1.7.2006
Key aspects of the sugar reform
Price cut for sugar
– by 36% over 4 years
Compensation for farmers
– by about 60% of their income loss
– by decoupled direct payments
Restructuring Fonds
– Within a four year period
Key aspects of the sugar reform
Reduction of quotas
– Within the first four years not compulsory
– One single quota
– Transmission mechanism
EU sugar production will decrease
Reduction of sugar export subsidies
Key aspects of the sugar reform
Supporting ACP-partners and least
developed countries
– ACP-countries  assistance scheme
– Least developed countries
 complete tariff elimination until 1.7.2009
Effect of 10 new member states
1 May 2004
From 380 to 454 million people
Larger internal market
Opportunities
– Stable prices
– Direct income support
Key challenges
– Improve prosperity in agriculture and rural
society (integration)
Effect of 10 new member states
Acceding countries
– Cyprus, Czech Republic, Estonia, Hungary, Latvia,
Lithuania, Malta, Poland, Slovakia, Slovenia (and now
also) Bulgaria and Rumania
Candidate countries
– Turkey but not yet in negotiations
Applicant countries
– Croatia, Former Yugoslav, Republic of Macedonia
Effect of 10 new member states
Importance
– Targeted rural development schemes
Sapard
European agreements
Double zero arrangement
Double profit arrangement
Increased exports to EU
– Single market
Goods, people, money + services
Effect of 10 new member states
Euro (single currency)
– 12 EU countries
– Austria, Belgium, Finland, France, Greece,
Ireland, Luxembourg, the Nederlands,
Portugal + Spain + Slovenia (from 2007)
National currency
– Denmark, Sweden + United Kingdom
Effect of 10 new member states
On farmers
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From 7 to 11 million
From 130 to 168 hectars (+30%)
+10-20% production
+6% gross value added of agriculture
Differences: new Member States - EU15
– High income consumers-demand high quality
– Income growth-growing markets of meat,
fruits+vegetables, fresh milk products+cheese
Fair change + equal market opportunities
Effect of 10 new member states
Benefit of the farmers in the new Member
States
– Free access to EU single market
– Policies for development
– Financial and other support
– Modernisation and restructing
– Gross value added 2002-2010: +35%
– Significant disparities (lack of capital)
Funds and Instruments for New
Member States 2004-06
CAP Budget
Overall EU budget: 106.5 billion € (2006)
– 10 new Member States: 15% (16 billion €)
Agricultural and rural development: 40% (4,7 bn €)
– Direct payments 1,7 bn €
– Market expenditure 1,0 bn €
– Rural developement 2,0 bn €
Rural Development is an imortant part: See next
graph.
CAP in the future
Direct payments:
–10-year phase-in period until 2013
–Topping up options
Single Area Payment scheme (SAPS)
–8 New Member States (SAPS)
–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 10year 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 years
The 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)
The rationale for offering this special scheme is that:
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-
CAP in the future
EU‘s agricultural policy
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Stable supply of food
Reasonable standard of living
Farming in all regions
Well-being of rural society
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Quality
Safety
Protection of environment
Animal health + welfare conditions
Minimal cost
CAP in the future
Rural development programms
– Investment and restructing aids
– Temporary income support
CAP‘s mechanisms will not apply
immediately
– Time to adapt administrative procedures
– Disparities – changes
Market support measures
CAP in the future
Increasing concern about food safety
Greater emphasis to rural development
measures
CAP in the future
Reforming of sectors
– Cotton, hops, olive oil + tobacco
– Fruit, vegetables + sugar
Stronger agricultural player
Direct aids
– Rural development programming
– Structural funds programms
Good income prospects
– New competitiveness (price+quality)
– Investment for new standards+more market shares