Transcript The Common Agricultural Policy

T HE C OMMON A GRICULTURAL
P OLICY
Impact on International Trade
29th November 2009
European Economic Integration, Institute of economic studies
O UTLINE

What is Common Agriculture Policy?

Establishment

Pressures to reform CAP

CAP reforms over time

IT consequences

Africa & CAP
W HAT
IS
C OMMON A GRICULTURE P OLICY ?

System of European Union agricultural subsidies
and programs

42 % of the EU's budget and still decreasing

Practices:

Trade controls

Price-support measures

Income transfers

Production subsidies

Health regulations
EU
BUDGET
Source: EU budget 2009; Sustainable
development and innovation at the core
of the EU budget
ESTABLISHMENT

after World War II - part of the Treaty of Rome
(signed in 1957, came into force in 1958)

1962: went into effect – 4 BASIC PRINCIPLES:

A unified market for the free movement of
agricultural products in the European Union

Financial solidarity

Community preference

Parity and productivity
P RESSURES TO REFORM CAP

Budgetary pressures

Pressures from consumers

External pressures

Environmental pressures
CAP
REFORMS OVER TIME

Introduction of milk quotas in 1984

Mac Sharry reform in 1992

The Agenda “2000”

The 2003 reform

CAP “Health Check” 2008
IMPORT TARRIF EFFECT
MILK PRODUCTION &
CONSUMPTION BEFORE THE
QUOTAS
S ITUATION BEFORE THE MILK
QUOTAS
Export subsidy case

EU was exporter of diary products

Subsidization of diary farmers (per
produced output) motivated farmers to
produce more.

Overproduction led to export subsidies
and consequently to dumping.

Results:

Producer surplus= a+b+c

Consumer surplus= -(a+b)

Gov. Revenue = -(b+c+d+f+g+h)

+ High storage costs (not depicted)
I NTRODUCTION OF MILK
QUOTAS IN 1984

Total guaranteed quantity: the quota of each
country

The references quantities: the producers’ and/or
purchasers’ quotas

The milk tax: Taxes if producers exceed their
reference quota - (superlevy)
I MPACT ON INTERNATIONAL
TRADE

End of overproduction of diary products

Reduction of the production from 103.7 million tons in 1984
to 96 million tons in 1992

Thus decrease in EU diary export as result of
abolishment of large production subsidies
(=export subsidies)

Side-effect – higher import of cows for beef
(especially from Brazil)

Decrease in storage costs
M AC S HARRY REFORM IN
1992

Pressures from other agricultural exporting countries

From price support to income support

The beginning of direct payments


compensation for the decrease of the price
support
New subsidies to farmers for good environmental
practices

„Set-aside land“
E XPORT
SUBSIDIES
I MPACT ON INTERNATIONAL
TRADE
 Lower
export
subsidies
 Higher
direct
payments
I MPACT ON INTERNATIONAL
TRADE

EU prices closer to world prices

International agricultural trade liberalization

Fall in cereal prices by 50%

Fall in income of African countries, which were
making profits on selling goods to Europe (under
Lomé convention)

An increase in the export price competitiveness
of basic EU food and agricultural exports for
African countries
F URTHER

The Agenda 2000


“multi-functionality” of farming activities
The reform in 2003


REFORMS
A reduction in direct payments for bigger farms
to finance the new rural development policy
CAP “Health Check“ 2008

Increase of milk quotas, ...
„CAP
VS .

African exporters seem to be
sensitive to EU reforms

Pros and cons of CAP reforms
(from African point of view)

Future prospects
A FRICA“
CASE
P ROS
+

Large food surpluses exported
to Africa as a food aid (before
Mac Sharry)

Certain African (sugar) exporters
profited from Lomé convention
(€500 mil. in 99/2000)
AND
C ONS
—

2001: free access to the market
granted to the least developed
countries under „Everything Buts
Arms“ initiative.

Problem? – sugar, rice and bananas
excluded

After Mac Sharry reform, EU price
reductions drove some African
exporters out of the EU market

Undermining of African markets by
price-competitive EU goods (wheat)
– „markets of last resort“

EU policy emphasis shift – „from
quantity to quality“
S ITUATION WHEN A FRICA
REJECTS TO TRADE WITH EU
higher value food
Africa
Qh
PPF
Ql
lower value food
T RADING SITUATION
R ICARDIAN

MODEL
Africa has comparative advantage in producing
lower value food
Africa
EU
QH
QH
PFT
TT
TT
CFT
higher value food
higher value food
PA = CA
IFT
PPF
IA
CFT
IFT
IA
PFT
lower value food
PPF
PA = CA
Ql
lower value food
QH
F UTURE

African exporters:


PROSPECT
lower value food and agricultural products
distributors
European exporters:

higher value food and agricultural products
C ONCLUSION

Trend in reforms of CAP – lower direct payments

Decoupling:

↑ economic prosperity

↓ negative impacts on the environment

From import levy to direct subsidies – before and
after Mac Sharry reform

Africa has to trade with lower value food
Petra Andrlíková
Radovan Parrák
REFERENCES

Institure for Agriculture and Trade Policy: The
Common Agricultural Policy: A Brief Introduction,
Prepared for the Global Dialogue Meeting (May 14 and 15, 2007,
Washington, D.C.)

European Economic Policies: Common
Agricultural Policy; Laurent Weill: Université de Strasbourg,
Charles University - Prague , April 2009

Policy Notes 2009/7: The Impact of Common
Agricultural Policy (CAP): Reformon Africa-EU Trade in Food
and Agricultural Products

http://ec.europa.eu/budget/index_en.htm