1. Medium-term prospects and impact assessment of the CAP reform EU - 15 & EU - 25 2003 - 2010 1 European Commission - Agriculture Directorate-General

2. Analytical approach Structure of the presentation Introduction Medium-term prospects and impact of the CAP reform for agricultural markets and income for EU-15 (non- enlargement scenario) Medium-term prospects and impact of the CAP reform for agricultural markets and income for EU-25 Main results Conclusion Summary of key findings 2 European Commission - Agriculture Directorate-General

3. Methodological approach DG AGRI impact analysis carried out using a set of recursive dynamic partial equilibrium models (similar models used for market projections) for EU-15 and a comparative static model (ESIM) for EU-25 Model output: balance sheet for main commodities, market prices, farm income Main results presented in absolute terms and in deviation from Agenda 2000 Type of models 3 Results European Commission - Agriculture Directorate-General

4. Methodological approach Uruguay Round Agreement on Agriculture maintained constant Favourable, though moderate world agricultural market outlook Modest EU economic and population growth $/euro Exchange rate stable at 1.1 over the medium- term Payments assumed to be decoupled for 2 / 3 in the animal sector and 90% in the crop sector Main assumptions 4 European Commission - Agriculture Directorate-General

5. Modest economic growth and a relative strong euro 5 European Commission - Agriculture Directorate-General

6. Moderate, though favourable world market prospects 1/2 6 Cereal prices, fob gulf, $/t European Commission - Agriculture Directorate-General

7. Moderate, though favourable world market prospects 2/2 7 Dairy prices, fob Northern Europe, $/t European Commission - Agriculture Directorate-General

8. CAP reform : more pronounced increase in land set-aside and slight further decline in EU-15 arable crops area Changes in arable crop allocation in 2010 ( in % deviation from Agenda 2000 ) 8 European Commission - Agriculture Directorate-General

9. CAP reform : slight decline in EU-15 arable crop area Arable crop allocation, 2002 - 2010 (mio ha) 9 European Commission - Agriculture Directorate-General

10. Broadly balanced EU-15 cereal market over the medium-term Production and consumption, 1980 - 2010 (mio t) 10 European Commission - Agriculture Directorate-General

11. CAP reform : limited build up in cereal stocks Total public stocks, 2002 - 2010 (mio t) 11 European Commission - Agriculture Directorate-General

12. Coarse grains surplus to remain stable over the medium-term Total coarse grain production surplus, 1995 - 2010 (mio t) 12 European Commission - Agriculture Directorate-General

13. CAP reform : rapid improvement for EU-15 rice market Production, consumption and total stocks, 1990 - 2010 (mio t) 13 European Commission - Agriculture Directorate-General

14. CAP reform leads to reduction in EU-15 beef production potential Changes in cow number, 2003 – 2010 ( in % deviation from Agenda 2000) 14 European Commission - Agriculture Directorate-General

15. EU-15 beef demand to exceed production over the medium-term EU-15 Production, Consumption, Trade and Stocks 15 European Commission - Agriculture Directorate-General

16. CAP reform allows for a strong improvement in EU-15 beef market balance and price rise Changes in beef production and prices, 2004 – 2010 (%) 16 European Commission - Agriculture Directorate-General

17. Impact of CAP reform dependent from the degree of decoupling Changes in production and prices/stocks for beef and cereals, in 2010 ( in % deviation from Agenda 2000) 17 European Commission - Agriculture Directorate-General

18. CAP reform : favourable impact on EU-15 pork and poultry sectors Pork and poultry production & price changes, 2010 ( in % deviation from Agenda 2000 ) 18 European Commission - Agriculture Directorate-General

19. EU-15 pig meat sector to continue to expand over the medium-term EU-15 Production, Consumption and Trade 19 European Commission - Agriculture Directorate-General

20. EU-15 poultry production to recover after avian flu in the Netherlands EU-15 Production, Consumption and Trade 20 European Commission - Agriculture Directorate-General

21. CAP reform: Summary of policy changes in the EU-15 dairy sector 21 European Commission - Agriculture Directorate-General

22. CAP reform: lower prices for EU-15 dairy markets Price changes for milk and dairy products, 2010 ( in % deviation from Agenda 2000 ) 22 European Commission - Agriculture Directorate-General

23. EU-15 butter balance to improve over the medium-term EU-15 Production, Consumption, Trade and Stocks 23 European Commission - Agriculture Directorate-General

24. EU-15 cheese market keeps its steady growth over the medium term EU-15 Production, Consumption and Trade 24 European Commission - Agriculture Directorate-General

25. EU-15 SMP market to shrink over the medium term EU-15 Production, Consumption, Trade and Stocks 25 European Commission - Agriculture Directorate-General

26. CAP reform found to have a modest impact on EU-15 income Income in real terms and per labour unit ( in % deviation from Agenda 2000 ) 26 European Commission - Agriculture Directorate-General

27. 27 Prospects for EU-25: Situation of agriculture in the EU-10 Restructuring of agriculture in the EU-10 facilitated by EU funds: –economic growth will contribute to create alternative income outside agriculture; –more investment in agriculture due to improving market and income situation (single market, decoupled direct payments) improving rural infrastructure and banking systems specific instruments facilitating restructuring in rural development programmes available. European Commission - Agriculture Directorate-General

28. 28 Driving factors of agricultural markets EU-25 EU-10: High income growth leads to growing markets for meat, fruits and vegetables as well as fresh milk products and cheese in the EU-10. EU-15: High consumer income, limited expansion of quantities, strong demand for quality and niche products. World markets developments will become an increasingly decisive factor for market outlook. Restructuring of agriculture and the food industries in order to address better the demand. European Commission - Agriculture Directorate-General

29. 29 Accession leads to a modest increase in cereal production in the new Member States Current Member StatesNew Member States EU-25 consumption Cereal production and use in the EU-25 (mio. t) European Commission - Agriculture Directorate-General

30. EU-25 cereal marketing surplus to stabilise at some 26 mio t over the medium term 30 Cereal marketing surplus ( in mio t) European Commission - Agriculture Directorate-General

31. CAP reform to reduce cereal marketing surplus by 2 - 3 mio t 31 Cereal marketing surplus ( in mio t) European Commission - Agriculture Directorate-General

32. 32 The new Member States find additional markets for rye in the current Member States Rye production and use in the EU-25 (mio.t) Production New Member StatesProduction Current Member States use EU-25 use EU-15 European Commission - Agriculture Directorate-General

33. CAP reform : solving rye specific structural imbalance for EU - 25 33 Rye Annual Marketable surplus in 2010 (mio t) European Commission - Agriculture Directorate-General

34. 34 EU-25 meat markets gain dynamics with accession New Member States Cur. Member States Per capita meat and egg consumption in the EU-25 European Commission - Agriculture Directorate-General

35. CAP reform : improving the beef market balance for EU-25 Beef prices and production (EUR/t and mio t) 35 European Commission - Agriculture Directorate-General

36. CAP reform and enlargement: leading to new trade flows in the poultry sector Poultry Annual Marketable surplus in 2010 (mio t) 36 European Commission - Agriculture Directorate-General

37. … as well as in the pork sector but in the opposite direction Pork Annual Marketable surplus in 2010 (mio t) 37 European Commission - Agriculture Directorate-General

38. CAP reform - reducing risk of imbalance for EU-25 butter and skimmed milk powder markets … Butter and skimmed milk powder production (mio t) 38 European Commission - Agriculture Directorate-General

39. CAP reform.. while favouring the development of the EU-25 cheese sector Cheese market variables (mio t) 39 European Commission - Agriculture Directorate-General

40. CAP reform would secure income gains for new Member States 40 Income in 2010, real terms (2002 = 100) European Commission - Agriculture Directorate-General

41. 41 Positive effects of the CAP Reform on agriculture in the new Member States Decoupling of direct payments for crops: –will generate less inflow of additional area such as potatoes. –The single farm payment will cause little differences as compared to the simplified area payment scheme. Decoupling of beef payments reduce incentives to increase beef herd in presence of weak consumption. The milk reform will increase the market orientation of milk processing. –Production and hygiene standards will still be an issue European Commission - Agriculture Directorate-General

42. Improvement in the balance of agricultural markets through the reduction in EU production without jeopardising EU production potential –in particular for sectors previously influenced by high level of support and coupled instruments (beef, sheep) –the balance of agricultural markets in an enlarged EU would improve significantly Significant improvement in the structural balance of the rice and rye sectors Agricultural income little affected as the fall in production volume is globally compensated for by price rises and increased payments Conclusions – CAP reform Greater flexibility & market orientation Solving specific sector problems Guaranteeing income stability 42 European Commission - Agriculture Directorate-General