Common Agricultural Policy Reform “..the beginning of a new era..” Dr Franz Fischler, 26th June 2003

CAP Reform…. The evolution of CAP, its impact and pressure for reform… (specifically WTO & Enlargement) Overview of the reform package announced on 26 th June New challenges..! Possible on-farm response in the Regions..

Foundation of the CAP 1957 Treaty of Rome agriculture a special concern:  low incomes  declining rural areas  high share of employment  & consumers expenditure  food security  strong political lobby 1957 Treaty of Rome agriculture a special concern:  low incomes  declining rural areas  high share of employment  & consumers expenditure  food security  strong political lobby

(Article 33 of the Treaty of Rome) –increase agricultural productivity to ensure a fair standard of living for agricultural producers –stabilise markets –assure availability of supplies –ensure reasonable prices to consumers CAP Objectives

“FORTRESS EUROPE” 3 main elements of CAP agricultural support and protection Domestic Support: Intervention Buying Supply Management: Export Subsidies Supply Management: Export Subsidies Market Access: Import Tariffs Market Access: Import Tariffs

farmers responded by intensifying production resulting in surplus product which had to be stored and eventually used or exported incurring high costs in some cases intensification of agricultural production led to environmental damage friction with other suppliers to the world market who were not so reliant on subsidy - EU accused of dumping subsidised products on Less Developed Countries... CAP Impact... An example of CAP impact on LDC..

New alliances (G-22) challenging the USA & EU hegemony over the world trading system…. apparent at the WTO meeting in Cancún, last September which sought and failed to obtain a global consensus on trade & agriculture… New alliances (G-22) challenging the USA & EU hegemony over the world trading system…. apparent at the WTO meeting in Cancún, last September which sought and failed to obtain a global consensus on trade & agriculture…

Since 1995, annual milk production in Jamaica has dropped by a third as the local market has become awash with subsidised EU milk powder. J amaican processors have turned their backs on local dairy farmers, preferring to use cheaper milk powder from Europe instead. impact of dumping surplus production milk regime & the Jamaican dairy sector According to CAFOD, EU dairy policy has been directly responsible for destroying the small dairy industry in Jamaica…...they and other lobby groups hoped the WTO would deliver….

Back to the CAP how has it responded to problems in the past ? Back to the CAP how has it responded to problems in the past ?

Various reforms introduced since mid-1980s: supply control mechanisms have been introduced e.g. set-aside and milk quotas intervention prices cut and producers given direct payments in compensation environmental payments introduced for environmentally beneficial forms of farming rural development and diversification encouraged Slowly but with some effect.. The emergence of ‘pillar 2’ and the ‘green box’….!

World Trade Organisation support boxes & EU CAP Amber BoxBlue BoxGreen Box Trade & Production Distorting Intervention Buying Refunds to Export Import Duties Charged TO BE OUTLAWED 20% CAP Budget Production Linked Arable Area Payments, Livestock Headage Payments TEMP. ALLOWED Production Neutral Rural Development Regulation, incl. Agri-environmental schemes and Hill Farm Allowance ALLOWED 70% CAP Budget 10% CAP Budget CAP Pillar %CAP Pillar % CAP Movement since 1992: Amber to Blue box (McSharry) to Green box (Agenda 2000) support

further reduction in intervention support.. introduced the Rural Development Regulation (the 2nd Pillar of the CAP)... foresaw the need for reviewing progress via a Mid Term Review…. Agenda 2000 (the last CAP reform agreement)

CAP Cost - €42 billion + of which: –€10 bn on market price support –€28 bn on direct payments –€ 4 bn on rural development & AE schemes plus cost to EU consumers (OECD) –approximately €48 bn supporting an EU of 15 Member States, BUT….

…on 1st May New Member States (with 4 million farmers) plus Romania and Bulgaria in 2007…! …on 1st May New Member States (with 4 million farmers) plus Romania and Bulgaria in 2007…! Employment in agriculture.. 2% EU - 4.3% CC - 22% Employment in agriculture.. 2% EU - 4.3% CC - 22% The new Member States are hoping that CAP can deliver…!

WTO agenda increases the political pressure for reform…but budgetary concern is another key driver for change, all the more pressing with an enlarged EU….

From a UK Perspective has CAP delivered? Approximately £3 billion annual cost, but has not resulted in a profitable and expanding farming sector... Irish Farm Incomes

Momentum for CAP reform.. June 2002: CAP Mid Term Review of Agenda 2000 just a routine exercise…? July 2002: MTR proposals far more radical than envisaged (the Fischler reforms..!) October 2002: France/ German agreement on capping CAP budget upto 2013, forced a rethink on MTR detail January 2003: legislative text for CAP Reform published…… Pressure to deliver a package by the end of June (Greeks) and in time for the WTO meeting in September in Mexico….

SoS statement 26th June 2003 “The agreement today delivers what we wanted - real change.. It was essential that we agree the reforms in time to engage positively in the WTO negotiations on agriculture at the WTO Ministerial in Cancun in September... We have met our main objectives. This is a good outcome which will take forward our strategy to provide a sustainable basis for EU agriculture…” Margaret Beckett, SoS Defra

Reform should.. legislative text January 2003 encourage farmers to produce what the market wants, getting away from ‘farming for subsidies’ remove the environmentally negative incentives of the current policy improve and provide encouragement for more sustainable farming practices