EU farm policy until the Uruguay Round Niek Koning Agricultural Economics and Rural Policy

History of farm policies 1830s-1870s: liberalisation privatisation of government bodies, enclosures etc. trade liberalisation: –British Corn Law repeal (1846), British-French treaty (1860), tariff reductions in other countries From the 1880s: intervention special ministries, support for R&D, land reform etc. protection: –Most West European countries in the 1880s-90s –All other older OECD countries in the 1930s –South Korea and Taiwan in the 1960s-70s

Real wheat prices (5-year moving average) and farm wages, US & UK (1818 = 100)

Agricultural productivity in eight European countries, (in wheat units and prices of 1870)

Farm policy situation in the 6 founding EU countries All these countries were already protecting their farmers –Germany, France, Italy, Belgium & Luxembourg from the late 19th century –The Netherlands from the 1930s Levels of protection differed between countries –large differences between regions (e.g., Netherlands vs South Germany)

Formation of the EU (1958): general backgrounds Communist challenge and lessons from the Great Depression  social market economy –social security needed to maintain social peace –worker incomes should rise to avoid a new depression –active government intervention should strengthen the position of labour, keep the economy in balance and achieve new welfare aims Franklin Roosevelt Lessons from World War I & II: industrial co-operation between Germany and France as as guarantee against war –agriculture needed to balance the benefits of co-operation between the two countries Monnet & Schuman

1958 decisions on EU farm policy Policy aims: Rome treaty: reasonable prices for consumers, reasonable incomes for producers, productivity growth Stresa conference: parity aim Policy means: Stresa conference: –single market –unified price support policy –structural policy to reduce regional inequalities –common funding Sicco Mansholt

EU price policy in the 1960s-70s Principle: supporting a few major products, which will indirectly support other crops 4 ‘heavy’ common market organisations –grains, milk, beef: variable levies, intervention storage, variable export subsidies –sugar: price quotas (A, B and C-sugar) –NB: few production controls, and variable levies / subsidies were a very distortionary instrument! Supplementary ‘light’ common market organisations –pigs, fruits & vegetables, etc. free entry for oilseeds & protein crops (‘Rotterdam loophole’) –concession to the US (Dillon Round) –EU producers supported with direct price subsidies

world market price domestic price supply price tariff import demand Import tariff

price quantity demand + storage supply Storage

demand world market price domestic price supply price export subsidy export Export subsidy

Butter and grain mountains Increasing costs of surplus disposal –from the outset: dairy –from c. 1980: grain & beef –price subsidies for oilseeds & protein crops These competed with new claims for structural & regional policies –effect of accession of Spain & Portugal Budget ceiling: levy revenue + maximally 1% of VAT-base 1980s: financial crises –farmers: introduce production controls –agro-industrial managers: lower support levels –grain interests: ‘close Rotterdam loophole’ cause of 1/3 of budget costs of price policy however, fixed by international agreement

EU farm policy reforms of the 1980s Diverging insights on how to solve financial crises –farmers: introduce production controls –agro-industrial managers: lower support levels –grain interests: ‘close Rotterdam loophole’ cause of 1/3 of budget costs of price policy however, fixed by international agreement General political background: social market policies discredited –economic problems of the 1970s –‘back to the market’ –Thatcherism Ongoing tussle about how to limit the costs of surplus disposal –1984: milk quota system –grain: lowering of support prices

P shadow P prod price quantity Quota Quota rent demand supply Output quota

A word on decision making Decision making bodies: –Commission: right of initiative –Council: right of veto? (Luxembourg compromise) –Parliament: little power, but right to approve the budget –Court Package deals Leaders of governments versus agricultural ministers –Financial crisis as crowbar