Politics and Policies of the EU The Common Agricultural Policy

Reading en.htm - Commissions web on agriculture en.htm - Commissions web on agriculture en.htm en.htm Artis, Mike & Nixson, Frederick(eds.) (2004): The European Economics of the European Union Artis, Mike & Nixson, Frederick(eds.) (2004): The European Economics of the European Union McDonald & Dearden (1999): European Economic Integration (available in my office) McDonald & Dearden (1999): European Economic Integration (available in my office) Pelkmans, Jacques (2001): European Integration – Methods and Economic Analysis Pelkmans, Jacques (2001): European Integration – Methods and Economic Analysis

Structure Origins of the CAP Origins of the CAP Rationale for the CAP Rationale for the CAP Mechanisms of the CAP Mechanisms of the CAP Critical appraisal of the CAP Critical appraisal of the CAP Reforms needed? Reforms needed?

1) The Origins Post-war recovery Post-war recovery - The ultimate goal  to maximize food production - To combat protectionism and enable trade with foodstuffs - Subsidies and incentives given to farmers to keep producing and improve the farming methods CAP mainly designed by France & Netherlands CAP mainly designed by France & Netherlands Very successful, by the end of 50s  50% over prewar production, while 20% increase in population Very successful, by the end of 50s  50% over prewar production, while 20% increase in population

2) Rationale Political reasons Political reasons Social reasons Social reasons Economic reasons Economic reasons

Common market organisation for European agriculture means: All obstacles to the trade in agr. products as between MS must be removed All obstacles to the trade in agr. products as between MS must be removed For any given commodity produced in Community, a unique price must be given For any given commodity produced in Community, a unique price must be given Policy must be funded by Common budget and must be administered in concerted manner Policy must be funded by Common budget and must be administered in concerted manner  An important underlying principle – community preference

Objectives of the CAP Art. 33 TEC Art. 33 TEC a) to increase agricultural productivity by promoting technical progress and by ensuring the rational development of agricultural production and the optimum utilisation of the factors of production, in particular labour; b) thus to ensure a fair standard of living for the agricultural community, in particular by increasing the individual earnings of persons engaged in agriculture; c) to stabilise markets; d) to assure the availability of supplies; e) to ensure that supplies reach consumers at reasonable prices.

3) Mechanisms A target price A target price An intervention price An intervention price Export refunds or restitutions Export refunds or restitutions The ‘green money’ and the monetary compensation amounts (MCAs) The ‘green money’ and the monetary compensation amounts (MCAs)

4) Critical appraisal Successful in achieving most of its objectives (as set out in Art. 33 TEC) Successful in achieving most of its objectives (as set out in Art. 33 TEC) BUT repeatedly subject to harsh criticism BUT repeatedly subject to harsh criticism  Inefficiencies in allocation of resources  frictions in the world markets  detrimental effects on environment and health  Benefit for the wealthy farmers at the expense of poor ones

5) Reforms needed? FACT: The EU is the biggest food importer in the world FACT: The EU is the biggest food importer in the world FACT: Whereas since 1995 the producer prices steadily falling and now reaching nearly the world level, the consumer prices have increased FACT: Whereas since 1995 the producer prices steadily falling and now reaching nearly the world level, the consumer prices have increased FACT: Low-quality mass production farms benefiting most FACT: Low-quality mass production farms benefiting most FACT: The current agricultural production heavily detrimental to environment FACT: The current agricultural production heavily detrimental to environment Still rationale for the CAP? Still rationale for the CAP?

Reforms undertaken 1992 CAP reform 1992 CAP reform - Cuts in agricultural support prices & ‘tariffication’ - Set aside policies - Compensation through direct payments rather then production subsidies - Re-allocation of labour resources - Alternative rural development strategies

Reforms under way The Commission has recognized that the East enlargement put the EU budget under too much strain under contemporary rules The Commission has recognized that the East enlargement put the EU budget under too much strain under contemporary rules  Stricter financial discipline needed – adopted as Agenda 2000 in Berlin Summit 1997  Multi-annual financing agreements with accession states

Reforms under way (2) June 2003 – CAP reform plan adopted in the Council single farm payment for EU farmers, independent from production; single farm payment for EU farmers, independent from production; this payment linked to environmental, food safety, animal and plant health and animal welfare standards this payment linked to environmental, food safety, animal and plant health and animal welfare standards a strengthened rural development policy with more EU money; a strengthened rural development policy with more EU money; a reduction in direct payments for bigger farms to finance the new rural development policy; a reduction in direct payments for bigger farms to finance the new rural development policy; a mechanism for financial discipline to ensure that the farm budget fixed until 2013 is not overshot. a mechanism for financial discipline to ensure that the farm budget fixed until 2013 is not overshot.  Step in the right direction? More administrative strain?  Re-nationalization of the CAP?

Summary The objectives for CAP fulfilled The objectives for CAP fulfilled No economic rationale to keep up the expensive policy, unless the objectives and rules are changed No economic rationale to keep up the expensive policy, unless the objectives and rules are changed Reforms under way to reflect changes in the EU and world market Reforms under way to reflect changes in the EU and world market Far-reaching enough? Far-reaching enough?

Next Class Guest lecture – Jan Havlik, on Energy Policy Guest lecture – Jan Havlik, on Energy Policy Reading: Reading: Particularly Internal market in energy, Security of supply ates/March/0308-ER.html ates/March/0308-ER.html - European Council March 8 – 9, results