Presentation is loading. Please wait.

Presentation is loading. Please wait.

The Common Agricultural Policy

Similar presentations

Presentation on theme: "The Common Agricultural Policy"— Presentation transcript:

1 The Common Agricultural Policy
Impact on International Trade 29th November 2009 European Economic Integration, Institute of economic studies

2 Outline What is Common Agriculture Policy? Establishment
Pressures to reform CAP CAP reforms over time IT consequences Africa & CAP

3 What is Common Agriculture Policy?
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

4 EU budget Source: EU budget 2009; Sustainable development and innovation at the core of the EU budget

5 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

6 Pressures to reform cap
Budgetary pressures Pressures from consumers External pressures Environmental pressures

7 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



10 Situation 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)

11 Introduction 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)

12 Impact on international trade
End of overproduction of diary products Reduction of the production from million tons in 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

13 Mac Sharry 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“

14 Export subsidies

15 Impact on international trade
Lower export subsidies Higher direct payments

16 Impact 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

17 Further reforms The Agenda 2000 The reform in 2003
“multi-functionality” of farming activities The reform in 2003 A reduction in direct payments for bigger farms to finance the new rural development policy CAP “Health Check“ 2008 Increase of milk quotas, ...

18 „CAP vs. Africa“ case African exporters seem to be sensitive to EU reforms Pros and cons of CAP reforms (from African point of view) Future prospects

19 Pros and Cons + 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) 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“

20 Situation when Africa rejects to trade with EU
higher value food Qh PPF Ql lower value food

21 Trading situation Ricardian model
Africa has comparative advantage in producing lower value food Africa EU QH QH PFT TT TT PA = CA PA = CA higher value food higher value food IFT CFT PPF CFT IFT PPF IA IA PFT Ql QH lower value food lower value food

22 Future prospect African exporters: European exporters:
lower value food and agricultural products distributors European exporters: higher value food and agricultural products

23 Conclusion 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

24 Thank you for your attention
Petra Andrlíková Radovan Parrák

25 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

Download ppt "The Common Agricultural Policy"

Similar presentations

Ads by Google