Agricultural policy : Concepts, Goals, Strategies

1. Agricultural policy: Concepts, Goals, Strategies

2. Structure of the lecture • Someinformation • Introduction • Basic concepts of economic • policy • Specifics of agrar policy • Typesofagriculturalpolicy • CAP EU: Origin, development, • future

3. Information Regarding your essays, I have discussed it with the Foreign Relations Department, and the result is: It is really not necessary to submit it in printed form, but we need to make sure that we got it, if it is sent by e-mail. As there are not so many of you, it is not such a problem. However, as you leave for the study tour on July 22, and as I am out of Prague between July 24-29 (comming back for your examination and graduation), I need to get your essays atthe latest on July 21, 24:00, to be able to evaluate it. Then, I will send a message to the Study Tour managers, that either I have got all, or that some are missing. For the missing ones, the deadline will be July 29, 8:00, but with the explanation of delay

4. Economic policy in general • We have already defined economy • It comes from Greek words • oikos = house • nomos= order, rule, management oikos nomos

5. Main concepts • And what does“policy“mean ? • polis= town, city, in ancient Greece also state, because there used to be city states • polites= citizens • politeia= citizenship etc.

6. Main Concepts • From the two concepts, • it follows that • economic policy • should be • the set of the goals and rules • serving to the good, and co-formed by, the “inhabitants of the relevant house “

7. And because our topic is agricultural policy, • it means the set of the goals and rules • serving to the good, and co-formed by • the farmers. • However, because we have already discussed the role of agriculture in economy and society, we are aware that it regards all • “inhabitants of the house “ • i.e. the whole society

8. When the main type of general economic policy has been chosen,it is necessary to consider • main goals in hierarchical order • main actors of policy decision • process • time periods • scope • set of tools • control and feedback system

9. Hierarchy of the economic policy objectives • 3 basic objectives of economic policy • economic • freedom • justice of • distribution • economic • stability and • efficiency • 3 basic • social objectives • freedom • justice • welfare

10. Freedom • formal, given by legal frame • material, connected to the space an individual has in the frame of given economic and social conditions • Economic aspects of freedom: • disposal possibilities of households • disposal possibilities of enterprises • freedom of forming corporate groups to reach common goals

11. Justice • formal,given by formal freedom • connected to performance, i.e.remuneration according to performance, the same income for the same labour • equality of chances principle, which determines the foregoing • principle of just needs, meaning satisfying the minimum needs for everybody

12. Certainty • Including: • social peace - prevention of open conflicts • economic certainty and stability • certainty of supply in critical situations • social certainties of individuals • ensured incomes and property • reliability of planning for economic subjects (sure future conditions)

13. Welfare • It represents satisfying the needs of the individual and society with material and non-material goods • These goods include: • income and property of individual • common available goods (culture etc.) • environment • household produced goods (household labour, child care) • other immaterial goods (health, free time, social relationships)

14. Actors of policy decision process G PP NGOs C PI P

15. Time periods • short-term policies (1-2 years or even less) • medium term-policies (3-5 years) • long term, perspective policies (over 5 years) • permanent policies (general goals ) The most usual are medium-term policies, since they correspond with the election periods, but for agriculture they are still too short because of long production cycles. All time- level policies should of course be harmonised and interrelated.

16. Scope (area) of economic policy • Of course, economic policies can also cover different spatial areas: • local (not often utilised) • regional • national • supra-national (EU etc.) • global (rarely possible)

17. Set of tools The tools are differing with regard to the area of policy, but basically they are of 3 types: • positive (supporting) • negative (prohibiting) • market (indirect) And of course combinations of them.

18. Agrarian policy Agricultural policy is a specific form and part of the complex economic policy of the nations (supra-national unions etc.) aimed at the effective participation of agrar sector in economic and social development of the given country with respecting the specific features of agriculture and food production. Basic questions: Are these specifics important enough to justify existence of the specific economic policy of agrar sector ?

19. Is any special agricultural policy necessary ? Yes, of course ! No, why ?

20. Possible answers: “NO“ “ Who wants to support farmers, let him do it as a voluntary charity. … What would happen with the unused agricultural land if agriculture is reduced? Nothing tragic, it would be used in another way. What way, it should depend only on the decision of the owners, not on the government, the nation, the party, people or the like. There does not exist anything like our agriculture, our land, our trade balance, but only my land, my firm, my purse. If everybody behaves with regard to this, it would be to the enormous profit of everybody and the communism would be long dead.“ From the article “Jsou čeští zemědělci vyděrači nebo hrdinové?“, HN, 2003 Vilém Barák

21. Possible answers: “YES” Mariann Fischer Boel Present EC high commissary for agriculture, fishery and rural areas development Franz Fischler Former EC high commissary for agriculture, fishery and rural areas development

22. What main categories of economic policies can there be ? • The basic one is the • legal frame of the economy. With special regard to agriculture, most countries have got a special Act on Agriculture. E.g. In the CR, it is the Act on Agriculture No.252/97 Coll.from September 24, 1997, ammended by the Act No.85/2004 Coll. from February 19, 2004

23. Basic types of economic policies with regard to agriculture • Market regulation (liberalisation) of both domestic and foreign trade • Policies regarding production factors • (land, labour, capital) • Food and nutrition policy • Environment and sustainable development policies • Structural and regional policy • Economic integration and its tools • Complex short-, medium- and long-term policy of the sector

24. EU Common Agricultural Policy • Europe’s agricultural policy is determined at the EU level by the governments of Member States and operated by the Member States. It means that it is the so-called communitary policy • It is aimed at supporting farmers’ incomes while also encouraging them to produce high quality products demanded by the market and encouraging them to seek new development opportunities,such as renewable environmentally friendly energy sources.

25. Why any common European agricultural policy? • Agriculture and forests cover the vast majority of the territory and play a key role in determining • The health of rural economies as well as the rural landscape. • Europe is both a major exporter and the world’s largest importer of food, mainly from developing countries; it is important that the European farming sector uses safe, clean, environmentally friendly production methods providing quality products to meet consumers’ demands; • The EU farming sector serves rural communities and their sustainability.

29. THE ORIGINAL CAP • The CAP was created in 1957 under the Treaty of Rome and started operating in 1962. It had its roots in the post-war Western Europe, whose societies had been damaged by years of war, and where agriculture had been crippled and food supplies could not be guaranteed • The emphasis of the early CAP was on encouraging better agricultural productivity so that consumers had a stable supply of affordable food and ensure that the EU had a viable agricultural sector

30. THE ORIGINAL CAP • The CAP is also a form of protectionism designed to defend European producers from cheaper products outside the EU. • This was done by subsidising agricultural produce but also by the EU deterring imports from outside the EU with a system of import tariffs on one hand and export subsidies on the other.

31. THE ORIGINAL CAP • The CAP offered subsidies and systems guaranteeing high prices to farmers, providing incentives for them to produce more. • Financial assistance was provided for the restructuring of farming, for example by subsidising farm investment in favour of farm growth and management of technology skills so that they were adapted to the economic and social conditions at the time. • Later on, certain measures were introduced in the form of help for early retirement, for professional training and in favour of less favoured regions.

32. However, the CAP was very successful in meeting its objective of moving the EU towards self-sufficiency up to the 1980s. Then, the problems started mounting: • almost permanent surpluses of the major farm commodities, which were exportedwith the help of subsidies, others stored or disposed of within the EU with more subsidies (“food mountains“) • resulting high budgetary cost • distorting some world markets by export subsidies criticised by the GATT, namely diring the Uruguay Round (1986-1994) • the policy unpopular with consumers and taxpayers • non-balanced support of big and small farms • increasing concern about the environmental sustainability of agriculture, namely after the Rio Earth Summit (1992)

33. The CAP had to change… but the change is slow and painful • Production limits, namely milk quotas introduced in 1983 • New emphasis placed on environmentally sound farming • MacSharry reform in 1992 cutting down intervention prices – however, not very consequential • “Agenda 2000” reform in 1999, deepening the MacSharry reform and including also rural development policy, ceiling was put on the budget

36. Because of the farmers protests, namely in France, the final decision was a compromise

37. Reform proposals

38. The reform has two areas (pillars) MARKET AREA HORIZONTAL AREA

39. FRANZ FISCHLER the then EU high commissionnaire for agriculture, fishery and rural development and a former minister of agriculture of Austria • The main idea of the reform is aiming at sustainable agriculture based on the environment protection standards • The European model of agriculture.

40. The European Model of Agriculture Multifunctional, competitive and stabilising sector based on 4 pillars: • 1. pillar: Sustaining the maximum possible area of agriculture and decreasing differences between regions • 2. pillar: Development of multifunctional agriculture aimed not only at agricultural production but also countryside and non-agricultural activities • 3. pillar: Existence of viable agricultural enterprises • 4. pillar: Deeper interrelation of agriculture and rural development

41. 3. CAP reform(Mid-Term CheckorAgenda 2006) • Passed in June 2003 as a result of the Conference of Ministers in Luxembourg • It was not planned, but it was accepted after the so-called mid-term evaluation of the Agenda 2000, which found it in need of further improvement

42. Key elements of the reformed CAP • “decoupling“ • "cross-compliance“ • “modulation“ • “modelling“ • mechanism for financial • revisions to the market policy of the CAP

43. Limited (abolished) relationship between direct payments and production volume -“decoupling“ Key elements • Complex decrease of direct payments at the differentiation according to farm size and type - • degressivity plus modelling • Direct payments cnditioned by environment protection - • “cross-compliance“ Shift from the stress on agriculture to rural development- modulation

44. Key elements of the reformed CAP • “decoupling“ - a single farm payment (SAPS) for EU farmers, independent from production; limited coupled elements may be maintained to avoid abandonment of production and also temporarily in the new member countries They are also allowed national “top-ups“ to the single area payment, as they started at only 25% level

45. Key elements of the reformed CAP • "cross-compliance“ – the Single Area Payment Scheme (SAPS) is linked to the respect of environmental, food safety, animal and plant health and animal welfare standards, as well as the requirement to keep all farmland in good agricultural and environmental condition.A strengthened rural development policy with more EU money, new measures to promote the environment, quality and animal welfare and to help farmers to meet EU production standards starting in 2005 is introduced

46. Key elements of the reformed CAP • “modelling“ - a reduction in direct payments for bigger farms to finance the new rural development policy. This is not applied to the new members yet, as their average farm size is different • a mechanism for financial discipline to ensure that the farm budget fixed until 2013 is not overshot

47. Key elements of the reformed CAP • revisions to the market policy of the CAP: • symmetric price cuts in the milk sector • reduction of the monthly increments in the cereals sector by half, the current intervention price will be maintained, • reforms in the rice, durum wheat, nuts, starch potatoes and dried fodder sectors.

48. How much does the CAPcost now? • The cost of the CAP can be measured in two ways: there is the money paid out of the EU budget, and the cost to the consumer of higher food prices. • The EU will spend 49bn Euros on agriculture in 2005 (46% of the budget), while the OECD estimated the extra cost of food in 2003 at 55bn Euros. • The CAP budget has been falling as a proportion of the total EU budget for many years, as European collaboration has steadily extended into other areas. It has been falling as a proportion of EU GDP since 1985.

50. How much does the CAPcost now? • EU member states agreed in 2002 that expenditure on agriculture (though not rural development) should be held steady in real terms between 2007 and 2013, despite the admission of 10 new members in 2004. • This means that the money paid to farmers in older member states begun to decline after 2007. Overall, they will suffer a 5% cut in the 2007-13 period. . • Agricultural expenditure declined slightly in 2004, as compared with 2003 but has jumped in 2005 as a result of the admission of 10 new members. Under the EU budget 2007-13, it will peak in 2008/2009, in nominal terms, then decline until 2013.