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Common Agricultural Policy of the European Union

Common Agricultural Policy of the European Union. 17 April 2010 Pieter Verhelst Study department Boerenbond. Overview. Why have an agricultural policy? Which instruments are needed? CAP: foundations CAP: critical evolutions CAP: today CAP: challenges after 2013. 2.

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Common Agricultural Policy of the European Union

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  1. Common Agricultural Policy of the European Union 17 April 2010 Pieter Verhelst Study department Boerenbond

  2. Overview • Why have an agricultural policy? • Which instruments are needed? • CAP: foundations • CAP: critical evolutions • CAP: today • CAP: challenges after 2013 2

  3. Why have an agricultural policy? 3

  4. 29

  5. Why is agricultural policy needed? • To ensure food security at all times • while responding to societal requirements and expectations • at a reasonable price for consumers This is only possible if: • The singularity of the agricultural sector is recognised • farmers can realise a fair income 21

  6. Ensuring food security… • Vulnerable due to external political, economic and strategic decisions beyond our control • Absolute food security can only be ensured by building up or maintaining a high degree of self-sufficiency • This is difficult in a free world market environment when the region does not have a comparative advantage • Government must therefore intervene to compensate for this comparative disadvantage 22

  7. …whileresponding to societalrequirements and expectations • The agricultural sector not only produces food, but also a wide range of extra goods and services • With the production of these goods and services, both from a private and public nature, the sector responds to societal requirements and expectations • Societal requirements are legally binding standards • Base line codified in international standards: cost is internalised • European standards go beyond international standards: public good • Governments must intervene in order to ensure the production of these public goods • Social expectations go beyond legal standards • Market driven: willingness to pay • Governments can facilitate and incentivise 23

  8. Singularity of the agricultural sector • Farm continuity – and therefore food security – is threatened by • An insufficient price level • Weak position of the agricultural sector in the agro-food chain • The natural environment strongly influences the type of production and the productivity (agriculture in urbanised areas) • Increased price fluctuations • Inelasticity of the agricultural market creates strong price fluctuations • Climatological conditions, diseases and pests can heavily compromise production • Low return on investments is only viable in a stable market environment • Therefore, remedial action is necessary 27

  9. Which instruments are needed?

  10. Which instruments are needed? • Measures correcting market failure so that additional costs are compensated by the market • Direct government intervention for the producer for that part of the additional cost that's not compensated through the market • Policies stabilising the inherent instability of the agricultural market • Enabling policy so that farmers continue to invest in efficiency improvement and fulfilling societal expectations A mix of these instruments is needed to meet the agricultural policy's objectives 30

  11. Sufficient price level • Market correcting measures • Supply side • Import duties • Ensuring a sufficient degree of self-sufficiency • Quota • Not effective for most sectors in current WTO framework • Producer organisations  Strengthen position in the food supply chain • Combining supply and keeping more added value in the agricultural sector • Must be a means and not an end • Inter trade agreements  Agreements within the food supply chain • Respect for the singularity of the agricultural sector through the entire food supply chain • Demand side • Quality and promotion policy • Only as complementary policy, insufficient as core policy 31

  12. Sufficient price level • Direct government intervention • Compensation for extra costs that are not compensated by the market due to • The specific natural situation • The specific product and process norms • Fair income • = market price + direct government intervention 33

  13. Price stability • Export stabilization • Protection of competitively established export positions against exchange rate fluctuations • Strategic stock management for basic agricultural products • Absorb baleful price peaks and drops • Temper sales during strong price increases • Supportive purchases during strong price drops • Without blocking the fundamental price signal • Limited quantities • Graduality • Insurance systems • Covering production risks like diseases, plagues and climatic conditions is achievable and affordable • Reciprocity and substantial government input are needed to keep premiums reasonably low: public-private partnerships 34

  14. Enabling policy • Agricultural investment fund • To ensure food security in the interest of consumers in the most efficient way • And to promote societal desirable investments in the interest of citizens • Agro-environmental measures • Societal expectations must be included as agro-environmental measures via an enabling policy stimulating investment avoiding direct translation into social requirements (= additional regulation) • Export credits, export guarantees, export promotion and prospecting • To stimulate and guarantee competitive export 35

  15. How much money is needed? • The current European budget includes most of the abovementioned instruments • but they are often reduced and must be reoriented and/or reinforced • or they were recently added to the CAP and must be further developed and financially strengthened in the future • A reinforcement of the current agricultural budget is vital • This also implies that the budget is indexed in order to retain the policy's strength in the future. 36

  16. CAP: foundations Base: Treaty of Rome (1958) Treaty of Lisbon (2009)

  17. CAP = markets policy (price, income)

  18. CAP = markets policy (price, income)+ structural policy

  19. Foundations of the CAP • Single market for agricultural products • Community preference • Food supply firstly from within Europe, markets outside Europe as last resort • Financial solidarity • Common financing of the CAP

  20. CAP: critical evolutions

  21. Evolutions in the CAP • Until 1992: two prices policy, within and outside the EU • Markets and price policy + investment policy • = indirect income support • From the ’80 onwards: restriction of production • Measures e.g. quota, set aside, stabilisers • From 1992: gradually evolving from a two prices policy to a one price system • Partially compensated • Starting with support still coupled to production • From 2005 onwards gradually decoupled • = direct income support • + rural development policy = also a compensation

  22. Reasons for those evolutions • Pressure from inside agricultur • WTO • Budget • Enlargment • Pressure from outside • Surplusses • Large and small (Matthew effect) • Biodiversity – rural areas

  23. CAP: today

  24. CAP: today • 1ste pillar: agricultural policy • Market support • Export subsidies • Intervention • Private storage support • Processing aid • Food aid • Promotion • School milk, -fruit and –vegetables • Producer organisations • Direct support • SPS – EU 15 • SAPS – EU 12 • Coupled payments • 2de pillar: rural development • Axis 1: Increasing the competitiveness of the agricultural sector • Axis 2: Enhancing the environment and countryside through support for land management • Axis 3: Enhancing the quality of life in rural areas and promoting diversification of economic activities • Axis 4: Leader

  25. Financial framework 2007-2013 Bron: EU COM, DG Budget Landbouw Plattelandsontwikkeling Visserij Milieu EU budget 1,03% of GNI

  26. EU budget 2010 Agriculture: 43,8 billion euro Rural development: 14,4 billion euro 43 % of the budget Bron: EU COM, DG Budget

  27. 2008

  28. CAP: challenges after 2013

  29. Why discussion on CAP after 2013? • Multiannual financial framework 2007-2013 • Some MS asked and got a MTR of the budget and a debate on the CAP • 2008: public consultation on budget and policy • November 2009: Commission non-paper on budget and policy • Fall 2010: Commission communication on CAP and financial framework 2014-2020 • 2011: legislative proposals on CAP and financial framework 2014-2020 • 2011-2013: political debat between Commission – Council – European Parliament • 1 January 2014: reformed CAP

  30. General context • The institutional context • New European Parliament and Commission • Lisbon Treaty • WTO prospects • New financial perspectives • The general context of the CAP debate • The question about the “C” in the CAP • The debate about the two pillar structure of the CAP • The post Health Check of the CAP debate • Volatility in agricultural production and prices • Impact of the economic crisis on agriculture • Food security in the context of climate change and limited resources

  31. 5 evolutions towards 2013 • Pressure on the EU budget as a whole • Pressure on the agricultural budget in particular • Pressure from the New Member States • Pressure on the first pillar • Pressure on axis 1 of the second pillar

  32. 1. Pressure on the EU budget • Net payers do not want to see their position deteriorate • Net receivers cannot contribute more • All governments invested heavily to overcome the fin.-ec. Crisis • Budgetary discipline under control of the EU while weighing more on the budget with a higher contribution to the EU? • New competences and challenges, but no more financial means • Discussion on own European financial resources? • Political preference to have national policies

  33. Bron: EU COM, DG Budget – eigen berekeningen

  34. Bron: EU COM, DG Budget

  35. Financing the EU budget BE 4,6 bio Bron: EU COM, DG Budget, EU begroting 2010, bijdrage BE 2008

  36. 2. Pressure on the CAP budget • New competences and challenges, but no more financial means • As a consequence redistribution and reorientation of available the budget • CAP budget takes a big share of the total budget • Share of CAP in the EU budget fell from ca. 70 % to an average of 43 % in the current financial framework

  37. Bron: EU COM, DG Budget

  38. 3. Pressure from the new Member States • The CAP is a common policy for all 27 Member States • Except for the direct payments • EU 12: single area payment, SAPS • EU 15: payment based on historical rights, SPS • The EU 12 want a common policy on this aspect too • Therefore EU 12 want one European flat rate for all European agricultural hectares • This would cause a considerable transfer of money from the EU 15 to the EU 12 • Other factors have to be taken into account: cost structure, currency, weight of agriculture in the economy,…

  39. Average payment per hectare per MS Bron: EU COM, DG Agri

  40. Weight of total CAP budget for the agricultural sector EU15: 44,6 billion euro EU12: 6,4 billion euro As % GNI EU15: 0,39 % EU12: 0,68 % As % of agricultural share in GNI EU15: 34% EU12: 26% Bron: EU COM, DG Budget – eigen berekeningen – 2008

  41. 4. Pressure on the first pillar • New competences and challenges, but no more financial means • New challenges integrated in CAP: climat, energy, biodiversity, water, environment, nature, animal welfare,… • Mostly in the secon pillar, rural development • Financing: modulation of first pillar = cutting direct payments • New market management instruments • No extra budget => modulation of direct payments • E.g. insurrance systems • After 2013 producer organisations and other means of cooperation? • Redistribution of direct payments • From a historical reference to another distribution mechanism: simpler, more transparant, societal acceptable

  42. 5. Pressure on axis 1 of pillar 2 • The European Rural Development policy offers a range of measures centred around 4 goals: “4 axes of the RD-program” • The European regions choose among those options in their regional rural development plan given their specific needs • The Flemish region focuses maximal at axis 1: investment support • The main focus of the EU27 however lays at axis 2: enhancing the environment and countryside • Axis 3, enhancing the quality of life in rural areas and promoting diversification of economic activities : in CAP or Cohesion Policy?

  43. Programma voor Plattelandsontwikkeling Vlaanderen (2007 – 2013) Goedgekeurd door de Vlaamse Regering op 27 oktober 2006. 430 p.

  44. Weight of axes in regional RD plans Bron: EU COM, DG Agri

  45. Agriculture in theWorld Trade Organisation

  46. Overview • What is the WTO? • What are the negotiations about? • How to they negotiate? • The Doha Development Round • Agriculture in the Doha Round • Impact on agriculture • Arguments against the current WTO proposals

  47. World Trade Organisation • Bretton Woods 1944 • IMF, World Bank and WTO as 3 pillars for a stable world economy • Only IMF and World Bank started • Forerunner: GATT47 • WTO as an institution finally started in 1995 • 153 country-members • Goals: • Prepare a more free world trade system • Agricultural products, industrial goods, services,… • Control previous agreements • Enforce compliance

  48. Issues negotiated • Domestic support • CMO, direct payments, investment support, rural development • Market access • Import tariffs, import quota • Export competition • Export subsidies, export credits, food aid, state trading enterprises

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