1' The Midterm Review of the CAP

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1. The Midterm Review of the CAP

• Issues and options
• Franz Fischler

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2. What do we want from the CAP?

• Where supporters and most critics of the CAP
  agree
• The general policy objectives of the CAP are
  valid
• agriculture should be competitive
• production methods should be environmentally
  friendly, able to supply quality products
• diversity should characterise agriculture in
  order to maintain visual amenities and support
  rural communities
• simplicity and subsidiarity should characterise
  agricultural policy
• justification of support should come through the
  provision of services that public expects farmers
  to provide
• ? But the question is how to best achieve these
  objectives?

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3. An outdated criticism

• CAP is bad from the developing world perspective
• Yet...
• EU imports most of agricultural exports from the
  developing world
• Core of EU agricultural exports are high
  value-added products
• EU net-export market share declined in every
  major sector
• EU market access is up in every sector
• EU export subsidies are reduced, and will
  continue to do so
• EU food aid is strictly linked to import demand
  needs

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4. Trade with developing countries
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5. EU net-export market share
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6. A contestable criticism

• CAP is bad from a WTO perspective
• Look at the facts and consistency in policy
  direction
• EU focus on improving policy tools under fixed
  budget constraint
• US focus on maximizing budget outlays with fixed
  policy tools
• All policies will have to meet same WTO
  constraints
• EU AMS to decline further under Agenda 2000
• US AMS close to ceiling,, risks exceeding it
  under new farm bill

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7. A misplaced criticism

• CAP is bad from a consumer perspective
• Yet
• consumers pay at the retail level, but price
  transmission is low
• cannot expect simultaneously high quality and low
  price for EU food products
• Someone has to pay for additional cost of quality
• income-neutral market reform improved market
  balance
• EU farm prices have significantly declined in
  reformed sectors

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8. EU farm price evolution

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9. Resolving the following dilemma...

• Implications of a competitive agricultural sector
• efficiency of production ? production cost and
  farm size relevant
• competitiveness in world markets ? lower product
  price relevant
• Implications of a quality agricultural sector
• higher cost of production ? higher product price
• real demand for quality essential ? consumer has
  to pay

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10. ...could lead to different approaches

• 1. The Scrap the CAP approach
• ? The relevant policy question is WHEN to STOP
  support of agriculture at the EU level
• main elements
• process of gradual budgetary decline seen as main
  objective
• adapting CAP instruments means of meeting budget
  objective
• gradual re-nationalisation of agricultural policy
  a variant
• 2. The policy Nirvana approach
• ? The relevant policy question DOES NOT EXIST
• CAP is fine as it is
• (at least until 2006, then well see)

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11. Our preferred approach

• CAP as the framework to balance agreed objectives
• ? The relevant policy question is NOT IF, but HOW
  to continue support for EU agriculture
• focus on how our policy instruments enhance
• market orientation
• environmental benefits
• food safety
• quality
• rural development

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12. Market sectors and the MTR (a)

• Arable crops issues
• oilseeds nothing specific needed to answer the
  protein question
• cereals further 5 drop in intervention price
• what impact for border protection?
• how to solve the rye oversupply problem?
• what to do with level of durum wheat aid and
  quality problems?
• Beef sector issues
• market support system (public intervention)
  already phased-out
• direct aids scheme too complex - should we
  simplify/decouple?

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13. Market sectors and the MTR (b)

• Dairy policy issues
• only possibility to present options for the
  post-2008 dairy regime
• are short-term support price adjustments
  possible?
• Other market issues
• what to do with rice (market imbalance, EBA)?
• what to do with the dried fodder regime?
• proposals expected for sugar, olive oil, tobacco
  in 2003
• proposals possible for wine, fruit and vegetables
  in 2003

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14. Rural development and the MTR

• Transfer of funds from first to second pillar (1A
  to 1B)
• how to transfer (modulation vs degressivity,
  shift of measures, payment ceiling)?
• how much to transfer from 1A to 1B?
• what can be absorbed under present Rural
  Development rules?
• What to do with additional funds?
• are present rural development instruments
  sufficient?
• is there scope for additional measures to promote
  quality?
• how to deal with co-financing?

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15. Wider questions and the MTR

• Cross-compliance
• objective is to link support to specific minimum
  obligations
• which obligations advance environment, quality,
  food safety?
• Promoting quality
• what measures best suited to meet this objective?
• The decoupling issue
• what objective is decoupling meant to achieve?
• are there more than one ways to decouple?
• how is decoupling linked to obligations of
  cross-compliance?

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16. What to conclude?

• MTR is not a pro forma paper exercise
• Its impact extends beyond the simple production
  of food
• CAP objectives can neither be achieved without
  policy, nor with 15 (or more) competing policies
• CAP instruments need to be adjusted based on
  factual analysis of what is needed to best meet
  these objectives
• ? The midterm review next rendezvous