The CAP fit for new opportunities

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The CAP fit for new opportunities

• SAI Platform-CIAA
• Conference on Sustainable Agriculture
• 22-23 November 2007, Brussels
• Russell Mildon
• DG for Agriculture and Rural Development
• European Commission

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Outline of the Health Check Communication

• The CAP today
• A radically reformed policy
• A better performing policy
• But also a policy with room for improvement
• The role of the Health Check Communication
• Group together a series of review clauses of the
  2003 CAP reform
• Identify relevant policy questions
• Provide general orientation for eventual
  adjustments
• The three policy questions of the CAP Health
  Check
• How to simplify the Single Payment Scheme?
• How to improve market orientation?
• How to respond to new challenges?

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Assessing the CAP today

• A radically reformed policy
• Support mainly decoupled, and subject to
  cross-compliance
• Role of intervention significantly reduced
• Strengthening of Rural Development with funds and
  policy instruments
• A better performing policy
• Market imbalances and public stocks more of a
  (rare) exception
• Competitiveness improved and agricultural trade
  role transformed
• Further improvements to be addressed in the
  Health Check
• Make the Single Payment Scheme more effective,
  efficient and simple
• Adapt market instruments to meet new market
  opportunities
• Better respond to new challenges (climate change,
  biofuels, water scarcity)
• Improve response to existing challenges
  (biodiversity)

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Wheat prices have recently increased to reach
record levels in August 2007 (78 vs. August
2006)
Development of wheat prices in the EU and on
world markets (EUR/t).
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INDUSTRIAL USE OF GRAINS BY SECTOR
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After two decades of prices declining (in real
terms), the surge in cereal prices mainly result
from

• Supply side
• A combination of adverse climatic conditions
  (drought, excessive rains, frost kill )
• A slow down in yield productivity (mainly in the
  EU)
• Demand side
• Gradual rise in world cereal demand (income
  growth, urbanisation, dietary changes in many
  emerging markets)
• New markets (biofuel mainly in the US with
  30 mio t increase estimated for 2007, i.e. total
  80 mio t out of 330 mio t of maize EU only 4.5
  mio t in 2007/08)
• Further fall in global stocks to lowest levels in
  more than a decade

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supported by

• Supply-side factors
• Adverse climatic conditions (Australia -5, New
  Zealand 2)
• Significant undershoot of EU quota level for
  2005/06 and 2006/07 (most countries, including
  UK, FR) triggered by on-going restructuring
  (deliveries Jun/Jul -2/3 vs. 2006)
• Dairy market narrow market (only a small number
  of players and part of world production)
• Demand-side factors
• Continuing demand growth from emerging countries
  (change in dietary patterns, income growth,
  urbanisation)
• High demand from New Member States (2007 Cheese
  gt10 Fresh Dairy Products3-4 Butter gt2) and
  old Member States (lesser extent)

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Period of healthy prices caution is deemed
necessary

• Many structural factors (higher demand, biofuels)
  are expected to maintain prices at sustained
  levels (though at lower levels than now)
• But
• the best cure for high prices are high prices!
• record harvest of maize in the US this year
  (23)
• EU milk production should react (on-going
  restructuring)
• additional supply potential can be mobilised
  globally particularly in the developed world with
  higher intensities
• Therefore no risk of food shortages in Europe

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Agricultural prices lagged behind in the
development of consumer prices for food
Development of nominal agricultural producer
prices and consumer prices in the EU27 (Jan.
2000100)
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Share of agricultural raw product value in retail
product value(1970 2002, Germany)
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Long Term Prices bread and wheat (France) Jan
2000 1
12
This is why, historically consumer prices for
bread/cereal based products were hardly affected
by peaks in producer prices
Development of producer prices for bread making
wheat and consumer prices for bread and cereal
based products in the EU (Jan. 2000100)
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consumer prices of meat products steadily
increase while meat prices react with delay to
higher feed prices
Development of consumer prices for meat, producer
prices for beef, poultry, pork and feed barley,
EU (Jan. 2000 100)
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consumer prices for dairy products were hardly
affected by bulk commodity prices.
Development in the consumer prices for dairy
products, the producer prices for butter, cheese
and skimmed milk powder, EU (Jan. 2000 100)
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Share of food expenditure in total household
expenditure in the EU over the last decade
The impact consumers will be further limited by
the declining share of food in total household
expenditure.
16
Share of food expenditure in total household
expenditure by Member State in the poorest and
richest households in the EU-15 in 2001
but poorer households should be more affected
owing to different food shares in their spending
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Share of population at risk of monetary poverty
in 2005 (cut-off point 60 of mean income)
and the poorest part of the population will be
mostly affected .
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Share of food expenditure in total household
expenditure by Member State in 2005
with a mixed geographical impact
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• Higher agricultural prices can be expected to be
  transmitted to food consumer prices
• Moderate impact on average EU consumers
• Consumer food expenditure would increase by 1.1
  and its purchasing power would drop by 0.1
• However, in the extreme case that the exceptional
  August prices were to persist and to be fully
  transmitted, consumer food expenditure would
  increase by 9 and its purchasing power would
  drop by 1.1
• Low-income households to be more affected (higher
  share of food expenditure and less flexibility to
  adjust)
• If many structural factors point to a sustained
  price environment over the medium-term, risks of
  shortage of food appear low (as supply potential
  can be mobilised and high prices should lead to
  higher production)

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Orientation of the Health Check

• Simplifying the SPS
• Allow MS to move towards a more flat rate support
• Qualify the scope of cross-compliance
• Further decouple remaining product-linked support
• Introduce payment limitations
• Adjusting to new market opportunities
• Remove last elements of supply control mechanisms
  
• set-aside, soft-landing of dairy quotas, specific
  CMO questions
• Identify sectors where more targeted policies are
  needed
• Responding to new challenges
• Identify and strengthen relevant policy
  instruments
• Strengthen second pillar with increased
  modulation
• Clarify needs and policy instruments for risk
  management

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Simplifying the Single Payment Scheme

• Single Payment Scheme simplification
• Some simplification possible as a result of
  implementation experience
• Extension of SAPS to 2013 also an option for
  EU-10
• Complete decoupling, except where
  regional/environmental/social costs evident
• Examine scope of cross-compliance
• Qualify relevance of Statutory Management
  Requirement (SMR) provisions
• Examine, possibly amend existing SMR/GAEC (Good
  Ag Env Cond.) list
• Upper and lower payment limitations
• Upper limits a perceived equity issue who gets
  what?
• Lower limit a farmer-by-default issue who gets
• In both cases, savings stay within MS to address
  new challenges

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Grasping new market opportunities

• Adjust cereal intervention
• Limit intervention only to one cereal - bread
  wheat
• Extend maize model (restricting intervention
  quantities to zero) to all feed grains
• Abolish set-aside
• Abolish set-aside so that supply can expand to
  meet growing demand
• Identify measures that retain/enhance its
  environmental benefits
• Phase-out dairy quotas
• Prepare the soft-landing of quota abolition
  through gradual quota increases
• Consider any adjustments in other instruments
  based on impact study
• Propose measures mitigating negative impact on
  specific regions
• Evaluate other supply control/production linked
  mechanisms
• Identify lists of measures for shift towards the
  SPS
• Examine whether valid cases exist for
  retaining/modifying existing support

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How to manage risks

• Price-related risks
• Price-related risks best addressed by 1st pillar
  measures
• low price risks addressed by safety net
  intervention
• price variability mitigated by decoupled income
  support
• high price risks best addressed if supply
  controls are abolished
• Production-related risks (weather/animal disease)
• Need more targeted approach
• Existing MS-approaches need to be respected
• Instruments already exists under RD measures
• No EU-wide one-size-fits-all solution available
• Such risks vary by MS/region or even sector
• Some may increase with climate change
• need to examine/enhance existing possibilities
  within MS and/or RD measures

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Meeting new challenges

• Why the need to face new challenges?
• Climate change imposes both mitigation and
  adaptation challenges on agriculture
• Implications are linked to bio-energy demand,
  water scarcity, risk management
• How to face new challenges?
• Strengthen and, where appropriate, adapt existing
  instruments
• Identify measures that contribute to
• improving water management
• developing renewable energies
• Retaining the environmental benefits of set-aside
• The need to strengthen the second Pillar
• Since 2003 reform, needs for RD funds increased
  with new challenges
• Since 2003 reform, RD funds were reduced with
  respect to what was foreseen
• Increase in modulation is the only available way
  to meet new needs
• EU-15 should increase modulation by 8 over
  2009-2012, based on present distribution key
• EU-10 should apply modulation only when direct
  payments reach full level (2012)
• Modulation does not apply for EU-12 during this
  period

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Conclusions

• What is the scope of the Health Check?
• To propose adjustments that do not constitute a
  fundamental reform
• To fine-tune the 2003 reform during the 2009-2012
  period
• To contribute to the discussion on future
  priorities in the field of agriculture
• What is the link to the Budget Review?
• Communication outlines the Commission approach on
  the Budget Review
• The Health Check constitutes a preparatory
  action within this framework
• Next steps
• Propose public dialogue with stakeholders
• Finalise on-going impact analysis of alternative
  options
• Submit appropriate proposals in the spring of
  2008

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For further information

• CAP Health Check
• http//ec.europa.eu/agriculture/healthcheck/i
  ndex_en.htm
• EU agriculture and CAP reform
• http//ec.europa.eu/agriculture/index_en.htm
• Economic Analysis and Evaluation
• http//ec.europa.eu/agriculture/analysis/index_en
  .htm
• Agricultural Policy Analysis and Perspectives
• http//ec.europa.eu/agriculture/analysis/perspec/
  index_en.htm