Common Agricultural Policy Reform

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Common Agricultural Policy Reform
..the beginning of a new era.. Dr Franz
Fischler, 26th June 2003
Ciaran Gannon, Rural Development Service York and
North Yorkshire Research Forum Harrogate , 5th
February 2004
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CAP Reform.

• The evolution of CAP, its impact and pressure
  for reform (specifically WTO
  Enlargement)
• Overview of the reform package announced on 26th
  June 2003..
• New challenges..!
• Possible on-farm response in the Regions..

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Foundation of the CAP

• 1957 Treaty of Rome agriculture a special
  concern
• low incomes
• declining rural areas
• high share of employment
• consumers expenditure
• food security
• strong political lobby

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CAP Objectives

• (Article 33 of the Treaty of Rome)
• increase agricultural productivity to ensure a
  fair standard of living for agricultural
  producers
• stabilise markets
• assure availability of supplies
• ensure reasonable prices to consumers

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3 main elements of CAP agricultural support and
protection
Domestic Support Intervention Buying
FORTRESS EUROPE
Supply Management Export Subsidies
Market Access Import Tariffs
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CAP Impact...

• farmers responded by intensifying production
• resulting in surplus product which had to be
  stored and eventually used or exported incurring
  high costs
• in some cases intensification of agricultural
  production led to environmental damage
• friction with other suppliers to the world market
  who were not so reliant on subsidy - EU accused
  of dumping subsidised products on Less Developed
  Countries...

An example of CAP impact on LDC..
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impact of dumping surplus production milk regime
the Jamaican dairy sector

• Since 1995, annual milk production in Jamaica has
  dropped by a third as the local market has become
  awash with subsidised EU milk powder.
• Jamaican processors have turned their backs on
  local dairy farmers, preferring to use cheaper
  milk powder from Europe instead.

According to CAFOD, EU dairy policy has been
directly responsible for destroying the small
dairy industry in Jamaica. ..they and other
lobby groups hoped the WTO would deliver.
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• New alliances (G-22) challenging the USA EU
  hegemony over the world trading system.
• apparent at the WTO meeting in Cancún, last
  September which sought and failed to obtain a
  global consensus on trade agriculture

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(No Transcript)
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Back to the CAP how has it responded to
problems in the past ?
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Slowly but with some effect..

• Various reforms introduced since mid-1980s
• supply control mechanisms have been introduced
  e.g. set-aside and milk quotas
• intervention prices cut and producers given
  direct payments in compensation
• environmental payments introduced for
  environmentally beneficial forms of farming
• rural development and diversification encouraged

The emergence of pillar 2 and the green box.!
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World Trade Organisationsupport boxes EU CAP
CAP Pillar 1 - 90
CAP Pillar 2 - 10
Amber Box
Blue Box
Green Box
CAP Movement since 1992 Amber to Blue box
(McSharry) to Green box (Agenda 2000) support

• Trade Production
• Distorting
• Intervention Buying
• Refunds to Export
• Import Duties Charged
• TO BE OUTLAWED

• Production Linked
• Arable Area Payments,
• Livestock Headage Payments
• TEMP. ALLOWED

• Production Neutral
• Rural Development Regulation, incl.
• Agri-environmental schemes and Hill Farm
  Allowance
• ALLOWED

20 CAP Budget
70 CAP Budget
10 CAP Budget
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Agenda 2000 (the last CAP reform agreement)

• further reduction in intervention support..
• introduced the Rural Development Regulation
  (the 2nd Pillar of the CAP)...
• foresaw the need for reviewing progress via a Mid
  Term Review.

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WTO agenda increases the political pressure for
reformbut
budgetary concern is another key driver for
change, all the more pressing with an enlarged
EU.
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CAP Cost - 42 billion

• of which
• 10 bn on market price support
• 28 bn on direct payments
• 4 bn on rural development AE schemes
• plus cost to EU consumers (OECD)
• approximately 48 bn
• supporting an EU of 15 Member States,
  BUT.

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on 1st May 2004 10 New Member States (with 4
million farmers) plus Romania and Bulgaria in
2007!
Employment in agriculture.. UK - 4 _at_ 2 EU - 15 _at_
4.3 CC - 12 _at_ 22
The new Member States are hoping that CAP can
deliver!
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From a UK Perspective has CAP delivered?

• Approximately 3 billion annual cost,
• but has not resulted in a profitable and
  expanding farming sector...

UK Farm Incomes 1973 - 2002
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Momentum for CAP reform..

• June 2002 CAP Mid Term Review of Agenda 2000
  just a routine exercise?
• July 2002 MTR proposals far more radical than
  envisaged (the Fischler reforms..!)
• October 2002 France/ German agreement on capping
  CAP budget upto 2013, forced a rethink on MTR
  detail
• January 2003 legislative text for CAP Reform
  published
• Pressure to deliver a package by the end of June
  (Greeks) and in time for the WTO meeting in
  September in Mexico.

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SoS statement 26th June 2003

• The agreement today delivers what we wanted -
  real change..
• It was essential that we agree the reforms in
  time to engage positively in the WTO negotiations
  on agriculture at the WTO Ministerial in Cancun
  in September...
• We have met our main objectives. This is a good
  outcome which will take forward our strategy to
  provide a sustainable basis for EU agriculture
• Margaret Beckett, SoS Defra

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Reform should.. legislative text January 2003

• encourage farmers to produce what the market
  wants, getting away from farming for subsidies
• remove the environmentally negative incentives of
  the current policy
• improve and provide encouragement for more
  sustainable farming practices