Common Agricultural Policy
of the European Union
17 April 2010
Pieter Verhelst
Study department Boerenbond
1
Overview
•
•
•
•
•
•
2
Why have an agricultural policy?
Which instruments are needed?
CAP: foundations
CAP: critical evolutions
CAP: today
CAP: challenges after 2013
Why have an agricultural policy?
3
Food security
in compliance
with societal
requirements
Singularity of
the agricultural
sector
Fair income
29
4
Reasonable
consumer price
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
5
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
6
…while responding to societal
requirements 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
23
7
 Market driven: willingness to pay
 Governments can facilitate and incentivise
Singularity of the agricultural sector
• Farm continuity – and therefore food security – is
threatened by
 An insufficient price level
o Weak position of the agricultural sector in the agro-food chain
o The natural environment strongly influences the type of production
and the productivity (agriculture in urbanised areas)
 Increased price fluctuations
o Inelasticity of the agricultural market creates strong price fluctuations
o Climatological conditions, diseases and pests can heavily compromise
production
o Low return on investments is only viable in a stable market
environment
27
8
• Therefore, remedial action is necessary
Which instruments are needed?
9
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
10
30
Sufficient price level
• Market correcting measures
 Supply side
o Import duties
– Ensuring a sufficient degree of self-sufficiency
o Quota
– Not effective for most sectors in current WTO framework
o 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
o 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
31
11
o Quality and promotion policy
– Only as complementary policy, insufficient as core policy
Sufficient price level
• Direct government intervention
 Compensation for extra costs that are not compensated by the
market due to
o The specific natural situation
o The specific product and process norms
• Fair income
 = market price + direct government intervention
12
33
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
o Temper sales during strong price increases
o Supportive purchases during strong price drops
 Without blocking the fundamental price signal
o Limited quantities
o Graduality
• Insurance systems
13
34
 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
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
14
35
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.
15
36
CAP: foundations
Base:
Treaty of Rome (1958)
Treaty of Lisbon (2009)
16
CAP = markets policy (price, income)
17
CAP = markets policy (price, income)
+ structural policy
18
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
19
CAP: critical evolutions
20
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
22
o
o
o
o
Starting with support still coupled to production
From 2005 onwards gradually decoupled
= direct income support
+ rural development policy = also a compensation
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
2de pillar: rural development
•Market support
•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
Export subsidies
Intervention
Private storage support
Processing aid
Food aid
Promotion
School milk, -fruit and –
vegetables
Producer organisations
•Direct support
25
SPS – EU 15
SAPS – EU 12
Coupled payments
Financial framework 2007-2013
Bron: EU COM, DG Budget
Landbouw
Plattelandsontwikkeling
Visserij
Milieu
26
EU budget
1,03% of GNI
EU budget
2010
Agriculture:
43,8 billion euro
Rural development:
14,4 billion euro
43 % of the budget
27
Bron: EU COM, DG Budget
2008
28
29
CAP: challenges after 2013
30
Why discussion on CAP after 2013?
31
• 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
General context
32
• 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
5 evolutions towards 2013
1.
2.
3.
4.
5.
33
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
1. Pressure on the EU budget
34
• 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
EL 6,280
Net payers position to EU per Member State, 2008, in EUR million
+7,000
PL 4,442
+6,000
CZ 1,178
HU 1,112
LT 843
SK 726
IE 566
LV 407
EE 227
+1,000
SI 114
MT 30
+2,000
BG 670
ES 2,813
+3,000
RO 1,581
+4,000
PT 2,695
+5,000
IT -4,101
-4,000
-5,000
FR -3,843
-3,000
NL -2,678
CY -18
LU -22
FI -319
AT -356
DK -543
BE -721
-2,000
SE -1,463
-1,000
UK -844
+0
-6,000
EU 15
-7,000
-8,000
35
-9,000
DE -8,774
EU 12
België
Bron: EU COM, DG Budget – eigen berekeningen
36
Bron: EU COM, DG Budget
Financing the EU budget
BE
4,6 bio
37
Bron: EU COM, DG Budget, EU begroting 2010, bijdrage BE 2008
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
38
39
Bron: EU COM, DG Budget
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
40
• 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,…
Sweden
Austria
Slovakia
Poland
Spain
NMS12
Portugal
Lithuania
Romania
Bron: EU COM, DG Agri
Greece
Malta
Belgium
Netherlands
Denmark
Germany
Italy
Cyprus
Ireland
Hungary
France
Slovenia
Bulgaria
EU15
Luxemburg
EU27
Czech Republic
Finland
United Kingdom
41
Estonia
Latvia
Average payment per hectare per MS
600
500
400
300
200
100
0
Weight of total CAP budget for the agricultural sector
CAP budget as % of agricultural share in GNI
IE 106%
120%
100%
As % GNI
EU15: 0,39 %
EU12: 0,68 %
0%
Bron: EU COM, DG Budget – eigen berekeningen – 2008
PT 63%
FI 56%
LU 56%
SK 56%
CZ 52%
EL 52%
UK 51%
DK 45%
AT 44%
DE 43%
EE 35%
EU15 34%
FR 34%
SI 32%
BG 30%
LT 29%
ES 29%
HU 29%
BE 28%
PL 27%
IT 21%
RO 15%
NL 10%
42
CY 9%
20%
MT 8%
40%
EU12 26%
60%
As % of agricultural share in GNI
EU15: 34%
EU12: 26%
LV 49%
80%
SE 70%
EU15: 44,6 billion euro
EU12: 6,4 billion euro
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
43
 From a historical reference to another distribution mechanism: simpler,
more transparant, societal acceptable
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?
44
Programma voor
Plattelandsontwikkeling Vlaanderen
(2007 – 2013)
Goedgekeurd door de Vlaamse
Regering
op 27 oktober 2006.
430 p.
EU
45
Vlaanderen
Axis 1
33 %
67 %
Axis 2
46 %
17 %
Axis 3
17 %
9%
Axis 4
4%
6%
Weight of axes in regional RD plans
46
Bron: EU COM, DG Agri
Agriculture in the
World Trade Organisation
47
Overview
•
•
•
•
•
•
•
48
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
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
49
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
50
Sanitary en phytosanitary measures
• SPS-measures
– Codex Alimentarius: food safety
• Discussion on hormones, MRL’s, quality, hygiene,…
– World Organization for Animal Health: animal health and welfare
– International Plant Protection Convention
• International bottom line which has to be met if one wants
to trade
• Countries are allowed to have higher standards but cannot
enforce them on imports
– Unless there is scientific evidence for the measure
• Two different opinions:
51
– EU: safe product guaranteed through a safe production process
– US and ROW: safe end product
• EU: focus on non-trade concerns
Process of negotiation
• Negotiation rounds: 1947-…
– …, Dillon, Kennedy, Tokyo, Uruguay, Doha,…
– Agriculture only since Uruguay Round: 1995
• Fix ceilings
• Stepwise cuts
– Higher tariffs cut more steeply
– exemptions: sensitive products
52
• Firstly within vertical groups: only agriculture
• Then horizontal: everything together, one
agreement, single undertaking
• Finally ministerial conference: final agreement
Doha Round
• Started in 2001
• Failures
– Cancun: 2003
– Hong Kong: 2005
– Genève: 2008
• Vertical process still going
–
–
–
–
Agriculture: Falconer draft
NAMA: Stephenson draft
services: as good as nothing
…: nothing at all
• Horizontal negotiations?
– When will the US be ready?
53
• Two track approach as requested by the US:
– Continuation of the multilateral process: negotiations on modalities
– Parallel negotiations on a bilateral level on the specific
implementation of the modalities
Agriculture in the Doha Round
• Domestic support
– Amber box, support considered to distort production and
trade: -70 %
• Intervention, private storage aid,…
• After MTR and Health Check no problem
– Blue box, trade distortive support, but with constraints
on production or other conditions designed to reduce the
distortion: -50 %
• Coupled payments
• After MTR no problem
– Green box, not trade distortive : not limited
54
• R&D, investment support, rural development, but also
decoupled direct payments
Agriculture in the Doha Round
• Export competition
– Export subsidies
• To be eliminated by end of 2013
• EU: 90 % for dairy and sugar
• Limited impact
– Parallel issues: export credits, food aid,
state trading enterprises
• Revised provisions
55
Agriculture in the Doha Round
• Market access
– Cuts of tariffs
– Steeper cuts on higher tariffs: tariff reduction formula
•
•
•
•
0-20 %: - 50 %
20-50 %
: - 57 %
50-75 %
: - 64 %
> 75 % : - 70 %
– flexibilities:
• Sensitive products: smaller cuts
 Limited to 4 % of tariff lines
• Tariff quota: quantities inside the quota are charged lower or no duty
 3-4% of domestic consumption
• Special safeguard: extra protection
 SSG: cut to 1% of products and eliminate after seven years
 SSM: ability for developing countries to temporarily protect their producers
• Tropical products: accelerate liberalization
• Long-standing preferences: 10-year delay in starting tariff cuts
56
Impact on agriculture
57
• Imports increase
• Export possibilities decrease, especially
preferential exports because of preference
erosion
• Prices decrease
• Production volume decreases
• Production value decreases
• Jobs get lost
• Decrease of the agricultural income
Beef meat
58
Import of beef meat
• Reduction: 70 %
EU-price
59
13,0
13,0
World market price 5,1
5,1
Fixed tariff
3,7
1,1
Import price
8,8
6,2
Protection
68 %
48 %
Fob + freight cost, euro/kg, april 2008
Import of beef meat
•
•
•
•
Beef meat as sensitive product
Reduction: 23 % in stead of 70 %
Tariff quota: 207.000-403.000 ton
Extra import with full tariff: 380.000 ton
EU-price
60
13,0
13,0
World market price 5,1
5,1
Fixed tariff
3,7
2,8
Import price
8,8
7,9
Protection
68 %
61 %
Fob + freight cost, euro/kg, april 2008
Poultry sector
61
Import poultry meat
• Impact Dollar-euro exchange rate
62
EU-price
1,70
1,70
1,70
Dollar-euro exchange rate
0,64
0,8
1,0
World market price
1,00
1,25
1,55
Fixed tariff
0,33
0,33
0,33
Import price
1,33
1,58
1,88
Protection
78 %
93 %
111 %
Fob + freight cost, euro/kg, april 2008
Arguments against WTO
63
• Not a balanced agreement
• The agricultural sector in most countries pays a
high price
• Why sacrifice own production capacity for imports
• Societal demands are not met
• European model of agriculture can not be met:
agricultural production throughout Europe
• This can hardly be called a development Round:
what with agriculture as driver for economic
development