Common Agricultural Policy ReformCommon Agricultural Policy Reform

Ciaran Gannon, Rural Development ServiceYork and North Yorkshire Research Forum

Harrogate , 5th February 2004

“..the beginning of a new era..” Dr Franz Fischler, 26th June 2003

CAP Reform….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..

Foundation of the CAP 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

1957 Treaty of Rome agriculture a special concern:

low incomes declining rural areas high share of employment & consumers expenditure food security strong political lobby

(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

CAP Objectives CAP Objectives

“FORTRESS EUROPE”

3 main elements of CAP agricultural support and protection

3 main elements of CAP agricultural support and protection

Domestic Support: Intervention BuyingDomestic Support: Intervention Buying

Supply Management:Export Subsidies

Supply Management:Export Subsidies

Market Access: Import Tariffs

Market Access: Import Tariffs

• 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...

CAP Impact... CAP Impact...

An example of CAP impact on LDC..An example of CAP impact on LDC..

• 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.

impact of dumping surplus production milk regime & the Jamaican dairy sector

impact of dumping surplus production milk regime & the Jamaican dairy sector

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….

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….

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…

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…

Back to the CAP

how has it responded to problems in the past ?

Back to the CAP

how has it responded to problems in the past ?

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

Slowly but with some effect.. Slowly but with some effect..

The emergence of ‘pillar 2’ and the ‘green box’….!The emergence of ‘pillar 2’ and the ‘green box’….!

World Trade Organisationsupport boxes & EU CAP

Amber Box Blue Box Green Box

Trade & ProductionDistorting

•Intervention Buying•Refunds to Export

•Import Duties Charged

TO BE OUTLAWED

20% CAP Budget

Production Linked

•Arable Area Payments,

•Livestock Headage Payments

TEMP. ALLOWED

Production Neutral

•Rural Development Regulation, incl.

•Agri-environmental schemes and Hill Farm

Allowance

ALLOWED

70% CAP Budget 10% CAP Budget

CAP Pillar 1 - 90% CAP Pillar 2 - 10%

CAP Movement since 1992: Amber to Blue box (McSharry) to Green box (Agenda 2000) support

• 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….

Agenda 2000 (the last CAP reform agreement)

Agenda 2000 (the last CAP reform agreement)

WTO agenda increases the political pressure for

reform…but

budgetary concern is another key driver for change, all the more

pressing with an enlarged EU….

CAP Cost - €42 billion +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….

…on 1st May 200410 New Member States

(with 4 million farmers)

plus Romania and Bulgaria

in 2007…!

…on 1st May 200410 New Member States

(with 4 million farmers)

plus Romania and Bulgaria

in 2007…!

Employment in agriculture..UK - 4 @ 2%

EU - 15 @ 4.3%CC - 12 @ 22%

Employment in agriculture..UK - 4 @ 2%

EU - 15 @ 4.3%CC - 12 @ 22%

The new Member States are hoping that CAP can deliver…!The new Member States are hoping that CAP can deliver…!

From a UK Perspective has CAP delivered?From a UK Perspective has CAP delivered?

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

sector...

0

1

2

3

4

5

6

7

8

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

0

1

2

3

4

5

6

7

8

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

UK Farm Incomes 1973 - 2002

Momentum for CAP reform..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….

SoS statement 26th June 2003SoS 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

Reform should.. legislative text January 2003

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