The Common Agricultural Policy

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The Common Agricultural Policy

• State of play
• Franz Fischler

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Yesterday...

• Before November, talk of reform limited to sugar
• arable crops exhibited increased competitiveness
• impressive growth in domestic cereal demand
• stock levels historically low, expected to stay
  so
• Livestock sector more vulnerable, but...
• beef intervention stocks reached zero level
• dairy sector faced long-term challenges, but
  short-term is fine
• Yet it was not all about production agriculture
• new rural development programmes approved
• transmission of quality orientation to farmers
  raised questions

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and today!

• What caused the current farm policy debate?
• consumer considerations driven by food safety
  crisis
• assumptions of a specific disconnect between
  supply and demand
• How does the current CAP fit into the picture?
• evidence from the CAP reform process and its
  results
• putting things into perspective (budget, WTO,
  Enlargement)
• Is there a need to change the CAP?
• does the current policy fit its multiple
  objectives?
• implications for mid-term review

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The old realities

• Why is agriculture different?
• Continuous demand
• food availability indispensable on a daily basis
• total food demand is income and price inelastic
• Discontinuous supply
• land and farm labour are fixed in time and space
• weather-induced major uncertainties
• biological cycles in production (e.g., beef,
  olive oil)
• unexpected shocks (diseases, natural disasters
  etc)
• ? Result price (and farm income) volatility

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The new realities

• Why is agriculture different?
• The demand side
• food safety and precaution (risks/benefits under
  zero tolerance)
• environmental impact important (negative image
  prevails)
• method of production also counts (e.g., animal
  welfare)
• The supply side
• increased production costs from demand-driven
  pressures
• uncertain long-term horizon (is reform an endless
  process?)
• increased food chain bottlenecks
• ? Result more price (and farm income) volatility

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Are our policy objectives valid?

• Competitive agricultural sector which can
  gradually face up to world markets without being
  over-subsidised
• Production methods which are sound and
  environmentally friendly, able to supply quality
  products that public wants
• Fair standard of living, income stability for
  agricultural community
• Diversity in forms of agriculture, maintaining
  visual amenities and supporting rural communities
• Simplicity in agricultural policy, sharing of
  responsibilities
• Justification of support through provision of
  services that public expects farmers to provide
• ? But requests by society, reflected in Council
  decisions, generate conflicting trends

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What implications from our objectives?

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

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How do we reach a balance?

• Sustainability is required to balance these
  trends
• But the following criteria have to be met
  simultaneously
• economic sustainability
• environmental sustainability
• social sustainability
• ? We need a Common Agricultural Policy to meet
  these criteria

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What without a CAP?

• downward pressure on farm prices, farm income,
  farm structures
• risk for dual production system partly
  extensive, mainly intensive
• abandonment of agriculture, desertification in
  less favoured areas
• less diversity in forms of agriculture and rural
  communities
• ? Results not in conformity with most CAP
  objectives nor with societys aspirations

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What direction for the CAP?

• CAP is the framework to balance agreed objectives
• But the relevant policy question then becomes NOT
  IF, but HOW to support EU agriculture, with focus
  on
• domestic implications
• efficiency in achieving objectives
• distribution impacts of support
• budgetary implications
• international implications
• compatibility with WTO rules
• impact of policy measures on trade
• impact of trade on policy measures

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Does the CAP meet its objectives (1)?

• Competitive market orientation
• In arable crops and most meats (including beef)
  two reforms within a decade have resulted in
• lowering the gap between domestic and world
  prices
• increasing domestic demand, lowering intervention
  stocks
• stabilising budgetary expenditure via fixed
  payments
• increasing transparency of policy measures
• Some sectors are still lagging behind
• sugar and dairy quota systems raise wider,
  complex questions
• mediterranean products slower to start, but on
  their way
• ? Market-oriented process of reform produced
  successes

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Graph 1. EU wheat policy evolution
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Graph 2. CAP reform and cereal use
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Graph 3. CAP reform and public stocks
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Graph 4. CAP reform and meat exports
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Graph 5. Agenda 2000 and beef support
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Graph 6. EAGGF-Guarantee budget
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Graph 7. EU and US direct payments
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Does the CAP meet its objectives (2)?

• Production methods that promote quality
• Rural development measures
• Agenda 2000 introduced new, better targeted
  measures
• new orientation decentralisation, flexibility,
  simplification
• better financial framework in place, but only 10
  of budget
• ? Is that enough?
• Agri-environmental measures
• measures consolidated in rural development
  programmes
• incentives to exceed good farming practices,
  cross-compliance
• ? Is that enough?