CAP and EU domestic support

1
CAP and EU domestic support

• Tassos Haniotis
• European Commission
• Cabinet of Commissioner Fischler
• The Agricultural Forum 2002
• Ames, Iowa

2
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)

3
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

4
CAP policy objectives

• 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
• 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

5
Implications from CAP 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)

6
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

7
1. Trade with developing countries
8
2. US-EU agricultural trade
9
3. US agricultural exports to EU
10
4. US agricultural imports from EU
11
5. EAGGF-Guarantee budget
12
6. EU wheat policy evolution

13
7. EU-US wheat policy evolution
14
8. CAP reform and cereal use
15
9. CAP reform and meat exports
16
10. Domestic support the past
17
11. US domestic support the present
18
12. EU domestic support the future
19
13. EU and US payments per farm
20
EU-US comparative conclusions

• Farm support an issue on both sides of the
  Atlantic
• in the EU, it is about how to support agriculture
• in the US, it is about how much to support
  agriculture
• Different responses to different
  considerations...
• in the EU demand-driven considerations drive
  policy debate
• in the US supply-driven considerations drive
  policy debate
• result in different direction of farm policy
• EU focus on improving policy tools under budget
  constraint
• US focus on maximising budget outlays with fixed
  policy tools
• ? Yet all policies will have to meet same WTO
  constraints