Modelling the effects of the Common Agricultural Policy

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Modelling the effects of the Common Agricultural
Policy

• Patrick A. Jomini
• Groupe dEconomie Mondiale (GEM)
• Association of Swedish Chambers of Commerce
• The German Marshall Fund of the United States
• Groupe dEconomie Mondiale (GEM), Paris
• Brussels, 23 June 2009

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• Patrick Jomini is Assistant Commissioner at the
  Productivity Commission (PC) in Australia, and he
  is currently Senior Visiting Research Fellow at
  Groupe dEconomie Mondiale, Paris (GEM). This
  work has involved several colleagues across both
  organizations and he would like to acknowledge
  Pierre Boulanger (GEM) as well as Xiao-guang
  Zhang, our main modeller, Catherine Costa and
  Michelle Osborne (PC) for their invaluable
  contributions to this and the broader project.
• A paper will be available soon on the GMF website
  http//www.gmfus.org and on the GEM website
  http//gem.sciences-po.fr

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Outline

• Effects of the CAP on the EU
• Many transfers, inequities and costs
• Effects on the French economy
• Many transfers, inequities and costs
• Effects of liberalization
• All these costs can be avoided,
• and if you want to know what liberalizing the CAP
  means, you can use the cost estimates provided in
  this presentation they become benefits!!
• Framework what did we do?
• CAP policies modeled, GTAP model, 2007
• But lower bound because
• increased market access in the US and other world
  markets not assessed
• aggregation hides a lot of costs (insights in
  potatoes or fruits and vegetable).

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Benefits, costs and transfers

• Benefits Assess against Treaty Art 33
• Net costs Allocative efficiency
• Transfers to supported EU farm sector

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Simple example of inequity EU border protection
Farm
Food
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Step 1. Results at the EU level

• Resource allocation. There is no free lunch
• Within a country, you protect a sector to the
  detriment of the rest of the economy.
• Countries being a bunch of sectors, you favor
  some EU countries to the detriment of the others
  ? EU15 vs. NMS.
• Efficiency costs
• CAP lowers world farm and food prices
• Urban Africans get cheaper baguettes, incomes of
  rural Africans fall as the price of their output
  falls
• Efficient meat and dairy producers curtail
  production
• CAUTION! What follows assumes no change in US
  farm policy or in any other policy in the rest of
  the world.
• So market access restricted

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Tensions between Member States ( changes in EU
output, 2007)
Opposite effects
Similar but unequal effects
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Tensions between sectors ( changes in EU
output, 2007)
gt70 of the economy!!!
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Efficiency and welfare effects
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Step 2. Digging deeper France

• Border protection lower than EU average Have
  the French worked for the King of Prussia?
• Allocation effects. The CAP works against French
  comparative advantages
• in large crops potatoes
• in diversity (a wide range of varieties) fruits
  and vegetable
• Overall

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Average border protection France vs. the EU ()
Farm
Food
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Reallocation distortions ( changes in French
output, 2007)
Manufactures
Fruit, veg
Livestock
Oil seeds
Services
Forest
Crops
Food
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Efficiency and welfare losses France, 2007
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The French potato story

• 3 per cent of agricultural output
• 11 per cent of fruit and vegetables
• no direct payments, weak border protection
• The CAP reduces the area devoted to potato
  farming in France by 8 to 17
• A similar story is likely for several other fruit
  and vegetables.

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Liberalizing the CAP

• If you want to know what liberalizing the CAP
  might mean, you can use these cost estimates
• They become benefits!!
• But lower bound because omitted
• Increased market access in the US and other
  markets

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Concluding thoughts

• Resources are misallocated
• across sectors and Member States in the EU
• within Member States, including in France
• Sectors farms treated very unequally
• despite changing criteria for entitlements
• Border protection main source of distortions
• to the detriment of many farmers
• in favor of food producers
• Increasing decoupled payments in NMS will
  contribute to maintaining an agricultural sector
  that is too large
• Impact on the rest of the world
• Remember African producers...

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Thank You for Your Attention