Agriculture The Common Agricultural Policy Outline o

Agriculture The Common Agricultural Policy

Outline o Economic & legal framework n n n o CAP management and financing n n n o Management Financing of the CAP Common market organizations The principles of the CAP n n o Rules of the Treaty The first common market organizations CAP reforms Agricultural prices and product quality External wing of the CAP Structural policy n n EAGGF-Guidance and socio-structural measures Support measures for CAP reforms 2

The “best example” of integration o Wide-spread state interventions prior to 1958 n o Extremely complicated: n n o o Strong Community intervention was needed to ensure free trade Common prices, common price management instruments, joint financing of support measures and common external protection Exchange rate fluctuations “green currencies” + MCA Two wings of Common Agricultural Policy (CAP): n Common market organizations n Socio-structural policy Decisive characteristic: Prices play the pivotal role, the interplay of supply and demand has never totally been squeezed out of the market 3

The need for CAP o The very nature of agriculture n n o Complementary character of the output of MSs n n o o The outstanding role of Mother Nature The social importance of a smooth supply Northern States: cereals, meat, dairy products Southern States: fruit & vegetables, wines Governments are obliged to ensure the meeting of demand MSs had a combined deficit in agricultural products Different shares of agriculture in employment and in the production of GDP in various MSs Differing levels of interventions in the various MSs 4

Rules of the Treaty o Art. 33 of the Rome Treaty: n n n o Art. 34: Common market organizations: n n n o o o Higher agricultural productivity Guarantee of a fair standard of living to farmers Market stabilization Supply security Reasonable prices for consumers Common coordination rules Compulsory coordination of the various national market organizations European market organization (this form became exclusive) Rules of competition applied to agriculture (1962) Art. 81 -82: exceptions – cooperatives and farming associations Art. 85: rules on state interventions applied in the case of CMOs 5

The first common market organizations o o o 1958: Conference of Agricultural Ministers in Stresa Proposals for the Council in late 1959 “Agricultural Marathons” – negotiations on individual CMOs: n n o o By 1962: cereals, pigmeat and poultry meat, eggs, fruit and vegetables, wines By 1963: rice, beef, veal, dairy products 85% of agricultural output of the six MSs CAP required Commission to take over control of the MSs’ expenditure under the CMOs – delays Policy of “empty chair” – solved in the Luxembourg compromise on January 28, 1966 Agreement on financing of CAP could be reached (1966) 6

CAP reforms – 1 o o o End-1968: Structures come to the focus of the Council’s attention Memorandum on the reform of agriculture in the EEC: Agriculture 1980 (Mansholt plan) Marathon sessions April 1972: Directives on the first reform of the CAP n n modernization of farms measures o o o to encourage cessation of farming and the reallocation of utilized agricultural area for structural improvement provisions for the acquisition of occupational skills for persons engaged in agriculture mountain and hill farming processing and marketing of agricultural produce 7

CAP reforms – 2 o 1988: second CAP reform – Delors I package n reformed the common agricultural policy o o o n n o market related measures (maximum guaranteed quantities) co-responsibility levies measures for afforestation diversification of agriculture incentives for the set-aside of farmlands set the level of agricultural expenditure reformed the support policy of the EEC, including the Structural Funds Results: too small n n productivity improved in farming output increased in spite of restrictions 8

CAP reforms – 3 o May 1992 – third reform (Mc. Sharry): n a substantial cut in the target prices of agricultural products o n n full compensation of farmers by premiums not linked to the quantities produced (“decoupling”) measures limiting the use of means of production: o o o n n n to increase their competitiveness both in- and outside the EC set-aside of arable land withdrawal of part of the land for major crops limits on livestock numbers per hectare of fodder area measures to conserve environment and landscapes encouragement of early retirement of farmers switching the use of farmland for other purposes (afforestation and leisure) 9

CAP reforms – evaluation o They reflect the changes in the supply situation: n n n o Aids to farms not only through price support n o instead of net importer net exporter the Community is seeking to increase production only in areas where the extra quantities can find an outlet progressive reduction of producers’ prices for certain key products (cereals, milk and beef) compensations & premiums Mc. Sharry reform n n demonstrates the EC’s willingness to liberalize (GATT), while conserves the principles and basic instruments of CAP 10

CAP management o o The institution entrusted with the management of CAP is the Commission (initiator, –often– legislator, executor) Special Committee on Agriculture (instead of COREPER) Management: either joint responsibility of Commission & Council or of Commission alone In case of basic regulations: full procedure is applied n o Long lasting provisions: medium procedure n o Commission Council (no consultation) decision Practical decisions: management committee procedure n o Commission ( professional organizations) Council EP + ESC Commission management committee, decision Everyday business (eg. daily setting of levies): Commission 11

CAP financing: FEOGA o o FEOGA managed by Commission – through “agents” in MSs advance payments, annual clearing of accounts Guarantee section (market policy): n n o Refunds for exports to third countries, Operations on the internal market (purchases, aid and premiums for production or processing, storage) Monetary compensatory measures Aids to developing countries Guidance section (structural policy): n n Only partial financing Complements national aid Projects have to be submitted and meet criteria Generally 25% of expenditure (up to 50%) 12

Common market organizations o Relate to agricultural products n n o Products of the soil, livestock products and fishery products + products of first-stage processing Foodstuff are products of second-stage processing – not covered Two basic systems of subsidies: n Direct income aid (traditionally in UK) o o n Price subsidies (in the founding MSs) o o n Few import and importers Internal prices are not higher than world market prices Internal prices (much) higher than world market prices The difference compensated by import levies and export refunds They stimulate production and productivity Tend to guarantee self-sufficiency Mc. Sharry reform: added the first to the second type 13

The principles of CAP o Market unity n n n o Community preference n n n o Products of Community origin are bought in preference to imported products Import made artificially expensive: levies customs (GATT) Potential export tax to keep supply in the EC (in case of shortage) Financial solidarity (1962) n o Free movement of goods + Common agricultural prices throughout the Community Is based on the assumption of the interplay of market forces Common expenditures (FEOGA), common incomes (levies) Co-responsibility – n n Limits on subsidized quantities Stabilizers – maximum guaranteed quantities of intervention 14

Price “categories” in the CAP o The role of agricultural prices in the EEC: n n n o Guide production Trigger intervention mechanisms Secure common external protection The main types of agricultural prices (to be continued!) n Guide price (beef and veal, wine) target price (cereals, sugar) norm price (tobacco) o o n The price the CMO seeks to guarantee Set for each year guide production Intervention price (cereals, sugar, butter, beef and veal, tobacco) or basic price (pigmeat) withdrawal price for fruit and vegetables (cannot be stored) o o Somewhat lower than guide price Intervention agencies have to buy products offered to them at this price – storage (often given away as aid) 15

External wing of CAP o o Protecting markets from cheap outside import Keeping prices high: n n o o o Internally – intervention price Externally – threshold price Threshold price (cereals, sugar, dairy products, olive oil) or sluice-gate price (pigmeat, eggs and poultry): minimum price above which imports from third countries enjoy free entry Import levy: bridging the gap between world price and threshold price customs duties (GATT) + 20% cut in the level of internal subsidies over 6 years Export subsidies: 36% reduction in level, 21% in quantities over 6 years 16

Structural policy o What are agricultural structures? n n n o o All production and work conditions in the sphere of agriculture The number and size of farms The technical equipment on farms The qualification of farmers Producers’ groups Marketing and procession of agricultural products The 1968 Memorandum (cf. Slide 6) stated that traditional structures were the most rigid in agriculture CAP focussed on a united market n n Structural measures remained in the hands of MSs Had to be harmonized in order the ensure fair competition 17

EAGGF-Guidance and socio-structural measures o o o At the outset (1962) it was stipulated that guidance should receive ⅓ of the Fund (10% in reality) 1968 Memorandum: The Community should take common measures based on common criteria Reform of structural funds (1988) focuses EAGGF on n o Objective 5 a (adaptation of farm structures) Objective 5 b (development of rural areas) Objective 1 (lagging-behind regions) 1993 reform: n n n Procedures simplified Financial monitoring and assessment systems strengthened Financing through Community Support Frameworks or Single Programming Documents 18

Socio-structural measures – 2 o Adjustments of agricultural structures (Objective 5 a) n n n Market policy accompanying measures, which help reestablish the balance between production and market capacity Measures to support farm incomes and to maintain viable agricultural communities in mountain, hill or less-favoured areas Concrete measures to encourage the installation of young farmers of either sex Measures to improve the efficiency of the structures of holdings and working conditions and promoting the diversification of production, including the production of non- food agricultural produce Measures to improve the marketing and processing of 19 agricultural and forestry products

Socio-structural measures – 3 o Rural development & structural adjustment of lagging-behind regions (Objectives 1), besides the a/m: n n n n The conversion, diversification, reorientation and adjustment of production potential The promotion, quality labelling and investment for quality of local or regional agricultural and forestry products Individual or collective land or pasture improvement Irrigation and improvement of drainage systems Encouragement for tourist and craft investment Development and exploitation of woodlands, protection of the environment and maintenance of the countryside Development of agricultural and forestry advisory services and improvement of agricultural and forestry vocational training Financial engineering measures for agricultural and forestry businesses and for businesses for the processing and marketing of agricultural and forestry products 20

Support measures for CAP reform o o o Introduced alongside the market measures of 1992 Financed by the Guarantee section Favouring the early retirement schemes for farmers and farm labourers n n o o Aged at least 55 whose income would be too low to subsistence 50% subsidy by the Community (75% in Objective 1 regions) Promote the use of land forestry, ecological or leisure purposes Introduce or maintain protection schemes which favour the protection of environment, the landscape and natural resources n Set-aside contracts for 20 years 21

Recent developments o 2003 reform n n o Strengthening the trends of previous reforms Modulation: more subsidy going to rural development Cross-compliance (direct payments made only if ecological and hygienic requirements respected) Single payment – aid allocated to farmers irrespective of their production (national ceilings) Changes in 2007: n n European Agricultural Guarantee Fund European Agricultural Fund for Rural Development – EAFRD (rural development regrouped from cohesion policy to agriculture) 22