23 Mayıs 2008 Cuma

COMMON AGRICULTURAL POLICY OF EUROPEAN UNION - Report II

This student report was prepared for Agricultural Rural Policy of EU Course during my Erasmus Exchange period in University of Helsinki (January-May 2008). I tried to give all the references I benefit from, thanks for their understanding. This report graded as 14/15 by the profesor. For who want to use some parts of this report please indicate in your references as:

Gurkan, O. 2008. "COMMON AGRICULTURAL POLICY OF EUROPEAN UNION:
CHANGES and DEVELOPMENTS BETWEEN 1990-2007, University of Helsinki, MPOL1 Course Report 2. Web site: www.abtarim.blogspot.com

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CHANGES and DEVELOPMENTS BETWEEN 1990-2007


1. INTRODUCTION
Since its establishment EU’s CAP has been to subject to radical changes both in its structure and also in its philosophy. As mentioned in previous report it was necessary for European countries, to overcome the post-war shortcomings in food supply. If we like to summarize the situation of postwar times; reduced rates in production, non-stable markets for farm products and food safety problems. The required act was to establishment of a common ground for agricultural policy with in the European Community. It was not so easy because policy and farms structures were diverse from each other. On the other hand, as stated by Vihinen [1] many other interpretations have been given related to the needs of the establishment, in a general framework these were:

- Agriculture was the major employer and there was a great need to improve incomes in the sector,
- West Germany was interested on France’s industrial market and France was interested on Germany’s agricultural market,
- If agricultural policy remained in the hands of Member States, it would undermine the common policies of other sectors. Different price levels will result the countries with low price levels would have competitive advantages.

So, at the beginning CAP was introducing production, trade and market oriented view [1] and it was designed to encouraging better productivity in the food chain, so that consumers had a stable supply of affordable food, but also to ensure that the EU had a viable agricultural sector [2]. As believed so far, overcome of the problems and shortcomings of disadvantage regions and family farm structure would be possible by increasing the productivity [1].

The CAP was very successful in meeting its objective of moving the EU towards self-sufficiency, by the 1980s the EU had to contend with almost permanent surpluses of the major farm commodities, some of which were exported, others of which had to be stored or disposed of within the EU [2]. However, growing surplus problems, negative reflections of the EU’s high protection in trade in world trade arena, increasing social arguments about the impacts of high input farming and rural development and the enlargement of the Community through the Southern, Nordic, Eastern countries made EU’s CAP subject to many reforms.

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Figure 1: The CAP : from Past to Present[9]
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Today's with complex structure and specialised measures CAP is not just focused on economical and political dimension but also cares about the social life of its citizens. Health and environmental issues, animal welfare and the consumer demands are taking very important place in the policy. EU socializing its rural areas to set up a sustainable life for farmers. In this report the main developments and changes in the Common Agricultural Policy of EU will be described.


2. CHANGES and DEVELOPMENTS
2.1. Milestones until 1990
First reform movement started in year 1968, by the Commissioner Mansholt’s introduction of his reform plan. So-called Mansholt Plan, was introducing a structural policy changes which meant focusing on agricultural factors of production rather than production and rather than thinking in terms of different products, their prices and produced amounts. The plan was mainly constructed on production factors: Labour, land and capital [1]. However plan had been subjected to resistance and not accepted as the proposed form, it brings 3 new socio-structural directives (modernisation of farms, relocation of utilised agricultural lands for structural improvement, and guidance service and retraining of the persons works in agriculture)

Then in year 1973 the improvement memorandum that brings the environmental protection to the sunlight in the CAP. These followed by introduction of the fourth socio-structural directive related to the Less Favourable Areas (mountain and hill farming). This document differs with regional and sectoral interest while others were horizontal and it was very first time that territorial approach was used in agricultural structural policy, and concept of discrimination between regions [1].

With the joining of new member states (Denmark, Ireland, UK, and followed by Greece, Spain and Portuguese) new agenda has started. Introduction of Integrated Development Programmes and Integrated Mediterranean Programmes the idea of overcoming the regional discrimination and develop and modernization of the socio-structural differences strengthened.


2.2. Changes and Developments: from 1990 to 2007
A) MacSharry Reform (1992)
Commissioner MacSharry’s reform package is shown as the first major reform in the CAP. Impact of the reform package was very important and it has been model for following reforms. In a General overview, the support prices levels were reduced for major products and payments were performed as direct payments, which compensated farmers for the resulting loss of income [3][4] and also introduced accompanying measures: early retirement scheme (farmers over 55 years old), an agrienvironment scheme and a scheme for afforestation, designed to reduce production capacity and to improve the structure of farming [1][3][4].

The main idea of the reform was, reducing the interventions to market supply and demand equilibrium as much as possible, so over a 3 year cut-off phase for major products but in the core cereals (30% in 3 years) and beef (15% in 3 years) intervention prices were foreseen to bring the prices closer to world market levels. Reductions in support prices were changed to direct income where the farmers are paid per hectare and livestock, based on historic average yields and base area per region and fixed number of animals based on herd size and limited quota [1][3][4][5]. Reform package was also including quota reductions for milk production (5% in 3 years) [5] (however, regarding to the literature these measures were forgotten soon [1]) and butter. The 1992 reform introduced a set-aside scheme in the arable sector, which allowed the Commission to curtail the arable area and gain control of surpluses in that sector. It’s also obvious to talk about the influence of GATT on MacSharry reforms, fore example the oilseed sector that was subjected to long running discussion within Community measure of the reform the cereal and oilseed producers had to take 15% of their land out of production to qualify for the compensation [1]. (As stated in the literature ”the community preference was installed for cereals, milk, beef and sugar but due to the European animal feed lobby and US feed was ommited from the list and became duty-free. Farmers then began to focus on products supported by the CAP annd to buy cheap imported feed. Feed producers increased their imports.” and continues as ”As a result, the system soon began to generate surplusse, not only animal products but also in cereals, as land that would normally have been used for fodder production was sown to cereals which feed feed producers refused to buy at the European guaranteed price.” Litreature states that between 1964 and 1987 Commmision introduced oilseed levys to erase the negative impacts of earlier actions and the growing production and related oilseed regulation was ruled as uncompatible under GATT [6].)

The reform package was not including other major products like sugar, fruit and vegetables, wine, olive oil, pork and poultry. Regarding to the Vihinen’s opinion [1] it strengthen the the status if environment and rural issues on the agenda, established direct income subsidies, however, the reform left the core of the old CAP, commodity regimes and price guarantees almost untouched. Author also states “the old core just lost only little force, but the cost of policy has moved more from consumers to taxpayers”.

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Figure 2: Evaluation of the CAP [1]
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B) Agenda 2000 (1999)
During the Extraordinary European Council in Berlin, in regard to largest enlargement (through Central and Eastern European Countries including Malta and Southern Cyprus) of all the times, new reform package for CAP so-called Agenda 2000, was introduced. Overall aims were reinforce agriculture’s competitiveness, to review the manner in which the CAP is financed, to give greater emphasis to environmental and consumer health policy objectives, and the multifunctional role of the European model of farming [3] [7].

“The main focus was on financial prospects in context of next enlargement during the establishment of the general Framework of the Agenda 2000” as stated by Girard-Vasseur and Vergnaud [7] and it was in line set with MacSharry reform [1]. In the framework of this reform, Commission tend to the direct income payments and rural development policy by strengthening the 1992 reform. Girard-Vasseur and Vergnaud [7], grouped the measures taken under Agenda 2000 under 3 maincategories:

- cuts in intervention process with shortfall in receipts for farmers offset by income subsidies,
- revision of the financial contribution made by Member States, to reduce existing imbalance in the prospect of EU enlargement,
- introduction of a more direct link between internal financial aid and compliance with environmental criteria

If we like to detailed above mentioned measures as formulized by Varol [4], it is easy to recognize the stress on rural development (to foster the farming techniques that contribute to protection and enrichment of rural environment and landscape, to contribute to obtain sustainable income levels by supporting the economical development in rural areas) and environment. And regarding to his studies the tools foreseen to obtain this results are: reducing the guaranteed price levels, fostering the environmental friendly farming techniques, adoption of integrated rural development approach, and focusing on quality to obtain highest food safety and quality standard demands of the consumers.

So with these measures, Agenda 2000 reform package was also introducing the idea of an integrated rural development policy as a second pillar of the CAP [3] as mentioned in the literature [3] where compensatory allowances under the less favoured areas measure, as well as rural development measures previously financed by the FEOGA Guidance Fund, into a single Rural Development Regulation.

Within the reform package new reductions on the institutional prices of cereals (15%), beef (20%) and dairy (15% begin form 2005) products were foreseen and direct payments were increased.

During the discussions in Berlin a ceiling figure has been determined covers all agricultural spending until year 2006 [3][4][7][8]. Taken measures were important step not just for to fasten and facilitate the integration of the new Member States but also would be strengthen the position of EU during the forthcoming WTO negotiations.

Vihinen [1], summarized the timeline begins from 1992 with MacSharry reform till the end of Agenda 2000 reform as a period where policy measures broadened gradually from products to production factors, and from the goal of productivity increase to production control and supervising of production reduction.

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Figure 3: Changes in CAP payments [8]
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C) Mid Term Health Check For Agenda 2000 and 2003 Reform
During the Commission meeting in Berlin assessing the mid-term impacts of the Agenda 2000 foreseen and between 2002 and 2003. The “full decoupling’ was and still in the core of the 2003 reform.

When we have general a look to main measures adopted the very first one was the introduction of Single Payment Scheme, which sets a payment program for a single farm independent from production rates. This measure allows farmers to designate their production components regarding to the market opportunities. Also this system brings a more transparency to income supports [4]. Second important introduction was the dynamic modulation, meant obtaining more funds under second pillar by money transfer from first pillar [4][8]. Third important measure was the adoption of the cross compliance, which reducing and controlling the negative impacts of agriculture on environment, food safety, animal health welfare and also determining standards for worker security. Furthermore this measures was thought as additional support for the farmers who voluntarily taking these measures in to account.

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Figure 4: Farm Expenditure – EAGGF Guarantee Section - by type of expenditure [8]
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D. Reforms after 2003
As stated under the literature, Reforms are ongoing process for CAP. The new development and changes done under 2003 reform, followed by small product based reform packages has implemented on Common Market organization of the Agricultural products [8].

In year 2004 so-called Mediterranean Products (olive oil, tobacco, cotton) and hops [8]. Followed by sugar reform in 2005/2006. Then in year 2007 Fresh Fruit and Vegetable CMO was under reform studies. At the same time the Wine CMO has been subject to reform studies, which still continues [8][10].

On the other hand, in year 2006 a new Environmental Action Program was introduced (6th EAP) under Environmental Policy, and this program introducing very important changes which will directly affect the agricultural production (like reducing the pesticide usage, or banning the aerial spraying and obligatory use of the Integrated pest management principles in farming under the thematic strategy on sustainable use of pesticides).


3. CONCLUSION
The EU’s CAP since the date it was established, it always have been in the centre of the discussions and arguments. Sometimes the high percentage of the budget allocation, sometimes the increasing surpluses then with parallel to the increasing public awareness the negative impacts of CAP on environment and health and the developing ideas through the corporate social responsibility. These arguments increased during every enlargement process and will continue to increase. And the Commissioners always answered them by introducing radical changes like decoupling, cross compliance, Food safety standards, introduction of the nitrate directive, rural development programs (leader+).

The world is developing very fast, conditions are changing developed countries can answer these winds, they can format of their trade and production policies and develop new measures to protect their selves with new invented hidden trade barriers like phytosanitary checks or quality standards but how long can these barriers overcame by the less developed countries.

EU, at the moment using a quote as they are supporting the developing countries for establishment of better and more equal world. So, maybe the new era in front of the EU will bring a new must to include the 3rd world into their reform packages.


REFERENCES

[1] Andersson, K. et al (eds.): Rural Development as Policy and Practice. Chapter 2 by Hilkka Vihinen.

[2] Anonymous, 2004. "The Common Agricultural Policy Explained", European Commission Directorate General for Agriculture.

[3] Anonymous, 2005. Trinity College Dublin, College Green, Website: http://www.tcd.ie/iiis/ policycoherence/index.php/iiis/eu_agricultural_policy_reform/the_cap_reform_process


[4] Varol, S. 2003."Dünden Bugüne OTP ve AB Tariminin Yönetim Yapisi" AB Genisleme Sürecinde Türkiye: "Tarimsal ve Kirsal Politikalar" Semposium. Chamber of Agricultural Engineers Website: www.zmo.org.tr/etkinlikler/abgst03.php


[5] Hasha, G. 1999. "The European Union’s Common Agricultural Policy: Pressures for Change - An Overview", Economic Research Service/USDA.


[6] Anonymous, 2003. “Animal Feed: A Key Common Agricultural Policy Issue”. European Farmers Coordination.


[7] Girard-Vasseur, M. and Vergnaud, E. 2001. “Common Agricultural Policy: The Required Reforms”. Conjocture June 2001. p:14-23.


[8] Anonymous, 2007. “The Cap And International Trade Negotiations”, EU Commission External Trade.


[9] Trarieux, J-M., 2007. « Farm Policy Reform: The European, Experience ». American Farm Bureau Federation Annual Convention. Presentation.


[10] Anonymous, 2007. European Union Offical Website: www.eurpopa.eu

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