CAP and the Eastern Enlargement

1. CAP and the Eastern Enlargement Presented by: Tanya Obushtarova Nadya Petrova Vera Shopova

2. What is CAP, in a nutshell? • It was introduced in 1957 by the Rome Treaty • What its founders had in mind was to: • increase agricultural productivity • ensure a fair standard of living for farmers • stabilize agricultural markets • ensure availability of food supplies • ensure that consumers pay fair prices for agricultural products

3. CAP development • Impressive introduction: 80% of the EU budget and the ‘blessings’ of the price-support system • Pressure for reforms: • Market interventions - purchases of the excess supply, storage and export subsidies to EU member states. • Direct payments - subsidies per hectare or per animal at the intervention price level (MacSharry 1992) • Compensation for the declining market support payments (Agenda 2000) • Single payment scheme or ‘decoupling’ - Fischer reform (2003) • Rural development (2004)

4. The change in the distribution of CAP

5. CAP and estimated costs of enlargement • Costs lower than initially expected: • Projected costs before Enlargement €10 and €15 billion • Incurred costs: €9 to €13 billion annually • 2007-2013, the Commission proposed €88.75 billion for the new single Rural Development Fund – just enough to cover rural development and market support expenditure • Difficulty to finance Direct payments – modulation payments system

6. CAP Reforms • MacSharry (1992) – intervention price reduction • Agenda 2000- direct payments as a compensation for price reduction • Fischer reform (2003) ‘De-coupling’ Quantity control – quotas From a direct payments system to a single payment scheme

7. Fischer reform 2003 • De-coupling: partial subsidy distributed by acre of arable land not by production • Reduction of supply surplus and environmental pollution • Reduction of production leads to higher prices in NMS and competitive disadvantage

8. De-coupling continuation… • Direct aids to farmers from national budgets to compensate for the incurred losses (restricted to 30% of EU subsidy) • freedom in choosing in which part of the country to concentrate the national ‘coupling’ subsidies

9. Cross Compliance policy Eastern Enlargement is a potential threat to environment if surpluses aren’t reduced Direct CAP subsidies closely related to environmental protection, food safety, animal health and welfare CAP direct payments to be reduced or denied to farmers who don’t comply with the requirements 2 year grace period for NMS to adapt

10. Financial Discipline • Established to keep CAP spending within Budget allocation up to 2013 – especially for market support • Excess expenditures – safety margin of €300 million = reduction of direct payments • keep prices low and reduce CAP inefficiency • keep overproduction and surplus down

11. Rural Development • Transfer of funds from direct payments to rural development • NMS benefit the most of it • Development of rural areas • Renovation of agricultural sector • Access to information and exchange of good practices • Direct payments reduced and now subject to strict regulations – single farm payments

13. Some absurdities about CAP “The annual dairy subsidies given by the CAP and the European governments put together come to more than $800 per cow. That is greater than the individual income of half the world’s population including more than one country from the former Soviet Union.” European commentator, William Rees-Mogg

15. Take a look at the headlines: CAP- ‘the single biggest impact on the European environment, our landscape, our policy towards the non-industrialized world and the amount of money in our pockets’ Listen to Blair: CAP-an absurdity: “40% of the EU budget goes on agriculture but it employs only 5% of the people” “an outdated, irrelevant and unfair system of subsidies for a special interest group (farmers)” Butter mountains have melted away, but what of the future of agriculture in Europe?

16. Implications to EU-10 • The EU-15 initial stance: exclude the NMS from the direct payments (to compensate farmers for price decreases due to market liberalization; farm prices in CEEC-lower than in the West, so the extension of the CAP would result in price rises, not drops) • The compromise: EE farmers-25% of the levels of direct payments to WE farmers, that share to rise gradually to 100% by 2013 • The unknowns: world prices for farm goods and future decisions on of CAP reform (Doha world trade talks and EU budget review in 2008-09)

17. Implications continue… • Some food products, such as sugar, became more expensive as the CAP was fully extended to the NMS • The EU 2007-13 budget still allocates half of all structural funds to richer EU countries • The EU-15 to cap the flow of funds to NMS at 4% of their respective GDPs because the newcomers’ lack of capacity to ‘absorb’ larger amounts • NMS will not receive the same level of EU farm subsidies as France, Denmark or Italy until 2013

18. Current CAP-not to the advantage of the NMS • Share of non-direct payments (rural development funds) remains small at 10-15% of total CAP spending • Disproportionate distribution of benefits to large agricultural enterprises: 80% of all CAP money goes to 20% of the biggest farmers • The average farm size in the NMS is much smaller than in the EU-15 • Most NMS farms are subsistence ones and are too small to qualify for any support

19. ‘Taking from the poor and giving to the rich’ criticisms and resolutions • Despite some last-minute amendments, the impression persists that the old EU was trying to achieve enlargement ‘on the cheap’ • The NMS will be able to ‘top up’ both regional aid (through more generous state subsidies to the poorest regions) and CAP payments (through co-financing direct payments from their national budgets)

20. NMS payments to the English nobility   Richard E. Baldwin, source Eurostat

21. Pressing issues that need to be resolved • CAP serves neither consumers nor small farmers • It produces negative externalities to the environment • The EU export subsidies, literally, annihilate industries in the Caribbean, Brazil and other banana-type countries • The EU grain dumping has devastated the poorer parts of the world • In spite of the current reforms the EU failed on issues such as fair trade, sustainability and value for money

22. What lies ahead? • More enlargement and more trade liberalization means more pressure to further reform CAP • The battle over CAP might turn to a battle over the future of Europe • The system of fixed price undermines EU active role in the WTO and in the economic development of poor countries • The economic challenges of globalization cannot be met effectively under the current budget • The EU must set its priorities on environmental protection and rural development

23. Unless you ‘suffer’ from Eurosclerosis or pastoral romanticism, you should already question the CAP!